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In the summer of 2014, on the eve of trial, the SEC settled FCPA charges against two individuals related to Noble Corporation, a global oil and gas drilling services company. SEC v. Jackson and Ruehlen, No. 12-cv-563 (S.D. Tex.). The case settled on very favorable terms for the individuals, but had it gone to trial, it would have been the first SEC case in many years to reach that far. Even with the settlement, the two years of litigation between the SEC and the Noble executives provided a window into the government's trial strategy on a number of issues, as well as areas where judicial caselaw on the FCPA continues to evolve. Buckley Sandler represented Mark Jackson, Noble's former CEO and CFO, in the case, and the views expressed in this post are ours alone. (See also prior FCPA Scorecard coverage of the case). Here we highlight several of the lessons learned from the Jackson trial.
- The Facilitating Payments Exception May Be Narrower than Previously Thought: It is not news that the government does not like the facilitating payments exception to the FCPA, which permits payments "the purpose of which is to expedite or to secure the performance of a routine governmental action." 15 U.S.C. § 78dd-1(b). In the Jackson litigation, though, for the first time the SEC had to spell out its exact view on the exception and how it should be interpreted in practice. The SEC's hand was forced by a ruling that it was the SEC's burden to affirmatively negate the idea that payments were facilitating payments instead of bribes, not the defendants' burden. Perhaps unsurprisingly, the SEC reads the facilitating payment exception extremely narrowly — to the point of near irrelevance.
In essence, the SEC's briefing and arguments to the Court in Jackson stated that a payor's actual intent when making a facilitating payment was irrelevant. Even though the statute speaks of the payor's "purpose" in making the payment, under the SEC's reading, the exception is instead strict liability for the payor. The payor might have believed the action he sought was a routine governmental action — i.e., that was its "purpose." But under the SEC's theory, if it turns out that the payor's belief was wrong, and under the country's laws and regulations this was actually a discretionary action by the official, then the payor cannot claim the benefit of the facilitating payments exception and the payment would constitute a bribe. We will have to wait for the next case to see whether the SEC's arguments successfully narrow the exception, but prior to the settlement in Jackson, the Judge rejected the SEC's motion for partial summary judgment regarding the facilitating payments exception without a written ruling.
- Content of Foreign Law Is Important: Because the SEC's argument about facilitating payments turned on whether the sought-after actions were, in fact, discretionary on the part of the officials, the content of Nigerian law and what if anything it said about the temporary import permits at issue became the subject of expert testimony and extensive briefing. Expert witnesses included a former Nigerian customs official, the former U.S. Ambassador to Nigeria, and a think-tank expert on Nigeria. Evidence included numerous published and unpublished Nigerian codes and regulations. Finally, the SEC filed a Motion for a Determination of Foreign Law under Fed. R. Civ. P. 44.1.
The lessons here are twofold. First, if the SEC's view is accepted and whether a payment qualifies as an acceptable facilitating payment depends on the content of foreign law, then the burden will be extremely high on the front end for any company making what it believes to be a facilitating payment. Rather than incur the expense of hiring local attorneys to investigate local law in every country, though, the practical effect will be that companies will stop making facilitating payments entirely (presumably what the government would prefer). Second, litigating almost any FCPA case in the future will likely require expert witnesses on the local law at issue, greatly increasing costs for both the government and defendants.
- A "Corrupt" Payment, to the SEC, Means Any Payment Meant to Influence Any Act: To be prohibited under the FCPA, a payment must be made "corruptly." 15 U.S.C. § 78dd-1(a). 37 years after the FCPA was passed, there still is no universally accepted definition for what "corruptly" means, either in the statute or caselaw. The Judge in Jackson drew from multiple sources to define "corruptly" as "an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position." In the view of the defendants, if they believed the payments were made to obtain something the company was already entitled to, that could not be an instance of an official "misusing" his position because the official was just doing something he was supposed to do anyway. To the SEC, though, as it argued to the Court, any act done by an official in response to a payment is a "misuse" of his position: all that is required is an intent that the payment "influence any act or decision made by an official in his official capacity — regardless of any 'entitlement' to that act or decision."
Here, too, we will have to wait for another case to finally decide the validity of the SEC's new position on "corrupt" payments; the Judge in Jackson denied all parties' motions for summary judgment on this issue, without written opinion.
- Judges Are Still Confused By the FCPA, Too: In numerous areas, the caselaw is still unclear on issues such as facilitating payments, the meaning of "corruptly," and the exact type of internal controls needed under the FCPA's internal controls provisions (15 U.S.C. § 78m(b)(2)(B)). Indeed, one of the arguments the defendants in Jackson used to justify the need for expert testimony in certain areas was that if even the Judge expressed confusion on these areas — as he did, on several occasions — how could a jury be expected to sort it out without guidance?
- The Statute of Limitations Has New Teeth: Conduct in FCPA cases tends to be historic, reaching years, if not a decade, back. Investigations then take years before any enforcement decisions are made. The conduct in the Jackson case was no different; the Complaint filed in 2012 alleged violations dating back to 2003. The defendants challenged the Complaint on statute of limitations grounds, arguing that the SEC's claims for civil monetary penalties were almost entirely barred. The SEC countered with the idea that the fraudulent concealment doctrine delayed the running of the statute.
After the Judge dismissed the original Complaint with leave to amend, the SEC filed an Amended Complaint, but soon faced a bigger challenge — the Supreme Courts decision in Gabelli v. SEC, 568 U.S. __, 133 S. Ct. 1216 (2013), which rejected the use of the discovery rule in SEC civil monetary penalty cases. Rather than face the possibility that the Judge in Jackson would extend Gabelli to its logical conclusion and bar the use of the fraudulent concealment doctrine as well, the SEC ultimately stipulated that it would not seek civil monetary penalties for conduct before May 2006. The narrowed set of claims significantly reduced the potential liability facing the defendants in Jackson. The overall issue of whether fraudulent concealment continues to be a viable argument for the SEC is still being sorted out courts around the country and may reach the Supreme Court again in the future.
On September 28, the SEC filed a settled complaint in Washington, D.C. federal court against Tokyo-based Hitachi, Ltd. for alleged FCPA books and records and internal controls offenses. According to the SECs Complaint, the company failed to accurately report payments made to the African National Congress (ANC), South Africa's ruling political party, in connection with a multi-billion dollar plan to build new power stations in the country. Hitachi purportedly sold a 25-percent stake in a South African subsidiary to a company that was a front to funnel funds to the ANC. The SEC alleges that Hitachi was (i) aware that it had partnered with a "funding vehicle" for the ANC; (ii) encouraged the front company to continue using its political influence to obtain additional government contracts; and (iii) agreed to pay "success fees" to the front company. Hitachi did not admit wrongdoing in the settlement and agreed to pay a $19 million penalty. In its announcement, the SEC's Director of Enforcement, Andrew Ceresney, cited Hitachi's "lax internal control environment" as the factor that led to the conduct described in the complaint. Continuing the trend of international cooperation in FCPA investigations, the SEC also thanked the African Development Bank and the South African Financial Services Board for their assistance with the investigation.
On September 30, the former CFO of Siemens S.A.-Argentina pleaded guilty in a federal court in New York to conspiring to pay nearly $100 million dollars in bribes to Argentinian officials. The former executive, Andres Truppel, who is a German and Argentinian citizen, pleaded guilty to conspiracy to violate the antibribery, internal controls, and books and records provisions of the FCPA, and conspiracy to commit wire fraud. As described in the U.S. Attorney's Office for the Southern District of New York's press release, the violations stemmed from Siemens bid to win an Argentine government contract worth $1 billion to create a national identity card system. Mr. Truppel faces up to five years in prison and three years of supervised release when he is sentenced; there is no information on when sentencing will occur. Truppel was one of eight former Siemens executives indicted in 2011 on charges of conspiring to violate the FCPA and other statutes (see previous FCPA Scorecard coverage here and here). Siemens itself reached a record $800 million resolution in 2008 with the DOJ and SEC related to FCPA violations in numerous countries, including Argentina. Siemens S.A.-Argentina pleaded guilty to conspiracy to violate the FCPA's books and records provisions as part of that resolution.
On September 29, Hyperdynamics Corp. announced a settlement with the SEC, fully resolving the SECs FCPA investigation into the Houston-based oil and gas companys operations in the Republic of Guinea. The SEC proceeded via an administrative cease and desist order. Hyperdynamics consented to the SECs order without admitting or denying the findings, and agreed to pay a $75,000 penalty. The SECs order describes books and records and internal control offenses based on the lack of supporting documentation related to $130,000 the company paid for public relations and lobbying services in the Republic of Guinea during 2007 and 2008. Hyperdynamics first disclosed that the DOJ was investigating alleged FCPA violations by the company in the Republic of Guinea in 2013. In May of this year, the company announced that the DOJs investigation had concluded without enforcement action, and released the DOJs declination letter, which noted Hyperdynamicss cooperation with the investigation. At that time, the company acknowledged that a parallel SEC investigation was ongoing. Previous FCPA Scorecard coverage of this investigation can be found here.
On September 10, Gregory Weisman, former general counsel of oil and gas services company PetroTiger, and Knut Hammarskjold, PetroTiger's co-founder, were each sentenced to two years probation stemming from their prior guilty pleas to conspiring to violate the FCPA and commit wire fraud in connection with a bribe paid to an employee of Colombia's state-run oil company in order to win a $45 million oil-services contract. Both Mr. Weisman and Hammarskjold were ordered to pay restitution as well as fines of $30,000 and $15,000, respectively. Mr. Weisman's and Mr. Hammarskjold's sentencing occurred almost three months after the third PetroTiger co-conspirator, former CEO Joseph Sigelman, received a three-year probation sentence in connection with the same bribes. Mr. Weisman had been the key witness against Mr. Sigelman at Mr. Sigelman's June 2015 trial, but the trial abruptly ended after Mr. Sigelman entered a plea deal.
The DOJ announced the plea after Mr. Weisman informed the court that he gave false testimony regarding the terms of his cooperation agreement. At Mr. Weisman's sentencing, the District Judge referred to the abrupt turn of events at Mr. Sigelman's trial as "the elephant in the room" but noted that misstatements by Mr. Weisman were "peripheral" to the charged offenses.
On August 13, the U.S. District Court for the District of Connecticut held in the individual prosecution of Lawrence Hoskins, a former executive of the U.K. division of Alstom Power, S.A., a French power and transportation company, that the government cannot charge a non-resident foreign national with conspiracy to violate the FCPA if he is not subject to direct liability under the statute due to lack of jurisdiction. United States v. Hoskins, No. 3:12-CR-238 (D. Conn. Aug. 13, 2015). Under the FCPA's anti-bribery provisions, jurisdiction extends to three types of individuals and entities: (1) domestic concerns, defined as U.S. citizens, residents, or nationals, or any company organized under the laws of a U.S. territory or having its principal place of business in the U.S.; (2) a United States issuer of securities, or any officer, director, employee, or agent thereof; and (3) any person who while in United States territory commits an act in furtherance of an FCPA violation. See 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3. The government, however, has maintained a more expansive view of the FCPA's jurisdiction. As detailed in its FCPA Resource Guide, the government has argued that "[a] foreign national or company may also be liable under the FCPA if it aids and abets [or] conspires with . . . an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States." This theory of liability was recently tested in Hoskins. In Hoskins, the government alleged that Hoskins approved and authorized payments to consultants retained for the sole purpose of paying bribes to Indonesian government officials to secure a contract to build power stations for Indonesia's state-owned electric company. Initially the indictment alleged that Hoskins was an agent of Alstom's U.S. subsidiary, and thus an agent of a domestic concern. That count of the indictment was later amended to allege that he conspired by acting "together with" a domestic concern to violate the FCPA. Hoskins moved to dismiss the count, arguing that an individual cannot be prosecuted for conspiracy to violate the FCPA when he himself is not subject to the statute's jurisdiction. The district court agreed and applied the doctrine set forth in Gebardi v. United States, 287 U.S. 112 (1932): where Congress passes a criminal statute that excludes a certain class of individuals from liability, the government cannot evade congressional intent by charging those same individuals under a conspiracy or aiding and abetting theory of liability. The court examined the FCPA's text and legislative history and determined that Congress did not intend to extend accomplice liability to non-resident foreign nationals who are not otherwise subject to direct liability. The court ultimately ruled that the government would have to prove at trial that Hoskins was acting as an agent of a domestic concern — and therefore subject to direct liability — in order to allege that he conspired to violate or aided and abetted a violation of the FCPA.
On July 30, Flowserve Corporation, a global supplier of industrial pumps, valves, and seals, disclosed that the SEC had issued a subpoena in connection with an investigation of potential FCPA violations. Flowserve revealed earlier this year that it had terminated an employee of an overseas subsidiary for conduct that violated its Code of Business Conduct and "may have violated" the FCPA. It self-reported the matter to the SEC and the DOJ and has now completed an internal investigation. Flowserve stated that it "currently believe[s] that this matter will not have a material adverse financial impact," but that there are no assurances that it will not be subjected to penalties and additional costs.
On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the companys FCPA compliance. In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa. The company stated that it had investigated internally and determined the allegations to be without merit. The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information. The company did not provide an update regarding the status of the DOJs inquiries.
On July 28, Mead Johnson Nutrition Co. ("Mead"), an infant formula maker, agreed to pay $12.03 million to settle civil FCPA charges with the SEC. The SEC alleged that a majority-owned subsidiary in China used discounts given to third-party distributors to make over $2 million in bribes from 2008 to 2013 to healthcare professionals at state-owned hospitals, to get them to push the use of Mead's products to new mothers, reaping profits of over $7 million. The SEC also alleged that the subsidiary's books and records were false as a result of the improper payments, and were then consolidated into the parent company's books and records; Mead's internal controls were also alleged to be deficient. Mead did not admit or deny liability. Of note, the settlement came through the SEC's administrative process, continuing the trend at the SEC of sending cases to its internal decision-makers instead of to a federal court. The alleged facts also highlight the danger of directing the activities of third-party distributors (here, related to the use of discounts provided to them).
On June 22, Gold Fields Ltd., a South African mining company, announced that the SEC had concluded its investigation related to a mining license in South Africa and would not recommend that the SEC pursue an enforcement action against the company. According to Gold Fields, the investigation had been related to a 2010 Black Economic Empowerment (BEE) transaction associated with the granting of a mining license for the company's South Deep operation — one of the largest gold deposits in the world. The BEE is a program launched by the South African government to give certain historically disadvantaged racial groups special economic privileges, including increased ownership opportunities. Under South African law, mining companies must sell or cede at least 26% of their operations to non-white citizens. The investigation apparently centered on a $210 million BEE transaction involving the transfer of a roughly 10% stake in South Deep, a gold mine located near Johannesburg that is owned and operated by Gold Fields, to a black-owned group. In September 2013, Gold Fields had revealed that it was being investigated by the SEC following news reports that the company had bribed an African National Congress official, by increasing her "cut" from the BEE deal in order to get a license for the South Deep operation. The decision not to pursue an FCPA action against Gold Fields comes on the heels of the announcement earlier this month by Net 1 UEPS Technologies, Inc., a South African mobile payments company, that the SEC had closed without charges an FCPA investigation arising out of a contract with the South African Social Security Agency.