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Foreign Corrupt Practices Act & Anti-Corruption

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  • Lessons Learned From SEC v. Jackson & Ruehlen, the SEC's Noble FCPA Litigation

    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.

    1. 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. 

    1. 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.

    1. 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.

    1. 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?
    1. 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 Court’s 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.

    Jackson Noble Corp. Thought Piece

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  • Writing the Facilitating Payments Exception Out of the FCPA

    Last summer, a lawsuit brought by the Securities and Exchange Commission (SEC) alleging Foreign Corrupt Practices Act (FCPA) violations against two individuals related to Noble Corporation, a global oil and gas drilling services company, nearly went to trial in federal court in Texas. SEC v. Jackson and Ruehlen, No. 12-cv-563 (S.D. Tex.). (Note: The authors represented Mr. Jackson in this case. The views expressed herein are theirs alone.) As one of the only civil FCPA cases to proceed to that stage of litigation, the case provided unique insights into the SEC's interpretation of key provisions of the FCPA. The case ultimately settled on very favorable terms for the individuals, but the SEC's position on the facilitating payments exception to the FCPA was a notable departure from its own stated guidance and may herald a renewed attempt by the SEC to further narrow the exception to the point of irrelevance. Click here to read the full article, which appeared in Business Crimes Bulletin in February 2015.

    Jackson Noble Corp.

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  • FCPA Settlement in SEC Case Against Former and Current Noble Executives Avoids Bribery Claims

    On July 2, the SEC agreed to resolve its claims against Buckley Sandler client, Mark A. Jackson, former CEO of Noble Corp., and co-defendant James J. Ruehlen, a current Noble executive.  Back in February 2012, the SEC had filed suit in the Southern District of Texas alleging that Jackson and Ruehlen violated the FCPA by approving bribes to Nigerian government officials in connection with temporary import permits for its rigs, falsifying Noble's internal accounting records, and circumventing its internal controls, but on the eve of trial, the SEC agreed to final resolutions that did not include any bribery violations.  The trial, set for July 9 in the Southern District of Texas, before Judge Keith Ellison, would have been the first FCPA civil enforcement action by the SEC in 30 years to proceed to the trial stage of litigation. Noble Corp., a leading oil and gas drilling company, was one of the companies that voluntarily disclosed its internal investigation and subsequently settled with the government during the SEC and DOJ's investigation of the industry arising out of the Panalpina settlement.  In Jackson's settlement, Jackson consented, without admitting or denying any allegations, to the entry of judgment solely with regard to the claim that he was a "control person" of Noble's books and records violations, and an injunction on that basis.  The settlement did not include payment of money by Jackson or any restriction on his future employment opportunities.  Likewise, Ruehlen consented, without admitting or denying any allegations, to the entry of judgment solely with regard to the claim that he aided and abetted Noble's books and records violations, and an injunction on that basis.  Ruehlen's settlement also did not include payment of money by Ruehlen or any restriction on his future employment opportunities.  The settlements were approved by Judge Ellison on July 3. The SEC's ultimate recovery had it proceeded to trial may have been limited by a number of factors, including the Judge's prior rulings on issues such as the definition of "corruptly" under the FCPA, and the facilitating payments exception to the FCPA.  Judge Ellison's decision on the Defendants' motions to dismiss is now some of the only case law regarding the definition of "corruptly" in the FCPA context and the "facilitating payments" exception, and is a must-read for any FCPA practitioner.  In that decision, Judge Ellison interpreted the FCPA's legislative history and limited existing FCPA case law to define the term "corruptly" under the FCPA as "an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position."  Judge Ellison also held that the SEC was required to affirmatively negate the idea that the payments at issue were facilitating payments, as part of its burden of alleging corrupt intent. Interpreting "corruptly" was at issue again shortly prior to the settlement, when Judge Ellison heard argument from the parties on Jackson and Ruehlen's motions for summary judgment, as well as the SEC's motion for partial summary judgment on the facilitating payments exception.  In their motions, Jackson and Ruehlen argued that the undisputed evidence demonstrated that they reasonably believed that Noble was entitled to the temporary import permits it sought, and therefore, they could not have acted with the requisite corrupt intent in approving the payments at issue.  The SEC responded with a new definition of "corruptly," arguing that "corruptly" meant only an intent to "influence any act or decision made by an official in his official capacity " regardless of any "entitlement" to that act or decision."  Jackson and Ruehlen responded that the SEC's novel interpretation effectively read "corruptly" out of the FCPA, was inconsistent with the FCPA's legislative history and the SEC's own prior FCPA guidance, and was not supported by case law.  Judge Ellison declined to further address the proper interpretation of "corruptly" beyond his motion to dismiss opinion, denying both sides — motions from the bench at oral argument. The 2013 Supreme Court decision in Gabelli v. SEC, 568 U.S. __, 133 S. Ct. 1216 (2013) also potentially limited the SEC's ability to seek penalties had the case gone to trial.  In Gabelli, the Supreme Court held that, when seeking civil penalties in fraud cases, the government faced a five year state of limitations from the time the conduct occurred, rather than from the time it was discovered.  On the heels of the Gabelli decision, and after the SEC had already once amended its complaint, the SEC agreed in March 2013 to limit its complaint to seek monetary penalties only for alleged conduct after May 2006.  Any potential recovery would also have been reduced by the SEC's voluntary dismissal, just days before the summary judgment deadline, of claims regarding the adequacy of Noble's internal controls. Press coverage about the settlements has noted the favorable settlement terms for Jackson and Ruehlen and has viewed the settlements as victories for the individuals.

    Jackson Settlement Noble Corp.

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