Show Notes for Episode 26, week ending October 14, 2016-the East Lansing Edition

  1. World Bank Debarments- as reported on the FCPA Blog;
  2. Spanish pharma Grifols lands its second DOJ declination-as reported on the FCPA Blog;
  3. Wells Fargo CEO Stumpf resignation and botched crisis management-as reported in the WSJ;
  4. First FCPA Mock Trial Institute-for information and registration, click here;
  5. Fox/Scher presentation at FCPA Blog NYC Conference-for information and registration click, here. Best of all, for listens of this podcast you are entitled to a 20% discount off the regular price. You can access the discount by clicking here.
  6. Jay Rosen Weekend Report and
  7. Patriots seal home field advantage with two consecutive Denver losses.

qtq80-9N0mGBLast week there were two declinations issued by Department of Justice (DOJ) for Foreign Corrupt Practices Act (FCPA) matters. The matters involved two Texas based, privately held companies. The first was HMT LLC (HMT) which makes above-ground liquid storage tanks for the oil and gas industry. The second was NCH Corporation (NCH) which produces cleaning products. Both companies received declinations under the new FCPA Pilot Program, which was announced last April.

What made these enforcement actions most interesting was that they were the first declinations; where a declination to prosecute was granted, yet there were no fines and penalties assessed against the companies yet both were required to disgorge the profits  generated by their illegal conduct. HMT disgorged $2.7 million in profit from its illegal acts and NCH disgorged $335,000 from its ill-gotten gains. While this category of declination was used for the first time in DOJ enforcement action; it was not the first time it had been discussed by the DOJ. Indeed, one might have wondered why it took nearly six months for this type of disgorgement to appear after the DOJ announcement of the FCPA Pilot Program.

When the FCPA Pilot Program was announced, most of the attention was given to the three prongs to receive credit: (1) self-disclosure, (2) extensive cooperation, and (3) thorough remediation. However, in both the Press Conference announcing the initiative and the written release, entitled “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (FCPA Pilot Program Guidance), the DOJ made clear there was a fourth requirement. As stated in the FCPA Pilot Program Guidance, “Moreover, to be eligible for such credit, even a company that voluntarily self-discloses, fully cooperates, and remediates will be required to disgorge all profits resulting from the FCPA violation.” It does not get much clearer than this statement.

As noted above both HMT and NCH were privately held businesses, not issuers under the Act and neither was subject to the Accounting Provisions of the FCPA. Previous FCPA enforcement actions, where there a was declination granted, involved companies which were issuers subject to the Accounting Provisions, enforced by the Securities and Exchange Commission (SEC). The companies who previously received declinations under the FCPA Pilot Program, Nortek, Akamai Technologies, and Johnson Controls all disgorged their ill-gotten profits in their respective SEC resolutions. In the cases of HMT and NCH, there could not be any SEC resolution as there is no SEC jurisdiction. Yet, to meet the fourth requirement of the FCPA Pilot Program, the companies were required to return their illegally obtained profit.

Former federal prosecutor Mike Volkov is probably the person who most often reminds us that the DOJ clearly signals its intentions. However, in FCPA Pilot Program the DOJ laid out in writing what was required and these two companies met all four requirements, thereby obtaining a declination. It should not be a surprise to anyone who read the FCPA Pilot Program Guidance to expect this was coming precisely in this type of case, where there was no SEC jurisdiction. Yet, there was more in these declinations which serve as lessons for the compliance practitioner.

NCH Corporation

According to its declination letter, “From February 2011 until mid-2013 the company had provided to Chinese government officials cash and other things of value, including gifts, meals, and entertainment, in order to influence the officials’ purchasing decisions.” These bribes were recorded in the company’s accounting records as, among other things, “customer maintenance fees,” “customer cooperation fees,” and “cash to customer,”. The company also “paid expenses for several employees of an NCH China government customer for a 10-day trip to various cities in the United States and Canada, only one half-day of which involved business related activities. The remainder of the trip involved sightseeing and other non-business activities. NCH paid approximately $12,000 for the non-business related expenses incurred by the officials during their trip, notwithstanding that NCH knew that: (1) the officials worked for a government entity; (2) NCH China had a sales bid pending before that entity while details of the trip were being discussed with the customer (although the bid was lost before the trip was taken); (3) various expenses were not for legitimate business activities; and (4) NCH had been advised that the proposed 10-day trip might violate the FCPA.”


According to its declination, from 2002 to 2011 the company had a “sales agent who was retained to promote and sell HMT’s products in Venezuela (“Venezuela agent”) illegally paid bribes to Venezuelan government officials in order to persuade Petroleos de Venezuela, S.A. (“PDVSA”), Venezuela’s state-owned and state-controlled energy company (an “instrumentality” under the FCPA), to purchase HMT products. To fund these bribes, the Venezuela agent frequently quoted prices to PDVSA that were substantially higher than the price HMT had quoted to the Venezuela agent. PDVSA paid the inflated prices to HMT, which kept the amount it had quoted the Venezuela agent and paid the Venezuela agent the remainder, purportedly as commission and subcontracting fees. HMT paid the Venezuela agent by wiring the purported commissions and subcontracting fees from its bank account in Texas to bank accounts designated by the agent in Panama, Curacao, and other locations.”

The factors listed which enabled both companies to receive declinations were similar. According to both declination letters, both companies:

  • Voluntarily self-disclosed the FCPA violations;
  • Thoroughly and comprehensively investigated the matter;
  • Provided full cooperation in the investigation, including providing of all known relevant facts about the individuals involved in or responsible for the misconduct, and both agreed to continue to fully cooperate in any ongoing investigations of individuals arising from this matter;
  • As noted both agreed to disgorge to the Department all profits earned from the illegal conduct;
  • Both took steps to enhance their compliance programs and their internal controls;
  • Both companies fully remediated. NCH Corporation terminated or took disciplinary action against the employees involved in the misconduct, including senior managers and lower-level employees involved in the misconduct, as well as high-level executives at company’s headquarters in the United States who oversaw the subsidiary in which the China misconduct occurred. HMT LLC also sanctioned ten employees through suspensions, pay freezes, bonus suspensions, and reductions of responsibilities, and severed business relationships with the Venezuela agent and the China distributor who were involved in the conduct. HMT also severed business relationships with seven other agents/distributors based on the findings of its investigation.

One can only say the FCPA Pilot Program is working and working well. With these two declinations the question of how privately owned businesses would be treated under the FCPA Pilot Program and the fourth requirement for profit disgorgement has been answered, although the answer was laid out in writing all along. For any Chief Compliance Officer (CCO) or compliance practitioner, these declinations should be studied closely to understand how the bribery schemes were funded and how the entities involved obtain such an outstanding result.


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 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

© 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.



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