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Foreign Corrupt Practices Act & Anti-Corruption

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  • GlaxoSmithKline Ordered to Pay Almost $490 Million By Chinese Court For Alleged Bribery

    On September 19, according to media reports, a Chinese court ordered the Chinese subsidiary of GlaxoSmithKline, the UK-based pharmaceutical company, to pay approximately $487 million related to alleged bribery of hospitals and doctors.  Five of Glaxo's managers were also convicted after entering guilty pleas, and Glaxo's former country manager was ordered to be deported.  Glaxo apologized for the conduct in a statement.  Glaxo's Chinese subsidiary was alleged to have bribed hospitals and their doctors to boost prescriptions of Glaxo products, including through payment of large travel and entertainment expenses and other fees, leading to over $150 million in additional revenue. The Glaxo case involves many of the key areas currently affecting anti-corruption practitioners and compliance personnel.  For example, allegations were first raised by a whistleblower in 2013, and investigations regarding bribery of foreign state-owned hospitals or their doctors have been rising in the past few years.  Here, while the full facts are not yet clear, Glaxo has stated that only commercial (business to business) bribery was at issue, characterizing the conduct at issue as "offer[ing] money or property to non-government personnel in order to obtain improper commercial gains, and . . . bribing non-government personnel."

    China Whistleblower Pharmaceutical

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  • Press Reports Cite Italian Investigation into Oil and Gas Company for Potential Nigeria Corruption

    According to a September 11 news report, two top executives of an Italian oil and gas company are being investigated by Italian prosecutors for alleged corruption related to the company’s 2011 acquisition of 50% of a Nigerian deepwater offshore oil field block.  The executives include both the company’s CEO, and its Chief Development, Operations, and Technology Officer.  The company denied that any illegal conduct had occurred and noted its cooperation with the Milan Prosecutor’s Office related to the matter. The new investigation appears unrelated to the company’s previous $365 million FCPA and Nigeria settlement with the DOJ and SEC, regarding the TSKJ-Nigeria joint venture.

    Italy Oil and Gas Services

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  • Image Sensing Systems Reports Closed Investigations by Both DOJ and SEC

    Hank Lindsley is a managing regulatory attorney in the Washington, DC, office of Buckley Sandler LLP. Mr. Lindsley assists clients in the financial services industry, primarily in litigation, regulatory and compliance matters. Mr. Lindsley provides litigation support and assists with large scale document reviews and productions related to complex litigation. Prior to joining Buckley Sandler, Mr. Lindsley worked on large SEC/DOJ Second Request productions and complex Real Estate Investment Trust regulatory compliance matters for a number of law firms in Washington, D.C. 

    Mr. Lindsley received his J.D. from the S.J. Quinney College of Law at the University of Utah in 2001, where he was a member of the Journal of Law and Family Studies. He received his B.S. from the University of Utah in Political Science in 1998

    UK Bribery Act Poland

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  • DOJ Announces FCPA Plea by Hewlett-Packard Russian Subsidiary with $58.7 Million Fine

    On September 11, the DOJ announced that ZAO Hewlett-Packard A.O., a Russian subsidiary of Hewlett-Packard Company, pleaded guilty to conspiracy and felony violations of the anti-bribery and accounting provisions of the FCPA for making improper payments to Russian officials to secure a technology contract with the federal prosecutor's office.  Following the guilty plea, a federal judge in the U.S. District Court for the Northern District of California sentenced HP to pay a $58.7 million fine.  The guilty plea and fine are part of a larger agreement announced in April between HP, the DOJ, and the SEC, whereby HP and its international subsidiaries agreed to pay $108 million in criminal and civil penalties for bribing officials in Russia, Poland, and Mexico. The DOJ's Information accused the Russian subsidiary of the California technology company of improperly paying Russian officials millions of dollars in bribes to secure a $45 million information technology contract with the Office of the Prosecutor General of the Russian Federation.  According to the DOJ, for several years company executives bribed Russian government officials using a multimillion dollar slush fund that was financed through an elaborate buyback scheme and concealed through the use of two sets of books and other off-the-books agreements. In its press release, the DOJ praised HP's "extensive cooperation" during the investigation, including conducting a "robust" internal investigation and engaging in "extensive" anti-corruption remedial efforts such as instituting disciplinary actions and enhancing its internal accounting, reporting and compliance functions.  In April, HP said the misconduct was limited to a small number of people who are no longer with the company. While HP was required to implement a corporate compliance program and report annually for three years to the DOJ regarding the implementation thereof, HP was not required to engage a corporate monitor in its settlement of the DOJ's allegations.

    Russia ZAO Hewlett-Packard

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  • Terra Telecommunications Executives Petition Supreme Court

    On August 14, two former Terra Telecommunications Corp. executives convicted of FCPA and related offenses petitioned the U.S. Supreme Court for certiorari review of the U.S. Court of Appeals for the Eleventh Circuit's definition of "instrumentality" under the FCPA.  In May, the Eleventh Circuit upheld the former executives' conviction under the FCPA and defined "instrumentality" as "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own."  As a consequence of this definition, the Eleventh Circuit deemed an employee of a partially state-owned Haitian telephone company to be a "foreign official" for purposes of the FCPA.  In asking for certiorari review and in citing reasons to grant the petition, the former executives focused on the absence of a definition of "instrumentality" of a foreign government within the FCPA, which, according to petitioners, has resulted in persistent questions about the correct interpretation of the term.  The petitioners faulted the Eleventh Circuit for applying "an unacceptably broad interpretation of the term 'instrumentality' that expands the reach of" the FCPA.   In so doing, the former executives described the Eleventh Circuit's reasoning as "illogic[al]" and under "its statutory construction, a janitor working for U.S. Government-subsidized General Motors could qualify as a 'foreign official' if General Motors were located overseas."  According to published reports, this is believed to be the first substantive FCPA cert petition in the history of the FCPA.  In addition, the Supreme Court has never substantively addressed any FCPA issue.

    Terra Telecommunications

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  • Cobalt International Energy Targeted in SEC FCPA Inquiry

    Houston-based Cobalt International Energy, Inc. said in an August 5, 2014 securities filing that it received a Wells Notice in connection with the Securities and Exchange Commission's investigation of its oil-exploration operations in Angola. The Company stated in its filing that due to the SEC's investigation and recommendation, it may be "exposed to liabilities under the U.S. Foreign Corrupt Practices Act." Wells Notices indicate that the staff of the SEC has made a preliminary determination to recommend an enforcement action alleging violations of certain federal securities laws. According to Cobalt's 2013 10-K filing, the SEC first began an informal inquiry of the company in March 2011 which was later joined by the Department of Justice. In April 2012, as first reported by the Financial Times, allegations surfaced that three Angolan officials, including the head of the country's state-owned oil company and two military generals, held shares in Nazaki Oil and Gáz, the local partner in a Cobalt-led deepwater oil venture launched in early 2010. The government officials admitted owning shares in the joint venture but denied using their influence to award Cobalt oil-exploration rights in Angola. The company has previously "strongly refuted" allegations of wrongdoing and has said it was forced to enter into a joint venture with two Angolan-based oil exploration and production companies as part of its deal with the Angolan government.

    Cobalt International Energy Angola

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  • Mining Lobbyist Sentenced for Obstructing DOJ Bribery Investigation

    Brian Bartholomay is an associate in the Washington, DC, office of Buckley Sandler LLP. Mr. Bartholomay assists clients in the financial services industry, primarily in litigation, regulatory and compliance matters. He provides litigation support and assists with large scale document reviews and productions related to complex litigation.

    Mr. Bartholomay received his J.D. from Wake Forest University School of Law in 2006 and his B.A. from Davidson College in 2001.

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  • Four Sentenced in United Kingdom for Role in Innospec Matter

    On August 4, 2014, the United Kingdom’s Serious Fraud Office announced that four former executives of Innospec Inc. (formerly known as Associated Octel Corp.) were sentenced following a long-running investigation related to conduct in in Indonesia and Iraq.  Three of the four were sentenced to prison terms, with a former chief executive receiving four years in prison after being convicted at a jury trial earlier this year.  A former regional sales director received an 18 month sentence following a conviction at trial, and another former CEO was sentenced to two years following a guilty plea.  The fourth individual, a former business unit director, received a suspended 16-month sentence following a guilty plea. The sentencing of these former executives comes after Innospec pled guilty in 2010 to FCPA and anti-bribery criminal charges brought by DOJ and the UK’s Serious Fraud Office, and after Innospec settled civil charges brought by the SEC.  The charges alleged that Innospec, a global specialty chemicals company, had bribed Indonesian and Iraqi government officials to win sales of a gasoline additive after environmental legislation in the US and abroad led to a decline in sales of that additive.  As part of the settlement, Innospec paid U.S. authorities $27.5 million, and paid UK authorities $12.7 million.  Two of the four individuals sentenced in the UK had also previously settled with the SEC over civil FCPA charges.

    Indonesia UK SFO Innospec Iraq

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  • New York Federal Reserve Bank Official Questions FCPA's "Facilitating Payments" Exception

    On July 23, Thomas Baxter, General Counsel for the New York Federal Reserve Bank, in public remarks at a risk management conference, questioned the FCPA’s “exception for ‘facilitating or expediting payments’ made in furtherance of routine government action.” Mr. Baxter stated that “official corruption is a problem that some U.S. financial institutions have found challenging during the last year,” and suggested that those problems could derive from an organizational value system undermined by the facilitating payments exception. Mr. Baxter acknowledged that the exception “is grounded in a practical reality,” but expressed his preference for a zero tolerance standard. He explained that “when an organizational policy allows some types of official corruption . . ., this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.” He urged U.S. financial institutions to foster organizational value systems that “go beyond black-letter U.S. law” with regard to official corruption. Mr. Baxter made these comments in the context of a broader speech on organizational culture and its impact on compliance in which he also suggested that foreign banks’ recent sanctions and tax evasion compliance woes could be explained by a difference in the corporate values of foreign and U.S. banks and their employees when it comes to laws designed to support broader U.S. public policy.

    FCPA Update News New York Federal Reserve Bank

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  • SEC Announces $2 Million FCPA Settlement with Smith & Wesson

    On July 28, the SEC announced that Smith & Wesson Holding Corporation agreed to pay $2 million to settle charges that the United States-based firearms manufacturer had violated the FCPA by making or authorizing improper payments to foreign officials in Pakistan and other countries in an effort to win contracts to sell weapons to overseas military and police forces.  The settlement comes just weeks after Smith & Wesson announced in a June 19 securities filing with the SEC that the DOJ had abandoned its own related investigation without pursuing FCPA criminal charges. The claims against Smith & Wesson were filed in the SEC's administrative court.  In the order instituting the settled administrative proceeding, the SEC alleged that Smith & Wesson from 2007 to 2010 engaged in a "pervasive effort" of making the improper payments in order to generate new overseas business.  According to the SEC the only contract that was successfully consummated under the scheme arose after Smith & Wesson officials in 2008 authorized a third party agent to make cash payments and provide firearms to Pakistani police officials as gifts.  The resulting agreement to sell more than 500 pistols yielded a profit to Smith & Wesson of more than $100,000, the SEC found.  Similar improper payments and gifts that did not ultimately result in contracts for Smith & Wesson were allegedly made to foreign officials in Indonesia, Turkey, Nepal, and Bangladesh.  As described in the SEC's order, Smith & Wesson failed to account for the improper payments and instead characterized them as legitimate commissions and business expenses.  The order also found the illegal conduct was allowed to continue undetected for years because Smith & Wesson failed to establish an appropriate compliance program or adequate internal accounting controls in connection with its expanding business in "new and high risk" overseas markets. In addition to the $2 million settlement, which consists of disgorgement, prejudgment interest, and a civil penalty of more than $1.9 million, Smith & Wesson also agreed for the next two years to report to the SEC on its FCPA compliance efforts.  In its press release, the SEC praised Smith & Wesson's cooperation with the investigation and its other remedial efforts following discovery of the bribery scheme, including the termination of the company's entire international sales staff and the implementation of "a series of significant measures to improve its internal controls and compliance process."  Smith & Wesson consented to the settlement without admitting or denying the SEC's findings.

    Indonesia Smith & Wesson Pakistan Turkey Nepal Bangladesh

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