Jay and I return for a wide-ranging discussion on some of the top compliance and ethics related stories, including: 

1. Telia settles massive FCPA enforcement action. See reports by Dick Cassin the FCPA Blog, here and here. The Telia resolution documents include SEC Cease and Desist Order, SEC Press Release, DOJ Information, DOJ Press Release and DOJ DPA. The Coscom settlement documents include the DOJ Information and Plea Agreement.

2. New concerns about money laundering in Venezuela for US commercial entities. See article in the FCPA Blog.

3. Airbus Launches Internal Probe Into Unexplained Payment. See article by David Pegg and Rob Evans in The Guardian.

4. ENI releases new information about allegations of bribery and corruption in Africa. See article by Jaclyn Jaeger in Compliance Week.

5. Compliance Week Editor Bill Coffin interviews Hui Chen. See Bill’s article in Compliance Week.

6. More details on the FCPA probe of Uber. David Ingram reports in Reuters.

7. Astros clinch the AL west.

8. Burner phones, Ole Miss recruiting scandal and compliance. Tom explores in Compliance Lessons from Burner Phones.

9. This month’s podcast series on One Month to a More Effective Compliance Program is in full production. In September, I am reviewing innovations for your compliance program. This week’s topics include superforecasting in your compliance program, OODA feedback loop, real-time v. right-time monitoring in your compliance program, improvisation in compliance and putting compliance at the center of business strategy. Oversight Systems is this month’s sponsor.  It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.

10. The Jay Rosen weekend report preview.

While the resolution of the Telia Company (Telia) Foreign Corrupt Practices Act (FCPA) matter has long been awaited, the results announced yesterday by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) were stunning nonetheless. As usual, Dick Cassin at the FCPA Blog was the first to get the story out and it was so big, it took him two blog posts. (Here and here.) Over the next few blog posts, I will be exploring the resolution and what lessons the compliance practitioner can draw from the case, the parallel actions and what it may portend for FCPA enforcement going forward under the Sessions DOJ. Today I will consider the underlying facts of the settlements.

The SEC settled via a Cease and Desist Order (Order). The SEC issued a Press Release. The DOJ issued an Information (Telia Information) and a Deferred Prosecution Agreement (Telia DPA), both for Telia. The DOJ issued an Information and DPA for Coscom LLC (Coscom Information), a Plea Agreement and also issued a Press Release. The breadth and scope of Telia’s illegal conduct was about as far-ranging as one could imagine. The fines and penalties certain bore this out. The below chart lists the fines and penalty amounts identified in the settlement documents and Press Releases.

Company Criminal Fine Civil Forfeiture Amt Paid to US Amt Paid to Netherlands Amt Paid to Sweden
Telia $500MM $475MM $699MM $274MM (not yet set)
Coscom $48.6MM
Subtotal $588.6 $475MM
Total Fines and Penalties to be paid by Telia to all countries $965MM

In a separate Press Release, Telia said in part, “The information being reported by media about the terms of the resolution is not complete. Telia Company has already announced that it has taken a provision with respect to the expected financial sanctions. It is correct that we are very close to a final resolution with all authorities (SEC, DOJ and the Dutch prosecutor), but cannot comment further at this time.” Cassin reported, “The company said in April it had adjusted its “estimate of the most likely outcome of the ongoing investigations into the company’s market entry and operations in Uzbekistan to $1 billion from $1.45 billion.””

The bribery scheme involved the company illegally buying its way into the Uzbekistan telecom market through its bribery of Gulnara Karimova, the eldest daughter of the late Uzbek President Islam Karimov. Karimova was also the bribery conduit in the VimpleCom matter, resolved in February 2016. In the Telia case Karimova parlayed her providing telecom licenses and upgrades into bribe payments of over $330MM to shell companies which she controlled.

In the DOJ Press Release, Acting US Attorney Joon H. Kim stated “Telia, whose securities traded publicly in New York, corruptly built a lucrative telecommunications business in Uzbekistan, using bribe payments wired around the world through accounts here in New York City. If your securities trade on our exchanges and you use our banks to move ill-gotten money, then you have to abide by our country’s laws. Telia and Coscom refused to do so, and they have been held accountable in Manhattan federal court today.”

The SEC Press Release stated, “Telia entered the Uzbek telecommunications market by offering and paying at least $330 million in bribes to a shell company under the guise of payments for lobbying and consulting services that never actually occurred. The shell company was controlled by an Uzbek government official who was a family member of the President of Uzbekistan and in a position to exert significant influence over other Uzbek officials, causing them to take official actions to benefit Telia’s business in Uzbekistan.”

The bribes were specifically approved by the highest level of Telia, including senior executives and the Board of Directors. There was an explicit awareness that the bribery scheme would violate the FCPA, so the company tried to navigate its way out of potential FCPA liability. Clearly those efforts were lacking. I will take a deep dive into the bribery scheme in a subsequent blog post.

A couple of other initial observations are important. The first was the truly international scope of the investigation and cooperation in the enforcement action. In the DOJ Press Release it noted involvement of “PPS, the Swedish Prosecution Authority, and the Office of the Attorney General in Switzerland, as well as law enforcement colleagues in Austria, Belgium, Cyprus, France, Ireland, the Isle of Man, Latvia, Luxembourg, Norway, Switzerland, the Isle of Man, and the United Kingdom.”

The SEC Press Released acknowledged and thank the following international enforcement actions, “Dutch Openbaar Ministerie, National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway, Swedish Prosecution Authority, Office of the Attorney General in Switzerland, and Corruption Prevention and Combating Bureau in Latvia. The SEC also appreciates the assistance from regulators and law enforcement in France, Spain, and Hong Kong as well as the Financial Conduct Authority, British Virgin Islands Financial Services Commission, Cayman Islands Monetary Authority, Bermuda Monetary Authority, Cyprus Securities and Exchange Commission, and Central Bank of Ireland.” Both the IRS and Department of Homeland Security were acknowledged to have been involved. Also noted was DOJ Money Laundering and Asset Recovery Section.

The DPA laid out the calculations which led to the criminal fine and forfeiture. It was noted the company did not self-disclose but did cooperate in the investigation and provided extensive remediation. This netted the company a 25% discount off the minimum penalty as calculated under the US Sentencing Guidelines.

As to Karimova, she has been under house arrest since 2014. In 2015, the DOJ won a federal court order to impound $300 million in bank accounts linked to her. The accounts were held by Bank of New York Mellon Corp. in Ireland, Luxembourg, and Belgium, and in accounts at Clearstream Banking SA. In 2014, prosecutors in Switzerland seized about $820 million as part of a money-laundering investigation into Karimova.

The Telia FCPA enforcement action continues a key theme from 2016-international cooperation. This cooperation was in both the investigation and enforcement aspects. All-in-all a stunning result for all the prosecutors involved.

 

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, 2017

The top compliance roundtable podcast is back with a wealth of new topics.

  1. Matt Kelly considers the current state of the SEC and what he sees for changes by SEC Chairman Jay Clayton. 

For Matt Kelly’s posts on SEC and Chairman Clayton, see the following: 

SEC Chair Clayton Talks Compliance Costs

Framing the Arguments Over SOX Compliance

The Private Market Stresses Driving SOX Compliance Debate

  1. Mike Volkov opens with the intersection of anti-corruption compliance and anti-trust compliance in connection with the role of the Chief Compliance Officer

For Mike Volkov’s post on the intersections on anti-corruption and anti-trust compliance, see the following: 

Chief Compliance Officers Have to Address Criminal Antitrust Risks

Focusing Antitrust Compliance Programs on the Real Criminal Risks

 The members of the Everything Compliance panel include:

  • Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com
  • Mike Volkov – One of the top FCPA commentators and practitioners around and the Chief Executive Officer of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
  • Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of Compliance Week. Kelly can be reached at mkelly@radicalcompliance.com
  • Jonathan Armstrong – Rounding out the panel is our UK colleague, who is an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com

Yesterday I posted a book review of Jesse Eisinger’s book The Chickenshit Club. I also posted a podcast of an interview I did with Eisinger and Paul Pelletier, a partner at Pepper Hamilton, who was a source in the book. The both had some interesting takes on the underlying causes which led to the lack of Department of Justice (DOJ) prosecutions in the wake of the 2008 financial meltdown and ensuing scandal. Today, I want to highlight what I thought were some of the key points they raised in the interview. To listen to the full interview, check out the FCPA Compliance Report-Episode 349.

I began by asking Eisinger what led him to write the book. He said that as a financial reporter he had been writing about the growing subprime crisis as early as 2005. He also wrote about the looming financial crisis and leveraged the investment banks, which of course blew up leading to the 2008 financial meltdown. In 2009, Eisinger began work on a series of stories, “The Wall Street Money Machine,” which were co-authored with Jake Bernstein. This series revealed how Wall Street’s morally questionable practices had led to the worst financial crisis since the Great Depression and was awarded the Pulitzer Prize for National Reporting in 2011. It was the first Pulitzer Prize awarded to a group of stories published in a digital-only format. Based upon the prosecutions from the earlier financial crisis in the late 90s and early 00s around companies such as Enron, WorldCom and Adelphia, Eisinger had expected criminal charges to be brought. They never were so he sought out to explore what had changed.

One of the things that I found most interesting about the book was that it laid out the multiple steps which led the DOJ down the road where it did not prosecute any senior executive after the 2008. The steps were not planned out and in many ways were not dependent upon each other. Yet they led from the successful Enron prosecutions to something very different just a few years later.

Pelletier noted, that one of the important things was how slowly this happened and that this was not one decision. He made clear, “This wasn’t Timothy Geithner or calling up Eric Holder and saying don’t prosecute bankers.” But it was a process, “institutional imperatives and incentives that had been building up for a long time that resulted in this and this was building for a long time.”

One of the things Eisinger and Pelletier disagreed on was the role of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) in leading to fewer trials. Eisinger was unremitting in his criticism of these prosecutorial tools, saying “this is the new way that corporations are prosecuted in this country through settlements for money.” He was also very critical of the role of corporations and their counsel in performing internal investigations and turning them over to the government.

Pelletier feels that both DPAs and NPAs have a place in the prosecutorial arsenal and when “used appropriately are effective ways to both change corporate culture and to punish criminal corporate conduct.” Pelletier did agree with Eisinger in criticizing the role of corporations in turning over their internal investigations which largely form the basis of an enforcement action going forward. He feels that under such a scheme, “the department has moved away from the hard work of investigating and prosecuting and taking the easy way out.”

Also interesting was their differences in opinion on how to turn things around. Pelletier began by suggesting the DOJ take a deep dive retrospective look back and see what really happened that did not allow it to bring any significant cases. One might even say the DOJ should do a root cause analysis along the lines of the one laid out in the Evaluation of Corporate Compliance Programs and apply its findings going forward. His second suggestion was increased and enhanced training for DOJ prosecutors on how to try cases. He noted that he had previously taught at the National Trial Advocacy Center in South Carolina but the DOJ had dropped sending young prosecutors there for advanced trial advocacy training. Finally, he said there must be a change in the attitude about bringing cases at Main Justice. You simply cannot have even an information policy that if you lose a case it ends your career and have an effective trial team.

Eisinger also had some interesting ideas. First he suggested paying DOJ prosecutors quite a bit more so that the siren song of money in private practice is not always calling. He mentioned the figure of $400,000 for senior prosecutors who made careers with the Department. This would help keep down the number of prosecutors who leave after six years or so, going into private practice.

This Human Resource (HR) type initiative would extend to hiring lawyers from a wide variety of law schools, backgrounds and experiences to create greater diversity in the talent pool. Eisinger believes that there should be more geographic diversity but the pool of talent should have “more plaintiffs’ lawyers, more consumer protection lawyers, and more academics.” He advocated there should be older people who are what he termed “refugees from white collar defense practices” and who do not want to return to it or made their money and are satisfied with their careers.

He next turned to the issue of corporate versus individual prosecutions. Eisinger feels that prosecutors should focus on prosecuting individuals first and “the prosecution of corporations should be as a last resort. And the last resort should be a settlement with the corporation”, which should also be rare. He believes that by focusing on individuals, the DOJ can change corporate behavior in a more focused manner.

To my mind the most significant and important book that every Chief Compliance Officer (CCO), General Counsel (GC) and compliance practitioner needs to read is The Chickenshit Club. It should be on your ‘must read’ list.

To purchase a copy of The Chickenshit Club, click here.

 

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.

To my mind the most significant and important book that every Chief Compliance Officer (CCO), General Counsel (GC) and compliance practitioner needs to read is The Chickenshit Club by Pulitzer Prize winning author Jesse Eisinger. It puts together for the first time, the story and timeline of how the Justice Department (DOJ) devolved from the group of prosecutors who convicted felons from the late 90s and early 00s financial scandal such as Enron and WorldCom, to the group which did not even bother to attempt to prosecute high ranking executives after the 2008 financial meltdown.

In this episode, I interview with book author, Jesse Eisinger and Paul Pelletier, a key source for the book. The interview is fascinating and I urge you to take a listen for both the substance and the interplay between Eisinger and Pelletier. We discuss the genesis of the book, what happened between Enron and 2008 which led to no prosecutions and conclude with both Eisinger and Pelletier’s proposals to get the DOJ back on track as the nation’s trial lawyers.

For the Everything Compliance podcast recording reviewing The Chickenshit Club, click here.

Finally and most importantly, to purchase a copy of The Chickenshit Club, click here.