The Compliance Evangelist is back from a great week of compliance related activities in Brazil. About all one can say is there is never a dull week in the ethics and compliance space under the current administration. I hope you were able to check out the first ever Compliance Into The Weeds emergency podcast, where Matt Kelly and myself took a look at some of the initial information which came out about the payments to the president’s personal lawyer Michael Cohen by domestic and international organizations. While I know Hunter Thompson has left his temporal form, one can only say his spirit lives on as “When the going gets weird…the weird turn pro”.

Today, I begin a multipart series on the revelations about the payments to Cohen, who made them and what they were alleged for; how they relate to the compliance world and what are the lessons for the compliance practitioner; and where there might be liability, if any, under the Foreign Corrupt Practices Act (FCPA). At this point, I do not know how many posts I will get out of all of this as the story is evolving and growing. So, in addition to channeling your inner Hunter S. Thompson, you might also want to channel your inner Bette Davis and “fasten your seatbelt” as we may be in for bumpy ride. Today, we begin with the players, their participation and their statements.

Drew FitzGerald, writing in the Wall Street Journal (WSJ), has reported that the Swiss pharma giant Novartis AG paid Cohen $1.2 million for services, the Korean company Korea Aerospace Industries (KAI) paid Cohen $150,000 in fees and AT&T paid Cohen $600,000. While we do not know what services Cohen delivered on behalf of these entities, American Oversight.org reported that AT&T representatives, within one month after retaining Cohen, had a private dinner with Federal Communications Commission (FCC) Chair Ajit Pai, while the FCC was considering the repeal of the net neutrality rule. Of course, at the time AT&T was in the midst of pursuing an $85 billion acquisition of Time Warner, which the Justice Department eventually opposed. Novartis, in a released statement, denied any connection with its $1.2 million payment to Cohen and a dinner its Chief Executive Officer (CEO) had with President Trump and others at Davos. Finally, CNBC.com reported that KAI partnered with Lockheed Martin to build the T-50A trainer jet in hopes of securing a US Air Force contract worth roughly $16 billion.

Daniel Politi, reporting in Slate.com, wrote that Cohen also approached Ford Motor Company to become a consultant for that organization. However, Ford turned him down. Politi said, the attorney for Stormy Daniels, Michael Avenatti said, ““I can confirm that Mr. Cohen solicited Ford Motor Company. It was in late 2016 into ’17. On multiple occasions. There was no policy. He was trying to sell access to the president. My understanding is that it was by phone and electronic communication.”” Politi also said the “Detroit Free Press confirmed that Cohen offered Ford his consulting services.”

Interesting, the CEO’s for both AT&T and Novartis apologized to their employees about these consulting contracts. AT&T CEO Randall Stephenson said in a memoto the entire company “the fact is our past association with Cohen was a serious misjudgment.” Moreover, Stephenson wrote “Our reputation has been damaged. There is no other way to say it – AT&T hiring Michael Cohen as a political consultant was a big mistake.” The now former head of External & Legislative Affairs left the company (retired or was kicked out – your call) and the group now reports to the company’s General Counsel (GC).

Jonathan D. Rockoff, reporting in another WSJ article, said “Novartis CEO Vasant Narasimhan said the company “made a mistake” agreeing to pay Trump lawyer Michael Cohen $1.2 million for what Novartis has described as his insight into health-care policy.” In an email reviewed by the WSJ, he reported, “Narasimhan said he felt “frustrated” by the arrangement, which was struck under a previous chief executive. “Many of you will feel disappointed and frustrated,” he said. Narasimhan also said, ““We made a mistake in entering into this engagement and, as a consequence, are being criticized by a world that expects more from us.””

The folks over at KAI took a different tack. While some have emphasized Cohen’s deal making credentials in the taxi and New York real estate business, together with his role as the President’s “fixer”: KAI focused on his knowledge of accounting standards. First it told the Washington Post, it had no idea that Cohen was associated with President Trump. Reuters.com reported the company said, “it signed a contract with Essential last year for “legal consulting concerning accounting standards on production costs,” and upon the expiration of the contract it made the payment in November. The aircraft components and military jetmaker declined to give further details on the consulting services it received from Essential and said it had no individual dealings with Cohen.”

There has been lots of chatter and quite a few articles on the potential for criminal penalties for this action. While the FCPA criminal sanctions probably do not apply (at least at this point, but who knows where the story will end up); there are several other areas which prosecutors could explore. One of the best of the articles was by Francine McKenna, at MarketWatch.com, where she heard from four well-known experts, Sara Kropf, Phillip Urofsky, Mike Volkov and Matt Kelly.

McKenna considered it from the foreign entity angle as Novartis is a Swiss domiciled entity. She cited to Kelly for the following, ““The Trump Administration is a foreign government to foreign corporations — so some Ministry of Justice overseas could view this as one of their country’s businesses trying to curry favor with a foreign official (President Trump) by paying huge fees to his ex-lawyer and fixer.”” She then added, “The Swiss Criminal Code makes bribery of foreign public officials a criminal offense. The Organization for Economic Cooperation and Development recently praised Swiss officials for expanding the number of cases it’s investigating.”

Urofsky, a former DOJ prosecutor, cautioned “there’s a difference between influence peddling and bribery.” He said, “In the absence of allegations that Cohen, or his companies, were conduit to payments to government officials, then it would be difficult to construct a bribery case based on payments to friends, lawyers, or cronies of such government officials.” He then added, ““To be clear, I’m not saying there is no case. If payments were made after the election, knowing that the Cohen company was paying women to be silent to protect the president, that might be viewed as intended to provide a benefit to a government official, namely the president. Of course, there also has to be evidence of a benefit flowing the other way – some evidence that the foreign company sought an advantage from the president or the administration in return.””

Volkov, also a former DOJ prosecutor, said if “Cohen was selling ‘official acts’ by Trump Administration officials in exchange for cash. Cohen would be liable and so would any person in the government who was agreeing to and/or providing official, government conduct promised to the payor. …If, on the other hand, the companies were hiring Cohen as a lobbyist for which he lobbied government officials on policy issues, then his only exposure would be for failing to register as a lobbyist.”

Kropf, a well-known criminal defense attorney, took a different tack, saying “A payment in return for a meeting or to learn information about President Trump is not a crime. Plus, any payments from companies to Michael Cohen are one step removed from a direct payment to a government official, making liability for the companies even less likely. If this were illegal, then a lot of lobbyists better get lawyered up.”

If there is one thing that is clear here it is that there is quite a bit of weirdness going on. Tomorrow we will consider how or why a company might want to contemplate hiring a third-party consultant to advise on political matters and how all of this relates to compliance.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

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