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On October 27, the SEC settled administrative proceedings via a cease and desist order against Layne Christensen Co., a Texas-based water management company, related to FCPA violations from operations in Africa. The SEC's order cited over $800,000 in improper payments to officials in Mali, Guinea, the Democratic Republic of the Congo, Burkina Faso, and Tanzania, related to tax liabilities, customs clearance, expatriate work permits, and border entry. Some of those payments were as small as $4. The company agreed to pay over $4,750,000 in disgorgement and prejudgment interest, and a $375,000 penalty. The SEC cited the company's self-disclosure, remediation, and "significant cooperation" as reasons for a smaller penalty. In August, the company announced that the DOJ had declined to file charges related to the alleged FCPA violations. Of note, the company has in the past tied its discovery of the irregular payments to an update of its FCPA policy. Periodic evaluations and updates of FCPA policies are a necessary component of any compliance program, but also represent opportunities to evaluate past conduct and uncover issues.
On October 23, the anti-corruption group Transparency International released its annual progress report on the enforcement of the Organisation for Economic Co-operation and Development ("OECD") anti-bribery convention. The 41 signatories of the 1997 Anti-Bribery Convention are, among other things, obligated to investigate credible allegations of corruption and, where appropriate, to prosecute those who offer, promise, or give bribes to foreign public officials and subject those parties to effective and dissuasive penalties. In its report, Transparency International found that only four of the 41 signatories to the convention are actively investigating and prosecuting companies that bribe foreign officials. Those four leading enforcers — Germany, Switzerland, the United Kingdom, and the United States — completed or initiated 282 cases from 2010-2013. The other 37 signatories to the convention, who account for 77% of world exports, completed or initiated only 73 cases during the same time period. According to Transparency International, enforcement of corruption is low "because investigators lack political backing to go after big companies, especially where the considerations of national economic interest trump anti-corruption commitments." Furthermore, investigators often lack the resources to investigate complex corruption cases. Transparency Intentional found that Canada was the only country to show significant improvement since last year's report, having, among other things, significantly improved its foreign bribery law.
French pharmaceutical company Sanofi S.A. has disclosed that it is investigating whether certain payments made by company employees from 2007 to 2012 in the Middle East and Africa to healthcare professionals violated the FCPA. Sanofi reportedly launched the investigation after receiving anonymous whistleblower allegations, including allegations that company employees made payments to doctors for prescribing Sanofi-manufactured pharmaceuticals. According to news reports, Sanofi has self-reported the allegations to the U.S. Department of Justice and the Securities and Exchange Commission. Sanofis disclosure appears to continue the trend of investigations and potential enforcement actions in the pharmaceutical industry concerning payments related to prescriptions, as well as the trend of companies self-disclosing whistleblower allegations.
Last week, the Supreme Court denied a petition for certiorari in United States v. Esquenazi, thereby rejecting the first substantive FCPA-related cert petition to come before the Court. The case involved two former executives of a telecommunications company who were convicted of participating in a scheme to bribe employees of Haiti Teleco, a telephone company in Haiti that was partially owned by the state at the time of the payments. The issue on appeal was whether the employees constituted "foreign officials" within the meaning of the FCPA, which defines foreign officials to include "any officer or employee of a foreign government or any department, agency, or instrumentality thereof." Because the FCPA does not further define "instrumentality," the parties disputed whether Haiti Teleco, as an entity that was only partly-owned by the state, constituted such an "instrumentality." The Eleventh Circuit defined "instrumentality" as an "entity controlled by the government of a foreign country that performs a function the controlling government treats as its own," and found that Haiti Teleco constituted an "instrumentality" under this definition. The Supreme Court's decision to deny cert leaves the Eleventh Circuit's decision intact. The Eleventh Circuit decision supplies some of the first caselaw regarding who counts as a foreign official under the FCPA.
On September 26, the United District Court for the Western District of Arkansas adopted a magistrate judges recommendation denying Wal-Marts motion to dismiss a securities fraud class action arising out of allegations of bribery in Mexico. Plaintiffs had alleged that certain company officials at Wal-Marts Mexican subsidiary paid bribes to obtain permits for new stores in Mexico, and that Wal-Mart had deceived investors by claiming in an SEC filing in December 2011 that its investigation of the alleged bribery had taken place in fiscal year 2012. Plaintiffs alleged that Wal-mart actually learned of the suspected corruption in 2005 and conducted an internal investigation in 2006, much earlier than disclosed. The plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, 25 U.S.C. §§ 78j(b) and 78t(a), and violations of SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. The court held that the plaintiffs had met the heighted pleading standard required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b). The court found, among other things, that the plaintiffs sufficiently alleged that Wal-Marts omission from its 2011 filing of the prior 2005 investigation rendered the filing misleading and that the allegations in the complaint, taken collectively, meet the requisite scienter requirement because they alleged that Wal-Mart knew it was omitting material information that led the statement as a whole to be misleading. Wal-Mart is still under investigation by the DOJ and SEC related to possible FCPA violations in its foreign subsidiaries, and has disclosed continued cooperation with authorities and strengthening of its global anti-corruption measures. In its fiscal 2014 Global Compliance Program Report, Wal-Mart said it spent a total of $439 million in legal fees and other costs associated with investigations of alleged FCPA violations and to restructure its global compliance policies and procedures.
On September 29, the United States District Court for the Southern District of New York dismissed a putative securities class action lawsuit against Avon Products Inc. (“Avon”) and two senior executives in which shareholders had accused the cosmetics company and its senior management of issuing materially false and misleading statements concerning Avon’s compliance with the FCPA in China. The class action had been pending since mid-2011. The dismissal was without prejudice.
Following a June 2008 internal investigation, Avon disclosed that it was conducting an internal investigation focused on compliance issues related to the FCPA in connection with the company’s conduct in China and other countries. The plaintiffs alleged that this misconduct, detailed in press reports suggesting bribery of Chinese officials, ultimately affected the company’s share price. Company shareholders filed a putative class action in July 2011 under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, 25 U.S.C. §§ 78j(b) and 78t(a). The plaintiffs alleged that Avon made more than 60 materially false and misleading statements, including statements regarding the company’s ethics code and corporate responsibility reports which prohibited the offering or payment of bribes to foreign government officials. Plaintiffs claimed those statements were misleading because at the time, senior management was aware of “material weaknesses in Avon’s system of internal controls” and those failings were not disclosed to investors. The court ruled that general statements proclaiming compliance with ethical and legal standards are not material and actionable because “[a] reasonable investor would not rely on the statements…as a guarantee that Avon would, in fact, maintain a heightened standard of legal and ethical compliance.” Plaintiffs also alleged that several statements concerning Avon’s business success in China and other developing markets was misleading because the statements did not attribute Avon’s success to the bribery of foreign officials or disclose the attendant risks and potential liabilities when such information would become public. The court rejected those allegations for failure to plead the heightened scienter required under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b).
Avon had previously settled with the DOJ and SEC in May 2014 regarding investigations into the same allegations of bribery. That settlement, for alleged violations of the books and records and internal control provisions of the FCPA, totaled $135 million and included a 3-year deferred prosecution agreement and Avon’s retaining of a compliance monitor for 18 months.
According to media reports, the Brazilian government has filed a criminal complaint against eight Embraer SA executives, alleging bribery of foreign officials. This is one of the first criminal prosecutions that Brazil has undertaken against its citizens for foreign bribery. The complaint alleged that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel and then-director of special projects for the Dominican Republics armed forces, who in exchange influenced legislators to approve a $92 million contract and financing agreement for aircraft. The deal provided the Dominican Republic with eight Embraer Super Tucanos, which is an attack support aircraft. The complaint indicated that part of the bribe was to be paid to a Dominican senator, but the senator was not named in the complaint. The executives attempted to make the payments through three shell companies, but Embraers compliance department blocked the full transfer in 2009. The rest of the bribe payments were concealed by booking them as consulting fees to a middleman in a separate deal with Jordan that never happened. The complaint charges the Embraer executives with corruption in international transactions, which carries a maximum sentence of eight years in prison, and money laundering. According to The Wall Street Journal, who reviewed the complaint that was filed under seal, the U.S. DOJ and the U.S. SEC assisted the Brazilian prosecutors by providing evidence from the U.S. agencies investigations. In 2011, Embraer disclosed that it was under investigation in the United States for potential violations of the FCPA, and those investigations are ongoing.
In a Form 8-K filed on September 22, General Cable Corporation stated that it is reviewing its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. The cable manufacturer, which is based in Kentucky, determined that "certain employees in [its] Portugal and Angola subsidiaries directly or indirectly made payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions." The investigation also covers General Cable's use and payment of agents in Thailand and India, which the company also believes may have implications under the FCPA or other laws. According to General Cable's filing, it voluntarily disclosed the issues to the SEC and the DOJ, whose investigations are ongoing.
On September 19, according to media reports, a Chinese court ordered the Chinese subsidiary of GlaxoSmithKline, the UK-based pharmaceutical company, to pay approximately $487 million related to alleged bribery of hospitals and doctors. Five of Glaxo's managers were also convicted after entering guilty pleas, and Glaxo's former country manager was ordered to be deported. Glaxo apologized for the conduct in a statement. Glaxo's Chinese subsidiary was alleged to have bribed hospitals and their doctors to boost prescriptions of Glaxo products, including through payment of large travel and entertainment expenses and other fees, leading to over $150 million in additional revenue. The Glaxo case involves many of the key areas currently affecting anti-corruption practitioners and compliance personnel. For example, allegations were first raised by a whistleblower in 2013, and investigations regarding bribery of foreign state-owned hospitals or their doctors have been rising in the past few years. Here, while the full facts are not yet clear, Glaxo has stated that only commercial (business to business) bribery was at issue, characterizing the conduct at issue as "offer[ing] money or property to non-government personnel in order to obtain improper commercial gains, and . . . bribing non-government personnel."
According to a September 11 news report, two top executives of an Italian oil and gas company are being investigated by Italian prosecutors for alleged corruption related to the companys 2011 acquisition of 50% of a Nigerian deepwater offshore oil field block. The executives include both the companys CEO, and its Chief Development, Operations, and Technology Officer. The company denied that any illegal conduct had occurred and noted its cooperation with the Milan Prosecutors Office related to the matter. The new investigation appears unrelated to the companys previous $365 million FCPA and Nigeria settlement with the DOJ and SEC, regarding the TSKJ-Nigeria joint venture.
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable