Category: fcpa

French whistleblowers get new legal protections

Palais de Justice, Nice

As of 1 February, the new French whistleblower protection law is in effect. Its provisions protects French employees of private companies from sanction or dismissal “for having reported or testified in good faith, facts constituting an offense or a crime of which he was aware in the exercise of its functions”.

A similar provision took effect to protect civil servants in France’s considerable public sector from retaliation after reporting illegal activities.

Under both laws a whistleblower who took part in any alleged offenses is  granted immunity from prosecution so long the whistleblower’s actions only amounted to an attempted offense or if the whistleblowing action prevented the crime from actually occurring. Where the whistleblower has actively taken part in some of the criminal actions but acts in time to stop the commission of the final criminal act, any sentence  decided by a court will be halved.

Why is this a landmark for France when whistleblower status has existed for decades in other countries and in the US since 1778?

Firstly, compliance with international accounting, money laundering, anti-terror laws and banking regulations — and cross-border enforcement of them — means that New York or London listed companies located in France had to find a legal way to implement a whistleblowing policy for French employees, this in spite of the lack of a local legal regime and the protestations of the CNIL, the national data privacy authority.

Secondly, it should be understood that France has a culture in which reporting of “private affairs”  to authorities is highly taboo. The chastening World War II experience (laws requiring citizen cooperation and informing to fascist Vichy and Occupation forces) meant that any institution of a new legal frame for anonymous reporting to the authorities carried a heavy burden of proving its usefulness versus possible abuse.

Thirdly, this was also an excellent opportunity for the Ecologists, part of the governing coalition to extend whistleblowing protection for environmental law violations – perhaps the most satisfying result of the change for ordinary citizens.

Unlike the US whistleblowing provisions, the new French law does not provide for pecuniary rewards for whistleblowers and the immunity from prosecution provisions only apply to to natural persons. It also allows associations to join criminal proceedings as civil parties – another advantage for environmentalists that has not existed in the past.

In any case, it is a step forward for revealing corrupt practices and protecting honest citizens.

Collateral bribery damages: NYC now 3rd fund to file suit v. Wal-Mart.

Buy easy Wal-Mex

In another of what will likely be many such lawsuits by pension funds, New York City Pension Funds filed a shareholder derivative action against Wal-Mart over the bribery and corruption scandal involving Wal-Mart’s Mexican subsidiary, Wal-Mex. This follows the California State Teachers retirement systems’s similar filing in late May.

The New York City complaint similarly alleges that Wal-Mart’s officers and directors breached their fiduciary duty to the company and its shareholders by failing to properly handle credible claims of the bribery allegations and attempting to cover up details of the scandal, reducing the value of the company by their actions.

For anyone not familiar with a derivative suit, the principal is that the shareholders of a corporation seek damages from directors to reimburse losses to the corporation for which the directors can be held personally responsible, as an exception to the “business judgment rule“.

A key aspect of evidence for plaintiffs in a derivative suit is finding a direct causal link between the directors’ actions (or inaction) and the eventual loss sustained by the corporation. In this case, it’s relatively simple to show that 1) Wal-Mart’s stock price took a big hit on the bribery news and 2) Wal-mart’s goodwill and market position has (again) been damaged. Now, the plaintiffs have to show the link.

A related suit, based on securities fraud, was filed by the City of Pontiac General Employees Retirement System in Tennessee. According to Reuters, a total of  11 derivative suits have been filed against Wal-Mart since the New York Times story ran.

It is imperative for board members and executives to realize that when they are made aware of corruption allegations that they follow advice of counsel and comply fully with internal audit procedures. In this case, it is up to Wal-Mart to show they did. If not, there will be not only the DOJ and SEC to deal with, but many angry pension fund managers and likely other shareholders brought together as a class by the many American law firms specializing in such matters. This story will continue until Wal-Mart manages to come to terms with what actually happened in Mexico (and elsewhere, depending on findings).

Donald Trump on bribery scandals: US “crazy” to enforce FCPA.

On CNBC’s Squawk Box, tycoon, occasional presidential candidate, Reality TV star and bottled water purveyor Donald Trump was asked about Wal-Mart’s allegedly widespread bribery in Mexico. Having obviously thought through the arguments for and against FCPA reform, he provided the following insights:

If you want to operate in Mexico, you have to pay bribes.

This is how business is done.

This country is absolutely crazy. Every other country goes into these places and they do what they have to do. It’s a horrible law and it should be changed. We are like the policeman for the world. It’s ridiculous.

The world is laughing at us.

Let’s parse this.

1. Operating in Mexico requires paying bribes.

According to Transparency International, Mexico scores 3/10 on the bribery index (10/10 meaning little or no bribery). Empirically, Trump is 70% right. Unless a company has chosen to adhere to OECD conventions and applicable anti-corruption laws, it would likely do more business in Mexico by greasing the right hands.

2. This is how business is done. Every other country goes into “these places” (countries with high levels of corruption) and does business according to local mores, in violation of the FCPA.

Here is a list of the 10 largest FCPA fines and settlements 1977-2012:

  1. Siemens (Germany) $800 million
  2. KBR/Halliburton (US) $579 million
  3. BAE (UK) $400 million
  4. Snamprogetti (Netherlands/Italy) $365 million
  5. Technip (France) $338 million
  6. JGC Corporation (Japan) $218.8 million
  7. Daimler (Germany) $185 million
  8. Alcatel-Lucent (France) $137 million
  9. Magyar Telekom (Hungary) $95 million
  10. Panalpina (Switzerland) $81.80 million

If FCPA prosecutions are an accurate statistical measure of the willingness of foreign businesses to participate in corruption, Trump is mostly correct. Only one US company makes the list. Moreover, with nine foreign corporations on the list, it does appear that the US is the “policeman for the world” (see DOJ site for the complete list).

3. The US is crazy.

That’s probably a matter of opinion. Watching CNBC for a few days straight might make one conclude that yes, it is crazy.

4. The world laughing at the US [for enforcing the FCPA].

Foreign companies might find the US’s anti-corruption stance risible (until they find themselves caught up in it). For example, Siemens had no compunction about including bribery in its budgets, despite the fact that they were directly subject to the law.

Criminal penalties, disgorgements, fines and consent orders levied against FCPA violators are tragicomically invisible to the vast majority of the world’s population which suffers through the indignity of having to live and do business within highly corrupt economies. Monies collected by the US government or the SEC never make it back to these individuals. 

His personal life, histrionics and buffoonery aside, Trump is a strategic thinker. Perhaps his frank talk isn’t surprising given that apart from a dust-up with the SEC over financial reporting about 10 years ago (settled out of court), he has not had any notable legal troubles over a long career in real estate and the gaming industry.

In my opinion, Trump runs a tight ship, otherwise there would be more blips on the map; his views on how to do business in China, India, Mexico or other ethically-challenged countries likely have nothing to do with how deals are finally done by the Trump Organization. But he would certainly appreciate being able to compete on a level field with foreign businesses for whom bribery is simply another accounting line item.

As an aside, perhaps Trump is engaged in a bit of spin in light of his competitor and onetime enemy Steve Wynn’s unlikely use of the statute internally to oust business partner Kazuo Okada?

NGO on FCPA reform: fines should compensate victims.

The SERAP (Socio-Economic Rights and Accountability Project) has added its voice to the calls for FCPA reform.

In a press release, the Nigerian NGO proposes that the US DOJ and SEC allocate a percentage of funds from fines exacted on corporations to aide the actual victims of corrupt government officials and agencies.

SERAP argues that since the FCPA and other anti-corruption laws do not provide for civil actions (apart from under the the Alien Torts Act) and moreover since there is little possibility of recovering damages in the country where the corruption occurred, the US government should share civil penalty and disgorgement proceeds with the victims.

Last week the DOJ replied to the US Chamber of Commerce’s reasonable pleas to “restore balance” and provide clarity on the law (their letter is here) by agreeing to discussions. The DOJ owes a similar response to SERAP. While the NGO lacks the backing of the hundreds of large corporations represented by the USCC, its argument is one that needs to be taken seriously.

SERAP provides some guidance on how civil penalty and disgorgement proceeds should be distributed in a systematic and fair manner to NGOs and the US Congress should invite them to testify in hearings on FCPA reform. That’s probably unlikely though since we probably won’t see any substantial progress on the issue until after the US presidential elections this November.

Updated: The FCPA Professor blog examines this issue in further depth.

 Photo: Rory Mullholland

US DOJ brings in FBI to investigate News Corp bribes to Scotland Yard.

FOXNews Headquarters

When details emerged last July that employees of News International (the press arm of News Corp) had possibly bribed 5 Scotland Yard police officers, the FCPA red alert must surely have sounded in News Corp’s legal department. Since then, News has brought in a number of heavy hitters to cover them, including immediately hiring Mark Mendelsohn from Paul Weiss Rifkind (a former deputy chief of the Fraud Section in the DOJ’s Criminal Division –  who helped devise the FCPA enforcement program) and the D.C. firm of Williams & Connolly, specialists in corporate compliance matters.

That the US DOJ has been working closely with UK investigators should come as no surprise to anyone following this matter and last month’s arrest of five alleged bribery scheme participants on criminal charges likely gave the signal to make public FBI involvement in the investigation.

Legal coverage for a necessarily international internal compliance investigation and evidence gathering (as well as putting together multiple defenses) will obviously generate considerable business for all the firms involved.

Since News earned over $30 billion last year, it can probably afford the attorney fees and any fines it will incur. However, facing criminal charges is a different ballgame and News would be remiss to not leverage its populist news media outlets to portray the investigation as politically motivated. Serving time in prison is an incredible motivator.

If you are interested in delving into the details of the UK Leveson Inquiry and its rogues gallery of hackers, hacked and outright despicable characters, the Guardian (which broke the story) does it very well.

Photo: Jim Henderson

$16.8M fine for European device maker in FCPA settlement.





The US DOJ announced today that Smith & Nephew has admitted to and settled claims related to an offshore kickback scheme with a Greek distributor. Smith & Nephew also settled today with the US SEC, paying $5.4 million in disgorgement of profits, including interest.

This is one more in a line of FCPA cases where the weak link in a company’s compliance program turns out to be 3rd party distributors and pressure to bring in revenue.

A recurring motif in communications with resellers is a version of “all the other resellers are doing it, if I don’t, I can’t compete”.  It seems to be a trap that is too easy to fall into for some executives.

The DOJ noted that it will seek to have the original charges dismissed if Smith & Nephew abides by the terms of its settlement agreement.

When can an individual sue a corporation for corrupt practices?

When a company’s stock price dives or its reputation is besmirched due to a criminal investigation, what action can affected individuals or shareholders take to seek compensation? What about whistleblowers who suffer retaliation?

While the US Congress is considering legislation to allow private parties to seek compensation for damages (Foreign Business Bribery Prohibition Act of 2011), there is currently no statutory provision that specifically provides claimants the right to bring suit against a corporation convicted for violating anti-corruption laws.

However, a growing number of shareholder derivative actions are being filed against corporations and their officers for breach of fiduciary duty on the argument that the corporation did not have adequate internal controls to ensure regulatory compliance and prevent violations. While not per se a statutory remedy, a derivative suit can achieve some compensation.

In the case of whistleblowers, those retaliated against do in fact have an administrative remedy. By filing a complaint with the US OSHA within 90 days a plaintiff is entitled to “all relief necessary to make the employee whole” (while not providing for punitives). If the facts permit, there are other options, including RICO civil provisions:

  • In a disturbing case, a non-US whistleblower and his family sued a corporation under the Alien Tort Claims, Torture Victims Protection, and RICO Act for alleged torture and beatings to prevent him from exposing corruption and bribery;
  • In a widely noted ruling, the U.S. 7th Circuit found that an employee allegedly terminated for refusal to participate in violations of Sarbanes-Oxley could proceed with a RICO civil case against his former employer and the 2 employees who conspired to hide the illegal activity.

In any case, corporations (and their officiers) fighting alleged violations should be aware that once the smoke has cleared, private plaintiffs are indeed in a position to extend the pain for years after a case is concluded.

I don’t think that I need to further emphasize how important it is to put a proper compliance policy and training program in place and to document each employee and partner’s assent to and understanding of the policy. Moreover, constant auditing and internal controls must scale in proportion to the company’s business in risk areas.

Photo: Brian Turner

Cinergy FCPA case: It takes ‘guts’ to make this argument.

In the ongoing FCPA case related to Cinergy’s alleged bribery of Haitian officials, their lawyer is planning to bring in Prof. Edgardo Rotman of the University of Miami Law School to make the argument that the DOJ, in enforcing the FCPA, is “denying the realities of the world” and that certain business cultures apparently require bribery before a contract can be concluded.

Cinergy’s lawyer also said that countries like China ‘allow’ bribery, putting the U.S. at a disadvantage in global trade. 

Considering the fact that China has its own anti-corruption law that nearly mirrors the FCPA (and China is a member of the OECD Anti-Bribery Convention working group…), I don’t think that this testimony will go too far in convincing anyone. I am anxious to read an update. Or not.

photo: Christian Van Der Henst

The FCPA ‘Bad For Business’ Argument – Corruption Currents – WSJ.

DOJ leverages Sempra’s lawyers’ work in FCPA case.

I’m not sure if we need to be really worried about this.

Is it truly wrong for the DOJ to work with a company’s lawyers to figure out if there was a violation of the FCPA? My sense is that Sempra wanted to cooperate and the DOJ probably came to an agreement with them once Sempra took action to correct any problems in Mexico and deal with the employees involved. There is likely much more to this story than is described in this article. Perhaps a political shot at Atty Gen. Holder? Comments welcome.

U.S. probe relied heavily on firm’s own investigation, FBI memos show – The Washington Post.