On October 24, the SEC released a cease-and-desist order that resolves FCPA allegations against a Michigan-based medical technology company. The SEC alleged that the company’s subsidiaries in five different countries—Argentina, Greece, Mexico, Poland, and Romania—bribed doctors, health care professionals, and other government officials to obtain or retain business. The alleged activities involved approximately $2.2 million in direct payments, travel and conference expenses, and donations to a university associated with a foreign official made over a four-and-a-half year period. The SEC investigation found that the payments were incorrectly described as legitimate expenses in the company’s books and records and were described as, among other things, charitable donations, consulting and service contracts, travel expenses, commissions, and legal expenses. Without admitting the allegations, the company agreed to disgorge approximately $7.5 million in profits obtained through the alleged activities, and to pay a $3.5 million civil penalty plus an additional $2.3 million in pre-judgment interest.
On October 22, the DOJ and the SEC announced parallel criminal and civil actions against a U.S. company for allegedly violating the FCPA by paying bribes and falsifying documents in connection with selling ATMs to bank customers in China, Indonesia, and Russia. The federal authorities allege that from 2005 to 2010 the company provided approximately $1.8 million of value to employees of its bank customers in China and Indonesia, including state-owned banks, in the form of payments, gifts, and non-business travel. The company allegedly attempted to disguise the benefits by routing the payments through third parties designated by the banks and by recording leisure trips for bank employees as “training” expenses. The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing. Instead, the distributor allegedly used the approximately $1.2 million in payments to bribe employees of privately-owned Russian banks to secure ATM-related contracts for the company. The company entered into a deferred prosecution agreement with the DOJ, agreeing to pay a $25.2 million penalty, and it consented to a final judgment in the SEC action, pursuant to which it will disgorge approximately $22.97 million, inclusive of prejudgment interest. The company agreed to implement numerous specific changes to its internal controls and compliance systems and to retain a compliance monitor for at least 18 months. The government acknowledged the company’s voluntary disclosure, cooperation, and extensive internal investigation.
On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologies—a U.S.-based energy storage and power-delivery company—for alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.
On June 12, the DOJ and the SEC announced additional charges in a previously announced case against employees of a U.S. broker-dealer related to an alleged “massive international bribery scheme.” The DOJ unsealed criminal charges against a third employee of the broker-dealer who allegedly arranged bribe payments to a Venezuela state economic development bank official in exchange for financial trading business for the broker-dealer. The SEC, whose routine compliance examination detected the allegedly illegal conduct, announced parallel civil charges.
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.
On May 7, the DOJ charged two employees of a U.S. broker-dealer and a senior official in Venezuela’s state economic development bank for their alleged roles in what the DOJ describes as a “massive international bribery scheme.” According to an unsealed criminal complaint, the DOJ accuses the broker-dealer employees and the foreign official of violating the FCPA by conspiring to pay $5 million in bribes to the foreign official in exchange for her directing the economic development bank’s trading business to the broker-dealer, which yielded millions of dollars more in mark-ups and mark-downs for the broker-dealer. The government alleges that commissions paid on the directed trades were split with the foreign official through monthly kickbacks and that some of the trades executed for the bank had no discernible business purpose. The government also claims that the kickbacks often were paid using intermediary corporations and offshore accounts, which will be pursued through a separate civil forfeiture action. On the same day, the SEC announced a parallel civil action against the two broker-dealer employees and two other individuals who allegedly participated in and profited from the scheme. The investigations stemmed from a routine periodic SEC examination of the broker-dealer. The DOJ warned others in the financial services industry, particularly brokers, about engaging in similar activities, and the SEC’s handling of this case suggests its examiners are focused on conduct that potentially violates the FCPA.
On April 22, the DOJ and the SEC announced parallel actions against a clothing company to resolve allegations that a subsidiary of the company paid bribes to Argentine officials over a several-year period to obtain improper customs clearance of merchandise. The SEC action included the agency’s first non-prosecution agreement (NPA) related to FCPA misconduct, which the SEC determined was appropriate given “the company’s prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC’s investigation.” According to the SEC’s NPA, the company’s cooperation involved (i) reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts, (ii) voluntarily and expeditiously producing documents, (iii) providing English language translations of documents to the staff, (iv) summarizing witness interviews that the company’s investigators conducted overseas, and (v) making overseas witnesses available for staff interviews and bringing witnesses to the U.S. The SEC agreement also required the company to pay over $700,000 in disgorgement and prejudgment interest, while the DOJ required the company to pay a nearly $900,000 penalty.
On February 19, the U.S. District Court for the Southern District of New York held that the SEC’s allegations of personal jurisdiction over a former CEO of Siemens’ Argentinian subsidiary – a German citizen with no direct ties to the United States – were “far too attenuated from the resulting harm to establish minimum contacts,” and dismissed the case against him for lack of personal jurisdiction. SEC v. Sharef, No. 11-Civ-9073, 2013 WL 603135 (S.D.N.Y. Feb. 19, 2013). In the underlying case, the SEC alleged that, between 1996 and 2007, Siemens employees approved and paid millions of dollars of bribes to Argentinian government officials throughout the life of a contract with the Argentine government, during the renegotiation of that contract, and during an arbitration proceeding after the contract was canceled. The SEC alleged that the CEO participated in the renegotiation of the contract and “pressured” the CFO to approve the bribes. Applying the due process requirements of minimum contacts and reasonableness set forth in International Shoe v. Washington, 326 U.S. 310 (1945), the court reasoned, “[i]f this Court were to hold that [the CEO’s] support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.” This decision follows another recent decision in the Southern District of New York regarding personal jurisdiction over foreign FCPA defendants. In that case, the court reached the opposite outcome and found that the SEC had alleged personal jurisdiction because the defendants’ alleged conduct was “designed to violate” U.S. securities laws and thus was “directed toward the United States.” SEC v. Straub, No. 11-Civ-9645, 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013). In Sharef, the court distinguished Straub on the basis that the individuals orchestrated a bribery scheme, “and as part of the bribery scheme signed off on misleading management representations to the company’s auditors and signed false SEC filings.”
On January 30, the DOJ announced that Assistant Attorney General for the Criminal Division Lanny Breuer will leave the department on March 1, 2013. Mr. Breuer was confirmed for the position in April 2009. The DOJ press release credits him with taking “significant steps to fight corruption at home and abroad,” including by increasing enforcement of the Foreign Corrupt Practices Act, and “protecting the integrity of our banking systems and fighting financial fraud.” With regard to the latter, the release cites Mr. Breuer’s LIBOR investigation, and his efforts to develop the division’s Money Laundering and Bank Integrity Unit to support enforcement of the Bank Secrecy Act.
On November 14, the DOJ and the SEC released A Resource Guide to the Foreign Corrupt Practices Act. The long-awaited release comes almost a year to the day after Assistant Attorney General Lanny Breuer announced that the agencies would prepare an FCPA guidance document. Overall, the Resource Guide is a compilation of previously-issued guidance and litigation positions set forth by the DOJ and the SEC with regard to (i) who and what is covered by the FCPA’s anti-bribery and accounting provisions, (ii) the definition of a “foreign official”, (iii) what constitute proper and improper gifts, travel and entertainment expenses, (iv) facilitating payments, (v) how successor liability applies in the mergers and acquisitions context, and (vi) the different types of civil and criminal resolutions available in the FCPA context. The Guide also provides what the DOJ refers to as “the hallmarks of an effective corporate compliance program,” which may serve as a useful starting point for constructing, testing or revising an FCPA compliance program. At an industry conference this week, Assistant Attorney General Breuer explained that the Guide represents “the most comprehensive effort ever undertaken by either the Justice Department or the SEC to explain our approach to enforcing a particular statute.” BuckleySandler’s FCPA Practice plans to prepare an analysis and perspectives on the Resource Guide, drawing from recent trial and international compliance counseling experience.
The DOJ is expected to release soon guidance on compliance with the FCPA, which originally was promised in November 2011 by Assistant Attorney General for the Criminal Division Lanny Breuer. Recent FCPA settlements obtained by the DOJ set the stage for the guidance and provide companies with insight as to what the guidance likely will include. For example, as part of its recent $60 million FCPA settlement, Pfizer agreed to a detailed series of FCPA-specific compliance undertakings, augmenting the more general rendition of program elements. The Pfizer deferred prosecution agreement (i) details the structure of the company’s compliance program staffing and oversight, (ii) mandates the maintenance and content of certain anti-corruption policies and procedures, (iii) provides mechanisms and resources for internal compliance reporting, (iv) requires annual company-wide, corruption-related risk assessments and five market-specific proactive compliance reviews annually, (v) requires thorough corruption-risk diligence prior to acquisitions, (vi) describes a program of third-party diligence and control, and (vii) directs a program of biennial training for specific personnel and directors, and a three-year training rotation for certain third parties. The BuckleySandler FCPA Team has prepared a Client Update and a checklist of the entire list of “Enhanced Compliance Obligations”, allowing compliance counsel to conduct a quick cross-check of their company’s existing compliance program elements.
On August 7, the DOJ and the SEC announced the resolution of FCPA allegations against Pfizer Inc. (Pfizer) and two of its subsidiaries, Pfizer H.C.P. and Wyeth LLC. The DOJ announced that it filed a criminal information in the U.S. District Court for the District of Columbia, as well as a deferred prosecution agreement pursuant to which Pfizer H.C.P. admitted to making improper payments to public officials in Russia and other eastern European countries in attempts to influence decisions to approve and register certain pharmaceutical products. Pfizer H.C.P. must pay a $15 million penalty, but the agreement acknowledges Pfizer’s efforts to investigate and self-report the matter, as well as the company’s “significant cooperation” and extensive remedial efforts. Civil charges brought by the SEC through separate complaints against Pfizer and Wyeth involve similar allegations regarding the companies’ conduct in numerous countries. While Wyeth neither admitted nor denied the SEC allegations, the two parties resolved the cases by agreeing to pay a combined $45 million, committing to certain remedial actions, and reporting to the SEC. Like the DOJ, the SEC notes Pfizer’s voluntary disclosure and cooperation. The SEC complaints and the DOJ deferred prosecution agreements are available on BuckleySandler’s FCPA Score Card.
The SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases. The whistleblower rules contain three key provisions that can be integrated into a company’s existing compliance infrastructure to encourage internal reporting, thereby affording the company time to further investigate the claim, provide a solution, or self-report potential violations. The three key provisions are:
- 120-day rule: Whistleblowers who report internally are considered to have reported the same information to the SEC as of the date of the internal report so long as the whistleblower, or the company on the whistleblower’s behalf, provides the same information to the SEC within 120 days.
- Tacking: If an entity conducts an internal investigation based on a whistleblower’s internal report, and thereafter provides that information to the SEC, for purposes of determining whether an award is due and how much, the whistleblower will receive credit for the submission of the same information.
- Bump Up: Making use of a company’s internal compliance and reporting system to report wrongful conduct is a positive factor that will potentially increase the amount of a whistleblower award.
On July 10, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the medical device sector to resolve an FCPA matter with the U.S. government. The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, who settled in February and March 2012, respectively. The Orthofix FCPA resolution calls for the company to pay a criminal fine to the DOJ of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the SEC. The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company’s 8-K of July 10, 2012, reporting the resolution. According to the allegations in the SEC’s Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as “chocolates” and booking inaccurate reimbursement requests as meals, car tires or training expenses. The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC. The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action.
On March 26, the U.S. Department of Justice (DOJ) announced it had reached a settlement with a medical device company to resolve allegations that the company and its subsidiaries made improper payments in violation of the Foreign Corrupt Practices Act (FCPA). DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments. The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.