Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘FCPA’
Nov 26
2012

New DOJ Guide on FCPA Provides Guidance, Gives Statute a Broad Reading

After much uncertainty and discussion, the U.S. Department of Justice has finally issued official guidance regarding who qualifies as a “foreign official” under the Foreign Corrupt Practices Act (FCPA). This guidance was published on November 14, 2012, in the Resource Guide to the U.S. Foreign Corrupt Practices Act, a broad guide to enforcement and interpretation of the FCPA that the DOJ issued jointly with the Securities and Exchange Commission.

As expected based on the DOJ’s previous interpretations of the term, the Guide provides a broad definition of “foreign official” by stating that the term encompasses “officers or employees of a department, agency, or instrumentality of a foreign government.” This definition imposes few restrictions on whom the Department will consider a “foreign official” and stretches the term far beyond its obvious and limited meaning.

Much of the confusion regarding “foreign official” status arose from government-affiliated entities that fall in the hazy middle ground between government agencies and private entities. Often this uncertainty surrounds services such as telecommunications, banking, and the aerospace industry, in which a government has some degree of ownership in the entity but may not completely own or control it. In those cases, the Guide clarifies that although the DOJ uses a multifactor test to determine whether an entity is a government instrumentality, it is most likely to pursue cases in which a government has a majority ownership stake. However, it acknowledged that there may be rare cases in which a government that owns only a minority stake nevertheless controls the entity through veto power, political appointees, or other means, in which case it will still be considered a government instrumentality.

Even though the very term “official” denotes a certain degree of authority within an organization, the Guide makes clear that the FCPA “covers cor¬rupt payments to low-ranking employees and high-level officials alike” in government departments, agencies, or instrumentalities. Therefore, corrupt payments to anyone within these organizations will bring the case within the FCPA’s bounds, regardless of their status within the organization or their ability to control or influence the instrumentality.

Although the new Guide states that its advice is “non-binding, informal, and summary in nature,” it is the best indication of how the DOJ plans to implement and enforce the FCPA. So while the content of the Guide essentially affirms the stance that the DOJ has assumed in existing cases, it does provide a foundation of guidance for organizations to rely on in their contacts with foreign entities. Unfortunately, this guidance will largely serve to dissuade companies from creating beneficial partnerships for fear that they might accidentally implicate FCPA concerns. As we have discussed previously on this blog, we hope that the courts will weigh in on this issue and find a more reasonable interpretation of what constitutes a “foreign official.”

Oct 17
2012

DOJ Opinion on Key FCPA Issue Makes Sense, But What’s Next?

We have previously advocated for the Department of Justice to employ a more narrow reading of the term “foreign official” in the Foreign Corrupt Practices Act. Therefore, we were pleased to see that the DOJ recently issued an opinion that parsed the definition and came to the conclusion that a member of a foreign royal family was not a “foreign official” under the FCPA. Although this is a positive development, it somewhat conflicts with the DOJ’s prior opinions and accordingly will probably serve to further muddy the FCPA waters.

In February 2012, an American lobbying firm approached the DOJ to request an opinion regarding the FCPA implications of its proposed partnership with a foreign consulting group. The consulting group was to act as its sponsor in providing lobbying services for the unspecified foreign country’s embassy in the U.S. The lobbying firm was concerned that this arrangement might implicate the FCPA because the foreign consulting group was owned, in part, by a member of the foreign royal family.

On September 18, the DOJ issued a statement finding that the royal family member was not considered a “foreign official” under the FCPA. The DOJ stated that, “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (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.”

As the DOJ explained, in this instance the “Royal Family Member holds no title or position in the government, has no governmental duties or responsibilities, is a member of the royal family through custom and tradition rather than blood relation, and has no privileges or benefits because of his status.” The DOJ concluded that, “the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member 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.”

The DOJ surprised us by undertaking a reasonable, thoughtful, and fact-intensive analysis in finding that the royal family member was not a foreign official. However, the new standard invoked by the DOJ conflicts with the broad reading of “foreign official” that the DOJ has previously applied, which encompasses even employees of state-owned communications companies. Surely a telecom employee does not exert much control or influence “over the levers of governmental power,” nor would his government characterize him as having “governmental power.” Yet the DOJ found telecom employees to be foreign officials.

We applaud the DOJ for taking a reasonable approach in determining whether the royal family member is a “foreign official.” We encourage the DOJ to apply the same three factors every time it analyzes who is, and is not, a foreign official.

 

 

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Sep 14
2012

Eleventh Circuit Case Will Test DOJ’s Broad Reading of FCPA

The Foreign Corrupt Practices Act (FCPA) prohibits the bribing of foreign officials. While that may seem like a straightforward concept, previous posts on this blog have shown that the precise definition of who constitutes a “foreign official” has long been the subject of much uncertainty, debate, and litigation.

The FCPA defines a “foreign official” as an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The Department of Justice takes a broad view of this definition, consistently using the FCPA to prosecute individuals who allegedly bribed employees of state-owned companies that act merely as commercial entities, such as utility companies, rather than those that act as a sovereign.

For the first time, a U.S. court of appeals is considering a case that tests this question. An appeal in the Terra Telecommunications case, previously discussed in a post on this blog, is currently pending before the U.S. Court of Appeals for the 11th Circuit. The defendants in that that case, Joel Esquenazi and Carlos Rodriguez, are former executives at Terra Telecommunications. They were convicted of bribing officials at the state-owned telecommunications company Haiti Teleco.

Prosecutors successfully persuaded the trial court that Haiti Teleco was an “instrumentality” of the Haitian government, thereby making its employees “foreign officials.” However, on appeal the defendants are asking the court to find the word “instrumentality” in the FCPA unconstitutionally vague and ambiguous. The Justice Department filed a brief on August 21, 2012, arguing for a broad reading of the term “foreign official.”

The defendants’ argument is not novel. For years, businesses and legal groups have been seeking guidance on the definitions of “foreign official” and “instrumentality” under the FCPA. In February, a coalition of businesses and organizations sent a letter to the DOJ seeking clarification of those terms. The letter highlighted the concerns that without proper guidance, businesses suffer uncertainty and risk when trying to comply with the FCPA because the authorities take a “highly fact-dependent and discretionary approach” in interpreting the terms.

Despite the DOJ’s long-standing position that the FCPA is not vague, it has announced that it will release new guidance this year on the act’s criminal and civil enforcement provisions. While the guidelines will provide clarification and guidance to businesses, they will almost surely perpetuate the DOJ’s absurd position that it can pursue employees of commercial entities merely because the companies are state-owned. This is clearly not what Congress intended in enacting the FCPA. Last year, FCPA expert Michael Koehler pointed out that the DOJ’s legal interpretation of “foreign official” is “the functional and substantive equivalent of the DOJ alleging that General Motors Co. or American International Group Inc. is an ‘instrumentality’ of the U.S. government (given its ownership interests in these companies) and that all GM and AIG employees are therefore U.S. ‘officials.’ ”

We hope that the appeals court will accept these arguments and will find that this case does not implicate the issues that the FCPA was designed to address. The courts need to keep the DOJ in check and prevent it from abusing its authority by prosecuting individuals under statutes that Congress did not intend to apply to them.

Apr 24
2012

Worst Part of Wal-Mart Bribery Case Is Failure to Conduct Proper Investigation

Over the weekend, The New York Times broke a major story, publishing a highly detailed 8,000-word article that seems to indicate that Wal-Mart not only engaged in a pattern of bribery of Mexican government officials in the mid-2000s but also that the company intentionally stifled an internal investigation of the alleged bribery and in fact directed most of its furor against the former employee who blew the whistle on Wal-Mart’s conduct.

The story knocked 5 percent off Wal-Mart’s stock price after it broke, and commentators are talking about possible jail terms for company executives and major fines under the Foreign Corrupt Practices Act (FCPA). Democrats on the Hill are already talking about hauling top Wal-Mart executives to hearings to explain the alleged bribery and cover-up.

We certainly don’t condone unethical or illegal practices, and we have always taken the view that the best way for a company to deal with a bribery scandal is to open a no-holds-barred internal investigation. According to the Times, Wal-Mart originally decided to do just that by hiring the law firm of Willkie, Farr & Gallagher to conduct that type of internal probe, but it instead chose to do a much more limited investigation in which its senior management had direct control over the probe.

From a legal, prudential, and public relations standpoint, Wal-Mart should have stayed with its original plan of bringing in Willkie Farr. A report from a law firm of that firm’s stature, acting independently, would have had instant credibility and would have more readily helped Wal-Mart get past this crisis.

One thing that an internal investigation might have found is that many of the payments by Wal-Mart to foreign officials did not violate the FCPA since they merely facilitated government action, such as the granting of a permit, that would have occurred in any case. We simply don’t know about the nature of each alleged payment – but now, with Congress, the media, and the blogosphere on Wal-Mart’s trail, all we will hear for a while will be how guilty Wal-Mart is.

Regardless of the ultimate outcome, this should remind everyone that the rules for doing business abroad are not the same as in the United States. Sometimes, compliance with U.S. law such as the FCPA is not uppermost in the mind of executives in foreign countries, and it should be.

Mar 01
2012

Dismissal of FCPA Cases Represents Cautionary Tale for DOJ

A dramatic, headline-grabbing white-collar crime sting in January 2010 involved the arrest of 22 executives and employees of companies in the military and law enforcement products industry – and ultimately led only to a series of acquittals and mistrials, causing many to wonder whether the case should have been brought at all. After two trials for a total of 10 defendants that failed to result in any convictions, the U.S. Department of Justice dropped its case against all remaining defendants last month.

The Foreign Corrupt Practices Act prohibits people in the United States from bribing foreign officials for the purposes of obtaining or retaining business. The DOJ press release announcing the sting said that it was the single largest investigation and prosecution against individuals in the 32-year history of the DOJ’s enforcement of the FCPA. The defendants were charged with violating the Act for allegedly agreeing to pay kickbacks to a Gabon minister of defense in exchange for contracts to supply the country’s presidential guard. The deal, however, was a ruse, with FBI agents posing as Gabonese defense officials.

When the DOJ announced the arrests, Assistant Attorney General Lanny A. Breuer promoted these undercover actions as “a turning point,” saying that the indictments “reflect the Department’s commitment to aggressively investigate and prosecute those who try to advance their businesses through foreign bribery.”

While three defendants pleaded guilty immediately, the remaining 19 were to be tried in four separate trials in federal court in Washington, D.C. In the end, the DOJ’s aggressive tactics did not impress the judge or jury.

In the first trial in the summer of 2011, four defendants received a mistrial due to a hung jury. In the second trial of six defendants, defense lawyers argued that the DOJ and the FBI led their clients to believe what they were doing was lawful and disregarded their own DOJ guidance on sting operations. U.S. District Judge Richard Leon dismissed conspiracy charges against the defendants, which ended the case for one defendant, who was only charged with conspiracy.

For the remaining defendants, only the substantive FCPA violation charges were left for the jury’s consideration. In January 2012, jurors acquitted two defendants before becoming deadlocked on the remaining three, resulting in another mistrial. Recognizing that further prosecution would likely be futile, on February 21, 2012, the DOJ requested that the court dismiss the pending charges against all remaining defendants, and stated that it would not seek to retry the defendants who received mistrials.

In dismissing the case, Judge Leon voiced concern regarding the government’s “very aggressive conspiracy theory.” While the judge ultimately applauded the DOJ for “the wisdom, the courage, the conviction to face up to the limitations of this case,” we do not believe that the DOJ should be praised for dropping the remaining cases only after unsuccessfully trying two cases using evidence derived from dubious investigative techniques. We hope that the DOJ will see this entire costly venture as a cautionary tale and will proceed in future cases with justice, rather than headlines, in mind.

Jan 31
2012

Private Suits Under FCPA — An Ill-Advised Idea

Late last year, Rep. Ed Perlmutter (D-Colo.) introduced a bill in the House of Representatives that would amend the Foreign Corrupt Practices Act (FCPA) to permit private suits against certain foreign companies and individuals. The bill, entitled the “Foreign Business Bribery Prohibition Act of 2011,” would significantly alter the landscape of FCPA enforcement, and not for the better.

Perlmutter proposed similar versions of the bill twice before, in 2008 and 2009, and the bill did not make it out of committee either time.

The FCPA prohibits bribing foreign government officials. The proposed bill would amend the statute to allow for private lawsuits against foreign concerns for alleged violations of the statute’s anti-bribery provisions. These lawsuits could be brought by (1) any issuer, defined as an entity that issues securities under U.S. securities laws and its employees; (2) any domestic concern, defined as any U.S. citizen, national, or resident, or any business that is principally located in the U.S. or incorporated in the U.S.; or (3) any other United States person, defined as any person or business entity other than an issuer or a domestic concern. A foreign concern would be defined as any person or entity other than an issuer or a domestic concern. The bill would not allow for a private right of action against issuers or domestic concerns.

The bill was referred to the House Committee on the Judiciary Subcommittee on Courts, Commercial and Administrative Law and the House Energy and Commerce Committee Subcommittee on Commerce, Manufacturing, and Trade. Thus far, no action has been taken on the bill by the subcommittee.

Under the proposed bill, a plaintiff would be able to recover three times the amount of either the contract that the defendant gained or the contract that the plaintiff lost due to the bribe.

Private rights of action to enforce laws are premised on the assumption that there are so many violations occurring that the government needs the help of private parties to identify them. This assumption is not always correct. In False Claims Act qui tam cases, for example, a private party must submit its case to the government for review. If the government declines to intervene as a plaintiff, the private party may choose to continue with the litigation. However, in 2011, only 5 percent of the money recovered under the False Claims Act was in cases in which the government declined to intervene. This gives a strong indication of the merits of the claims being brought by private parties under this statute.

If private parties are allowed to bring FCPA actions, there will be even more meritless litigation bogging down the courts. Furthermore, the ability of private parties to bring these actions can lead to harassing litigation.

In FCPA cases, the government now has the sole option of deciding whether a case should be brought, and this should remain the law. Individuals should continue to report suspected wrongdoing to the government and let the government decide whether the case should be pursued. The Department of Justice has significantly increased its FCPA enforcement in recent years. It does not appear that there is a dearth of possible foreign bribery situations known to the government.

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Dec 12
2011

Judge Dismisses Lindsey FCPA Case, Finding Prosecutorial Misconduct

In May 2011, a federal jury in Los Angeles convicted Lindsey Manufacturing Co., its president Keith Lindsey, and CFO Steve Lee, on foreign bribery charges for their dealings with Mexico’s state-owned electricity utility, Comision Federal de Electricidad. The prosecutors claimed that Lindsey Manufacturing retained Enrique Aguilar, a Mexican company representative, after repeatedly failing to win contracts legitimately – and that the defendants knew that the sales commission they paid to Aguilar was used to cover more than $5 million in bribes to officials at the Comision.

The defendants faced as long as five years in prison for each of five counts of bribing a foreign official, as well as five years for a conspiracy count. However on December 1, 2011, U.S. District Judge A. Howard Matz, who oversaw the jury trial, dismissed those convictions with prejudice due to government misconduct after ruling on the defense’s Motion to Dismiss and Supplemental Brief in Support of Motion to Dismiss.

In his remarkable order dismissing the charges, Judge Matz acknowledged that “most district judges are reluctant to find that the prosecutors’ actions were flagrant, willful, or in bad faith,” but he concluded that “it is with deep regret that this Court is compelled to find that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.”

This is an extensive laundry list of serious allegations against government prosecutors. Over the summer, we wrote about some of the most significant misconduct by the prosecution, such as its failure to produce the transcript of some of FBI Special Agent Susan Guernsey’s October 2010 grand jury testimony until seven weeks after the jury entered its verdict in 2011. Agent Guernsey testified before the grand jury a total of four times, and her testimony contained a number of material misrepresentations and outright falsehoods that led to the indictment. The prosecution’s failure to turn over testimony from one of those sessions until after the conclusion of the trial hindered the defense’s ability to fully cross-examine her during the trial.

Although it was the prosecution’s continuous misrepresentations and misconduct which are ultimately at fault for these wrongful convictions, Judge Matz admirably took responsibility for not recognizing the misconduct sooner. He said,

“[W]hen a trial judge managing a large docket is required to devote a great deal of time and effort to a fast-moving case that requires numerous rulings, often the judge will miss the proverbial forest for the trees. That is what occurred here. This Court was confronted with so many motions challenging the Government’s conduct that it was difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct. … The Government has acknowledged making many “mistakes,” as it characterizes them. “Many” indeed. So many in fact, and so varied, and occurring over so lengthy a period (between 2008 and 2011) that they add up to an unusual and extreme picture of a prosecution gone badly awry.”

While it is somewhat heartening that a federal judge would both straightforwardly reprimand federal prosecutors for an egregious series of acts of misconduct and take the blame for his own role in not stopping it sooner, it nonetheless remains an incredible injustice that that defendants were brought to trial, convicted, and faced jail time before this misconduct was adequately addressed. The government has already appealed the case to the Ninth Circuit. We can only hope that the appeals court agrees with Judge Matz and takes a firm stance against prosecutorial misconduct.

Nov 14
2011

Judge Imposes 15-Year Sentence in FCPA Case; Appeal to Follow

A U.S. district judge in the Southern District of Florida recently sentenced Joel Esquenazi, the former president of Terra Telecommunications Corporation, to 15 years in prison – the longest prison term ever handed down in a Foreign Corrupt Practices Act (FCPA) prosecution. Previously, the longest sentence ever handed down for an FCPA conviction was just over seven years.

Esquenazi and Carlos Rodriguez, the former vice president of Terra, were convicted in August for their roles in a scheme to bribe officials of Haiti Teleco, the sole provider of land line telephone service in the country. The defendants paid more than $890,000 from November 2001 to August 2005 to shell companies to be used for bribes for Haiti Teleco officials. Four other individuals have also been convicted and sentenced for their roles in this case.

The defendants were found guilty of seven FCPA counts, 12 counts of money laundering, one count of money laundering conspiracy, and one count of conspiracy to violate the FCPA and wire fraud. Rodriguez received a seven-year prison sentence for his role in the scheme. The defendants were also ordered to forfeit $3.09 million.

The FCPA prohibits bribing a foreign government official. It defines the term “foreign official” to include “any officer or employee of a foreign government or any department, agency or instrumentality thereof . . . or any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality.” The Department of Justice has maintained that the term “foreign official” includes not only traditional government officials, but also employees of state-owned or state-controlled entities on the theory that they are an instrumentality of the foreign government.

At trial, the defendants’ counsel in the Esquenazi case argued that officers and employees of state-owned enterprises are not “foreign officials” under the FCPA, but the judge disagreed. The judge allowed counsel to present arguments on the issue to the jury, but the jury also did not accept them.

This was one of several cases in which defendants have challenged this broad definition of “foreign official” under the FCPA — without success.

Lawyers for Esquenazi have said that they will appeal the conviction and pursue the question of who actually owns Haiti Teleco. They say that former Haitian Prime Minister Jean-Max Bellerive issued a statement defining Haiti Teleco as a private company and thus not subject to the prohibitions of the FCPA.

Three district courts that have analyzed the question have looked at varying combinations of factors regarding services provided to citizens, who appoints the key officers, the extent of government ownership and financial support, the extent of obligations and privileges under its country’s laws, and whether the entity is perceived to be providing official functions.

This case will represent the first time that an appeals court will consider this question, and the ruling, whatever it is, will be of considerable interest.

“This sentence – the longest sentence ever imposed in an FCPA case – is a stark reminder to executives that bribing government officials to secure business advantages is a serious crime with serious consequences,” Assistant Attorney General Lanny Breuer said in a statement about the case.

The presentence investigation report indicated that the base offense level for Esquenazi was 40, which would translate to a prison sentence of 24-30 years.

Defense counsel argued in their motion for a variance and downward departure that the guidelines are not well suited for FCPA cases.

“This case is NOT extreme; the conduct is NOT extreme; the amounts of money are NOT extreme – only the guidelines ARE extreme,” defense counsel wrote. They also argued that there had never been an FCPA case in which the actual sentence matched the recommended sentencing guideline and that each FCPA case resulted in a sentence below the guideline. The court granted the defendant’s motion for a downward departure, but the 15-year sentence is still quite a shock.

This case, like several other recent FCPA cases brought by the Department of Justice, shows that the department is committed to enforcing the FCPA and that it will seek stiff sentences.

Aug 05
2011

Major FCPA Case in Jeopardy Because of Prosecutors’ Errors

In late June, U.S. District Court Judge Howard Matz of the Central District of California, the judge in the Foreign Corrupt Practices Act (FCPA) case against Lindsey Manufacturing Co. and two of its executives, invited both sides to submit briefs on the question of whether the defendants’ convictions should be dismissed. It had been revealed in post-verdict proceedings that the government violated a court order by failing to turn over portions of grand jury testimony from the FBI agent investigating the case.

On May 10, a jury convicted Lindsey Manufacturing; its CEO, Keith Lindsey; and its CFO, Steve Lee, on one count of conspiracy to violate the FCPA and five substantive FCPA violations. The case was based on allegations that the company, Lindsey, and Lee violated the FCPA by paying sales representative Grupo Internacional de Asesores SA to heap gifts and money on high-level executives of Comision Federal de Electricidad to get a contract with the state-owned Mexican utility company. Lindsey and Lee face a maximum of five years in prison if sentenced.

FBI Special Agent Susan Guernsey testified in front of two grand juries in the case: one that indicted Angela Aguilar, a director of Grupo Internacional de Asesores S.A., and a separate grand jury that indicted the company and the two executives. During cross-examination of Guernsey at trial, there was some suggestion that information that Guernsey provided to the grand jury may have been wrong and that certain key facts may have been omitted. The failure to turn over the testimony of Guernsey could have hindered the defense’s ability to fully cross-examine her during the trial.

Judge Matz was clearly disturbed by the revelation that the testimony was withheld, calling it “a sloppy investigation and prosecution,” and adding that “[t]here are a lot of troubling things that have gone on here.” He went on to say, “I don’t know if there was a stench that developed in this case, but there was a bad odor at times, and so the issue that I’m inviting both sides to address is … something akin to the whole being greater than the sum of its parts justifies throwing out this conviction, because a lot of the parts that led up to this conviction are extremely troublesome.”

Arguments on the motion to dismiss will be heard on September 8.

This case has been closely watched because Judge Matz earlier turned aside a major challenge by the defendants to the government’s position that a payment to a state-owned corporation fell within the purview of the FCPA. The judge found that the Mexican utility company was an “instrumentality” of the Mexican government and thus covered by the FCPA.

In addition the case is viewed as a recent and significant indication of the Justice Department’s more aggressive use of the FCPA. The Lindsey case was also the first-ever jury conviction against a corporation in an FCPA case, and Assistant Attorney General Lanny Breuer promised in a statement after the verdict that it would not be the last.

Now the case will be closely watched for yet another reason: It may be yet another instance of discovery misconduct or even ethics violations by federal prosecutors. In the wake of the Ted Stevens prosecution and other instances, the Justice Department recently set up a new unit to keep an eye on prosecutors’ misconduct, but perhaps the lessons are not being learned quickly enough by prosecutors in Eric Holder’s Justice Department.

The judge was right in seeking briefs on whether the verdict should be overturned, because the government had clearly failed to produce documents that were called for. Under the Jencks Act, the government must turn over the grand jury testimony of witnesses who testify at trial. In addition, to the extent that there may have been exculpatory material in the grand jury testimony, there may have been a Brady violation as well.

The failure to turn over the materials was also in direct violation of an order from Judge Matz. Just as Judge Matz has done in this case, courts need to strongly enforce the rules requiring parties to turn over required documents to prevent further abuses of the system and injustices for defendants.

Apr 21
2011

DOJ Shows Its Continuing Strong Interest in FCPA Violations

Over the course of several years, officials of the United States Department of Justice have made clear the Department’s intent to enforce vigorously the dictates of the Foreign Corrupt Practices Act (FCPA). In general terms, the FCPA prohibits the offering or giving of things of value to any foreign official to assist in obtaining or retaining business. Last November, Assistant Attorney General Lanny Breuer warned executives of the pharmaceutical industry that the Department’s “focus and resolve in the FCPA will not abate” and that the Department “will be intensely focused on rooting out foreign bribery” in the pharmaceutical and other industries. A recent court decision and a recent corporate guilty plea seem to bear out the Department’s focus on FCPA violations and show that the Securities and Exchange Commission shares that focus as well.

On April 1, 2011, in United States v. Noriega, No. 2:10-cr-01031, U.S. District Judge Howard Matz of the Central District of California held that officials of Mexico’s state-owned utility company qualify as “foreign officials” for purposes of application of the FCPA. Judge Matz relied heavily on provisions of Mexican law that made clear that the provision of electricity through the state-owned utility company was solely a governmental function.

Judge Matz’s ruling is significant because there are few judicial interpretations of the application of the term “foreign officials” in the context of bribes paid to state-owned entities, and the Department of Justice has long taken the position that executives at state-owned entities fall within the scope of the statute. This decision could have significant effects on the way in which companies evaluate their relationships with foreign companies, particularly in countries such as China in which many companies are owned by or otherwise connected with the government. It will be interesting to see whether judges in other pending cases that raise similar issues will interpret the scope of the term  “foreign official” similarly, or whether there will be a split among courts that leaves companies with limited guidance on the application of the statute.

The other significant FCPA event of this past week was a settlement among the Department of Justice, the SEC, and Johnson & Johnson concerning charges that J&J violated the FCPA by bribing doctors in several European countries and paying kickbacks to Iraq. To settle charges, the company agreed to pay $48.6 million in disgorgement and prejudgment interest, and another $21.4 million to settle parallel criminal charges. J&J is also paying $8 million to resolve an investigation in the United Kingdom into conduct by one of its subsidiaries.

Johnson & Johnson’s settlement is by no means the largest FCPA settlement by a corporation, but it certainly involves a large amount of money. And the settlement certainly reinforces the notion that there are serious consequences for companies that are not careful and scrupulous about their dealings in foreign countries.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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