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On April 23, Freddie Mac issued Servicer Guide Bulletin 2012-10, which expands and adjusts certain loss mitigation options to offer additional assistance to struggling borrowers. With regard to state housing finance agency borrower assistance programs, the Bulletin provides requirements for servicer participation in programs funded by the Hardest Hit Fund, and consolidates all requirements related to participation in such programs. Among other things, the Bulletin also implements a previously announced extension of the HAMP and HAFA programs through December 2013, and revises HAMP eligibility requirements for permanent modifications.
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.
BuckleySandler 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 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.
New York Appellate Court Holds that Federal Law Does Not Preempt State Contract and Consumer Protection Laws in Gift Card Suit
On October 9, James Rama, a former Vice President of Florida-based defense contractor IAP Worldwide Services, Inc., was sentenced in the U.S. District Court for the Eastern District of Virginia to 120 days in prison for conspiracy to violate the anti-bribery provisions of the FCPA. Rama pleaded guilty to the conspiracy charge on June 16 for his role in a scheme by IAP to pay more than $1.7 million in bribes to Kuwaiti officials to win a government contract intended to provide nationwide surveillance capabilities for several Kuwaiti government agencies. Rama had faced a recommended sentence under the Sentencing Guidelines of between 57 and 60 months, but received a substantially shorter sentence in part due to his cooperation with authorities during their investigation. Prosecutors had recommended that Rama received a one year sentence, while the defense had requested just supervised release. IAP previously entered into a non-prosecution agreement with the DOJ and agreed to pay $7.1 million to resolve the allegations against the company.
Vermont Adjusts Mortgage Licensing Law. On April 20, Vermont enacted H 565, which, in relevant part, amends definitions and exceptions related to the licensing of mortgage loan originators, mortgage brokers, and other consumer lenders to (i) permit owner financing without obtaining a license, (ii) expand the types of properties that can be sold and financed by the owner without having to obtain a license, and (iii) expand exceptions applicable to practicing attorneys.
Nebraska Issues Interpretation of Mortgage Originator, Processor, and Underwriter Licensing Rules. Recently, the Nebraska Department of Banking and Finance issued several interpretive opinions relating to mortgage loan originator, processor, and underwriter licensing. For mortgage loan originator licensing, one opinion provides examples of activities or situations that would and would not require licensure as a mortgage loan originator. A separate opinion identifies the factors and documentation the Department will consider when evaluating the “financial responsibility” of a person seeking a mortgage loan originator license. Additional separate guidance (i) clarifies the licensing responsibilities of clerical employees of licensed or registered mortgage bankers or installment loan companies, (ii) asserts that loan processing and underwriting activities are essential to origination and therefore entities performing those services must register as mortgage bankers, and (iii) establishes requirements pertaining to the use of the NMLS unique identifier on solicitations and advertisements. All of the interpretive opinions took effect April 16, 2012.
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 SEC’s 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 SEC’s FCPA investigation into the Houston-based oil and gas company’s operations in the Republic of Guinea. The SEC proceeded via an administrative cease and desist order. Hyperdynamics consented to the SEC’s order without admitting or denying the findings, and agreed to pay a $75,000 penalty. The SEC’s 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 DOJ’s investigation had concluded without enforcement action, and released the DOJ’s declination letter, which noted Hyperdynamics’s 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 April 19, the CFPB issued Bulletin 2012-05 to clarify issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H. According to the Bulletin, (i) states are allowed to provide a transitional license to an individual with a valid license from another state, but (ii) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.
On April 17, the National Fair Housing Alliance and certain of its member organizations (collectively NFHA) filed an administrative complaint with the Department of Housing and Urban Development alleging discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. This is the second of several complaints and lawsuits the NFHA is expected to file with regard to these alleged practices.
After months of speculation about potential legal ramifications for FIFA President Joseph (“Sepp”) Blatter, the Office of the Attorney General of Switzerland announced that Mr. Blatter is the subject of criminal proceedings in that country. The allegations include criminal mismanagement related to a contract with the Caribbean Football Union that was purportedly against the interests of FIFA, as well as misappropriation related to a payment to the President of the Union of European Football Associations (UEFA). The Office of the Attorney General also reported that Mr. Blatter was interrogated and his offices were searched.
Previous FCPA Scorecard coverage of this investigation can be found here.
- Kathryn L. Ryan to discuss "NMLS usage" at the NMLS Annual Conference & Training
- 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
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program