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On July 23, Thomas Baxter, General Counsel for the New York Federal Reserve Bank, in public remarks at a risk management conference, questioned the FCPA’s “exception for ‘facilitating or expediting payments’ made in furtherance of routine government action.” Mr. Baxter stated that “official corruption is a problem that some U.S. financial institutions have found challenging during the last year,” and suggested that those problems could derive from an organizational value system undermined by the facilitating payments exception. Mr. Baxter acknowledged that the exception “is grounded in a practical reality,” but expressed his preference for a zero tolerance standard. He explained that “when an organizational policy allows some types of official corruption . . ., this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.” He urged U.S. financial institutions to foster organizational value systems that “go beyond black-letter U.S. law” with regard to official corruption. Mr. Baxter made these comments in the context of a broader speech on organizational culture and its impact on compliance in which he also suggested that foreign banks’ recent sanctions and tax evasion compliance woes could be explained by a difference in the corporate values of foreign and U.S. banks and their employees when it comes to laws designed to support broader U.S. public policy.
On July 28, the SEC announced that Smith & Wesson Holding Corporation agreed to pay $2 million to settle charges that the United States-based firearms manufacturer had violated the FCPA by making or authorizing improper payments to foreign officials in Pakistan and other countries in an effort to win contracts to sell weapons to overseas military and police forces. The settlement comes just weeks after Smith & Wesson announced in a June 19 securities filing with the SEC that the DOJ had abandoned its own related investigation without pursuing FCPA criminal charges. The claims against Smith & Wesson were filed in the SEC's administrative court. In the order instituting the settled administrative proceeding, the SEC alleged that Smith & Wesson from 2007 to 2010 engaged in a "pervasive effort" of making the improper payments in order to generate new overseas business. According to the SEC the only contract that was successfully consummated under the scheme arose after Smith & Wesson officials in 2008 authorized a third party agent to make cash payments and provide firearms to Pakistani police officials as gifts. The resulting agreement to sell more than 500 pistols yielded a profit to Smith & Wesson of more than $100,000, the SEC found. Similar improper payments and gifts that did not ultimately result in contracts for Smith & Wesson were allegedly made to foreign officials in Indonesia, Turkey, Nepal, and Bangladesh. As described in the SEC's order, Smith & Wesson failed to account for the improper payments and instead characterized them as legitimate commissions and business expenses. The order also found the illegal conduct was allowed to continue undetected for years because Smith & Wesson failed to establish an appropriate compliance program or adequate internal accounting controls in connection with its expanding business in "new and high risk" overseas markets. In addition to the $2 million settlement, which consists of disgorgement, prejudgment interest, and a civil penalty of more than $1.9 million, Smith & Wesson also agreed for the next two years to report to the SEC on its FCPA compliance efforts. In its press release, the SEC praised Smith & Wesson's cooperation with the investigation and its other remedial efforts following discovery of the bribery scheme, including the termination of the company's entire international sales staff and the implementation of "a series of significant measures to improve its internal controls and compliance process." Smith & Wesson consented to the settlement without admitting or denying the SEC's findings.
On July 14, the SEC moved for leave to file an Amended Complaint in its FCPA enforcement action against three former executives of Magyar Telekom, a Hungarian telecommunications company. The Amended Complaint dropped allegations that the defendants bribed officials in Montenegro, while maintaining allegations of bribery in Macedonia.
While this sort of pre-trial narrowing of the allegations is not unusual, the development is still notable for those willing to litigate FCPA cases against the government. Magyar previously settled with both the SEC and the Department of Justice based on both sets of bribery allegations, even admitting to a detailed statement of facts regarding the alleged bribes in Montenegro in its Deferred Prosecution Agreement. Yet those allegations evidently did not stand up to scrutiny in contested litigation against the individual defendants. As with the SECs recent enforcement action against two Noble Corp. executives (one of whom was represented by Buckley Sandler LLP), it is often the case that individual defendants may have more success defending FCPA charges even where related corporate entities have already admitted or settled those same charges.
Delaware Supreme Court Upholds Ruling Ordering Wal-Mart to Disclose Documents Relating to Mexican Bribery Allegations
On July 23, the Delaware Supreme Court unanimously upheld a ruling by the Court of Chancery granting Wal-Mart Stores, Inc. shareholders access to various documents relevant to highly publicized allegations that Wal-Mart engaged in a long-running bribery scheme in Mexico. At the same time, the Court also affirmed the Court of Chancery's ruling that the shareholders could not use confidential documents allegedly provided by an anonymous whistleblower. The shareholders initiated an action pursuant to Delaware General Corporation Law § 220, which authorizes shareholders to access corporate books and records for "any proper purpose." Wal-Mart voluntarily provided some documents, but the Court of Chancery ordered a more wide-ranging production. All of Wal-Mart's challenges to that ruling were rejected by the Supreme Court. The most notable aspect of the Supreme Court's ruling was its determination that Wal-Mart would have to produce documents held by corporate officers, as opposed to documents held by members of the board of directors. Wal-Mart argued that the only proper purpose for which the shareholders needed the documents was to determine whether a demand on Wal-Mart's Board (a predicate to filing a derivative lawsuit) would be futile. Instead, the Court held that the shareholders had also established a proper purpose of investigating "the underlying bribery and how the ensuing [internal] investigation was handled." Moreover, the Supreme Court held that documents possessed by corporate officers were relevant to the demand futility issue to the extent the officers may have reported their knowledge to members of the board. The Supreme Court also upheld the Court of Chancery's rulings that Wal-Mart would have to produce documents beyond a date cut-off that Wal-Mart sought, that Wal-Mart would have to search disaster recovery tapes for certain custodians (Wal-Mart had previously agreed to some searches of disaster recovery tapes), and that Wal-Mart would have to produce otherwise privileged documents under the Garner doctrine, an exception to the privilege for documents relating to alleged breaches of fiduciary duties by those in control of the corporation. On the other hand, the Supreme Court sided with Wal-Mart with regard to certain confidential documents apparently provided to the shareholders' counsel by an anonymous whistleblower. Wal-Mart demanded the return of those documents, claiming that they were stolen by a former employee in its IT Department. The Supreme Court agreed, at least as to documents that had not otherwise been publicized by the media or members of Congress. However, the Court noted that the shareholders would still be able to obtain the documents if they were within the scope of the shareholders' valid § 220 demands.
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.
On January 9, the SEC and the DOJ announced the resolution of parallel FCPA enforcement actions against a major U.S. extractive industries firm and one of its subsidiaries. The actions related to improper payments to officials of a foreign government, and to a "middle man" serving as an intermediary to secure contracts to supply a government controlled aluminum plant. The SEC's cease and desist order asserts the parent firm lacked sufficient internal controls to prevent and detect bribes made through foreign subsidiaries, and that the bribes were improperly recorded in the parent company's books and records as legitimate commissions or sales. The order directs the parent firm to disgorge $175 million, $14 million of which will be satisfied by forfeiture required in the parallel DOJ action. In connection with the DOJ action, the parent company pleaded guilty to one count of violating the FCPA's anti-bribery provisions and consented to entry of a judgment that requires the company to pay a $209 million criminal fine and forfeit $14 million. The plea agreement also requires the parent firm to maintain and implement an enhanced global anti-corruption compliance program, and both the parent and subsidiary companies must cooperate with the DOJ in its continuing investigation of individuals and institutions that were involved in the subject activities.
On January 6, the U.S. Department of Justice (DOJ) announced that two former CEOs of an oil and gas services company had been charged for their alleged involvement in a scheme to violate the anti-bribery provisions of the FCPA and for other related offenses. The DOJ also revealed that the companys former general counsel had entered a guilty plea on bribery and fraud charges related to the alleged schemes. According to two separate Criminal Complaints that were filed in the U.S. District Court for the District of New Jersey, the former CEOs allegedly paid bribes to a Colombian official for his assistance in securing approval of a contract valued at approximately $39 million. They were also charged with attempting to defraud members of the companys board through their attempts to secure kickbacks for themselves as part of an effort to acquire another firm. The Information filed against the former GC provided further details on the bribery and kickback schemes.
On December 20, the DOJ and the SEC announced separate enforcement actions against a major U.S. agribusiness firm and one of its foreign subsidiaries. In the DOJ action filed in the U.S. District Court for the Central District of Illinois, a foreign subsidiary of the U.S. corporate parent pleaded guilty to a single count of conspiracy to violate the anti-bribery provisions of the FCPA, and agreed to pay $17.8 million in criminal fines. The plea resolved the government's allegations that the subsidiary paid bribes through intermediary firms to Ukrainian government officials in exchange for over $100 million in value-added tax (VAT) refunds. The plea agreement with the DOJ was accompanied by a non-prosecution agreement with the U.S. parent to resolve claims that the company failed to implement internal controls sufficient to prevent and detect FCPA violations. Under that agreement, the company must periodically report on its compliance efforts, and continue implementing enhanced compliance programs and internal controls. The SECs parallel civil enforcement action resolved charges that the parent firms lack of sufficient anti-bribery compliance controls, which contributed to FCPA violations by foreign subsidiaries that generated over $33 million in illegal profits. The U.S. parent corporation consented to entry of a judgment that requires the company to disgorge the illegal profits plus $3 million in interest. The judgment also permanently enjoins the parent company from violating the relevant parts of the Exchange Act and requires compliance reporting for a three-year period.
On November 26, the DOJ announced that Weatherford Internationala multinational oil services companyand certain of its subsidiaries agreed to pay approximately $250 million to resolve FCPA, sanctions, and export control violations. The DOJ alleged in a criminal information that the company knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The alleged compliance failures allowed employees of certain of the companys subsidiaries in Africa and the Middle East to engage in prohibited conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations Oil for Food Program. The company entered into a deferred prosecution agreement, pursuant to which it must pay an approximately $87 million penalty, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced FCPA compliance program and internal controls. The subsidiaries pleaded guilty to related specific acts of corruption, including those alleged in a separate criminal information. The DOJ alleged, among other things, that employees of certain subsidiaries engaged in at least three schemes to pay bribes to foreign officials in exchange for government contracts. In addition the parent company agreed to pay over $65 million and submit to compliance and monitoring requirements to resolve parallel SEC civil allegations that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. Separately, the parent company entered into an agreement with the Treasury Departments Office of Foreign Assets Control (OFAC) and a deferred prosecution agreement with the DOJ, as well as an agreement with the Department of Commerce, to resolve alleged sanctions and export controls violations. Collectively, those agreements require the company to, among other things, pay $100 million in penalties and finesinclusive of a $91 million settlement with OFACand undergo external audits of its efforts to comply with the relevant U.S. sanctions law for calendar years 2012, 2013, and 2014. Those payments resolve allegations, described in part in another DOJ criminal information, that the company and certain subsidiaries exported or re-exported oil and gas drilling equipment to, and conducted business operations in, sanctioned countriesincluding Cuba, Iran, Sudan, and Syriawithout the required U.S. Government authorization.
On October 22, the DOJ and the SEC announced parallel actions against a U.S. company that makes ATMs and bank security systems for allegedly violating the FCPA. The federal authorities allege that from 2005 to 2010 the company provided a total of approximately $1.8 million in payments, gifts, and non-business travel to employees of state-owned banks in China and Indonesia, and attempted to disguise the benefits, including by making payments through third parties designated by the banks and by inaccurately recording leisure trips for bank employees as "training." The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing in order to facilitate approximately $1.2 million in bribes to employees of privately-owned banks in Russia in order to obtain and retain ATM-related contracts with those customers. The company entered into a deferred prosecution agreement with the DOJ and consented to a final judgment in the SEC matter. Pursuant to those agreements, the company must pay a $25.2 million penalty and disgorge approximately $22.97 million, inclusive of prejudgment interest. The company also must implement numerous specific changes to its internal controls and compliance systems, and retain a compliance monitor for at least 18 months. The government acknowledged the company's voluntary disclosure and extensive internal investigation and cooperation.
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- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
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- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
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