Tag Archives: DOJ

Best. Quote. Ever.

13 Aug

Preparing for This Week in FCPA today, I came across this quote in the New York State Department of Financial Services’ Order against Standard Chartered:

You fucking Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.

This was from SBC’s Group Executive Director to its head of Compliance in New York.

In the anti-corruption space, we encounter this sentiment probably as often as the Sanctions compliance community does.

But it’s a legitimate question (if phrased, shall we say, indelicately?) Why is it okay for the US to export its foreign policy and mandate compliance by non-US institutions?

The DFS gives its answer a few paragraphs later:

In November 2008, the US Treasury Department revoked authorization for [a previously approved type of transaction] because it suspected Iran of using its banks—including [the banks Standard Chartered transacted with]—to finance its nuclear weapons and missile program. The US also suspected that Iran was using its banks to finance terror groups, including Hezb’Allah, Hamas, and the Palestinian Islamic Jihad, and engaging in deceptive conduct to hide its involvement in vairous other prohibited transactions, such as assisting OFAC-sanctioned weapons dealers. (emphasis mine)

It’s simple (at least to me). Because there’s no such thing anymore as “just in your country.” If what happens in your country stays in your country, you’re right, the US has no business getting involved (absent extraordinary circumstances like genocide etc.)

But honestly, the idea of an Iranian atomic weapon scares the crap out of me. If Iran is funding its program using money illicitly obtained at least partially through stripped wire transfers, whoever does that needs to stop.

Nor, I believe, is the problem exaggerated. When I was in the Bronx DA’s Office, one of the types of cases I was in charge of was video piracy. I’m talking about the counterfeit videotapes they sell on the street. The Bronx is, strangely enough, the counterfeit videotape capital of the United States, and tied for first (with Bangkok) in the World. It’s a big business, and part of what I tried to do was follow the money.

We found the money went to two different places. One was to Nigeria. The other was to Palestinian terror organizations.

So yes, I have no problem believing that Iranian nuclear ambitions are tied to stripped wire-transfer documents. There’s a reason that OFAC talks about the sanctions programs as implicating national security.

I conclude, therefore, that because the US is most certainly directly affected by Iran’s nuclear program, we do have standing to tell you that if you’re a US company, or your non-US company has US citizens in it, or is a subsidiary of a US company, then you can’t engage in certain types of financial transactions with people trying to blow up us and our allies. Sorry.


Why I Hate The Case Against Walmart

2 Jul

For long-time readers, this post will take a familiar tone: you’re all wrong.

The FCPA Unit in the Fraud Section has a lot to do.  At last count, there were over 80 companies facing FCPA investigation (all publicly disclosed), including HP, Avon, Weatherford, Ingersoll-Rand, News Corp., Archer Daniels Midland, and lots more.  Household names.  Plus, of course, Walmart.

I’ve advocated harsher penalties for corporations, and I’m second to only one (Alexandra Wrage) in my distaste for bribery.

But I hate the Walmart case.

In my humble opinion, Walmart should get a nominal fine via an NPA.
Maybe $2 million.  Something like that.  I’d prefer less—maybe a declination with undertakings? Totally private?—but I can’t see it happening.

You’d think I’d be salivating over the prospect of Walmart getting a massive fine.  It’s a huge US multinational company which went overseas and bribed government officials in order to gain an improper advantage for the purpose of obtaining or retaining business.  Straight out of 15 USC sec. 78dd-1(a). And like I said, I’ve advocated for larger fines.

Why do I hate the Walmart case so much?  Let’s lay it out.

1. Walmart’s Bribes Were Arguably Facilitation Payments

This is going to be fact-dependent, and no one has all the facts right now.  It’s likely even Walmart doesn’t have all the facts.  But here are some.  It’s an exception to the FCPA—not an affirmative defense; that’s important—when payments are made to secure routine government action.  The exact wording of the statute is:

Subsections (a) and (g) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.

What’s important in that quote is what isn’t said: there’s no discussion of amounts, only purpose.  So the fact that some of the payments that Walmart made were high (the number I keep hearing is upwards of $250,000) is neither here nor there.  It’s what the payments were designed to get.

Here, the payments were designed to get building permits. It may be that the issuance of building permits is discretionary, but I’m guessing that it’s not so simple. There’s discretionary meaning that it’s truly a decision in contention. Like the decision to award a contract. Then there’s totally non-discretionary, like postal service. In the middle, there’s an area where something might technically be discretionary, but in reality, it’s either a rubber stamp, or it’s simply always one way. Building permits could be a case like this. It’s always worked out, as long as you wait long enough and do what you’re asked. Remember also that “obtaining permits” is one of the things specifically mentioned in the Act as falling under “routine governmental action.”

And that brings me to reason #2.

2. Walmart Didn’t Bring Its Corruption Into Mexico

There’s a reason that Mexico is #100 on the Transparency International Corruption Perceptions Index. In corporate-speak, it’s a “challenge” to do business there. In regular-person speak, I’m sorry to say that corruption is rampant. Not that I’d use the word “cesspit,” but if someone else were to, I wouldn’t correct them.

Just to give one example: if you want to get a copy of a judgment or filing, you need to tip the court clerk. This person is undeniably a government official, and you’re paying him or her money. No tip, no document. Law firms regularly pay these morditas; (“little bites”) and list them on invoices as “miscellaneous expenses.” [I’m sorry if this comes as a shock to you, and you’ve been paying—and mislabeling in your books and records—these payments].

Like I said, a challenging place to do business. I’ve never dealt with getting building permits and such in Mexico, but I’m ready to believe that there’s a “no payment, no permit” culture there. In other words, Walmart wasn’t a corrupt organization that had bribery in its DNA. It was responding to market conditions.

I can hear the cries now. No, I’m not excusing bribery. But give me a break. I’m an anti-bribery advocate, but I also like to think of myself as a realist. I don’t think a company should ever pay a bribe. But I also recognize that we’re not there yet. There are still places in the world where the wheels of business are greased by money.

Building permits in Mexico might be like that. If the only time a permit is denied is when there’s no payment, I have a hard time working up a visceral anger at the company paying it. Or thinking that the type of payment was for a discretionary benefit. I’m not saying it’s right (remember, I think Walmart should get fined something), but it’s also not the worst thing in the world.

There’s a combination aspect at work here too. I might not accept the “it’s how business gets done here” if it were a true “bribe,” as my gut interprets the word. I have a hard time seeing it as a bribe, so I’m quicker to accept the “it’s the market” excuse.

Again, I’m not saying it’s right, but I am saying that I’m going to save my anger for true bribery cases.

3. Where’s the Harm?

Anyone who has heard me speak on anti-corruption has likely heard my refrain: I hate bribery because it most heavily impacts that segment of the population that can least afford it. The poor, the disenfranchised, the marginalized, all get hit hardest. Roads deteriorate faster, buildings are built with substandard materials (some fall down, on people), small businesses can’t start up, employment rates fall, small bribes become a necessity for people who can’t afford them.

In one market, a new mother can’t get her baby from the nursery without greasing the nurse. As I’ve often said, say what you will about bribery, but can’t we all get together on the idea that “grease the nurse” shouldn’t exist as a concept? That things have gone too far?

So what was the harm to the populace in Mexico? That they can now buy quality goods at cheaper prices? Okay, in a theoretical sense, it perpetuates a culture of corruption that impacts other areas. I get it. But that’s a little too far outside the zone of causation for me to get pissed at Walmart over.

And that’s the bottom line for me. I can’t work up any visceral anger at Walmart. And if I—a person who hates bribery more than most—can’t work up anger at Walmart, I’d submit that their actions weren’t all that bad.

Two other considerations, one in each direction.

First, Walmart’s real problems, in my opinion, were in the corporate governance area rather than the bribery arena. The way the information was handled by Bentonville when it was presented to them is less than satisfactory.

But we haven’t yet criminalized lack of good corporate governance.

The result of Bentonville’s mishandling of the allegations to me should result in Walmart being given no self-disclosure credit. Maybe some undertakings to improve their investigations process. Schedule D stuff. Walmart should also revise their corporate policy to disallow facilitation payments globally.

The second consideration, which plays into why the DOJ should get out now, is something I mentioned up top: facilitation payments are not an affirmative defense, they’re an exception.

Which to me means that the burden of proof is on the government.

This is not an easy case by any stretch for the government. And Chuck Duross—who I’m assuming has taken a personal interest in the case, if not taken it over as one of his cases—is a reasonable guy. He’s not going to bring a case, or even recommend bringing a case, that he knows he can’t prove at trial.

Chuck’s integrity as a prosecutor is Walmart’s ace-in-the-hole.

It’s not going to be an easy case to make. Building permits are specifically mentioned, as I said. Even though there might be a discretionary element, that element is something that Congress had to consider before putting what they did in the statute.

And let’s not forget, for all the political pressure to be harsh on Walmart, there’s got to be a little bit of back-pressure too. After all, no one—especially not a career prosecutor—likes to have their agenda set by a newspaper, even the New York Times.

There’s a possibility there’s more to the story.  The most dangerous thing for Walmart right now, in my opinion, is the investigation they’re forced to conduct.  They might find something.  If they find actual bribery, all bets are off.

Plus, the original article was in the New York Times.  Say what you will about the Times—and I often think of subscribing just so that I can resign my subscription in protest—they set the journalistic agenda for the entire world.  So every reporter in the entire world is looking at Walmart right now. It’s like the world’s most intrusive external auditor poking through your business, without the ethical constraints. So yes, Walmart has incentive to settle. They can’t afford to let it drag on like the News Corp. case.

So both Walmart and the DOJ have good reasons to want to end this soon (like now). Let’s all do the right thing and support a fair conclusion to this fiasco.

Man Enough To Admit When I’m Wrong

29 Jun

If I had to say in two words what I think my responsibility is as a member of the FCPA Commentariat—and yes, I think that when you have a large bullhorn, you have a duty to use it correctly—those two words are “informed commentary.”  I might disagree with Mike Koehler more often than not, but I respect Mike—and his opinions, especially the ones I disagree with—because say what you will about his commentary, it’s informed commentary.  And say what you will about me—and many have—I’m man enough to admit when I’m wrong.

Usually, I think, I get it right.  I certainly try hard to.  But no one is right 100% of the time.  Me included.

Some time back, the SEC brought the case against Watts Water.  The SEC took some criticism for bringing the case because Watts Water did everything we expect from corporations when an investigation begins.  They really showed that they reformed themselves.  I was one of the people who thought the SEC overreacted, and I said so (made worse by the forum in which I expressed myself, as described below).

And so I find myself owing an apology to the SEC, via Rob Khuzami, head of Enforcement and Kara Brockmeyer, head of the SEC’s FCPA Unit.

I was privileged to attend both recent FCPA Business Roundtables. The Roundtables are forums where 20-25 senior business compliance leaders come in and talk to the government about FCPA enforcement. The meetings are jointly hosted by Lanny Breuer (Assistant Attorney General of the DOJ’s Criminal Division), Rob Khuzami (Director of the SEC’s Division of Enforcement), and Cam Kerry (General Counsel at the Dept. of Commerce). A slew of other SEC, DOJ, and DOC people attend as well.  The Roundtables are conducted under Chatham House Rules. In other words, everything is pretty much off the record.

I think it’s fantastic that the DOJ and the SEC seek the business community’s input, and I was proud to be asked to join.

During the last Roundtable, I was asked in the course of conversation what cases I thought the DOJ and SEC brought that they shouldn’t have. It was a strange question to put to me (as another participant at the meeting pointed out) because I’m usually the guy defending the DOJ and SEC’s enforcement record. But I took the question seriously, and tried to answer it.

Watts Water was one of the cases I mentioned.

Putting aside that I was criticizing someone’s case—maybe someone who was in the room—in front of (and to) the Director of the Division of Enforcement, I felt, based on what I had read, that Watts Water did everything we expect from companies, and should have gotten a pass (maybe the SEC’s second DPA?)

I was wrong.

I knew I had to publicly retract my semi-private criticism once I read the English translation of the underlying policy that got Watts Water into trouble:

The amount of the kickback paid to a client shall be based on the contract price, inclusive of any sales agency fees, return of price difference, consulting fees to design institutes and sales person’s commissions, etc. ….

There’s no way—no way—that any regulator could read that policy and not bring a case. The fact that Watts Water did what it was supposed to do once it, belatedly, found out about that policy certainly serves to mitigate penalties. And it did. But to take a pass with a company policy—HELLO! A POLICY!—that says that? No way.

My apologies, Mr. Khuzami.

The Commission was absolutely right to authorize the action, and the staff absolutely right to request it.

As I said, I try to deliver informed commentary.  And I think I have just as good a grasp on the overall enforcement record as anyone.  But in this instance, boy, did I drop the ball.

I’m still sticking to my guns about Alcatel, though.  Sorry, Chuck.

NB: I would have written this earlier—I read the policy a week ago—but I wanted to make sure that by publishing what I did, I wasn’t violating the press rules for the Roundtable. I am only publishing after receiving reassurance that I’ve stayed within the rules.

FCPA TV: Is Everyone In China a “Foreign Official”

31 May

Further to my piece below on instrumentalities, I recorded this video discussing China, and whether there are 1.3 billion “foreign officials.”