john-fogertyI recently saw John Fogerty in concert. For those you are not aware, he was a founding member and the driving force behind Creedence Clearwater Revival (CCR), one of the very top American groups from the 1960s and early 1970s. After the band’s disintegration, Fogerty continued on as a solo artist. CCR was distinctive in that its rock and roll roots were Stephen Foster as much as anyone and in the middle of the British invasion brought a uniquely American sound with a very hard edge. From the anthem of Vietnam vets, Who’ll Stop the Rain, to the greatest Halloween song Bad Moon Rising (that is – after Boris Karloff’s version of the Monster Mash); CCR brought serious American root chops to rock.

Fogerty continues to rock out and played a 2.5 hour set straight through from his opening song of Proud Mary to his encore performances of Travelin’ Band, Bad Moon Rising and Fortunate Son; it was one great night of rock and roll for any who listened to music in the 60s or 70s. His son played lead guitar for him and it was very obvious that Fogerty had a father’s joy in working with his son. If he comes to your town, I suggest you run, don’t walk, to the show.

Fogerty’s performance informs today’s blog post about the recent Foreign Corrupt Practices Act (FCPA) enforcement action brought by the Securities and Exchange Commission (SEC) against Nu Skin Enterprises Inc. (Nu Skin) and its Chinese subsidiary, Nu Skin (China) Daily Use & Health Products Co. Ltd. (Nu Skin China). Nu Skin is a Utah based entity, which, according to the SEC Cease and Desist Order (Order), is “in the business of manufacturing and marketing cosmetic and nutritional products primarily through direct selling, or multi-level marketing [MLM], channels.”

Although it was a relatively small enforcement action with a civil money penalty in the amount of $300,000, coupled with a disgorgement profits in the amount of $431,088, plus prejudgment interest of $34,600, the matter has several interesting aspects for the Chief Compliance Officer (CCO) or compliance practitioner to consider. First, although it might seem somewhat unusual for such an entity to become embroiled in a FCPA enforcement action it is the uniqueness of it that points to several lessons to be garnered by any company doing business under a MLM sales model. Next the case involved corruption around a charitable donation and it, therefore, serves as a stark reminder of the high-risk of charitable donations under the FCPA. Finally, the matter reminds everyone of the strict liability nature of violations of the Accounting Provisions of the FCPA including both internal control provisions and books and records provisions of the Act.

The allegations are that Nu Skin China made a donation which totaled approximately $154,000 to a charity in China to secure the intercession of a Chinese Communist Party (CCP) official to stop an ongoing investigation of the company. Nu Skin China had engaged in direct selling in China, in violation of Chinese domestic law, and was under investigation by the Administration of Industry and Commerce.

Nu Skin China decided, rather than comply with the law, it would seek to influence the investigation through corrupt means. According to the Order, “A Nu Skin China employee contacted the Party Official, who was his acquaintance, to suggest a charity located in the province. The Party Official had a pending request to Nu Skin China to facilitate obtaining college recommendation letters to U.S. universities from an influential U.S. person for his child. The Party Official proposed a charity, although at the time a branch of the charity had not yet been established in the province and it had no operations there. The Party Official, however, was associated with the entity that was responsible for establishing the charity in the province. Further, the provincial head of the AIC had previously reported to the Party Official.” Not only was a donation to the Party officials suggested charity made by but “the request for the recommendation letters was elevated to “top priority” as it was “becoming increasingly important” for Nu Skin China. Nu Skin US subsequently reported to Nu Skin China that it had secured an agreement from an influential U.S. person to write the college recommendation letters for the Party Official’s child.”

Nu Skin China did not inform its US parent of the true nature of the donation; to wit, to corruptly influence the AIC investigation and proposed fine of approximately $485K. Because of the size of the donation, the US parent had to approve and advised its Chinese subsidiary that such a “large donation in China could pose FCPA risks, so it advised Nu Skin China to consult with outside U.S. legal counsel based in China to ensure that the donation complied with the FCPA. Outside counsel, in turn, recommended that Nu Skin China include anti-corruption language, which included language regarding the illegality of influencing government officials, in the written donation agreement with the charity. That language was inserted into a draft of the donation agreement between Nu Skin China and the charity. The anticorruption language, however, was removed from the final version of the donation agreement that Nu Skin China executed. Nu Skin US was not aware that the language had been removed.”

All of this presents several significant and important lessons for the CCO and compliance practitioner. There was no evidence that Nu Skin self-reported so it is not clear how the SEC was made aware of the FCPA violation. However, it is not too far a stretch to opine that the Chinese government could have tipped off the SEC. The case also demonstrates that it is every transaction that matters as this enforcement action was for a one-time transaction. Ongoing due diligence, compliance terms and conditions in contracts and monitoring the relationship after the contract is signed are mandatory for any high-risk transaction. This donation had been flagged by the US entity as high-risk yet there was no oversight by the US entity to make sure that the compliance mandates were followed.

This enforcement action also reinforces the need for robust management of FCPA high-risk charitable donations. As was noted in the Order, “given the well-known corruption risks in China, Nu Skin US did not ensure that adequate due diligence was conducted by Nu Skin China with respect to charitable donations to identify links to government or political party officials and to prevent payments intended to improperly influence such persons in violation of the company’s anticorruption policy and the FCPA.” The reason there are levels of oversight in any best practices compliance program is to prevent just this type of FCPA violation from occurring. It really does not matter if the China subsidiary misrepresented to the US parent both what it was doing and then failed to follow specific instructions. Oversight is there to make sure that internal rules and procedures are followed. That is the responsibility of the US parent.

Finally, companies need to understand the strict liability nature of enforcement actions involving Accounting Provision violations of the FCPA. The statute itself refers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” as the SEC had interpreted this portion of the FCPA to set a reasonableness standard. If there are payments which violate the FCPA, there were not sufficient internal controls to prevent them. It may sound like very backward logic but that is the reality of SEC enforcement actions and it points directly to the need for companies to have functioning internal compliance controls in place.

John Fogerty took me back many years to some great music I listened to and indeed loved as a teenager. The Nu Skin FCPA should remind every CCO and compliance professional that vigilance must be maintained in any high-risk country or high-risk transaction, even if you are selling through MLM. Failure to follow through with all required compliance program steps, including oversight from the home corporate office, can lead to serious consequences.


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

© Thomas R. Fox, 2016

joint-ventureJust in time for National Beverage Day comes the Foreign Corrupt Practices Act (FCPA) enforcement action involving Anheuser-Busch InBev (ABI), where the company paid $6 million to settle charges that it violated the FCPA and impeded a whistleblower who reported the misconduct. Given the information provided in the Securities and Exchange Commission (SEC) Cease and Desist Order (Order), one might reasonably wonder how the company got off so lightly. ABI agreed to “pay disgorgement of $2,712,955, prejudgment interest of $292,381, and a civil penalty of $3,002,955, for a total payment of $6,008,291” to the SEC.

The illegal conduct occurred in the company’s wholly owned Indian subsidiary, Crown Beers India Private Limited (Crown). ABI owned a 49% interest in the joint venture (JV) InBev India International Private Limited (IIIPL) which managed the marketing and distribution of Crown beer. The Order notes, “IIIPL used third-party sales promoters to make improper payments to Indian government officials to obtain beer orders and to increase brewery hours for Crown in 2011. IIIPL invoiced Crown for reimbursement for certain of these expenses, and Crown paid or accrued them. In doing so, Crown recorded certain of these expenses in its books as legitimate promotional costs. During this period, Crown had inadequate internal accounting controls to detect and prevent these improper payments and to ensure that transactions involving these promoters were recorded properly in its books.”

ABI made about every mistake possible in this matter and this case is therefore a very useful teaching tool for the FCPA compliance practitioner. As noted, the nefarious entity, IIILP was 49% owned by ABI (or its predecessor). The governance structure of the JV provided that ABI and its Indian partner “each had the right to appoint four IIIPL directors, with RJ Corp having the right to appoint the Chairman, who cast the tie-breaking vote on all but certain specified matters. RJ Corp appointed the IIIPL CEO, who had the power to appoint the other members of the IIIPL management team, except for the CFO, whom AB InBev appointed. Throughout the relevant period, the top financial officer at Crown acted as the top financial officer at IIIPL. From mid-2011 through early 2014, Crown’s in-house counsel also acted as IIIPL’s in-house counsel.”

The Order reports that in early 2009, the JV concocted a scheme to pay bribes to increase sales. It hired Promoter Company A, who had no industry experience, who charged excessive commissions and sought reimbursement for questionable promotions. There was no contract in place with Promoter A and no due diligence was obtained prior to the commercial relationship commencing. Later in 2009, an internal whistleblower brought forward information on the illegal activities of Promoter Company A.

In December 2009, ABI received an internal report on potential illegal activities at the JV and ABI expedited a previously scheduled audit of the JV. While “audit did not scrutinize Promoter Company A’s activities or expenses. Still, the 2010 audit identified various deficiencies at IIIPL, including (a) a lack of documented business policies and procedures for significant functions such as procurement, vendor selection, and expense reimbursement; (b) a lack of awareness about FCPA compliance; and (c) inadequate information technology controls regarding financial processes and expense payments. AB InBev did not rectify many of the issues identified in the audit until 2011 or early 2012.”

In 2011, IIILP began to work with Promoter Company B, which was owned by the son-in-law of the Provincial Excise Minister. Promoter Company B was the conduit through which bribes were paid to the Minister to allow the JV to brew after hours and later bribes were paid to generate sales. The was no due diligence performed on Promoter Company B and there was no written contract in place, although one was later surreptitiously created and magically back-dated to give the appearance of following the law.

As you might well guess, for his (or her) trouble the internal whistleblower was terminated. In settling his (or her) claim, the Separation Agreement claimed to prevent the whistleblower from reporting the illegal conduct. It is not clear if ABI attempted to enforce this provision but the Order did note the whistleblower, who had been cooperating with the SEC, ceased doing so and only resumed such cooperation, “Only after the Commission issued an administrative subpoena for testimony and documents did the Crown Employee resume communicating directly with the Commission staff.”

In addition to not self-disclosing the clear FCPA violations, ABI not only did not cooperate but actively resisted the SEC’s investigation. The Order reported, “During the investigation, AB InBev did not respond to subpoenas in a timely manner, and made broad assertions of privilege that required significant resources from the Commission staff to address and delayed the production of responsive, non-privileged documents.”

Worse, the JV engaged in plans to destroy or hide documents. Here the Order reflected, “In or about May 2013, Commission staff learned of IIIPL’s plans to destroy or hide documents. The Commission staff informed AB InBev immediately thereafter, but the company took no immediate corrective action. In September 2013, AB InBev notified the Commission staff of a meeting in which several IIIPL managers instructed top IIIPL employees to remove potentially inculpatory data from their offices and computers. Crown and IIIPL’s in-house counsel attended the meeting, but never alerted AB InBev management to the document removal instructions. Other IIIPL employees reported that they had helped or observed IIIPL managers take several binders out of the building to destroy or move to a “secret location.””

ABI did make some efforts at remediation, most notably shutting down the JV and operating directly out of India now. It also conducted “extensive FCPA training for Crown’s staff, and implemented improved compliance policies and controls at Crown, including policies and controls relating to third-party due diligence and contracts. AB InBev also has hired a dedicated India compliance manager who reports to a new India Legal Counsel and Head of Compliance.”

ABI was found to have violated the FCPA and the Dodd-Frank Whistleblower provisions in the Order. The FCPA violations included violations of both prongs of the Accounting Provisions; books and records and internal controls. The Dodd-Frank violations centered on not only trying to illegally muzzle the un-named whistleblower but indeed all employees terminated when the JV was dissolved. It was not spelled out in the Order which part of the penalty of $3MM+ related to the FCPA violations and which part related to the Dodd-Frank violations.

This enforcement action drives home several points on basic FCPA compliance. The first centers around JVs. Companies must take their FCPA and Dodd-Frank obligations seriously as they apply to foreign JVs. ABI clearly did not. Not only did it put forward a less than rigorous audit of the JV after having been put on notice, it did not follow through to ensure that audit recommendations were followed. ABI allowed the illegal conduct to continue long after it was put on notice.

Next, the role of the in-house counsel must be raised as the lawyers for the company have not come out of this looking too good. Not only were the Indian subsidiary, Crown’s in-house counsel, the counsel for the JV involved, they were a large part of the problem. The Order specifically called out these lawyers for being in attendance at meetings where document destruction and hiding was discussed but did not inform the corporate parent or anyone else. Someone in the legal department had to have drafted or at least approved the illegal language of the Separation Agreement. I hope that ABI sent its in-house counsel to some strong legal ethics training. Some FCPA training would also seem appropriate.


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

© Thomas R. Fox, 2016

Gene WilderI am back from a two-week summer study program at Oxford, run by Michigan State University through its Odyssey to Oxford program. It was a great experience. My class was on The Tudors in film and print so not only did I re-watch some decent movies but was able to re-read the sweep of Tudor history, from Henry VII to Elizabeth I. If you have any interest in studying at Oxford or learning more about British culture or history, this program is for you.

One of the sad notes from the past fortnight was the passing of Gene Wilder. He was one of the great comic actors of the late 20th century. Whether it was the doctor who fell in love with an (underage) sheep, the definitive Willy Wonka, Dr. Frankenstein (pronounced FraunkEnSteen), his movie pairings with Richard Pryor, or his hilarious comedy routines with his (now deceased) wife Gilda Radner; they were all top shelf. So I hope when he gets to the great theater in the sky he will be able to say “Put the candle back” to a packed house and roaring audience.

Of note in the Foreign Corrupt Practices Act (FCPA) world, was the AstraZeneca (AZN) enforcement action brought by the Securities and Exchange Commission (SEC). The case had several interesting factors and, more significantly for the C  hief Compliance Officer (CCO) and compliance practitioner, a continuation of several lessons to be learned from enforcement actions over the past several months. While the conduct at issue occurred between 2005-2010 and has been seen in other anti-corruption enforcement actions, it remains useful to review the facts presented so that compliance professionals can test their compliance regime.

The company came to FCPA grief for its actions in its Chinese and Russian subsidiaries. In China, the subsidiary (AZ China) made numerous improper payments to health care providers (HCPs) “in the form of cash, gifts and other items … incentives to purchase or prescribe AZN pharmaceuticals.” Sales and marketing team members, including managers within various business units at AZ China, designed and implemented the improper payment schemes. The HCPs who received the improper incentives worked for various government entities in several regions throughout China. Interestingly, the “AZ China sales staff and their managers maintained written charts and schedules that recorded the amount of forecasted or actual payments of maintenance fees, gifts, entertainment and other expenses that AZ China would make per month or year”.

We also saw the re-emergence of our old Chinese corruption vehicle, the travel agency, which was featured so prominently in the GlaxoSmithKline (GSK) Chinese corruption case. These corrupt travel agencies would submit falsified or inflated invoices which in turn could be used to generate monies from the corporate home office to pay bribes. There were also speaker fees paid for speeches never made, travel bookings reimbursed for travel which never occurred; both of which were purloined through insufficient documentation and failures of internal controls.

In AZ’s Russia subsidiary, (AZ Russia) the “employees provided improper incentives to government-employed HCPs in connection with sales of AZN pharmaceutical products. As was done by AZ China employees, AZ Russia employees created and maintained charts tracking the names of HCPs, the regions in which they practiced, their level of influence in making purchasing decisions for the respective entities where they worked and the manner in which they could be motivated to purchase AZN products through gifts, conference support and other means.”

Further instructiveness comes from the result achieved by AZN. For violations of both prongs of the Accounting Provisions of the FCPA: (1) Books and Records and (2) Internal Controls; the company sustained a civil penalty which was relatively low at $375,000; profit disgorgement of $4,325,000, which represents profits gained as a result of the conduct described in the order, and prejudgment interest of $822,000, for a total of approximately $5.5MM. There was no external monitor required, all of this with no self-disclosure by AZN.

AZN engaged in extensive cooperation during the investigation and significant remediation. For its cooperation during the investigation, the company “immediately took a cooperative posture and ensured that it consistently provided complete information in a timely manner. AZN voluntarily and timely disclosed information obtained during its own internal investigation, provided translations of key documents, and disclosed facts that the Commission would not have been able to readily and independently discover. AZN also kept the staff regularly informed of its ongoing remedial efforts throughout the course of the investigation.”

For the CCO or compliance practitioner, the actions engaged in to remediate its compliance program marked the measure of its result. The Order noted the company:

  • Incorporated information developed in the course of the Commission’s investigation to further enhance its controls and compliance program;
  • Made significant increases to both capital and human resources available to compliance at the corporate level and in the local markets;
  • Developed a centralized compliance program;
  • Revamped its internal controls and procedures;
  • Placed key compliance personnel in high-risk markets;
  • Enhanced anticorruption training and company audits of its compliance program; and
  • Provided targeted training and discipline to company employee involved.

Additional compliance program improvements included:

  1. enhancements to AZN’s policies governing interactions with HCPs and government officials,
  2. gifts, travel and entertainment,
  3. third party engagements,
  4. meetings, congresses, and contributions.

This FCPA enforcement action continues the clear path laid out by the SEC from June, 2016 forward. There will be civil enforcement of the FCPA where the company has not met the standards of the Accounting Provisions. However, even without self-disclosure, a company can receive a relatively low civil penalty if it cooperates during the investigation and engages in extensive remediation of its compliance program. Much like Gene Wilder spinning in the door which led to the secret passageway to his great-grandfather’s laboratory in Young Frankenstein a company can successfully emerge from facts which give rise to a FCPA violation. The problem is if a company wants to go to court and fight the charges it will most probably continue the same conduct which led to the original issue and will not have received credits going forward for its penalty, hence giving it greater liability. Such an attitude would certainly keep a company spinning.


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

© Thomas R. Fox, 2016

Show notes for This Week in FCPA-Episode 15, for the week ending July 29, 2016 include:

1) Miller & Chevalier — FCPA Summer Review 2016 – 7-28-16;

2) NY Law Journal — Does the New FCPA Leniency Program Threaten Due Process? By Nicholas M. De Feis and Philip C. Patterson from De Feis O’Connell & Rose;

3) Incentivising companies to self-report: Different approaches in different jurisdictions, but the outcomes are broadly the same — Georgina Jones, Laura Manson and David McCluskey at Taylor Wessing;

4) A video blog from Paul Weiss where A-C & FCPA Pilot Chairs Alex Oh & Farrah Berse look at FCPA Pilot Program – New Guidance for Self-Reporting;

5) From the FCPA Blog – Richard Bistrong interviews Frank Brown, from The Center for International Private Enterprise – (CIPE). Frank speaks about going from Newsweek Bureau Chief in Moscow to now fighting A-C supply chain risks;

6) Mike Volkov, furthers a conversation he had with me earlier in the week about The Power of a Justice Department Declnation;

7) And once more in the breech where myself and Roy Snell go Unfair and Unbalanced on the recent US Open and handling of Dustin Johnson being assessed a 1 stroke penalty;

8) Reports on the LATAM FCPA enforcement action. The can be found at and; and

9) Report on the Petrobras shareholder lawsuit, available at