Pamela Chepiga (Allen & Overy)
Players on all sides of the Securities and Exchange Commission’s civil fraud case against Goldman Sachs & Co. and one of its employees are alumni of the U.S. Attorney’s office for the Southern District of New York.
The lawyer for Fabrice Tourre, the 31-year-old Goldman banker at the center of the charges involving a derivatives deal, is Pamela Chepiga, a partner at Allen & Overy LLP in New York. Chepiga headed the SDNY’s Securities and Commodities Task Force from 1982 until 1984.
At that time Barbara S. Jones – who is now the federal judge assigned to the Goldman case — was prosecuting the SDNY’s RICO case against four members of La Cosa Nostra’s Bonnano family. Also in the 1980s, the man who would later become Goldman’s global compliance chief, Alan Cohen, had just joined the SDNY office as a budding prosecutor. Cohen would eventually succeed Chepiga in 1987 as securities and commodities task force chief.
Alan Cohen (Goldman Sachs)
By the time now-SEC Enforcement chief Robert Khuzami came on the SDNY scene as a prosecutor in 1992, Cohen had defected to O’Melveny & Myers, Jones was a judge and Chepiga was a securities lawyer in private practice.
Khuzami, 53, who made a name for himself prosecuting the 1993 World Trade Center bombing, brought a new, aggressive, prosecutorial approach to civil enforcement at the SEC that is best epitomized by the Goldman suit. He installed another SDNY veteran, George Canellos, at the helm of the SEC’s regional office in New York to help turn the agency around.
Not since former SDNY Chief Judge Michael B. Mukasey was nominated in 2007 to serve as U.S. Attorney General has there been as much buzz about SDNY alumni, former prosecutors say. But given SEC Chairman Mary Shapiro’s decision to infuse the agency with SDNY alumni, it’s not surprising to find so many of them on all sides of a case like SEC-Goldman.
“What you have are highly motivated, very accomplished people who start out as prosecutors for the Southern District of New York and go on to take prominent roles in government, at companies and in private practice,” said former prosecutor Marcus Asner, a partner in Arnold & Porter’s New York office, who left the SDNY office in 2008.
Robert Khuzami (org)
Before joining the SEC, Khuzami was general counsel at Deutsche Bank Americas, where he advised bankers structuring the same kind of synthetic collateral debt obligations tied to subprime mortgages that are at issue in the SEC suit. He has recused himself from all the agency’s dealings with Deutsche Bank.
In case against Goldman, the agency has accused Tourre of creating and selling the synthetic CDOs without disclosing that hedge fund Paulson & Co. helped pick them and was betting against them.
George Canellos (Milbank)
Khuzami, a registered Republican who in the past has said he twice voted for President George W. Bush, has also adopted a tool he used as a SDNY prosecutor: He did not alert Goldman before filing suit April 16. The agency had warned Goldman in the form of a Wells notice last year that it was probing the CDOs and might eventually file suit. At a hearing in May before the Senate Banking Committee, Khuzami said, “We must convey to all defendants in SEC actions that not only do we assemble winning cases against them, but also we are prepared to go to trial and we will win.”
A former SDNY prosecutor in private practice said the SEC chose not to warn Goldman because the agency is now “using tougher prosecutorial tactics and it must really have some good stuff.”
Khuzami’s SEC tenure ultimately may be judged on whether the agency wins the Goldman case. The firm denies the charges. The day he announced the case, Khuzami said: “The product was new and complex but the deception and conflicts are old and simple.”
Goldman’s lead lawyer Richard Klapper of Sullivan & Cromwell in New York, will be defending the firm with the assistance of former White House Counsel Greg Craig of Skadden Arps Slate Meager & Flom in Washington.
Samuel W. Seymour (Sullivan & Cromwell)
Although neither Klapper nor Craig were SDNY prosecutors, SullCrom partners Sam Seymour, an appeals maven, and Steven Peikin, a white collar criminal defense star are SDNY alumni waiting in the wings for the case to play out, two former colleagues said.
“It should be fascinating,” said Alan Kaufman of Kelly Drye & Warren in New York, who previously served as chief of the Criminal Division in the U.S. Attorney’s Office for the Southern District of New York from 1999 to 2002. He was also a SDNY AUSA from 1973 to 1980, including stints at the helm of the Official Corruption, Special Prosecutions Unit and the Organized Crime Strike Force.
Steven Peikin (Sullivan & Cromwell)
Last week, Goldman told reporters that the SEC’s case hinges on the actions of Tourre, who was charged with misleading investors about a mortgage-linked investment in 2007. Goldman placed London-based Tourre on paid leave, as he was also meant to be de-registered from the Financial Services Authority.
Goldman General Counsel Greg Palm told Bloomberg: “If we had evidence that someone here was trying to mislead someone, that’s not something we’d condone at all and we’d be the first one to take action.”
James Stanley Lemelle (DOJ)
Attorney General Eric Holder has appointed James Stanley “Stan” Lemelle the new interim U.S. Attorney for the Middle District of Louisiana, effective Sunday.
A Louisiana television station reported the news Monday afternoon.
David R. Dugas served as the district’s head prosecutor from 2001 until last week when he resigned to enter private practice in Baton Rouge.
“I have been an Assistant United States Attorney for the Middle District for 31 years,” Lemelle said in a news release. “For the past 16 years, I’ve served as criminal chief and supervised the office’s criminal division.”
“I am honored by the Attorney General’s appointment and look forward to continuing my work with the fine professionals of this office and with our outstanding law enforcement community,” Lemelle added.
President Barack Obama nominated Don Cazayoux, a former member of the U.S. House, earlier this month.
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The Justice Department is appointing 15 new Assistant U.S. Attorneys and 20 FBI Special Agents to combat intellectual property crimes both domestically and abroad.
The new AUSA positions, announced by the DOJ on Monday — World Intellectual Property Day, will be part of the department’s Computer Hacking and Intellectual Property (CHIP) program and spread throughout offices in California, the District of Columbia, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Texas, Virginia and Washington.
The 20 new FBI Special Agents will be assigned to New York, San Francisco, Los Angeles and D.C.
“Intellectual property law enforcement is central to protecting our nation’s ability to remain at the forefront of technological advancement, business development and job creation,” Acting Deputy Attorney General Gary Grindler said in a statement. “The department, along with its federal partners throughout the administration, will remain ever vigilant in this pursuit as American entrepreneurs and businesses continue to develop, innovate and create.”
In December, Attorney General Eric Holder met at a White House summit with entertainment industry executives to discuss combating intellectual property crimes. During a meeting in Brazil in February, Holder pledged strong enforcement of intellectual property rights. Last month, a leaked draft of the Anti-Counterfeiting Trade Agreement revealed that the U.S. has been pushing for rules that ask service providers to cut off internet access for repeat offenders.
Read the entire news release below.
DEPARTMENT OF JUSTICE ANNOUNCES NEW ASSISTANT UNITED STATES ATTORNEYS AND FBI AGENTS TO COMBAT INTELLECTUAL PROPERTY CRIMES
WASHINGTON – As part of the Department of Justice’s ongoing initiative to confront intellectual property (IP) crimes, Acting Deputy Attorney General Gary G. Grindler announced today the appointment of 15 new Assistant U.S. Attorney (AUSA) positions and 20 FBI Special Agents to be dedicated to combating domestic and international IP crimes.
These new positions – announced on the 10th annual World Intellectual Property Day – are part of the department’s continued commitment to combat the growing number of IP crimes here at home, and abroad. The new AUSA positions will be part of the department’s Computer Hacking and Intellectual Property (CHIP) program.
“Intellectual property law enforcement is central to protecting our nation’s ability to remain at the forefront of technological advancement, business development and job creation,” said Acting Deputy Attorney General Grindler. “The department, along with its federal partners throughout the Administration, will remain ever vigilant in this pursuit as American entrepreneurs and businesses continue to develop, innovate and create.”
The 15 new Assistant U.S. Attorneys will work closely with the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) to aggressively pursue high tech crime, including computer crime and intellectual property offenses. The new positions will be located in California, the District of Columbia, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Texas, Virginia and Washington.
The 20 new FBI Special Agents announced today will be deployed to specifically augment four geographic areas with intellectual property squads, and increase investigative capacity in other locations around the country where IP crimes are of particular concern. The four squads will be located in New York, San Francisco, Los Angeles and the District of Columbia. The squads will allow for more focused efforts in particular hot spot areas and increased contact and coordination with our state and local law enforcement partners. The 20 new agents will join the 31 agents devoted to investigating IP crimes who have already been deployed to field offices around the country.
“Theft of intellectual property – from inventions to trademarks and copyrights, to industrial designs and trade secrets – is a worldwide problem. It affects individuals and corporations financially and can threaten public safety. The additional FBI agents will significantly strengthen the efforts of our squads investigating intellectual property rights violations and help bring to justice those who seek to profit from intellectual property theft,” said Assistant Director Gordon M. Snow of the FBI Cyber Division.
Acting Deputy Attorney General Grindler serves as chair of the department’s Task Force on Intellectual Property, which was established earlier this year by Attorney General Eric Holder to coordinate the department’s efforts on IP crimes. The task force focuses on strengthening efforts to combat intellectual property crimes through close coordination with state and local law enforcement partners as well as international counterparts. As part of its mission, the task force works together with the Office of the Intellectual Property Enforcement Coordinator (IPEC), housed in the Executive Office of the President, to implement an Administration-wide strategic plan on intellectual property.
The task force includes representatives from the offices of the Attorney General, the Deputy Attorney General, and the Associate Attorney General; the Criminal Division; the Civil Division; the Antitrust Division; the Office of Legal Policy; the Office of Justice Programs; the Attorney General’s Advisory Committee; the Executive Office for U.S. Attorneys and the FBI.
World Intellectual Property Day was established by the World Intellectual Property Organization (WIPO) to recognize the importance of protecting intellectual property rights and enforcing their laws. Each year on April 26th, WIPO and its member states seek to increase public understanding of intellectual property through activities, events and campaigns.
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David Iglesias (DOJ)
The Pentagon on Monday announced that former U.S. Attorney David Iglesias, who was removed from office during the U.S. Attorney firings, will be the Defense Department’s new advocate for military commissions, the Miami Herald reported. Iglesias will be part of the prosecution team for hearings on whether American forces tortured confessions out of a Canadian teenager accused of killing a U.S. soldier in Afghanistan.
Iglesias served as the New Mexico U.S. Attorney from 2001 until he was forced out in the 2006 U.S. Attorney firings. Last year, he was mobilized to the war court as a U.S. Navy Reserves captain.
He now will be part of a Pentagon prosecution team headed to Guantanamo for up to two weeks of hearings about Omar Khadr. In July 2002, Khadr was captured during a firefight in which Delta Forces Sgt. 1st Class Christopher Speer was fatally wounded by a grenade allegedly thrown by Khadr. The hearings will determine if any of Khadr’s confessions can be presented during his trial this summer.
Khadr faces charges as an al-Qaeda foot soldier and murderer. Prosecutors are seeking life in prison instead of the death penalty because he was 15 at the time of the incident. Khadr is currently the youngest “enemy combatant” at Guantanamo Bay.
The prosecution team is being headed by Navy Capt. John F. Murphy. Iglesias on Monday briefed 35 reporters who left from Andrews Air Force Base for Guantanamo.
Last month, longtime FBI agent Michael B. Ward became the head of the bureau’s Newark office — the seventh largest FBI office in the country, the Newark Star Ledger reported. Ward most recently was the FBI’s counterterrorism division in Washington, D.C. He also has served in FBI offices in Oklahoma City, Boston, Florida and Texas.
Prior to his 22 years with the FBI, Ward was a loan officer.
Ward told the Star Ledger that fighting public corruption would be a priority for the office.
“After my first couple of briefings, I think I can safely say that corruption is an issue in New Jersey,” Ward said, noting that the office will also focus on terrorism, espionage and cybercrime.
For more on Ward, see the full profile here.
A high-profile appeal of an Army First Lieutenant convicted last year of killing an unarmed detainee in Iraq could turn in part on whether military prosecutors withheld exculpatory evidence.
Michael Behenna’s case underscores how the government is being forced to explain, in the military courts as well as the civilian justice system, its compliance with Brady v. Maryland, the 1963 Supreme Court case that requires prosecutors to turn over exculpatory information to the defense.
Michael Behenna (in uniform, second from right in the rear) with his family. Left to right: his father, Scott; his brothers Brett and Curtis, and his mother, Vicki, in the front. (Photo by the Behenna family)
Behenna’s mother is a veteran federal prosecutor in the Western District of Oklahoma who has set up a website asking for donations to help defend her son, who has said he killed the detainee in self-defense.
On Wednesday, Vicki Behenna learned of a delay before the Army Criminal Court of Appeals, after appellate lawyers with the military asked for more time to file a brief. “To say the least I am sickened at how slow the ‘wheels of justice’ turn in the military ‘justice’ system,” Behenna wrote in an e-mail to Main Justice.
A major issue in the appeal is whether Michael Behenna was unfairly denied access to potentially exculpatory evidence from a blood splatter expert during his trial.
Just as civilian prosecutors must do, military prosecutors must turn over any evidence to the defense that could bolster a defendant’s case at trial. For military prosecutors, that means complying with Rule 701 for Courts Martial. The Behenna case shows how military prosecutors are not immune from Brady problems, which could also arise in the trials of detainees being held in Guantanamo Bay, Cuba, if they are tried in a military tribunal system.
Vicki Behenna has handled federal cases in Oklahoma City for 21 years. She was a member of the team that successfully prosecuted Timothy McVeigh for his role in the bombing Alfred P. Murrah Federal Building in 1995. Brady issues arose briefly in that case, after the belated discovery of documents in FBI files that were not turned over to defense. The discovery temporarily delayed McVeigh’s execution. McVeigh was put to death in 2001.
This week, the government received a second three-month extension for filing its brief on Michael Behenna’s appeal. Col. Norman Allen, chief of the military’s Government Appellate Division, said his office’s work on the case is carrying on under “normal operating procedures.” Jack Zimmermann, Michael Behenna’s lawyer from Zimmermann, Lavine, Zimmermann, & Sampson, had also sought more time.
Michael Behenna was sentenced to 25 years in prison in March 2009 for the murder of Iraqi detainee Ali Mansur Mohamed. Prosecutors said Behenna shot Mansur, who was naked and unarmed, twice during a May 2008 interrogation in the Iraqi desert. Behenna has testified that he believed the Iraqi had played a role in an attack on his platoon, in which two soldiers were killed and two were injured.
Zimmermann argued that the Army officer shot Mansur in self-defense. Behenna said during his military trial that Mansur had reached for Behenna’s weapon.
The potentially exculpatory evidence at issue surfaced hours after Behenna was convicted. Capt. Meghan Poirier, the lead military prosecutor in the case, sent Zimmermann an e-mail she received from a government witness who never took the stand. Herbert MacDonell, a bloodstain pattern analyst, wrote that he would have testified that Behenna’s version of events was plausible.
Michael Behenna (Defendmichael.wordpress.com)
“This, of course, would not have been helpful to the prosecution case,” MacDonell wrote in an e-mail to the military prosecutor. “However, I feel that it is quite important as possible exculpatory evidence so I hope that, in the interest of justice, you informed Mr. Zimmerman of my findings. It certainly appears like Brady material to me.”
In forwarding MacDonell’s email to the defense counsel, Poirier commented: “I am not sure that I believe that Mr. MacDonell’s new opinion is exculpatory, but I wanted to send it to you in an abundance of caution.” Poirier declined to comment to Main Justice on potential Brady issues in the case.
Zimmermann, who regularly speaks about Brady at events across the country, immediately requested a mistrial after he received the e-mail.
Col. Theodore Dixon, the trial judge, wrote in a court filing that MacDonell’s claims were personal opinion “in the guise of an ‘expert opinion’ ” and weren’t exculpatory since the bloodstain pattern analyst revised his initial findings about the killing only after hearing Michael Behenna’s testimony. Dixon denied the defense’s request for a mistrial. Defendants in the military court system receive automatic appeals if they are sentenced for murder.
Recently, Brady issues have created serious problems in the civilian court system. Federal prosecutors came under fire last year after the public corruption case against former Sen. Ted Stevens (R-Alaska) was thrown out. Stevens was convicted, but Attorney General Eric Holder moved to dismiss the charges against Stevens in April 2009, after an internal Justice Department review revealed prosecutors had failed to give the defense material favorable to Stevens’ case.
Since then, the DOJ has launched a major initiative to address concerns about prosecutorial misconduct, including sloppy compliance with Brady requirements. Earlier this year, the DOJ named a new national coordinator for its criminal discovery programs.
Military prosecutors ultimately report to Secretary of Defense Robert Gates. Michelle Lindo McCluer, director of the National Institute of Military Justice, told Main Justice that trial participants in military courts – especially prosecutors – are drilled in their Brady obligations.
“It’s fairly rare to have Brady issues,” said Lindo McCluer, a former judge advocate in the Air Force.
Lindo McCluer and Zimmermann both expressed confidence in the ability of a military court to rule fairly on Michael Behenna’s appeal. Zimmermann noted that the Army has already reduced Michael Behenna’s prison sentence to 15 years without even hearing the soldier’s appeal.
“I believe, as a general rule, military appellate courts are more likely to protect the rights of an appellant than many civilian courts,” said Zimmermann, who has practiced law in the military justice system since 1975. “[Michael Behenna’s] case should receive more scrutiny by the military appellate courts.”
Zimmermann said he anticipates that the Army Court of Criminal Appeals will rule on Michael Behenna’s appeal this fall. For Vicki Behenna, the ruling will not come soon enough.
“We just want Michael to have a fair trial where all the evidence is heard,” she said.
President Barack Obama has asked the Justice Department to review Arizona’s controversial new immigration enforcement law, enacted today with Republican Gov. Jan Brewer’s signature.
Obama said Friday that immigration reform is a federal issue, and that enacting piecemeal measures at the state level would be leaving the door open to “irresponsibility by others,” reported the Washington Post.
“That includes, for example, the recent efforts in Arizona, which threaten to undermine basic notions of fairness that we cherish as Americans, as well as the trust between police and their communities that is so crucial to keeping us safe,” Obama said, according to the Post.
The investigation would fall to the Civil Rights Division, where Assistant Attorney General Thomas Perez has made combating discrimination against Latinos a top priority.
A Justice Department spokeswoman on Friday said the department would look at whether the new Arizona measure violates federal civil rights laws.
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On January 18, 2010 twenty-two business executives were arrested and over 100 FBI agents conducted related searches. These actions were based on sealed federal indictments handed down by a grand jury several weeks earlier, which in turn stemmed from a two-and-a-half year undercover operation. The indictments claimed that the defendants believed that they were involved in a scheme to acquire a US$15 million defense contract to outfit the presidential guard of an unnamed country. They allegedly agreed to pay a 20 percent bribe to a sales agent, supposedly representing the defense minister but really an undercover FBI officer. This was the first large-scale use of undercover law enforcement techniques to investigate Foreign Corrupt Practices Act (FCPA) violations.
With those indictments, federal law enforcement officials announced to the world that the FCPA landscape has changed. Although perhaps the most dramatic shift, the use of undercover operatives is only one of several new FCPA enforcement techniques. The legal and business communities now know that the Department of Justice (DOJ) is making good on its promise to crack down on companies which seek to bribe foreign officials in the course of business.
While the FCPA’s record-keeping and internal control provisions apply only to “issuers” – companies with securities traded on a United States stock exchange or otherwise required to file periodic reports with the Securities and Exchange Commission (SEC) – its anti-bribery provisions apply equally to “domestic concerns.” These include “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship” with a principal place of business in the United States or organized under its law. Thus, these provisions apply to public and private companies. Indeed, several recent FCPA enforcement actions targeted foreign activities by private American firms.
Enforcement Trends
The FCPA has existed since 1977, but was initially rarely used. Since 2005, though, several enforcement trends have appeared. First, the DOJ and SEC have increased the number of FCPA prosecutors and investigators and brought more cases. Second, the investigations have grown more aggressive, targeting individuals as well as companies. Third, companies have begun to disclose potential violations to law enforcement officials before an investigation has begun. Finally, and more recently, officials are looking more at small and mid-sized companies.
More cases: Since 2005, the DOJ has brought over 60 FCPA cases – more than the total between 1977 and 2005. The Fraud Section of DOJ’s Criminal Division has developed a group of experienced prosecutors who specialize in this work. Separately, in 2007 the FBI created in its Washington Field Office a squad of dedicated FCPA agents which has since grown in size and experience. The SEC has also created a specialized FCPA unit to focus on new and proactive approaches to identifying violations. At the end of 2009, the DOJ and SEC combined were pursuing more than 120 FCPA investigations.
The penalties can sometimes be dramatic, such as the US$1.6 billion in fines, penalties, and profit disgorgement that Siemens paid in 2008 for FCPA and bribery violations.
Federal officials are not only bringing cases for FCPA violations; they are also charging firms with lying to federal officials about compliance programs. For example, in early 2010 BAE Systems entered separate settlements with the DOJ and Britain’s Serious Fraud Office to settle long-standing investigations of improper payments. The criminal information filed in the American case claimed, in particular, that the company had made certain false and incomplete statements to the United States government and failed to honor its undertakings to scrutinize payments to consultants, consistent with the FCPA. On March 1, 2010, a federal judge approved the settlement in which BAE plead guilty to conspiracy and false statements about its FCPA compliance plan. The company agreed to pay US $400 million to the U.S. and US $47 million to British authorities.
More aggression: As the example at the beginning of this article shows, law enforcement is not simply waiting for a whistleblower or competitor to inform on a company’s overseas activities. The DOJ is employing tactics usually reserved for drug or organized crime investigations. After this success, prosecutors and agents will likely maintain this proactive stance, and undercover operations, wiretaps, and other covert law enforcement tools will be brought into more investigations.
Officials are also increasingly targeting individuals. In 2008, Albert “Jack” Stanley, a former boss of KBR construction, then a Halliburton subsidiary, pleaded guilty to bribing a foreign official in violation of the FCPA. He was sentenced to seven years in prison. Acting Assistant Attorney General Matthew Friedrich used the case to emphasize that “corporate executives who bribe foreign government officials in return for lucrative business deals can expect to face prosecution.”
Indeed, the list of executives going to prison after FCPA convictions is growing. Mark Mendelsohn, Deputy Chief of the DOJ’s Fraud Section noted in 2008 that the number of individuals prosecuted “has risen – and that’s…quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail… This is a federal crime. This is not fun and games.” Those comments have been supported by convictions and sentencing proceedings in 2009 and 2010.
The damage to companies does not end with high fines and jailed executives. Since Stanley’s conviction, shareholders have sued Halliburton. They alleged that poor oversight and lack of internal controls enabled a pervasive environment of misdeeds and corruption, resulting in enforcement actions and substantial government penalties that have severely damaged investors’ holdings.
More self-disclosure: Law enforcement officials have stated that companies self-disclosing potential FCPA violations will be treated favorably when prosecution and fines are determined. While the United States Sentencing Guidelines allow for mitigation of a sentence based upon a company’s self-disclosure, there is no way for a firm predict exactly what benefit it will receive by coming forward.
The ultimate prize is a deferred prosecution agreement with the DOJ. This allows a company to enact reforms in exchange for the case being dismissed after a period of time. There have been few such agreements related to FCPA cases, but they do exist. In 2005, for example, Monsanto settled FCPA charges by agreeing to pay US$1.5 million in criminal and civil fines and penalties and to be bound by a three-year deferred prosecution agreement.
Despite these uncertainties, companies are better off coming forward once a violation is discovered – usually through pre-merger or other due diligence efforts –rather than waiting for a federal grand jury subpoena. Since 2005, approximately 70% of FCPA cases initiated by the DOJ have been based on self-disclosure. The number of self-reported FCPA violations will rise as law enforcement continues its focus on the FCPA and as small and mid-sized companies begin to scrutinize their overseas work [see below].
Court-enforced monitor relationships may also increase. On January 12, 2010, the United States Sentencing Commission voted to propose changes to the Sentencing Guidelines when probation is ordered. These include not only the retention of an independent corporate monitor to be paid for by the organization, but also unannounced examinations of corporate books, and an amendment to the Guidelines’ application notes – which can be relied upon by a court – to clarify the expectation that, in order to avoid any legal liability, high-level personnel must conform to any policy that is part of an effective compliance program. While some of the fees being paid to monitors have been called into question by federal judges, monitorships are here to stay. In short, the proposals indicate a renewed spotlight on corporate compliance arrangements and their ability to uncover violations.
More focus on small and mid-sized companies: As part of their increased FCPA-related efforts, the DOJ and SEC are expected to look more at small and mid-sized firms which do business overseas. The majority of such companies have a small established compliance program, or none at all, yet some may conduct billions of dollars in foreign transactions.
Companies that are not household names have long believed that they were under law enforcement’s radar. Smaller firms have also thought that the DOJ would not expend the resources to investigate their overseas sales. That comfortable illusion no longer exists. The companies involved in the January sting operation described above, for example, are not well known.
In another recent case, two individuals pleaded guilty to conspiring to make corrupt payments to foreign government officials in order to secure business for Ports Engineering Consultants Corporation (PECC). The company, incorporated under Panamanian law, was affiliated with an engineering firm based in the United States. According to the indictment, PECC was created so that the two individuals, the firm itself, and others could corruptly obtain certain maritime contracts from the Panamanian government.
What makes this prosecution interesting is the small amount of money involved. From 1997 to 2003, the conspirators made corrupt payments totaling approximately $331,000 to the former administrator and deputy administrator of the Panama Maritime Authority and to a former high-ranking elected executive official of the Republic of Panama. That figure pales in comparison to other FCPA cases the DOJ has brought. It clearly demonstrates that the authorities are prepared to seek criminal indictments for individuals and companies that violate the FCPA, regardless of the size of the company or the suspected illegal payment.
American law enforcement officials have signaled to the world that they will aggressively combat FCPA violations. More investigations, indictments, and corporate executives being sent to prison are certain to follow. Companies that do not ensure compliance with the FCPA run a great risk to their organizations, as well as to their executives and directors.
Jeffrey Cramer is a Managing Director and head of the Chicago office of Kroll’s Business Intelligence and Investigations Practice. He is also a former Senior Litigation Counsel for the Department of Justice.
Gordon M. Snow, the deputy assistant director of the FBI’s Cyber Division, has been promoted to assistant director of the division, Tickle The Wire reported. Snow was in the deputy assistant director position for just few months, as he continued his rapid rise in the bureau.
Snow joined the bureau in 1992, starting off as an agent in Huntsville, Ala. He joined the Critical Incident Response Group as a member of the Hostage Rescue Team in April 1996. Five years later he was promoted to supervisory special agent in the Counterintelligence Division’s Middle East Unit, a position he held for two years before being assigned to the Detroit Division as a supervisor of the foreign counterintelligence program.
In the past five years, according to a news release Friday from the FBI, Snow has also served as chief of the Weapons of Mass Destruction and Acquisition of U.S. Nuclear & Missile Technology Unit at FBI headquarters, an assistant special agent in charge of the San Francisco Division’s San Jose Resident Agency, the FBI’s on-scene commander for the Counterterrorism Division in Afghanistan, section chief in the Cyber Division and director of the National Cyber Investigative Joint Task Force.
According to FBI Director Robert S. Mueller III, “The FBI considers the cyber threat against our nation to be one of the greatest concerns of the 21st century,” adding, “Protecting the United States against cyber crimes is one of the FBI’s highest priorities and, in fact, is the FBI’s highest criminal priority. Gordon’s broad range of investigative and leadership experience will serve the Cyber Division well as they carry out this mission.”
The terms “risk-based compliance” have become a buzz-phrase for the international business community. In the wake of the surge in anti-corruption enforcement, businesses with international operations are focusing their efforts on securing their anti-corruption policies and programs against the potential for prosecution.
The current trend among compliance practitioners is to focus anti-corruption efforts on the relatively restricted range of corruption risks facing an organization, with the almost exclusive aim of preventing violations. Practical realities of international business dictate that corruption risks should not be viewed so narrowly. Instead, organizations must consider a holistic view of risk to help prevent its operations from running afoul of regulatory standards and to provide better resilience capabilities in case they do find themselves in need of remediation against corruption violations.
Businesses must understand that integrity risks are almost always composed of intertwined degrees of political and operational risks based on the opaque geographies where they are engaged. Holistic risk-based compliance should also account for a company’s operating protocols – to ensure business resilience and safeguard personnel – in the event an anti-corruption incident is suspected or has actually occurred.
Robust risk-based compliance programs will also consider, in addition to transactional risks posed by respective third parties, an objective risk assessment that will provide a comprehensive understanding of jurisdictional risk, including a review, background and assessment on:
Economic, social and political stability: Local and global economic events, ranging from elections to natural disasters, largely influence corruption levels, fraud threats and the local operational business environment.
General corruption patterns: It is necessary to identify general trends and patterns of corruption in the public and private spheres in the jurisdictions in which organizations are operating, as well as why some organizations are more vulnerable to integrity risks than others.
Corruption relative to the company: Corruption and fraud risks differ depending on an or an organization’s commercial sector, local anti-corruption legal framework and its efficacy and shortfalls.
Comparison of corruption measurements: Different corruption watchdogs and whistleblowers issue varying measurements of corruption; it is important to know where your organization stands in relation to these measurements.
Country analysis: Corruption risk is defined by the country in which an organization is operating and a comparative analysis of how the country stands in relation to other countries in the region is necessary to understand the full-range of existing and potential risks.
Case studies: Learn from the misfortunes – and fortunes – of others. Analyze case studies of known corruption incidents, with the aim of identifying trends and patterns through traffic analysis in each jurisdiction.
A holistic risk-based compliance approach allows organizations to not only identify and analyze risks, but also to properly treat risks, both objectively and cost effectively, wherever they are faced.
Keith Martin is the Vice President and North America FCPA Practice Lead, Global Services at Control Risks.
Vice President and North America FCPA Practice Lead, Global Services, Control Risks
