Reading The Tea Leaves: DOJ’s Recent FCPA Enforcement Actions
Earlier this year, at a Houston FCPA Conference, the Justice Department and the SEC predicted that their aggressive enforcement policies would continue. So far this year, they have been right on the mark. Even with additional litigation responsibilities in the Shot Show case and three pending criminal cases set for trial this spring and summer, DOJ’s recent FCPA settlements continue at a record pace and with expansive enforcement interpretations. As companies scramble to design and implement compliance programs, DOJ and the SEC continue to plug along. Lets take a quick review of what has happened and the trends.
1. Aggressive Extraterritorial Enforcement of the FCPA — On April 6, 2011, JGC Corporation resolved FCPA allegations, agreeing to pay $218.8 million in penalties for its role in an alleged decade-long conspiracy to bribe Nigerian government officials. The JGC case is notable not only for its size—the sixth largest monetary penalty ever imposed in FCPA history—but represents DOJ’s and SEC’s commitment to continually broaden their jurisdictional scope under the FCPA .
JGC is not a domestic concern nor an issuer. JGC’s criminal liability is based on its participation in (1) a conspiracy to execute a bribery scheme with other partners who were domestic concerns or issuers; and (2) aiding and abetting a domestic concern in the bribery scheme. Alternatively, DOJ suggested that liability could also be based upon a JGC’s use of correspondent bank accounts to execute the alleged bribery scheme — causing corrupt U.S. dollar payments to be wire transferred from an account in Amsterdam to bank accounts in Switzerland via correspondent bank accounts in New York. DOJ has referred to this theory of liability in other cases but it has not yet been tested in court. DOJ’s reliance on an aiding and abetting theory indicates its position that any company or person involved in a scheme to bribe foreign officials faces FCPA liability.
2. Global Pharmaceutical and Medical Device Companies Are Going to be Prosecuted — On April 8, 2011, Johnson & Johnson settled criminal FCPA allegations and agreed to “pay a $21.4 million penalty to resolve criminal FCPA charges with the DOJ and $48.6 million in disgorgement and prejudgment interest to settle the SEC’s civil charges.” The settlement landed Johnson and Johnson at number 10 of the all-time. According to DOJ, Johnson and Johnson bribed doctors in Greece, Poland and Romania to sue Johnson and Johnson devices and drugs. The bribes included compensation for a part of the price for medical devices, payments to purchasing committees at hospitals for medical equipment and travel arrangements to attend medical conferences. Johnson and Johnson allegedly used “sham contracts, off-shore companies and slush funds to cover its tracks.”
The Johnson and Johnson case is a clear warning shot to other medical device and pharmaceutical companies. Johnson and Johnson has cooperated, and is continuing to cooperate. It is easy to conclude that Johnson and Johnson is significantly responsible for assisting DOJ in launching its industry-wide investigations of other medical device and pharmaceutical companies.
Johnson and Johnson’s violation was premised on DOJ’s policy that doctors at state-run medical facilities are “foreign officials” for purposes of the FCPA. Johnson and Johnson did not challenge that interpretation.
Johnson and Johnson earned a deferred prosecution agreement (DPA) for its cooperation, and its voluntary disclosure. In contrast to the clear benefits to Johnson and Johnson which resulted a 5 point reduction in the fine calculation under the sentencing guidelines, other companies’ failure to voluntarily disclose misconduct and provide substantial assistance, other companies such as Alcatel and Hewlett Packard (and others) were treated (or will be treated) in a less sympathetic fashion by DOJ.
3. Here We Come Tech Companies: FCPA practitioners have warned technology companies for years about FCPA enforcement, especially with respect to technology companies operations in Asia. DOJ is bringing its enforcement weight to bear in this area and more is expected. Several companies have already disclosed the existence of such investigations.
a. On April 7, 2011, Comverse Technology Inc. settled FCPA violations with the DOJ and SEC for $2.8 million (a criminal penalty of $1.2 million and $1.6 million in disgorgement and pre-judgment interest). Comverse received a non-prosecution agreement from the DOJ that expires in two years. Between 2003 and 2006, Comverse’s Israeli subsidiary paid bribes of $536,000 to “individuals connected to OTE, a telecommunications provider based in Athens, Greece that is partially owned by the Greek Government.” It used a third-party agent to make the illegal payments, and recorded them as “agent’s commission.” The SEC said Comverse had no “process, formal or otherwise, for conducting due diligence of sales agents or for the independent review of agent contracts outside the sales departments.” Comverse received a non-prosecution agreement from the DOJ for books and records offenses — instead of a deferred prosecution agreement for substantive bribery charges –in recognition of its “thorough self-investigation and the results of its investigation, voluntary disclosure of the underlying conduct, and full cooperation,” the DOJ said.
b. On March 18, 2011, IBM resolved civil charges brought by the SEC for violating the books and records and internal control provisions of the Foreign Corrupt Practices Act. IBM made illegal cash payments to government officials in South Korea and China, and gave gifts to, and paid travel and entertainment expenses for, government officials in South Korea and China. IBM disgorged $5.3 million, paid prejudgment interest of $2.7 million, and paid a $2 million civil penalty. From 1998 to 2003, the SEC said, employees in Korea of a wholly-owned subsidiary, IBM Korea, Inc., and of a majority-owned joint venture called LG IBM PC Co., Ltd., “paid cash bribes and provided improper gifts and payments of travel and entertainment expenses to various government officials in South Korea in order to secure the sale of IBM products.” The bribes, improper gifts, and payments totaled $207,000. And from at least 2004 to early 2009, employees of IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd., both wholly-owned subsidiaries, “engaged in a widespread practice of providing overseas trips, entertainment, and improper gifts to Chinese government officials.” The gifts included cameras and computers. Many of IBM’s payments, however, were not directly related to legitimate business purposes and were not recorded accurately in its books and records.
