1. Trends and Patterns in FCPA Enforcement in the United States: A Guide to DOJ Investigations and Prosecutions
March 2015
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4/12/2017
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2. Overview U.S. Principles of Corporate Prosecution
Current Trends: Foreign Corrupt Practices Act
Increased Stakes: Larger Fines and Longer Prison Sentences
Extraterritorial Application of U.S. Wire & Mail Fraud Statutes
Government Investigative Techniques
Being Prepared
Compliance Policies and Training Programs: Why Have Them?

3. U.S. Principles of Corporate Prosecution

4. U.S. Prosecution of Corporations
U.S. DOJ and the “Holder/Thompson/McNulty/Filip Memorandum”:
Under U.S. law, a corporation is criminally liable for actions of its officers/employees IF beneficial to the corporation.
What is now the “Filip Memo” guides U.S. prosecutors in deciding whether to charge.
Weighs unfair consequences to corporation from criminal action v. circumstances of the corporate crime.
Arthur Andersen and trend toward “deferred prosecution” agreements

5. The “Filip Memorandum”: 9 Factors
Nature and seriousness of offense, including risk of harm to public
Pervasiveness of wrongdoing and complicity/condonation of management
Corporation’s history of similar conduct (criminal, civil, regulatory)
Timely/voluntary disclosure of wrongdoing and willingness to cooperate in investigation (including atty-client and work product waivers)

6. The “Filip Memorandum”: 9 Factors
Existence/adequacy of corporate compliance programs
Remedial action (repair of compliance program, replacement of management, payment of restitution, and discipline/termination of wrongdoers)
Collateral consequences (disproportionate harm to shareholders and uninvolved employees)
Adequacy of the prosecution of individuals responsible for the corporation’s malfeasance
Adequacy of non-criminal remedies (civil or regulatory enforcement actions)

7. Foreign Corrupt Practices Act

8. Current Trends in Enforcement of the FCPA
FCPA: “It shall be unlawful for any person . . ., while in the territory of the United States, corruptly to make use of the mails or any means or instrumentalities of interstate commerce, or to do any other act 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” a foreign official.
Statute covers:
“Issuers”
“Domestic Concerns” (citizen, national, or resident of U.S.)
Persons engaged in conduct “in furtherance” of a bribe

9. Current Trends in Enforcement of the FCPA
Coverage of foreign persons is broad:
DOJ interprets provision “as conferring jurisdiction whenever a foreign company or national causes an act to be done within the territory of the United States by any person acting as that company’s or national’s agent.”
This interpretation means that the U.S. could prosecute a foreign national who never set foot inside the U.S. as long as the person “caused” some act in furtherance of a bribery scheme to take place in the U.S.
Still need a “nexus” with the U.S.: sufficient activities within the U.S. to reasonably anticipate being brought into court there.

10. FCPA Trends: Prosecution of Corporations
Ten U.S. enforcement actions in 2014 (4 combined, 3 DOJ, 3 SEC)
Voluntary Disclosures
Sarbanes-Oxley
Auditors
Principles of Federal Prosecution of Business Organizations
U.S. Sentencing Guidelines
Industry Sector Initiatives
Customs Agents / Freight Forwarders (Oil & Gas)
Pharmaceutical / Medical Device Industry
Collateral Investigations
Antitrust
EPA
National Security
Medicare / Medicaid / Insurance Fraud
Mergers & Acquisitions
Due diligence discoveries
“The prosecution of corporate crime is a high priority for the Department of Justice Indicting corporations for wrongdoing enables the government to be a force for positive change of corporate culture, and a force to prevent, discover, and punish serious crimes.” Principles of Federal Prosecution of Business Organizations

11. FCPA Trends: Prosecution of Individuals
Clear shift in DOJ & SEC Policy
Aggressive legal theories
Control Person liability
Aggressive investigative tactics
International cooperation
Wiretaps, search warrants
Extradition
Interdiction
Revoking passports
“To really achieve the kind of deterrent effect we’re shooting for, you have to prosecute individuals If the only sanctions out there are monetary, penalties against companies could be interpreted as the cost of doing business. But when people’s liberty is at stake, it resonates in new ways.” Mark Mendelsohn, Former Deputy Chief, DOJ Fraud Section
“Prosecution of individuals is a cornerstone of our enforcement strategy.” Lanny Breuer, Former Assistant Attorney General (DOJ)

12. FCPA Trends in Sanctions
The government collected $1,566 million in financial penalties from corporations in the ten enforcement actions in 2014—the second highest total on record.
As a result of the relatively low number of corporate enforcement actions and high corporate penalties, the 2014 average corporate penalties are the highest on record.

13. FCPA Trends in Sanctions
Individual: Jail
15 years Terra Telecom (2011)
156 months Jefferson (2007)
87 months Jumet (2009)
84 months Steindler (1994) & Stanley (2008)
63 months Murphy (2002)
57 months Diaz (2009)
51 months Shu (2009)
Individuals: Fines & Forfeitures
$148,964,569 Tesler (2011)
$726,885 Chodan (2011)
$217,037 Jennings (2011)
Company: Fines, Civil Penalties, Disgorgement & Interest
$800 million Siemens (+ € 596 M in Germany and $100 M to World Bank) (2008)
$772 million Alstom (2014)
$579 million KBR / Halliburton (2009)
$400 million BAE (2010) (+£30 M in UK)
$384 million Alcoa (2014)
$365 million Snamprogetti (2010)
$338 million Technip (2010)
$218 million JGC Corp (2011)
$185 million Daimler (2010)
$137 million Alcatel (2010)
$135 million Avon (2014)
$108 million HP (2014)

14. Fine and Civil Penalties
FCPA Recent Case Analysis
Matter
Description
Fine and Civil Penalties
Siemens
Payments through business consultant, payment intermediary, and other third parties
$800 million (+ € 596 in Germany)
Halliburton/ KBR
Payments through business consultant
$579 million
BAE
Payments through offshore shell companies
$400 million
Total S.A.
$398 million
Alcoa
$384 million
Snamprogetti Netherlands B.V. / ENI S.p.A
Payments through business consultants
$365 million
Technip S.A.
$338 million
JGC Corporation
$218 million
Daimler AG
Payments directly to government officials and third parties
$185 million
Weatherford International
$152 million
Most of the top FCPA penalties involve the use of agents

15. Does it Pay to Cooperate with the Government’s Investigation?
Baker-Hughes (2001)
Company learns that agent paid bribe to reduce taxes in Indonesia
Company also
Stops the payment
Discloses to auditor, DOJ and SEC
Reverses improper accounting
Fires responsible agents and employees
Pays taxes due to Indonesia
Cooperates with DOJ and SEC investigations
No criminal charges. Company enters into civil settlement with no financial penalty whatsoever.

16. Does it Pay to Cooperate with the Government’s Investigation?
Baker-Hughes (2007)
Baker Hughes subsidiary submits bid for development of Kazakhstan oil field
Kazakh officials direct Baker to retain and ultimately pay $4.1m to designated consulting firm, which funds were funneled to government officials
Baker Hughes pleads guilty pays $11m criminal fine and $33m in “disgorgement” of profits to the SEC as a civil remedy
Then-highest corporate fine in history of FCPA.

17. Does it Pay to Cooperate? Wal-Mart Case Study
A New York Times article alleged that Wal-Mart engaged in systematic bribery to fuel growth in Mexico and then covered up internal probe.
According to the article, Wal-Mart Mexico’s top executives knew about payments totaling $24 million and had taken steps to conceal from Wal-Mart HQ in Arkansas.
2005: Wal-Mart HQ learned of misconduct and shut down investigation.
Wal-Mart rejected outside counsel’s recommendation for independent, thorough investigation.
Wal-Mart conducted in-house, preliminary inquiry and then delegated investigation to Wal-Mart Mexico, which exonerated its own executives.
Wal-Mart Mexico’s CEO, allegedly involved in payments, was continuously promoted.
December 2011: Wal-Mart disclosed in SEC filing that it is conducting internal investigation into possible unspecified FCPA violations and that it had notified the DOJ and SEC.
Aftermath: shareholder lawsuits, congressional investigation, and investigations by DOJ and SEC.
November 2012: Wal-Mart expanded inquiry into Brazil, China, and India.
         

18. Does it Pay to Cooperate? Garth Peterson Case Study
Managing director in Morgan Stanley’s real estate investment and fund advisory business bribed former chairman of Chinese state-owned entity to influence Shanghai real estate business.
Arranged payment of at least $1.8 million to himself and official disguised as finder’s fees owed by Morgan Stanley to third parties.
Sample “Everyone pls keep in mind the big picture here. YY gave us this deal. ... So we owe them a favor relating to this deal. ... This should be very easy and friendly.”
Arranged for himself, the Chinese official, and an attorney to acquire valuable Shanghai real estate interest from Morgan Stanley fund.
In turn, Chinese official helped Peterson and Morgan Stanley obtain business while personally benefitting from investments.

19. Does it Pay to Cooperate? Garth Peterson Case Study
Peterson’s penalty:
SEC: $3.6M disgorgement (cash/real estate), permanent industry bar
DOJ: 9 months of incarceration and 3 years of supervised release
Morgan Stanley faced no enforcement action because it:
cooperated with the SEC
conducted its own internal investigation
had a strong compliance policy in effect
Peterson had been trained on FCPA compliance seven times, and received at least 35 compliance reminders from company
Voluntarily disclosed Peterson’s conduct to the SEC and DOJ
      

20. Government Investigative Techniques

21. Government Investigative Techniques
Recent Developments
Traditional investigative techniques, such as grand jury subpoenas and voluntary production of documents by companies, are still the most commonly used investigative tools.
DOJ must use Mutual Legal Assistance Treaty with Japan to obtain documents and witnesses (signed August 2003).
DOJ, particularly Antitrust, takes view that it can subpoena U.S. subsidiaries to obtain a parent’s documents abroad. U.S. courts agree.
But such action violates the foreign nation’s sovereignty, adversely affects U.S. law enforcement’s relationship with the foreign country, and jeopardizes future cooperation. Approval for such subpoenas is rarely granted.

22. Government Investigative Techniques
Why Is the Government Increasingly Using Search Warrants, Ambush Interviews and Border Stops?
Length of time necessary for MLAT request
Element of surprise
Greater control over time, place, and manner of investigation
Little or no opportunity for counsel to intervene
Therefore:
Planning, training and preparation is critical to ensure that the company’s and employees’ legal rights are protected

23. Search Warrants What Does a Search Warrant Mean?
Court order signed by a judge or magistrate based on a finding of “probable cause,” typically supported by a government agent’s written affidavit
Warrants authorize the search and seizure of items at a specific premises believed to be related to specific crimes.
Warrants must be executed from 6:00 am – 10:00 pm, within 10 days of issuance.
Agents watch a premises prior to executing a warrant.
Warrant will be executed when agents believe they will get the most evidence and have the opportunity to interview the most employees.

24. Search Warrants What Will Agents Do When They Arrive with a Warrant?
Freeze the premises to prevent the destruction of any potential evidence
Search and seize documents – including s, electronic files, desk calendars, and rolodexes – that fall within the scope of the warrant
Gather and try to interview employees in an effort to elicit admissions and other useful statements without the presence of counsel

25. Ambush Interviews
Unscheduled visits to the homes of employees, often executives and managers, typically in the evening
Goal is to catch employees off guard and without counsel.
Agents will be polite and ask for permission to speak with the employee.
Agents seek to elicit potentially incriminating admissions against the company or, at the very least, pin down the employee to a specific story so he/she cannot change it at a later date.
Agents frequently serve a grand jury subpoena at the conclusion of the visit.

26. Ambush Interviews Be Warned:
Do not expect any Miranda warnings – the interview is considered “voluntary” so agents are not required to advise the employee of his/her rights.
Nothing is ever “off the record” – everything the employee says will be recorded and used against the company and possibly the employee.
Statements that the employee believes are truthful and not harmful may prove to be inaccurate and/or inconsistent with documents or statements from other employees.
Employees need to know that they can politely say that the FBI should contact counsel and decline to talk further.

27. Ambush Interviews
What Are an Employee’s Rights During an Ambush Interview?
Employees are not obligated to speak with the agents or allow the agents into their homes.
Employees are not obligated to turn over any documents.
Employees have the right to counsel and the right to refuse to speak with the agents until the employee has conferred with counsel.
If an employee chooses to speak with the agents, he can end the interview at any time and has no obligation to review or sign any statements.
It is an employee’s choice whether or not to speak with the agents, but the prudent course of action is to decline to be interviewed, citing the desire to confer with counsel.

28. Border Stops Overview of Border Stops:
Questioning by government officials at borders and airports because an employee’s name is on a government “watch list”
Not routine customs questioning
Watch lists typically target non-U.S. citizens.
Employee will be taken to a private room (potentially for several hours) while the immigration agent attempts to contact the DOJ attorney.
At the border, Customs agents can and will search luggage, papers and electronic materials. Anything discovered that is “obviously incriminating” can be seized.

29. Border Stops
What are an employee’s rights during a border stop interview?
Employees have the same legal rights as during ambush interviews.
Employees are not obligated to speak with the agents.
Employees are not obligated to turn over any documents.
Employees have the right to counsel and the right to refuse to speak with the agents until the employee has conferred with counsel.
If an employee chooses to speak with the agents, he/she can terminate the interview at any time and has no obligation to review or sign any statements.
It is an employee’s choice whether or not to speak with the agents, but the prudent course of action is to decline to be interviewed, citing the desire to confer with counsel.

30. Compliance Policies & Training Programs

31. Why a Detailed Compliance Policy/Training Program?
Client Policies:
Demonstrate strict adherence to antitrust and anti-corruption laws in all countries – laws designed to protect free and fair competition by prohibiting anti-competitive behavior such as bribery and price fixing conspiracies and predatory efforts to eliminate competitors.
Demonstrate determination to cooperate with government investigations into potential violations of the law.
Protect the legal rights of all Company employees and all affiliates/subsidiaries.

32. Why a Detailed Compliance Policy/Training Program?
Punishment Lessened Under U.S. Sentencing Guidelines for Corporations:
Corporate criminal fines are determined based upon the company’s financial gain.
Fine can be an amount equal to twice the gross gain to the company (or twice the loss to any victims).
A fine is discounted by up to one-half if a company “had in place at the time of the offense an effective compliance and ethics program.”

33. What is an Effective Compliance and Ethics Program?
Establish procedures to prevent and detect criminal conduct.
Make Board and management responsible for oversight.
Screen officers and employees for prior misconduct. Train employees at all levels of the organization.
Monitor and audit the program. Establish anonymous whistleblower hotline.
Respond appropriately to reported violations (investigate and adjust procedures accordingly).
Discipline individuals who violate.

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