Show Notes for Episode 24, week ending September 30, 2016-the SCCE Edition

  1. Misonix discloses possible FCPA violations, as reported in the FCPA Blog:
  2. The Anheuser-Busch InBev SEC FCPA enforcement action, click for the SEC Order;
  3. Och-Ziff SEC FCPA enforcement action, click for the SEC Order,
  4. HMT LLC and NCH Corp receive Declinations yet are required to disgorge profits, for the HMT Declination letter, click here and for the NCH Declination letter click here;
  5. Final thoughts by Tom and Jay on the recently concluded SCCE 2016 Compliance and Ethics Institute; and
  6. Jay previews his Weekend Report.

qtq80-OqbmVYThe second day of the SCCE Compliance and Ethics Institute (CEI) Conference began with Principal Deputy Associate Attorney General Bill Baer providing remarks. After opening with how aggressively the Department of Justice (DOJ) had prosecuted banks for illegal activity during the 2008 financial crisis, he turned to a more compliance focus subject matter; that being what constitutes extensive cooperation under the DOJ Foreign Corrupt Practices Act (FCPA) Pilot Program and, more broadly, which would allow a company to receive a reduction in a fine or penalty.

Most interestingly he said that DOJ consideration for cooperation credit is only available where an entity has satisfied the requirements of the Yates Memo which he termed the “department’s Individual Accountability policy.” To meet this initial threshold, companies who want credit for their cooperation must disclose all facts relating to the individuals involved in the wrongdoing, no matter where those individuals fall in the corporate hierarchy. He stated, “We will not credit cooperation unless this threshold requirement has been met.”

He went on to give the general disclaimer that while each investigation and defendant will be treated differently, there were some common elements the DOJ has observed. The first is that the cooperation should be proactive; that is, the company should materially assist the DOJ, including by disclosing facts that are relevant to the investigation, even when not specifically asked to do so. This could mean such things as a “company describing its own conduct and pointing us to inculpatory documentary evidence, such as emails and text messages.” It could also mean providing documents or access to witnesses that the department might not have obtained through its subpoena power. Somewhat more troublingly, Baer also said such cooperation could be “providing information that the government did not know about or did not recognize would be significant.”

He provided some examples where cooperation with the DOJ makes case administration easier and more efficient for the DOJ. These Instances included providing summaries of evidence that were designed to specifically to assist the government’s investigation; providing data compilation to the DOJ in a manner which is helpful and that the DOJ could not readily achieve on its own. It also included encouraging individuals with knowledge of the relevant conduct to cooperate with the investigation. Finally he listed providing information that might otherwise not have been discovered in the ordinary course of the investigation.

Baer cautioned that another linchpin is timeliness of the cooperation. If it is in the early stages of an investigation it is substantially more helpful than cooperation after the DOJ has “invested significant time and energy in exposing problematic conduct.” The corollary to this is that “little or no cooperation credit will be afforded in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” One can think back to both the Weatherford and Total FCPA enforcement actions, where the companies actively resisted the DOJ’s investigation until at some point they ‘got it’ and began to actively cooperate.

This series of remarks ties into something observed in the Nortek Corporation FCPA enforcement action, where the company self-reported to the government even before completing its internal investigation. Baer said that a company should come in as early as it possibly can, even if it has not completed an internal investigation. He did acknowledge that “A company will not be disqualified from receiving cooperation credit simply because it doesn’t have all the facts lined up on the first day; rather, under those circumstances, we expect that cooperating companies will simply continue to turn over the information to our lawyers as they receive it.”

Turning to the quality of the information provided, Baer said that a company (or individual for that matter) would be considered for credit where it provides information that allows the DOJ to obtain conclusions that are more significant. He explained, “where a cooperator enables the government to pursue conduct that might not otherwise have been addressed. This type of cooperation may involve detailing relevant conduct by a different party (or parties) participating in the same or similar scheme or that enables the department to net greater recoveries.”

He went on to add that a company could take other actions which could lead to a reduced fine or penalty or even a declination to prosecute. They turned on situations where a company acknowledged the responsibility for it negative actions. He also noted a key factor could be a company’s efforts to help assist victims of the illegal conduct. Baer conceded, “These actions are distinct from cooperation, which is focused on helping us uncover and understand the underlying conduct.  But they can be important additional factors in the department’s determination of an appropriate outcome.”

Baer also had some cautionary remarks around cooperation. He stated, “not every interaction between the government and a party under investigation will constitute cooperation.” He then provided an example from the DOJ’s enforcement action against “the RMBS banks, mere compliance with legal requirements such as subpoenas, or one-sided presentations urging the department to decline an enforcement action, do not measure up. Indeed, the department may view some such activities – including the belated provision of information that an entity was legally obligated to produce – as impediments to investigative work rather than genuine examples of cooperation.”

No doubt drawing on his inner Potter Stewart, Baer concluded with the ubiquitous remark, “We know meaningful cooperation when we see it.” He went on to cite a recent matter involving an un-named prescription drug chain that overbilled the government for orders of prescription drugs that were never picked up by customers. He said that the evidence involved handwritten pick-up signature logs kept at the cash registers of thousands of pharmacies and noted, “The company decided to cooperate early and in ways that mattered. In addition to the thousands of pages of the handwritten logs, the defendant produced extensive spreadsheets reflecting the information on the logs. To accomplish this, the defendant had a team enter the information line by line into a format where it could be analyzed. The defendant also shared its analysis using the information from the logs. This effort avoided the need to spend months and significant government resources tabulating the logs.”

From these remarks it is clear that the DOJ expects no adversarial relationship if you self-disclose and want cooperation credit. It was unclear from these remarks if that would also include the negotiations of any proposed fine or penalty. It will be interesting to see what happens to Telia Company AB and Deutsche Bank in their negotiations as they both balked at paying the originally proposed fine, stating they were simply the DOJ’s “opening demand”. If they actively fight the fine amounts, I wonder if it will penalize their cooperation credit.

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, 2016

The year 2016 may well be one for the books in the enforcement of the Foreign Corrupt Practices Act (FCPA). In February there were nearly as many FCPA enforcement actions as there were in all of 2015. Yet the summer of 2016 brought some significant enforcement actions which may well portend long-term changes in FCPA enforcement. In my new eBook,  I explore these enforcement actions, discuss the underlying facts of each and provide the lessons for the compliance practitioner. I will also look at the enforcement actions in the context of the Yates Memo and recently announced change in the way the Department of Justice (DOJ) will assess damages in its prosecutions based upon the FCPA Pilot Program, announced in April, 2016.

My latest eBook is published by Corporate Compliance Insights and joins a list of books which I have partner with CCI to publish. You can download this eBook for free by clicking here. At the 2016 FCPA enforcement year moves towards conclusion, it may well be one for the books. The summer of 2016 may prove to be as significant a three month period of FCPA as we have seen in some time.

book-ad

 

 Not Your Father’s FCPA-Summer 2016, the New Era of Enforcement

 

Show Notes for Episode 21, week ending September 9, 2016

  1. Star Trek and its influence on compliance, click here;
  2. SEC Press Release on whistleblower bounty payments;
  3. Cisco Systems received declinations from SEC & DOJ, as reported in the FCPA Blog;
  4. WSJ article Out of the SEC, Into the Whistleblower Industrial Complex
  5. NYT article Whistle-Blowing Insiders: ‘Game Changer’ for the S.E.C.
  6. GHBER registration for Sept. 15 panel on new ways to integrate the compliance function with the business while continuing to provide robust protection to the organization, click here.
  7. Red Flag Group registration for webinar on Gathering materials from your suppliers to better understand their business practices, click here.

Old Way New WayToday, I end my exploration of recent Foreign Corrupt Practices Act (FCPA) enforcement actions (and one UK Bribery Act enforcement issue), which have occurred since the enactment of the Department of Justice (DOJ) Pilot Program in April. These three enforcement actions, which resulted in the companies receiving a Declination to Prosecute from the DOJ. Proving once again that I am never gonna give you up, never gonna let you down; I want to look a these Declinations to see what information they can provide to the compliance practitioner to assist them in guiding their own response should their company find itself embroiled in a FCPA investigation and attendant enforcement action.

The enforcement actions involved Nortek Corporation (Nortek), Akamai Technologies, Inc. (Akamai), and Johnson Controls, Inc. (JCI). Nortek and Akamai received Non-prosecution Agreements (NPAs) from the Securities and Exchange Commission (SEC) and Declinations to Prosecute (Declinations) from the DOJ. JCI received a civil Cease and Desist Order from the SEC and Declination from the DOJ. One other matter was resolved with the DOJ via a NPA, that being Analogic Corporation. I will discuss this matter separately below. 

The Declination Letters

The letters issued by the DOJ did not provide a plethora of detail. The Akamai and Nortek Declination letters were identical with the exception of the different corporate names. In relevant part they stated, “we have reached this conclusion … based on a number of factors, including but not limited to the fact that Nortek’s internal audit function identified the misconduct, Nortek’s prompt voluntary self-disclosure, the thorough investigation undertaken by the Company, its fulsome cooperation in this matter (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation”. It went on to add that the company had agreed to profit disgorgement.

The JCI letter, stated, “We have reached this decision based on a number of factors, including but not limited to: the voluntary self-disclosure of the matter by JCI; the thorough investigation undertaken by the Company; the Company’s full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals; the steps that the Company has taken and continues to take to enhance its compliance program and its internal accounting controls; the Company’s full remediation”. As with the Nortek and Akamai the JCI letter also noted the company had agreed to disgorge its profits.

About the only difference I can ascertain in the letters is that Nortek and Akamai provide “fulsome” cooperation, and JCI provided “full” cooperation. Yet, the overall point of these Declinations seems to be the cooperation was very substantial.

Contrast the triple declination language with the NPA, which Analogic received, specifically noted the company’s lack of full cooperation. It stated, “the Company did not receive full cooperation credit because, in the view of the Offices, the Company’s cooperation subsequent to its self-disclosure did not include disclosure of all relevant facts that it learned during the course of its internal investigation; specifically, the Company did not disclose information that was known to the Company and Analogic about the identities of a number of the state-owned entity end-users of the Company’s products, and about certain statements given by employees in the course of the internal investigation;”

Box Score Summary of Declinations 

Pilot Program

Factor

Self-Disclosure Cooperation During Investigation Remediation Profit Disgorgement
Akamai Yes – before completing internal investigation 1. Sharing investigation;

2. Identify and present relevant documents;

3. Timely updates;

4. Updates on remedial measures;

5. Translating documents; and

6. Making witnesses available

1. Termination of culpable employees;

2. Revision of internal audit testing and protocol;

3. Strengthening of policies;

4. Creation of Compliance Committee;

5. Institution of mandatory compliance training; and

6. Modify auditing schedule to risk based approach

Yes
Nortek Yes 1. Sharing investigation

2. Timely updates

3. Segregation and organization of documents

4. Translation of documents

5. Making witnesses available

6. Conducting Risk Assessment

1. Due diligence program for 3rd parties;

2. Strengthen compliance policies;

3. Enhance compliance function, name CCO;

4. Institution of mandatory compliance training; and

5. Enhance travel and expense controls in China

 

Yes
JCI Yes – one month after it received a second anonymous complaint 1. Real time updates, interview summaries and all requested documents;

2. Yates binders including hot docs, interview summaries, chronologies and emails;

3. Preservation of evidence.

1. Termination of culpable employees;

2. Suspension of culpable 3rd parties;

3. Incorporation of culpable China office into existing corp structure;

4. Enhanced integrity testing and auditing, including random audits; and

5 Random testing of transactions

Yes

 

 

All parties admitted to facts, which could have formed the basis of a criminal FCPA enforcement action brought by the DOJ, yet they all received Declinations. While it would certainly have been more helpful to have a full release of information by the DOJ, to assist the compliance practitioner in understanding the totality of the facts considered, these three Declinations may well mark a new starting point in criminal FCPA enforcement going forward. Since at least 2014, with the Parker Drilling and Hewlett-Packard FCPA enforcement actions, the DOJ has provided significant credit to companies who thoroughly cooperated and provided extensive remediation during the pendency of their enforcement actions. With the Pilot Program implementation, these shifts are now official DOJ policy.

One other point unrelated to the Pilot Program discussion is the length of time that the Akamai and Nortek matters were concluded. It was less than 18 months for both. This short time frame for a resolution is certainly a welcome development and shows that if a company comes forward quickly, is efficient in its investigation and proactive in its remediation, it can benefit with lower overall investigation and remediation costs as well.

All of the above are most welcome for any compliance practitioner. The DOJ Pilot Program has come out of the box with some solid wins for the companies involved, the DOJ and the greater compliance community. If this pattern continues, it will allow the DOJ to focus its resources in driving home the message that it is doing compliance that will not only work to keep a company out of trouble but will also get a company out of trouble.

 

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, 2016