State of the Union June 30, 2010

From the Detroit News:
A parade of General Motors Co. executives put the hard sell on bankers and financial analysts Tuesday, promising they'll continue to make money, as the company heads toward its initial public stock sale. Analysts left the meeting encouraged that GM has a clear product plan targeting growth in emerging markets, and financial discipline after years of mismanagement. And they were optimistic that the initial public offering, perhaps this fall, will be successful. "This will be a hot deal," said Maryann Keller, an auto analyst and head of Maryann Keller & Associates in Stamford, Conn (as well as frequent GM critic). While GM shed billions in debt and obligations through bankruptcy, the automaker is carrying $42.2 billion in debt and pension obligations. GM CFO Chris Liddell's goal is to boost GM's $30 billion in cash, fully fund its pension obligations, and slash remaining debt. GM's pension plans cover about 650,000 people and are underfunded by $13.6 billion, according to a government report. "Every spare dollar will be put toward that use over the next few years," Liddell said. Among the automaker's other selling points to analysts and potential investors:
o It has slashed the amount of cash incentives on each vehiclesince last year from almost $4,700 to $3,230.

o The U.S. market share of Chevrolet, Buick, GMC and Cadillac has risen from 15.4 percent in the first quarter of 2009 to 19.2 percent this spring.
o GM's average transaction prices have climbed $3,300 from a year ago, more than double the industry average.

o Through May, sales of GM's four core brands were up 31 percent, a jump of almost 207,000 vehicles from a year earlier, which is nearly double the volume lost by shedding Hummer, Saturn, Saab and Pontiac.

But GM cautioned against counting on steady gains, given increased competition, a fragmenting auto industry and volatility in financial markets and the global economy. "The message we all need to understand is the next 10 years will be tougher than the last 10," Vice Chairman Steve Girsky said. "And the last 10 were pretty tough."

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Disconnected ... Another Telecommunications Company Settles An FCPA Enforcement Action

Yesterday, Veraz Networks, Inc. (see here) joined a long list of telecommunications companies to recently settle an FCPA enforcement action. Veraz, a California-based telecommunications provider, went public in April 2007 and sells its telecommunication products through both direct and indirect sales channels with a majority of its revenue coming from sales outside of the U.S.

Other telecommunications companies, or individuals employed in that industry, to recently resolve FCPA enforcement actions include: UTStarcom (see here and here for the enforcement action), Latin Node, Inc. (see here for the enforcement action), Lucent Technologies (see here and here for the enforcement action), Siemens (in part, see here for the enforcement action), various individuals in connection with the Haiti Teleco matter (see here for the enforcement action), and various employees of ITXC Corporation (see here for the enforcement action). Pending FCPA enforcement actions against telecommunications companies presumably include: Magygar Telekom (see here) and Global Crossing Limited (see here).

That's a long list.

Back to Veraz.

According to the SEC release (see here), Veraz violated the FCPA's books and records and internal control provisions in connection with "improper payments made by Veraz to foreign officials in China and Vietnam after the company went public in 2007."

The SEC complaint (see here) alleges that "from 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz." According to the complaint, a Veraz supervisor referred to certain of these payments as the "gift scheme." The complaint further alleges that "Veraz failed to accurately record these improper payments on the Company's books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA [...] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate."

The SEC's sparse factual allegations fall under two headings: "Veraz Made Improper Payments to Chinese Government Officials" and "Veraz Made Improper Payments to Vietnamese Government Officials."

As to payments to "Chinese Government Officials," the SEC alleges that Veraz engaged a consultant in China to assist Veraz sell products "to a telecommunications company controlled by the government of China." The complaint further alleges that the consultant "provided approximately $4,500 worth of gifts to officials" of the telecommunications company "in an attempt to secure a business deal for Veraz." The complaint further alleges that the consultant "also offered a separate improper payment to officials" at the telecommunications company "to secure a deal for Veraz valued at approximately $233,000." According to the complaint, "Veraz discovered this improper offer of payment prior to receiving any money from the transaction and cancelled the sale."

As to payments to "Vietnamese Government Officials," the SEC alleges that "Veraz sold products to a telecommunications company controlled by the government of Vietnam through a Singapore-based reseller." According to the complaint, a "Veraz employee, through the Singapore-based reseller, at times made or offered illicit payments to the CEO" of the telecommunications company "in order to win business for Veraz." The complaint further alleges that Veraz "approved of and reimbursed its employee for questionable expenses related" to the telecommunications company "including gifts and entertainment" for employees of the company and "flowers for the wife of the CEO" of the company.

In both instances, according to the complaint: (i) Veraz did not make or keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the improper gifts or payments provided by Veraz; and (ii) Veraz failed to devise and maintain an effective system of internal controls to prevent or detect violations of the FCPA.

Based on these allegations, the SEC charged Veraz with violating the FCPA's books and records and internal control provisions.

According to the SEC's release, Veraz, without admitting or denying the SEC's allegations, consented to entry of a final judgment permanently enjoining Veraz from future FCPA violations and ordering Veraz to pay a $300,000 civil penalty.

In an article to be published later this summer titled "The Facade of FCPA Enforcement," I highlight four pillars which contribute to the facade of FCPA enforcement.

The first pillar highlights the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones, and legal conclusory statements of facts or allegations. Check as to the Veraz enforcement action. Just who were those Chinese and Vietnamese Government officials? The SEC complaint contains these wonderfully descriptive allegations: "a telecommunications company controlled by the government of China" and a "telecommunications company controlled by the government of Vietnam." What was the nature of the "illicit payments" made or offered to the CEO of the Vietnamese telecommunications company and what were the "questionable expenses" related to the same company? The complaint does not elaborate.

The second pillar highlights the increasing and alarming trend of FCPA enforcement actions being resolved based on tenuous, dubious and untested legal theories. Check as to the Veraz enforcement action. True, the enforcement action does not allege antibribery violations, but let's face it, if Veraz's books and records did not adequately reflect sales and marketing expenses associated with domestic customers and if Veraz did not have sufficient internal controls to prevent and detect such expenses, we would not be reading about this case as an "FCPA enforcement action" even though such conduct would similarly violate the FCPA's books and records and internal control provisions. Rather, this is an FCPA enforcement action (in the traditional sense) because the improperly recorded payments were directed at "foreign officials" - so alleges the SEC under the theory, never accepted by a court, that employees of state-owned or state-controlled enterprises are "foreign officials" under the FCPA.

The third pillar highlights highlights the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government's own allegations, are resolved with materially different charges and penalties. Check as to the Veraz enforcement action. If ever there were carbon copy FCPA enforcement actions, it would seem to be Veraz, UTStarcom and Lucent. All principally involved providing things of value to Chinese "foreign officials" (employees of alleged state-owned enterprises). One would expect then that the charges would be similar as well. Wrong. Veraz appears to be only an SEC enforcement action charging only FCPA books and records and internal control violations. UTStarcom involved a DOJ non-prosecution agreement and an SEC enforcement action charging FCPA antibribery as well as books and records and internal control violations. Lucent also involved a DOJ non-prosecution agreement and an SEC enforcement action charging only FCPA books and records and internal control violations. Thus, three similar cases resolved three distinct ways.

[The fourth pillar highlights how seemingly clear-cut instances of corporate bribery and corruption (per the government's own allegations) are resolved without FCPA antibribery charges. Veraz is not BAE, Siemens, or Daimler - and thus this pillar is of little significance here].

One final point demonstrated by the Veraz enforcement action: resolution fines/penalties represent merely the "tip of the iceberg" in terms of the costs associated with an FCPA inquiry.

The final fine amount, $300,000, is 1/10 the amount of expenses incurred by the company in connection with the SEC investigation. As stated in the company's most recent 10-Q filing (May 2010) (see here) "as of March 31, 2010, the Company has incurred expenses relating to the SEC investigation of approximately $3 million."

No wonder Forbes (see here) recently termed the increase in FCPA enforcement the "bribery racket." No wonder the Wall Street Journal Law Blog (see here) recently posed the question - "is the FCPA Just a Full-Employment Act for the Private Bar?"

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State of the Union June 29, 2010

Online at www.uawlocal2250.com

From Chairman Mike Bullock:
July 4th holiday will be observed on July 5th and employees will be paid 8 hours holiday pay. Production schedule for the week will be:

July 6 10.7 hrs
July 7 10.7 hrs;
July 8 10.6 hrs.
July 9 10.5 hrs.

No production is scheduled for July 2nd. July 1st and July 6th are VR blackout days. There will be a ceremony Wednesday, June 30 in the cafeteria at lunchtime to celebrate Independence Day.

UAW President Bob King and AFL-CIO President Richard Trumka issued a joint statement supporting striking Chinese Honda workers.Here are some excerpts:
America's auto workers and observers around the world have watched with admiration as the courageous young auto workers at Honda's Chinese factories have in the past weeks risen up in protest against the low-wage system imposed by Honda and many employers, foreign and domestic, in China.
At a parts plant at Honda Auto Parts Mfg. Co., the first such strike, the line workers elected representatives to negotiate with the employer for wage increases. In the words of those elected representatives, "…. [our] fundamental demands are…salary raises…for the whole workforce including interns; improvements in the wage structure and job promotion mechanism; and last but not least, restructuring the branch trade union at Honda Auto Parts Manufacturing Co. Ltd. Another fundamental demand... [is]…non-retaliation and no dismissal of workers participating in the strike."

We stand in support of China's Honda workers and their reasonable demands. We call on Honda to accede to their demands-- to improve its wages structure and job promotion system at its China facilities by implementing genuine and continuous collective bargaining with representatives of its front-line workers.

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Technip Joins the Bonny Island Bribery Club

A French company bribes Nigerian foreign officials with the end result being $338 million paid into the United States treasury.

Welcome to the sometimes wacky world of Foreign Corrupt Practices Act enforcement. Except in this case, the end result is not so wacky because the French company, Technip (see here) was a U.S. issuer, and thus subject to the FCPA, because, between August 2001 and November 2007, it had American Depository Shares registered with and listed on the New York Stock Exchange. In addition to being an Issuer subject to the FCPA, "Technip and other members of the joint venture [described below] routinely made use of the U.S. mails and of U.S. common carriers, and of other instrumentalities of U.S. interstate commerce" including improper payments "routed through banks in New York."

The Technip FCPA enforcement action has been anticipated since February when the company (see here) foreshadowed the pending settlement.

Yesterday, the DOJ and SEC announced the settlement. It includes payment of a $240 criminal penalty pursuant to a DOJ deferred prosecution agreement and payment of $98 million in disgorgement and prejudgment interest pursuant to a settled SEC civil complaint.

The below post summarizes the DOJ release (to my knowledge the DOJ deferred prosecution agreement and criminal information are not yet publicly available) and the SEC settled civil complaint.

DOJ

The DOJ release (here) states that Technip "has agreed to pay a $240 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts [...] to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, [contracts that] were valued at more than $6 billion."

According to the release, "Technip, Kellogg Brown & Root Inc. (KBR) (see here for the prior FCPA enforcement action), and two other companies were part of a four-company joint venture that was awarded four EPC contracts."

The release further states that "Technip authorized the joint venture to hire two agents, Jeffrey Tesler (see here for the criminal indictment) and a Japanese trading company, to pay bribes to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. According to the release, "at crucial junctures preceding the award of EPC contracts, a senior executive of Technip, KBR’s former CEO, Albert "Jack" Stanley (see here and here for the prior FCPA enforcement action), and others met with successive holders of a top-level office in the executive branch of the Nigerian government to ask the office holders to designate a representative with whom the joint venture should negotiate bribes to Nigerian government officials." According to the release, "the joint venture paid approximately $132 million to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company during the course of the bribery scheme" and that "Technip intended for these payments to be used, in part, for bribes to Nigerian government officials."

As has become the norm in corporate FCPA prosecutions, Technip will not be required to plead guilty to anything as the criminal charges (one count of conspiracy and one count of violating the FCPA), while filed, will be deferred pursuant to two-year deferred prosecution agreement.

In a press release (see here) Technip Chairman and CEO, Thierry Pilenko said:

"The final agreement with the US authorities, completely in line with the road map that we laid out in February, puts this legacy story behind us and enables us to focus on continuing to develop Technip’s business. We stand by Technip's commitment to carrying out its business activities ethically and according to both the spirit and letter of the law worldwide. The Board of Directors of Technip and its management are strongly committed to the continued enhancement of our internal compliance policies and processes."

Technip's release further states:

"The DOJ investigation of Technip was resolved through a deferred prosecution agreement, in which the Department of Justice agreed not to pursue a prosecution of Technip in return for Technip’s agreement to undertake a variety of steps during the next two years, including maintaining and enhancing its compliance program and cooperating with the DOJ. Technip agreed to pay USD 240 million to the DOJ in eight equal installments of USD 30 million over the next two years. Technip will retain a French national, approved by the Department of Justice, to serve as an independent corporate monitor, who will be chiefly responsible for reviewing Technip’s compliance initiatives and recommending improvements."

Principal Deputy Assistant Attorney General Mythili Raman of the Criminal Division stated: "The resolutions announced today demonstrate once again the department’s commitment to aggressively investigate and prosecute international bribery by U.S. and foreign corporations alike."


SEC

In a settled civil complaint (see here) charging FCPA anti-bribery violations and FCPA books and records and internal violations, the SEC alleged that "between at least 1995 and 2004, senior executives at Technip, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas (“LNG”) production facilities on Bonny Island, Nigeria." According to the SEC, "to conceal the illicit payments, Technip and others, through the joint venture, entered into sham 'consulting' or 'services' agreements with intermediaries who would then funnel their purportedly legitimate fees to Nigerian officials." Specifically, the SEC alleged that "Technip, through the joint venture, implemented this scheme by using a Gibraltar shell company controlled by a solicitor based in the United Kingdom (“the UK Agent” [Tesler]) and a Japanese trading company (“the Japanese Agent”) as conduits for the bribes" and that "as a result of the scheme, numerous books and records of Technip contained false information relating to, among other things, the UK Agent and the Japanese Agent, and the payments made to them."

As to Technip's internal controls violations, the SEC alleges as follows:

"Technip conducted due diligence on the UK Agent that was not adequate to detect, deter or prevent the UK Agent from paying bribes, and Technip conducted no due diligence on the Japanese Agent."

"Although the executives of Technip who participated in the joint venture were aware of [the FCPA's] prohibitions, Technip did not implement adequate controls to ensure compliance with the Act. For example, Technip did not adopt due diligence procedures as to agents that were adequate to detect, deter or prevent the payment of bribes by agents. The due diligence procedures adopted by Technip only required that potential agents respond to a written questionnaire, seeking minimal background information about the agent. No additional due diligence was required, such as an interview of the agent, or a background check, or obtaining information beyond that provided by the answers to the questionnaire. A senior executive of Technip admitted that the due diligence procedures adopted by Technip were a perfunctory exercise, conducted so that Technip would have some documentation in its files of purported due diligence. In fact, Technip executives knew that the purpose of the agreements with the UK Agent was to funnel bribes to Nigerian officials, and therefore certain answers by the UK Agent to the questionnaire were false."

According to the SEC release (see here) "without admitting or denying the SEC’s allegations, Technip has consented to the entry of a court order permanently enjoining it from" future FCPA violations "and ordering Technip to disgorge $98 million in ill-gotten profits derived from the scheme and prejudgment interest."

Other members of the TSKJ joint venture that also potentially face FCPA exposure include Snamprogetti Netherlands B.V. (see below information regarding Eni SpA), and JGC of Japan (see here).

In March 2010, Eni SpA of Italy disclosed (here) as follows:

"Snamprogetti SpA, the holding company of Snamprogetti Netherlands BV, was a wholly owned subsidiary of Eni until February 2006, when an agreement was entered into for the sale of Snamprogetti to Saipem SpA and Snamprogetti was merged into Saipem as of October 1, 2008. Eni holds a 43% participation in Saipem. In connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for a variety of matters, including potential losses and charges resulting from the investigations into the TSKJ matter referred [...}, even in relation to Snamprogetti subsidiaries."

The disclosure further stated:

"As to Eni, the contacts with the US authorities have been intensified recently. Based on the ongoing status of the discussions, the Company has been able to estimate the cost of a global resolution of all potential claims arising from the investigation with the US authorities, similarly to Technip. As a result of this, a provision in the amount of €250 million has been accrued, also considering the contractual obligations assumed by Eni to indemnify Saipem as part of the divestment of Snamprogetti. Discussions with the US authorities are underway."

Stay tuned for additional analysis of the Technip DPA, criminal information, and other issues raised by the Technip enforcement action.

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State of the Union June 28, 2010

Online at www.uawlocal2250.com

From Chairman Mike Bullock:

There will be an informational meeting on "Green Jobs Training" at the Regional Collaboration Center 130 Larkin Williams Industrial Court Fenton, MO 63026 on Tuesday June 29, 2010 at 9:45 am. For more information call John A. Miller at 636-278-1360 ext 293 or the Collaboration Center at 636-305-2030. This training program is for laid off UAW workers.

From Automotive News: Supplier Denso Corp., the world's largest auto supplier and a Toyota affiliate, agreed to give workers at a China plant a pay rise of 800-900 yuan per month. Most workers currently earn 1,100-1,300 yuan per month ($161-$191). At least eight strikes in the past month have forced suppliers to Toyota, Honda Motor Co. and Nissan Motor Co. to raise wages in China, increasing the car makers' costs in the world's largest automobile market. Pressure for higher pay is rising as workers demand a greater share of the benefits of economic development, said Bill Russo, a Beijing-based senior adviser at Booz & Co. The workforce “has not been benefiting or participating in that development through the ability to consume the goods they are producing,” Russo said. “That imbalance has to be corrected.”

From Consumer Affairs: Toyota is dealing with another recall issue, this time with its luxury nameplate Lexus. The Japanese car maker said it is recalling 17,000 Lexus HS 250 hybrid models because U.S. government tests show they could leak fuel in a rear-end crash. Toyota also said it will halt sales of all HS 250 hybrids while it searches for a remedy to the problem. In a recall notice Friday NHTSA said the defect in the Lexus hybrid could result in a fire during a rear-end collision. In the late 1970s the Ford Pinto had a similar problem, which was blamed on 27 deaths.

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Additional Lighthouses and Buoys Sentence

Last Friday, the DOJ announced (see here) that John Warwick was sentenced to approximately three years in federal prison "for his role in a conspiracy to pay bribes to former Panamanian government officials to secure maritime contracts." U.S. District Court Judge Henry Hudson also sentenced Warwick to two years of supervised release following his prison term and ordered Warwick to forfeit approximately $330,000 in proceeds from his crime.

In February, Warwick pleaded guilty to a one-count indictment charging him with conspiring to make corrupt payments to Panamanian officials for the purpose of securing business for Ports Engineering Consultants Corporation in violation of the Foreign Corrupt Practices Act. The business involved contracts to maintain lighthouses and buoys along Panama's waterways.

This is the same conduct at issue in the prior plea and sentencing of Charles Edward Jumet. (See here for additional posts on this matter). In April, Jumet was sentenced to approximately 7.25 years in federal prison after pleading guilty to two charges - conspiracy to violate the FCPA and making false statements to federal agents. (See here). Even though Jumet's charges were equal part FCPA and equal part making false statements to federal agents, his sentence was described as the "longest prison term imposed against an individual for violating the FCPA."

Given that Warwick was charged and pleaded guilty to the same conspiracy as Jumet, it suggests that the FCPA component of Jumet's sentence was between 3-4 years.

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Innospec Agent Pleads Guilty

Approximately one year ago, a criminal indictment against Ousama Naaman was unsealed (see here). The indictment charged Naaman, a dual Canadian and Lebanese national, with violating the FCPA and conspiring to violate the FCPA and commit wire fraud, while acting on behalf of a U.S. public chemical company and its subsidiary in connection with kickback payments to the Iraqi government under the United Nations Oil for Food Program. The indictment also charged Naaman with making payments on behalf of the company to Iraqi Ministry of Oil officials.

Since then, Naaman was extradited to the U.S. and the chemical company was identified as Innospec - which resolved its own FCPA enforcement action in March (see here).

As noted in this DOJ release, last Friday Naaman "pleaded guilty ... to a two-count superseding information filed June 24, 2010, charging him with one count of conspiracy to commit wire fraud, violate the Foreign Corrupt Practices Act (FCPA), and falsify the books and records of a U.S. issuer; and one count of violating the FCPA."

According to the release:

"From 2001 to 2003, acting on behalf of Innospec, Naaman offered and paid 10 percent kickbacks to the then Iraqi government in exchange for five contracts under the OFFP. Naaman negotiated the contracts, including a 10 percent increase in the price to cover the kickback, and routed the funds to Iraqi government accounts in the Middle East. Innospec inflated its prices in contracts approved by the OFFP to cover the cost of the kickbacks. Naaman also admitted that from 2004 to 2008, he paid and promised to pay more than $3 million in bribes, in the form of cash, as well as travel, gifts and entertainment, to officials of the Iraqi Ministry of Oil and the Trade Bank of Iraq to secure sales of tetraethyl lead in Iraq, as well as to secure more favorable exchange rates on the contracts. Naaman provided Innospec with false invoices to support the payments, and those invoices were incorporated into the books and records of Innospec."

For additional coverage of the Naaman plea, see here from Christopher Matthews at Main Justice.

In 1998, the FCPA's antibribery provisions were amended to, among other things, broaden the jurisdictional reach of the statute to prohibit "any person" "while in the territory of the U.S." from making improper payments through "use of the mails or any means or instrumentality of interstate commerce" or from doing "any other act in furtherance" of an improper payment. (see 15 USC 78dd-3(a)). "Any person" is generally defined to include any person other than a U.S. national or any business organization organized under the laws of a foreign nation. (see 15 USC 78dd-3(f)).

In other words ... the FCPA ... it isn't just for Americans.

Ousama Naaman found out the hard way.

Other foreign nationals that have been the focus of FCPA enforcement actions include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).

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State of the Union June 25, 2010

From Chairman Mike Bullock:
Our schedule is now set through the summer. After the four-day weekend for the July 4th holiday, the next Friday off will be August 6. The next Friday off after that will be September 3, which will create a four-day weekend for Labor Day. In September we will go back to 2 out of 3 Fridays, which would mean working 9/10 and 9/17, off 9/24 and so on.

Back to the changes from the Constitutional Convention: Article 45, Section 2 of the constitution was approved for change by the delegates to the constitution convention.The new language will read "Members in good standing who are on indefinite layoff from the employer may not be a candidate for, or vote in, an election for a non-executive local union office that has grievance handling, contract bargaining or contractual administrative duties unless specifically authorized to do so by Local Union bylaws or applicable collective bargaining agreement.

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World Bribery & Corruption Compliance Forum

I am pleased to serve as Chair of the World Bribery & Corruption Compliance Forum in London, September 14-15th.

As indicated on the conference brochure (here) speakers will include the U.K. Attorney General, and representatives from the U.K. Serious Fraud Office, the U.S. Department of Justice, the Securities and Exchange Commission, the OECD, the World Bank, Transparency International, Trace International as well as global business compliance professionals and legal practitioners.

Readers of the FCPA Professor Blog are entitled to 20% off the conference fee by using the above brochure and additional savings will be earned by booking by July 2nd.

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State of the Union June 24, 2010

• From Chairman Mike Bullock: There were several more cost reducing moves that the International Union proposed to the Delegates at the Constitutional Convention and were passed. The Public Review Board was reduced from 7 members to 6 (Article 32, Section 2 of the Constitution). The Public Review Board was created at the constitutional convention in 1957 for "the purpose of insuring a continuation of high moral and ethical standards in the administrative and operative practices of the International Union and its subordinate bodies, and to further strengthen the democratic processes and appeal procedures within the Union as they affect the rights and privileges of individual members of subordinate bodies."
Also, the elective officers of the International Union was reduced from 5 Vice Presidents to 4 (Article 10, Section 1).

• The Tuition Assistance Program for active employees has been reinstated effective August 1, 2010 for class terms beginning on or after August 1, 2010. Program guidelines and eligibility will be communicated to your Local TAP Administrator and then published in the TAP folder located in the online documents section of JAS, which can be found at www.uawgmjas.org/tap

• From Automotive News: General Motors is preparing for an initial public offering that would sell 20 percent of the Treasury's stake in the automaker and reduce the U.S. to a minority owner, said two people familiar with the plan. The aim is to sell a fifth of the government's 304 million shares, said the people, who asked not to be identified revealing private discussions. That would reduce the Treasury Department's stake to less than 50 percent from 61 percent now. Final decisions on which owners will sell how many shares haven't been made and may change, the people said. A registration statement may be filed in August, aiming for a November stock sale, said four people familiar with the plan. The sale will probably raise $10 billion to $15 billion, depending on the company's performance, the strength of the economy and the health of the IPO market, the people said.

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"Foreign Official" Brain Teasers

Two "foreign official" brain teasers are highlighted below.

One touches upon sovereign wealth funds, the other a Chinese state-owned enterprise (as well as sovereign wealth funds). Both are based on recent events.

*****

A prior post discussed sovereign wealth funds and the FCPA (see here).

I noted that while no FCPA enforcement action has yet involved a sovereign wealth fund, such funds and the investments these funds make in private companies, are clearly on the radar screen of the enforcement agencies as both DOJ and SEC officials have in the past publicly stated that sovereign wealth funds pose FCPA risks because the funds are government owned (see here and here).

The next frontier of the enforcement agencies often times aggressive and dubious "foreign official" interpretation may thus be application to the investments made by sovereign wealth funds.

According to a recent Wall Street Journal article, Chesapeake Energy Corp. (here) recently sold $900 million in preferred stock to a group of investors. Among others, Chesapeake sold shares to China Investment Corp. (a Chinese government sovereign wealth fund - here), Korea Investment Corp. (a South Korea government sovereign wealth fund - here) and Temasek Holdings (Singapore's sovereign wealth fund - here). For good measure, Abu Dhabi Investment Council (Abu Dhabi's sovereign wealth fund - here) also invested in Chesapeake.

What would it take for Chesapeake employees to become Chinese "foreign officials"? A majority investment by China Investment Corp.? What if the investment was not a majority investment, but China Investment Corp. exercised veto rights over certain business decisions?

If not Chinese "foreign officials," what would it take for Chesapeake employees to become Korean "foreign officials." What if Korea Investment Corp. had the opportunity to appoint Chesapeake board members?

If not Korean "foreign officials," what fact or factors would it take for Chesapeake employees to become Singapore or Abu Dhabi "foreign officials"?

*****

Numerous prior posts have discussed Chinese state-owned enterprises ("SOEs") and the enforcement agencies interpretation (one that has never been accepted by a court) that employees of alleged Chinese SOEs are Chinese "foreign officials" because the SOE is an alleged "instrumentality" of the Chinese government - notwithstanding the fact that it has publicly traded shares and other attributes of private ownership.

One of the largest ever IPO's is expected to soon price.

It involves Agricultural Bank of China Ltd. (a Chinese government owned bank - here) and its attempts to raise US$20 billion - $30 billion by listing shares on the Hong Kong and Shanghai stock exchanges.

According to a recent article in the Wall Street Journal, Qatar Investment Authority (Qatar's sovereign wealth fund - here) is expected to invest US$2.8 billion in the offering. Kuwait Investment Authority (Kuwait's sovereign wealth fund - here) is expected to invest $800 million. Other investors expected to participate in the deal include Temasek Holdings (Singapore's sovereign wealth fund).

Can an entity such as Agricultural Bank of China Ltd. truly be considered a Chinese government instrumentality when it has publicly traded shares and multi-billion and million dollar investments from other nation's sovereign wealth funds? At what point could Agricultural Bank of China employees cease being Chinese "foreign officials" and become Qatar or Kuwait "foreign officials"?

It is not just sovereign wealth funds that are planning to make massive investments in Agricultural Bank of China. According to a recent Wall Street Journal article, Archer Daniels Midland Co. (here) is also expected to invest $100 million to $200 million in the IPO.

Can Agricultural Bank of China Ltd. truly be considered a Chinese government instrumentality while at the same time securing a multi-million dollar investment from a US food giant?

*****

A recent article by Samuel Rubenfeld (Dow Jones News Service) titled "To Comply with Bribery Laws, Companies Must Decide Who's 'Official'" explores the meaning of the FCPA's "foreign official" element. In the article, a DOJ spokeswoman merely referred to the statutory definition of "foreign official" in the FCPA as her agency's comment for the article.

The FCPA defines "foreign official" as follows:

“Foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."

So these aren't brain teasers after all, the DOJ apparently feels that the answer is found in the statute itself.

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State of the Union June 23, 2010

•From Chairman Mike Bullock: As a follow-up to yesterday’s explanation of the freeze on International UAW staff salaries, today I will give you the number of people that affects:
o In 2006 there were 834 employees on the International staff. Today there are 772: 6 Officers, 11 Executive Board members, 447 Staff, and 308 Office, Maintenance and Outside security employees.

o In the 4 years since the last Constitutional Convention 362 International staff employees have retired.

August 26, 2010 will mark the 75thanniversary of the UAW. In 1936 there was an average of 27,058 members. As early as 1944, there were over 1 million members of the UAW. The high point was in 1969 when there were 1,530,870 members. In 2009 there was an average of 392,166 members.
Under rumor control, there have been no discussions with management about changing the schedule from 10.5 off the K-line. Finally, congratulations to Steve Williams on his election to District 3(trim) committeman.
•Portions of the Tuition Assistance Program (TAP) have been reinstated for active members. Course eligibility is limited to degree programs of study and courses taken to maintain/improve skills or knowledge. This was previously defined as Level 3 by the Center for Human Resources Joint Training Department. We will receive further details when a communication from the CHR is sent out.

• From the International Union, UAW: Honda workers in China earn 67 cents an hour, work in deplorable conditions and have zero rights on the job. Their conditions are comparable to what autoworkers endured in the United States – before they organized under the UAW and fought for their rights. Workers at the Honda Lock factory in Zhongshan, China, have had enough. They’re on strike to win $1.34 an hour wages – and some justice. And that’s where you can help. Please sign the National Labor Committee’s letter to Honda’s CEO in Japan. Help these abused workers in China better their lives and win justice.

Help them show that a profitable corporation like Honda must treat its workers fairly. Help them show that they can win, even though the Chinese government actively discourages independent trade unions and censors news about the strike. And help yourselves by taking a stand against the race to the bottom where all workers – in China and here in the United States lose. You can go to www.nlcnet.organd use the link on the right to sign the letter.

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The Second Africa Regional Anti-Corruption Seminar

Last week in Cameroon, the U.S. Department of Justice and Cameroonian Ministry of Justice co-sponsored the Second Africa Regional Anti-Corruption Seminar (see here for the U.S. Embassy's press release). As noted in the release, the annual seminar series "was started by the U.S. government because of the growing transnational nature of corruption and the importance many African nations attached to the recovery of stolen assets abroad" and because "the United Nations Convention Against Corruption and several other multilateral initiatives call for increased international cooperation to combat corruption." According to the release, working sessions included: "international standards to fight against corruption and recover stolen assets; investigating corruption in state-owned corporations and enterprises; international funds transfers; and investigating corruption in customs and revenue services."

U.S. Ambassador Janet Garvey (see here) opened the seminar and here comments can be found here.

Among other things, Ambassador Garvey stated that "corruption is a global problem and I don’t have to tell you that much work needs to be done at every level to combat it."

She then stated:

"In the United States, companies listed on U.S. stock exchanges are subject to stiff punishment under the Foreign Corrupt Practices Act (FCPA) if they are caught engaging in corruption. We take this very seriously and such major corporations as Siemens, Daimler, BHP Billiton, Kellog, Brown and Root, and Britain’s BAE Systems have recently been forced to pay huge fines under the FCPA."

Stiff punishment under the FCPA?

Does Ambassador Garvey know that Siemens, Daimler, and BAE System were not even charged with FCPA anti-bribery violations?

[Note - BHP Billiton has not recently been forced to pay huge fines under the FCPA. Rather, the company disclosed in April 2010 (see here) as follows: "Following requests for information from the U.S. Securities and Exchange Commission as a part of an investigation relating primarily to certain terminated minerals exploration projects, the Company has disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anti-corruption laws involving interactions with government officials. Accordingly, the Company is cooperating with the relevant authorities including conducting an internal investigation, which is continuing. It is not possible at this time to predict the scope or duration of the investigation or its likely outcome."]

Ambassador Garvey also stated as follows:

"In the U.S., we have taken other important steps to contribute to the global anti-corruption regime. Presidential Proclamation 7750 requires the U.S. Department of State to deny visas to citizens and government officials who have engaged in serious corruption."

For more on Presidential Proclamation 7750, including what happens when the Forest and Agriculture Minister of Equatorial Guinea and the son of Equatorial Guinea's president shows up at the U.S. "doorstep" on his way to his $35 million Malibu estate (see here). Short answer, he is let in. Despite the fact that federal law enforcement officials believe that "most if not all" of his wealth came from corruption related to oil and gas reserves in his home country. Despite the fact that the DOJ believes that he "may be receiving bribes or extortion payments" from oil companies operating in the country.

Thumbs up to the U.S. for sponsoring global anti-corruption seminars.

Thumbs down for yet another instance of "official rhetoric" not matching reality.

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State of the Union June 22, 2010

•From Chairman Mike Bullock: Here is some clarification on the resolution on international staff salaries: At the 2006 constitutional convention the delegates ( I was an alternate delegate without voting rights) voted and approved a 3% pay increase in March 2007 and quarterly cost of living increases for the international staff; president, vice presidents, secretary treasurer , executive board and representatives. At the time – 2006 – the president, Ron Gettlefinger, made $144,733.47 per year. After the approved raises from the 2006 convention, the president is making $153,248.29 and the rest of the staff salaries also went up proportionally.

On Tuesday June 15, the constitution committee submitted a resolution to the delegates for their vote that would eliminate a 3% raise in march 2011 and quarterly cost of living raises for the entire international staff. Additionally the initial salary for newly appointed international representatives shall be 70% of the current rate ($105,076.96) and will be increased in annual increments so that no later than achieving 6 years seniority he/she will be at full salary.
This resolution in effect froze the salaries of the international staff and reduced the salary of newly appointed international representatives for 6 years. Not all delegates from Local 2250 voted for this resolution. Dan Howell and I did.

•From Automotive News: A strike at a Japanese car parts supplier in southern China forced Toyota Motor Corp. to suspend production at a Chinese auto assembly plant today, the latest in a string of labor-related disruptions at foreign-owned manufacturers across the country. The work stoppage will continue for the rest of the week, said a worker at the Denso plant being struck, who added employees are asking that wages rise from between 1,100 and 1,300 yuan ($161-191) per month to between 1,800 and 1,900 yuan. "We make an okay living here, but we think our pay should be linked to the company's performance," said the employee, who declined to give his name out of fear of retribution. "This company makes lots of money and should share the profits."

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Buying pen nibs

So, we needed to buy nibs for the calligraphy course and the art shop nearest to us is A Boville Wright Ltd - so that was our destination.

In we go to this wonderful shop full of coloured sheets of paper, card, paint, ink, crayons, felt tips, pen nibs. The lady who helped us (I think the manageress) was brilliant and when we showed her the list of things we needed she retrieved a wooden box about 18" by 10" with a glass lid from the counter for us. In the box were various nibs with each section labelled and would you believe it one labelled - wait for it ... Brandauer! I couldn't believe my eyes, a compartment in the box labelled Brandauer. How incredible was that? However, I should add that the compartment had Leonardt pens in it, the one that they make that was originally a Brandauer pen.










We had such fun selecting the Leonardt nibs we required for the calligraphy course, one of each width, along with a pen holder (rather more colourful than they would have been in the 19th century), and choosing a small number of colourful paints, mixing dish, eraser, A3 paper and much more that were on a long list from the course administrator.  What a fabulous bag of goodies we came home with from our visit to A. Boville Wright Ltd and so excited about the course the following weekend.

My mind was busy thinking about the copperplate script I was going to start studying and learning more about the Brandauer pens I had decided to take with me to show the calligrapher presenting the course...

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Honest Services Fraud and the FCPA

While much of the white-collar bar awaits the Supreme Court's decisions in the trio of honest services fraud cases on its docket (Jeffrey Skilling, Conrad Black and Bruce Weyhrauch) why not talk about the FCPA and honest services fraud!
What is honest services fraud? Stay tuned for the Supreme Court's decisions.

For present purposes, honest services fraud is part of the mail and wire fraud statutes and is found at 18 USC 1346 which simply states that the term “scheme or artifice to defraud” includes a scheme or artifice to deprive another of the intangible right of honest services.

What does this have to do with the Foreign Corrupt Practices Act?

It turns out, not much, but that is not how the DOJ saw it when charging James Giffen in 2004. (For more on the Giffen case see here).

The Giffen superceding indictment focuses on charges that he made unlawful payments totaling more than $78 million to the former Prime Minister and Oil Minister of Kazakhstan in violation of the FCPA.

In addition to the FCPA charges, the indictment also alleged that Giffen's actions violated 18 USC 1346 by depriving the citizens of Kazakhstan of the honest services of their government officials.

Yes, you did read that correctly - the DOJ alleged that Giffen deprived the citizens of Kazakhstan of the honest services of their government officials. That is why the Giffen honest services fraud charge is one of the more curious "tag-a-long" charges ever in an FCPA enforcement action.

Unlike most FCPA defendants (corporate and individual) Giffen mounted, and still is mounting, an aggressive legal defense.

In 2004, Giffen moved to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. He asserted that application of the honest services fraud theory of Section 1346 to Kazakhstan impermissibly extended the mail and wire fraud statutes to cover activities beyond Congress' original intent.

Judge William Pauley of the Southern District of New York agreed with Giffen and granted his motion to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. See U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004).

In so holding, Judge Pauley stated that the DOJ offered "the slenderest of reeds to support its expansive interpretation." Among other things, Judge Pauley noted that the DOJ could not point to "any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens."

When the DOJ pointed to "two 25-year old indictments" charging a similar theory, Judge Pauley noted that the DOJ "has not unearthed any published decision on the issue" and that the DOJ "conceded that there were no court decisions addressing the validity of the two 25-year old indictments." Judge Pauley further stated that just because certain U.S. Attorneys were able to obtain indictments "under an intangible rights theory, grounded between a foreign government and its citizenry, is not the kind or quality of precedent this Court need consider."

Accordingly, Judge Pauley concluded that "Congress did not intend that the intangible right to honest services encompasses bribery of foreign officials in foreign countries" and that "application of Section 1346 to Giffen [was] unconstitutional."

*****

As FCPA practitioners well know, many current FCPA legal theories are aggressive, untested and not supported by any case law or other meaningful precedent or guidance.

If challenged, would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the "slenderest of reeds" to support its expansive interpretations?

What case law would the DOJ cite to support certain of its aggressive interpretations (such as employees of seemingly "commercial" enterprises being "foreign officials" under the FCPA)? Would DOJ not have to concede that there are no court decisions addressing the validity of its interpretations?

All interesting (and important) questions to ponder while awaiting the Supreme Court's honest services fraud decisions.

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State of the Union June 21, 2010

•The election for Shop District 3 Committeeperson (trim) will be Tuesday, June 22. Polls are open from 4:30 am to 7 pm. The candidates are Murry Randall, Steve Williams and Leslea McCord.

•The J.D. Power 2009 Initial Quality Survey (IQS) results were released late last week. For the first time ever, combined domestic quality was better than import brands.GM had 10 top-3 models and 4 class winners: Avalanche, Sierra, Tahoe and Escalade. Lansing Grand River received the bronze award and was the only US plant in the top three. Unfortunately, there is no J.D. Power tracking for the G-Van and therefore no plant score for Wentzville. The Toyota brand plunged from #6 to #21.

•From the AP: A strike at one of Toyota's China-based parts suppliers ended today, allowing production to resume at its nearby auto plant Monday after a one-day stop, the Japanese automaker said. The strike is among several that have plagued Toyota and Japanese rival Honda Motor Co. in China, which has been shaken by unrest among migrant workers who are becoming increasingly vocal in their demands for a piece of China's growing prosperity. Workers at a plastic parts factory of Toyota Motor Corp. affiliate Toyoda Gosei Co. in the northeastern city of Tianjin went on strike Thursday, forcing the plant's production line to shut down in the afternoon. The Kyodo news agency, citing officials in China, reported that workers at Toyoda Gosei agreed to an earlier management proposal for a 20 percent wage raise from the previous year, although they had sought a bigger pay increase. The walkout followed a one-day strike by workers at another Toyoda Gosei unit and Toyota supplier, Tianjin Star Light Rubber and Plastic Co., which ended Wednesday after thecompany agreed to review the pay for its 800 workers.

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"I was taught if they violated a law, you charge them. If they didn't violate the law, you don't charge them."

In 2008 (the most recent year for which I've seen the following statistic) seven of the sixteen non-prosecution or deferred prosecution agreements entered into by the DOJ were in the FCPA context. (See here).

NPAs and DPAs are thus very much a Foreign Corrupt Practices Act topic and these resolution vehicles are frequently covered on this blog. (See here and here).

Thus, the following exchange between Senator Jeff Sessions (R-AL) and James Cole caught my eye. It occurred during Cole's Senate Judiciary Committee confirmation hearings last week for the Deputy Attorney General position.

*****

SEN. SESSIONS: [...] I noticed just as an aside you did a speech entitled role of an in-house lawyer in a corporation in October of '06, and you stated this. Quote: "The experience with Arthur Andersen taught the government something that consequences were too drastic and hurt too many innocent employees. The government now tries to work settlements with companies that find themselves in that kind of predicament and the company does not get indicted and therefore can continue to exist." Closed quote. Well, we know that Arthur Andersen failed immediately upon being charged as I recall that. So I'm not suggesting this is a totally improper statement. But it seems to go beyond strict enforcement of the law and try to preserve corporations who perhaps should be charged and suffer whatever consequences might result from their criminal acts. Do you have any second thoughts about that quote that I just read?

MR. COLE: Senator Sessions, I don't. The point of that was to say that there are reasons why you charge corporations and reasons why you don't charge corporations. And certainly the Justice Department starting back when the Attorney General Eric Holder was deputy attorney general has issued a series of memoranda that guide prosecutors in determining when a corporation should be charged. The issue is so sensitive because when you charge a corporation and you cause its demise through that charge, thousands and thousands of employees who had no role in the misconduct are hurt. Thousands and thousands of shareholders who had no role in the misconduct and whose savings were invested in that corporation are hurt, and it's those people who had no role who are hurt are the ones you need to think about, as well, when you decide whether to charge a corporation.

SEN. SESSIONS: Well, I think that's, I guess, a reality, but it's got to be carefully thought through, else you're just picking and choosing winners. You're saying BP is too big to fail. They've got employees, too. This is a dangerous philosophy. Normally, I was taught if they violated a law, you charge them. If they didn't violate the law, you don't charge them.

MR. COLE: Well -- and one of the issues, Senator, that is very much, as I understand it, in the forefront of the prosecution decisions in the Department is to prosecute the individual executives in these companies who are responsible for these criminal acts because that's how you're going to get the most deterrence.

SEN. SESSIONS: But are you now saying that you're backing off corporate indictments?

MR. COLE: No, I am not at all. I'm just saying there are many ways to be quite effective, and I think you have to balance the interests of how much damage you're doing to people who had nothing to do with the wrongdoing versus how much deterrence you're going to be placing on future conduct like this. And I think you have to make sure that you are effective in the prosecution, both of corporations and of the individual officers.

SEN. SESSIONS: Yeah, so how much empathy you have for the employees. Well, anyway, it's a tough decision. I guess we could go 'round and 'round, but I think you need to be careful with that philosophy. It has some danger to it. I think you fully recognize, as an experienced prosecutor that you are, the -- I also salute you for wanting to reinvigorate traditional prosecutions in the Department. I hope that you will look at the numbers, you will look at the prosecutions and make sure that they are working effectively and that they're high enough based on the number of prosecutors and investigators in the country. I'm not sure that we are. We've added a lot of prosecutors and assistant United States attorneys around the country. They're paid big salaries. They need to be producing day after day. [...]

******

The above exchange raises an interesting question - what is the "shelf life" of the Arthur Anderson prosecution?

In other words, how long will the 2002 prosecution (and related consequences) guide DOJ corporate charging decisions? Will a DOJ prosecutor in 2015 or 2020 be persuaded not to criminally indict a corporation because of what happened in 2002? Should a corporation escape the most severe consequences of criminal conduct just because it employs lots of people? Just because the corporation sells certain products to certain customers?

All questions to ponder as another week begins.

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Facts, Figures and Findings

Trace International has again turned out an informative product.

First, it was the Trace Compendium (here) a searchable database of FCPA enforcement actions.

Now, it is what is planned to be an annual global enforcement report "designed to identify and track international anti-bribery enforcement trends." See here for the 2010 report.

The "GER" - as it is being called - "provides a summary of all known international anti-bribery enforcement actions since the FCPA's passage some 33 years ago." As the GER notes, passing anti-bribery laws "is an important first step toward promoting international business transparency, but enforcement is a necessary second step in the effort to reduce corruption."

Some facts, figures, and findings from GER 2010 include:

"Twenty-two countries pursued 515 foreign bribery enforcement actions between 1977 and June 2010, including known matters still in the investigative stage. The United States established the strongest record in the period, undertaking over 75 percent of all actions. This record is noteworthy, even given that the United States passage of the world’s first foreign bribery law—the Foreign Corrupt Practices Act of 1977—gave the country a considerable head start on enforcement. The United States has accumulated almost 18 times as many anti-bribery enforcement actions as the country with the next highest total, the United Kingdom. Many countries worldwide have not pursued a single enforcement action in the 33-year period."

"The largest number of enforcement actions involves alleged bribe payments to officials in Iraq, Nigeria and China." As noted in the GER, Iraq is high on the list because of the numerous Oil-for-Food cases. Nigeria is not surprising given its prominent oil and gas industry, coupled with the GER's finding that "the extractive industries sector was most frequently the subject of international anti-bribery enforcement actions." China is not surprising either given the extent to which U.S. companies have flocked to this growth market in recent years, the fact that there are literally millions of Chinese "foreign officials" because the enforcement agencies deem all employees of state-owned or state-controlled enterprises to be "foreign officials," and because most companies operating in China do so through third-parties.

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State of the Union June 17, 2010

· Bob King was elected President of the UAW yesterday by a vote of 2115 to 74.5 over Ford Committeeman Gary Walkowicz. Region 5 Director Jim Wells was re-elected yesterday as well and had this to say: “It is a great honor to represent the membership of our great union, especially the members of Region 5. I'm excited and energized to be a part of Bob King's Mobilization for Justice Team. I want to thank you for making Region 5 No. 1 in UAW V-CAP contributions for many, many years. We are continuing the fight for NUMMI workers against Toyota.”

·From Automotive News: General Motors will fund a major restructuring of Opel and Vauxhall without state aid after the automaker decided to withdraw applications for government loan guarantees from European governments. GM plans a 3.3 billion euro ($4 billion) reorganization to cut its European capacity by 20 percent and workforce by a fifth, and rejuvenate the bulk of Opel's model lineup through the end of 2014. Last week, the German government refused GM's request for 1.1 billion euros in loan guarantees from the country's state rescue fund for companies hit by the economic recession. The UK and Spain had earlier indicated they would be willing to provide state aid sought by GM from European countries with Opel factories. GM's European operations have lost $1.3 billion since the automaker exited bankruptcy last year. It was the only GM region to lose money in the first quarter.

· As strikes continue to pop up at various Chinese manufacturers (Toyota was the latest victim), the official communitst paper , the People’s Daily, is even weighing in on the side of workers, saying “Migrant workers should be cared for, protected and respected, especially the younger generation….Raising workers' income levels and adjusting the gap between rich and poor is not just an emergency response to protect stability."

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UK Anti-Corruption Champion Appointed

As indicated in this U.K. Ministry of Justice release, Kenneth Clark has been appointed "as the United Kingdom’s new international anti-corruption champion."

According to the release, Clark's appointment "demonstrates the coalition government's clear commitment to transparency and accountability and recognises the significant cost of international corruption to our economy." The release further notes that Clark "will ensure the effective implementation of the Bribery Act 2010, legislation which will help to achieve the highest in international standards and demonstrates cross-party commitment to the fight against bribery."

The U.K. Serious Fraud Office has been criticized in recent months for its lack of transparency in resolving corruption matters (see here for more) and many have questioned the U.K.'s commitment to effectively prosecute such cases in light of the BAE bribery, yet no bribery enforcement action (see here, here and here).

Yet with the U.K.'s new Bribery Act, a new era is set to begin.

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State of the Union June 16, 2010

Union Meeting is Wednesday, June 16 at 3 pm and 15 minutes after the longest first shift line time.

From Chairman Mike Bullock: We have been informed by UAW VP Cal Rapson’s Administrative Assistant that the Tuition Assistance Plan (TAP) will be reinstated. More details to come next week.

Reminder: Friday, June 18 is the last day to enroll in or change your optional life insurance. You can do this online at gmbenefits.com.

From the Detroit Free Press: UAW President Ron Gettelfinger, whose style as president has been to downplay his own role and give credit to his staff and members, lashed out against corporations and anti-union forces during his final speech as president today. Gettelfinger said the UAW and other unions can and must continue to work together to pass the Employee Free Choice Act, which would make it easier for workers to form a union. “Most employers have vigorously opposed unions with every means at their disposal,” Gettelfinger said during the union’s 35th Constitutional Convention in Detroit. “These pro-employer, anti-union forces continually attack unions and workers that want to form a union.” Gettelfinger said anti-union efforts reached a high-point last year as the domestic automakers needed federal loans to stay afloat. Still, Gettelfinger said the UAW and other unions will continue to work to reform labor law and organize workers around the world. “In the end, we will prevail,” Gettelfinger said. Gettelfinger also singled out Republican legislators for opposing aid to the domestic auto industry in 2008 and 2009. “Let’s be clear, the contempt for the UAW was so deep that some of them were willing to let the industry collapse in the hopes that they could destroy us,” Gettelfinger said. “Even the former president recognized the insanity of what they were willing to do.” Gettelfinger also praised President Barack Obama, who came to Detroit on Labor Day in 2008 as a U.S. Senator to show support for the UAW. Once elected, Gettelfinger said, “Obama addressed the auto crisis and took the necessary steps to prevent the collapse of the industry.”

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Record Year for Alliance One International Despite Pending $20 Million FCPA Enforcement Action

Earlier this week, leaf tobacco merchant Alliance One International Inc., (see here) announced record revenue, gross profit and operating income (see here).

The company also announced (see here at p. 8) that its negotiations with the DOJ and SEC to resolve previously disclosed Foreign Corrupt Practices Act issues "have reached a stage at which an agreement in principle has been reached and we are able to estimate a probable loss in connection with these matters of $19.45 million for any disgorgement, fines and penalties."

I've posted before about the FCPA and reputational damage (see here) and posed the question whether companies that disclose FCPA issues or settle FCPA enforcement actions actually suffer any reputational damage?

For every company like Avon that has its credit downgraded during an FCPA investigation (see here), there seems to be more instances like Alliance One (i.e. a company doing just fine, in some cases really fine, notwithstanding an FCPA investigation or resolution of an FCPA enforcement action).

This raises the question - do customers, potential customers, and investors of an affected company even care if the company discloses FCPA issues or resolves an FCPA enforcement action?

Or, because of how the FCPA has come to be enforced (i.e. enforcement actions based on dubious and untested legal theories, subject to little or no judicial scrutiny, and subject to little or no legal defense by the company because of what that may mean in terms of cooperation) do customers, potential customers and investors of an affected company view the FCPA with a collective yawn?

*****

If Alliance One sounds familiar, you have a good memory.

In April, the SEC resolved an FCPA enforcement action against individuals employed by predecessor companies of Alliance One (see here).

Often times, it is the company that first resolves an FCPA enforcement action that is then followed by (although not in all cases) an enforcement action against culpable employees.

*****

For another tobacco company that also recently announced record earnings as well as a pending FCPA enforcement action (see here) regarding Universal Corporation.

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When the Dust Settles

Documents used to resolve a typical FCPA enforcement action (whether a non-prosecution or deferred prosecution agreement, plea, or settled civil complaint) are often peppered with vague generalities.

This is not surprising given that there is little serious threat of defense challenges and/or judicial scrutiny.

One element that is often vaguely described is the "foreign official" recipient of the alleged bribe. (This is in contrast to what the U.K. SFO has been doing in some of its recent enforcement actions when it "names names" - see here and here).

For instance, in the recent Daimler action (see here), certain of the "foreign officials" are described simply as follows:

"Nigerian government officials," "high-level members of the executive branch of the Nigerian government," "high-level executive branch official of Nigeria," and "a member of the Nigerian police force" and

"senior official of a [Egypt] government owned factory."

Given the ease in which information now flows and the world-wide interest in corruption and bribery, FCPA enforcement actions are read around the world.

Not only by foreign government officials and law enforcement agencies, but also by foreign media, foreign-based non-governmental organizations, and just plain old people.

It is thus not surprising that when the dust settles on the U.S. FCPA enforcement action, many are left wondering ... who are those "foreign officials"?

For the foreign government involved, it is potentially embarrassing to have "one of your own" (assuming that all "foreign officials" in FCPA enforcement actions are properly deemed as such) become the focus of a bribery investigation in the U.S. without doing something about it "at home."

Thus, with increasing frequency, one sees stories such as this recent Reuters report which details how the Nigeria Economic and Financial Crimes Commission has begun to probe the alleged bribe payments to the Nigerian "foreign officials" mentioned above.

What about that "senior official of a [Egypt] government owned factory"?

I've been told that this issue has become sort of a guessing game in Egypt and that Egyptian authorities have launched an investigation (see here)

Whether such foreign government investigations are bona fide or merely politically expediate cover is a valid question.

However, the take-away point is that just because the U.S. Foreign Corrupt Practices Act enforcement action is over, does not necessarily mean that all the dust has settled. Often, other persons, for entirely different reasons, remain interested.

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State of the Union June 14, 2010

• Union Meeting is Wednesday, June 16 at 3 pm and 15 minutes after the longest first shift line time.

• From the USA Today: Toyota paid a record fine recently for dragging its feet on disclosing a safety defect blamed for potentially fatal unintended acceleration. Now, documents have come to light in a California lawsuit that point to possible delays involving an earlier safety issue, one that could result in loss of steering control. Records of Toyota warranty repairs and customer complaints that are part of the lawsuit show that the car company was dealing with cracking and breaking steering relay rods in the U.S. for at least 11 years before it recalled 330,000 pickups and SUVs in Japanto replace the rods — and 12 years before its 2005 recall of nearly a million similar trucks in the U.S. for the problem.

• How far have pickup sales fallen? The Detroit News reports: Pickup sales peaked at 2.5 million in 2004, when the housing boom was in full swing and home builders couldn't get enough of them. Neither could families, who took advantage of cheap gas and easy credit by buying fully appointed trucks with leather interiors and spacious cabs. Four years later, the economy was teetering, and gas topped $4 a gallon. Pickup sales plunged. They fell further when the financial crisis stuck, credit markets froze and construction work dried up. In 2009, automakers sold 1.1 million trucks, the lowest level in 18 years. This year, pickup sales have been gaining momentum. Through May, Americans bought 11 percent more than they did in the first five months of last year and the sales pace has been accelerating.

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An Interesting Corollary

Last week's guest post (here) about the 1988 amendments to the Foreign Corrupt Practices Act and the DOJ's decision not to issue compliance guidance provides an interesting corollary to private rights of action under the FCPA.

How so?

Around the same general time frame as the 1988 FCPA amendments, several courts addressed the issue of whether the FCPA contained an implied private right of action.

The answer was no.

Guess what was a key factor in the courts' reasoning?

The guidance that Congress envisioned the Attorney General would issue.

The leading FCPA private right of action case is Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).

Here is what the court had to say:

"Recognition of the plaintiffs' proposed private right of action, in our view, would directly contravene the carefully tailored FCPA scheme presently in place. Congress recently expanded the Attorney General's responsibilities to include facilitating compliance with the FCPA. See 15 U.S.C. §§ 78dd-1(e), 78dd-2(f). Specifically, the Attorney General must 'establish a procedure to provide responses to specific inquiries' by issuers of securities and other domestic concerns regarding 'conformance of their conduct with the Department of Justice's [FCPA] enforcement policy....' 15 U.S.C. §§ 78dd-1(e)(1), 78dd-2(f)(1). Moreover, the Attorney General must furnish 'timely guidance concerning the Department of Justice's [FCPA] enforcement policy ... to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to [FCPA] provisions.' 15 U.S.C. §§ 78dd-1(e)(4), 78dd-2(f)(4). Because this legislative action clearly evinces a preference for compliance in lieu of prosecution, the introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability."

Given that the expected Attorney General guidance was a key factor in the court's reasoning that the FCPA does not contain a implied private right of action, how would a court address this issue today given that the Attorney General never issued the guidance?

Also, what about the snippet from the Sixth Circuit's opinion - that the 1988 amendments "clearly evinces a preference for compliance in lieu of prosecution."

In this era of so-called aggressive FCPA enforcement, does the DOJ have its priorities backwards

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State of the Union June 11, 2010

•Correction: The seniority date to hold the plant is 2-9-2000 with last four of 5000. Sorry for the error.

•The UAW Constitutional Convention begins Monday, June 14 and runs through Thursday, June 17.

•Speculation is increasing that Chinese leaders, by allowing strikes to occur, are admitting that wages need to rise and they might be particularly open to strikes at Japanese manufacturers such as Honda. But Zhou Xiaozheng, a well-known sociologist and professor at Renmin University in China, puts a damper on higher expectations for the fledgling labor movement. "It's hardly possible for labor unions to be effective, and for the (Communist) party it is absolutely taboo," Zhou said. "No group can represent our people, except the Communist Party."

•From the Chicago Tribune:The Cubs got the go-ahead from the City Council today to install an illuminated Toyota sign that will loom over the left field bleachers at Wrigley Field. With the council's approval, the team can get to work on putting up the 360-square-foot sign, which will be affixed to beams that stand about 50 feet above the back of the bleachers at the historic ballpark.

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State of the Union June 10, 2010

• From Chairman Mike Bullock: There will be 14 members recalled Monday, June 14. The new seniority date to hold the plant is 2-2-2000 with last four social security number of 5000. That will leave 185 members still laid off.

•There will be a Women’s Committee meeting today after first shift at the Union Hall.

•From Automotive News: Honda Motor Co. said today it would resume building cars in China on Friday after a supplier of exhaust systems contained a labor dispute, but workers at another parts maker remained on strike. Workers at a lock supplier for Honda in southern China's Pearl River Delta plan to extend their strike into a third day on Friday. Among the demands were calls for an annual wage hike of not less than 15 percent, improved allowances and benefits, the right to organize independent labor unions and a pledge from management to not fire anyone joining the industrial action.

•From Wards Auto: Labor unrest that began among foreign firms in South China's affluent Pearl Delta area is showing signs of spreading to poorer interior areas, broadening a movement by workers demanding wages to catch up with the nation's growing wealth. Following recent high-profile disputes at Honda Motor and iPhone maker Foxconn International, strikes were reported at a Taiwanese-owned sports goods supplier in Jiangxi province, and at Japanese sewing machine maker Brother Industries in Xian -- both some distance from China's wealthier regions near Hong Kong and Shanghai. "All it takes now is a single spark and news will spread all over China, which could lead to similar industrial action in other factories," said Paul Tang, chief economist at Bank of East Asia in Hong Kong.

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DOJ Guidance and the FCPA

That is the issue addressed by James Parkinson (Mayer Brown - see here) in the below guest post.


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As followers of this blog know well, the UK’s newly-enacted Bribery Act (here) calls for the UK government to “publish guidance about procedures that relevant commercial organisations can put into place to prevent persons associated with them from bribing…” Seeing this provision in the Bribery Act suggests the question whether similar guidance issued by the US government would be helpful.

As it turns out, the US government considered this very question over 20 years ago but declined to offer guidance to companies affected by the FCPA. In the 1988 amendments to the FCPA, Congress added provisions entitled “Guidelines by Attorney General,” which required the following:

"Not later than one year after August 23, 1988, the Attorney General, after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue--

(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and

(2) general precautionary procedures which issuers may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.

The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title."

15 U.S.C. §§ 78dd-1(d), 78dd-2(e).

Following the 1988 mandate, the DOJ issued a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” Department of Justice, Anti-Bribery Provisions of the Foreign Corrupt Practices Act, 54 Fed. Reg. 40,918 (Oct. 4, 1989).

What happened?

On July 12, 1990, the DOJ declined to issue guidelines on the anti-corruption provisions of the FCPA, stating:

"After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines."

Department of Justice, Anti-Bribery Provisions, 55 Fed. Reg. 28,694 (July 12, 1990).

How many responses did the DOJ receive?

According to the OECD’s Phase I Report on the US implementation of the Convention (at 15), “[o]nly 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary.”

This suggests another question: what would the commentary landscape look like today if the DOJ published a new Federal Register notice soliciting “views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines”?

Given the rise in enforcement activity and the focus companies now bring to compliance, it seems very likely that far more than five people would submit comments.

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FCPA Enforcement and Credit Ratings

Fitch Ratings (see here) is a global rating agency that provides credit opinions, research and data to the world's credit markets.

It recently issued a report titled "U.S. Foreign Corrupt Practices Act - No Minor Matter."

The report contains some interesting and informative non-legal perspectives on FCPA enforcement which are excerpted below.

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"Aside from management distraction and reputational risk, additional compliance costs and fines [arising from FCPA violations] could have rating implications for those companies with modest FCF [free cash flow] and/or liquidity. It should also be noted that it can take years from the discovery of a violation to the time a plea agreement is reached. In the interim, corporate credit profiles, liquidity, and ratings may weaken. The fine that could be easily paid with cash on hand today might not be readily payable years down the road if a company’s credit profile has weakened and liquidity becomes constrained."

The report notes that many FCPA fines are "imposed on large investment grade corporations whose substantial cash balances easily afforded them the ability to absorb the payments with no or minimal increases in leverage."

However, the report notes, "there have also been violations by non-investment grade companies."

The report then discusses Willbros Group, Inc. "which borrowed from banks on a secured basis." The report notes that when the company became aware of its FCPA issues (see here for prior posts on Willbros) the issues resulted "in the restatement of its annual financial statements at December 2002 and 2003, as well as the first, second, and third fiscal quarters iof 2004 and 2003."

The report continues:

"In its 2005 10-K [Willbros] noted that it required an amendment on an indenture due to late filing and several amendments on its bank credit facility. In the July 1, 2005 Second Amendment and Waiver Agreement the credit facility was reduced from $150 million to $100 million."

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The report also discusses the fiscal consequences of "deferring the legal consequences" of an FCPA violation - as so often happens given the frequency in which non-prosecution and deferred prosecution agreements are used to resolve FCPA enforcement actions. Pursuant to these agreements, the non-prosecuted or deferred charges could go "live" if the company fails to adhere to its obligations under the agreement. "This means," according to the report, "that investors and analysts cannot take a deep breath or relax until" the time period in the NPA or DPA has expired.

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The report also discusses how FCPA issues can become a "sticking point in acquisitions/dispositions of businesses."

The report notes:

"Sellers may have contingent liabilities related to violations even after assets or businesses are sold. Prices could be less than expected and may hamper sellers who need to receive a certain level of cash or offload debt to deleverage or meet covenants. Additionally, buyers who have not done enough due diligence up front may find themselves with an unexpected obligation and higher litigation expenses in the future."

For a recent example of a company halting a planned acquisition because of an FCPA issue (see here).

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As to "management distraction" resulting from an FCPA inquiry, the report notes:

"Fines, penalties, widespread adverse publicity with potential damage to corporate reputations, having an independent compliance monitor, and building up the compliance organization can all pose an enormous distraction to management. More importantly, while many companies tend to have significant financial resources at the
start of an inquiry, it generally takes years before there is a conclusion. In that interim, it is possible that a corporation’s financial profile could weaken."

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The report contains an informative chart detailing "Fitch-Rate Issuers" that tracks the date the FCPA issue first went public.

Noteworthy examples include:

Accenture Ltd. (identified a potential FCPA issue in July 2003 - in its March 2010 SEC filing the company stated that there has been no new developments);

Bristol-Myers Squibb Company (the SEC notified the company in October 2004 of an inquiry of certain pharma subsidiaries in Germany - in its 2009 10-K the company stated that it is cooperating with the SEC);

Eli Lilly & Co (the SEC notified the company in 2003 that it was investigating whether certain Polish units has violated the FCPA - in its 2009 10-K the company stated that the DOJ and SEC had issued subpoenas relating to other countries).


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As to "credit implications," the report notes, among other things:

That, because the time from discovery of FCPA violations to resolution can take years, a company's credit profile could weaken - perhaps reflecting a weak economic cycle. When allegations of bribery separately arise, "for most corporations if the credit profile weakens, potential fines and/or legal contingencies would be among the items of concern in the Rating or Outlook."

The report then talks specifically about Avon and its FCPA issues (see here for a prior post).

The report notes:

"The cost of investigations and ongoing compliance can be sizeable, and each company’s liquidity and metrics over the medium term would need to be considered. Avon, with $10 billion in 2009 revenues, had $120 million in FCF. In April 2010 the company disclosed that the cost of the investigation would be in the $85 million - $95 million range, up from $35 million in 2009. The additional cost of widening the investigation represents a significant percentage of the company’s 2009 FCF. While the company has more than $1 billion in cash on hand, Fitch’s expectation of moderate FCF in the medium term was part of the rationale for the downgrade to ‘A-’ from ‘A’ on Feb. 2, 2010. Additional layers of investigatory or compliance-related expenses could hamper FCF for Avon and other companies that violate the FCPA. Continued relative weakness in FCF and/or increased leverage typically can provide the impetus for a downgrade or change in outlook for many corporations."

All in all, the Fitch Report is an interesting and informative read.

A couple of observations.

Some FCPA enforcement actions, per the enforcement agencies' allegations, involve conduct that goes "all the way to the top" - the Siemens enforcement action comes to mind. In this type of FCPA enforcement action, the company's credit ratings, and much else about the company's business, ought to be negatively impacted by the FCPA enforcement action.

However, enforcement actions like Siemens are clearly outliers.

The far more common FCPA enforcement action involves allegations of improper conduct by a single employee or a small group of employees - often in a foreign subsidiary. Even so, because of respondeat superior, the parent company issuer faces FCPA exposure. In such a situation - a common FCPA scenario - is it proper for company's credit rating to be negatively impacted by the enforcement action?

Add to this the fact that most FCPA enforcement actions are resolved through non-prosecution or deferred prosecution agreements. These agreements are privately negotiated, subject to no (or little) judicial scrutiny, and do not necessarily represent the triumph of one party's legal position over the other. In such a situation - again a very common FCPA scenario - is it proper for the company's credit rating to be negatively impacted by the enforcement action?

In my forthcoming piece "The Facade of FCPA Enforcement," I discuss why the facade of FCPA enforcement matters.

The Fitch Report has informed me of another reason why the facade of FCPA enforcement matters - and that is because FCPA enforcement actions can negatively impact a company's credit rating.

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What is Alba?

It's the commercial enterprise at the center of two FCPA enforcement inquiries.
Commercial enterprise?

In the words of the late Gary Coleman - "whatcha talkin bout" (see here) - the Foreign Corrupt Practices Act concerns payments to "foreign officials."

However, that is not how the enforcement agencies see it.

Well, actually it is, but under the enforcement agencies' interpretation of the key "foreign official" element (an interpretation that has never received judicial approval), if a commercial enterprise seemingly has any hint of state involvement, it is an "instrumentality" of the foreign government and all employees of the commercial enterprise are deemed "foreign officials."

Over 50% of recent FCPA enforcement actions center, in whole or in part, on this controversial interpretation of the "foreign official" element.

The commercial enterprise at the center of two FCPA enforcement inquiries is Aluminium Bahrain BSC ("Alba").

First, a bit of background.

As evident from the DOJ's recent stay motion in Alba v. Sojitz Corporation - embedded in this story by Lisa Brennan at Main Justice, the DOJ is currently investigating whether Sojitz Corporation, a Japanese company with its principal place of business in Tokyo, and Sojitz Corporation of America, a wholly owned subsidiary and agent/or alter ego of Sojitz Corporation, made corrupt payments to Alba officials in violation of the FCPA. It appears that DOJ will assert jurisdiction over the Japanese entity based on this statement: "Sojitz Corporation, and its controlled subsidiaries, make use of United States banks to distribute aluminum, and other products, and is a member of the Chicago Board of Trade."

The DOJ filing also notes that since 2008 the DOJ has also been investigating a separate matter involving Alba, specifically, whether Aloca Inc. made corrupt payments to "public officials in Bahrain in connection with Alcoa's sale of alumina to Alba." (see page 3). (See page 11 of Alcoa's recent 10-Q filing - here - for more).

So what is Alba, the entity at the middle of two separate DOJ FCPA enforcement inquiries?

According to its website (here), Alba is one of the largest aluminium smelters in the world. The company has three shareholders: the government of Bahrain, the Saudi Public Investment Fund, and Breton Investments.

The company exports to more than 25 countries. Approximately 50% of its output is for Bahrain's downstream industries, about 20% for the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE) and Middle East market, approximately 13% for the Far East market, with the rest for North Africa, South East Asia, India, Europe and the U.S.

The company has over 3,000 employees.

Alba's CEO is Laurent Schmitt and its CFO is Tim Murray (see here). Prior to being appointed Alba's CEO, Mr. Schmitt was previously President of Rhodia Polyamide a world wide global business of Rhodia Group based in France. (see here). On Alba's board is David Meen (see here).

When Congress enacted the FCPA, did it envision that a company like Alba (a company with thousands of employees, a company conducting significant business outside of Bahrain, and company with non-"native" executive officers and board members) would be deemed a "instrumentality" of the Bahrain government by the enforcement agencies?

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