2009 Mid-Year FCPA Update

July 7, 2009

As the inauguration of Barack Obama in January 2009 ushered in a new U.S. presidential administration, things remained business-as-usual for regulators charged with enforcing the Foreign Corrupt Practices Act ("FCPA").  The number of FCPA prosecutions initiated by the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") during the past six months continued the recent explosion of FCPA enforcement activity, and the number of ongoing investigations suggests that this trend will not soon subside. 

Beyond the overall trend of increased activity, the first half of 2009 has brought several other interesting FCPA enforcement developments.  In June 2009, two individual criminal defendants opted to try their cases before juries, rather than enter into plea agreements with DOJ, as has been the norm in FCPA cases.  Both trials are currently underway, and the defense bar will be watching closely to see how these defendants fare in the first FCPA trials in nearly five years.  Outside of traditional FCPA enforcement circles, interest in anti-corruption enforcement issues has also increased.  There is legislation pending in Congress that could alter the FCPA enforcement landscape, and the House Financial Services Committee recently held a hearing on combating global corruption.  In addition, the Financial Industry Regulatory Authority ("FINRA"), the self-regulatory organization of the U.S. securities industry, recently announced that FCPA compliance would be one of its primary areas of focus during 2009 examinations, and the New York State Insurance Department similarly indicated its intention to focus on FCPA compliance in future licensee examinations.  Overseas, a number of foreign regulators have recently stepped up their own anti-corruption enforcement activities. 

This update provides an overview of the FCPA and a survey of U.S. and foreign anti-corruption enforcement activities during the first half of 2009, as well as a discussion of the trends that we see from that activity and practical guidance to help companies avoid or limit liability under these laws.  A collection of Gibson Dunn’s publications on the FCPA, including prior enforcement updates and more in-depth discussions of the statute’s complicated framework, may be found on our FCPA Website.

FCPA Overview

The FCPA’s anti-bribery provisions make it illegal to offer or provide money or anything of value to officials of foreign governments or foreign political parties with the intent to obtain or retain business.  The anti-bribery provisions apply to "issuers," "domestic concerns," and "any person" that violates the FCPA while in the territory of the United States.  The term "issuer" covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, the approximately 1,500 foreign issuers whose American Depository Receipts ("ADRs") are traded on U.S. exchanges are "issuers" for purposes of this statute.  The term "domestic concern" is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has a principal place of business in the United States.

In addition to the anti-bribery provisions, the FCPA’s books-and-records provision requires issuers to make and keep accurate books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Finally, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Regulators have frequently invoked these latter two sections – collectively known as the accounting provisions — in recent years when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency.

2009 Mid-Year Figures

The continuing explosion of FCPA prosecutions is best captured in the following table and graph, which each track the number of FCPA enforcement actions filed by the DOJ and SEC during the past six years.  In just the first six months of 2009, more FCPA prosecutions were brought than in any other full year prior to 2007.  Moreover, the nineteen enforcement actions initiated to date in 2009 exceeds the enforcement activity undertaken during the first half of any prior year, including the sixteen enforcement actions filed during the first half of 2008 and the nine enforcement actions filed during the first six months of 2007.   






(through June 30)

























It is clear that this trend of heightened enforcement activity will not soon subside.  Mark F. Mendelsohn, the Deputy Chief of the Fraud Section in DOJ’s Criminal Division and the government’s top criminal FCPA enforcer, recently confirmed that at least 120 companies are the subject of ongoing FCPA investigations.

2009 Mid-Year Enforcement Docket

United Industrial Corp. and Thomas Wurzel

On May 29, 2009, United Industrial Corporation ("UIC"), an aerospace and defense systems contractor, settled administrative charges with the SEC alleging violations of the FCPA’s anti-bribery, books-and-records, and internal controls provisions.  The SEC claimed that, in 2001 and 2002, UIC subsidiary ACL Technologies, Inc. ("ACL"), made more $100,000 in payments to an agent with the expectation that the agent would pass portions of those payments to officials of the Egyptian Air Force in order to influence the award of a contract to construct and staff a military aircraft depot in Cairo.  The SEC noted the agent’s position as a retired Egyptian Air Force general, his friendship with a current high-level Air Force official, and the belief within ACL that "it’s a very small community of high-level military people" in Egypt.  The payments to the agent included $50,000 for "marketing services," which were unsupported by any marketing agreement, and $100,000 in "advance" payments to the agent that UIC later forgave through a fraudulent "repayment" plan involving inflated invoices.  Taking UIC’s remedial efforts into account, the SEC issued a cease-and-desist order that required UIC to pay $337,679.42 in disgorgement and prejudgment interest, but it did not assess a civil penalty. 

On the same day, Thomas Wurzel, the former president of ACL, settled his own civil charges with the SEC.  Alleging violations of the anti-bribery, books-and-records, and internal controls provisions of the FCPA, the SEC cited numerous e-mails between Wurzel and ACL’s Egyptian agent to establish that Wurzel "knew or consciously disregarded the high probability that the agent would offer, provide or promise at least a portion of [his agency] payments to Egyptian Air Force officials" in order to influence the award of contracts to ACL.  Wurzel consented to the entry of a permanent injunction against future violations of the FCPA and agreed to pay a $35,000 civil penalty. 

Juan Diaz and Antonio L. Perez

On May 15, 2009, DOJ announced FCPA guilty pleas by the former controller of an unnamed Miami-based telecommunications company and the agent that it used as an intermediary for acquiring contracts with Telecommunications D’Haiti, the Haitian state-owned telephone company and sole provider of landline telephone service to and from the island nation.  The criminal informations charge that, between 2001 and 2003, the defendants authorized and paid bribes to officials of Telecommunications D’Haiti to reduce the amounts owed to the state-owned company, including by reducing per-minute rates and the number of minutes for which payment was owed.

Antonio L. Perez, the former controller of the unnamed Miami telecommunications company, pleaded guilty to a one-count information charging him with conspiracy to violate the FCPA’s anti-bribery provision and to commit money laundering.  Perez admitted to personally authorizing more than $36,000 in bribes to Haitian officials, while his co-conspirators within the company, including the President and Executive Vice President, allegedly authorized approximately $675,000 in bribe payments. 

Juan Diaz, the President of a shell company that served as an intermediary between the Haitian government and three unnamed Miami-based telecommunications companies, including Perez’s company, likewise pleaded guilty to a two-prong conspiracy count involving the FCPA and the money laundering statute.  Diaz admitted to collecting more than $1 million in "commissions" and "vendor payments" from these three companies, keeping $73,824 for himself and passing the balance to officials of Telecommunications D’Haiti.  As part of his scheme, Diaz structured his transactions to evade the obligation to file currency transaction reports on checks of more than $10,000. 

Both Perez and Diaz face up to five years in prison at their respective sentencings, currently scheduled for later this year.  In addition, both have agreed to forfeit to the United States all funds traceable to their violations. 

Novo Nordisk A/S

In yet another prosecution stemming from the United Nations Oil-for-Food Program, Danish pharmaceutical company Novo Nordisk A/S settled civil and criminal FCPA charges on May 11, 2009.  According to the charging documents, Novo Nordisk paid approximately $1.4 million, and agreed to pay an additional $1.3 million, to the Iraqi government in connection with thirteen contracts that netted the company more than $4.3 million in profits.  The eleventh company to settle FCPA charges arising from the Oil-for-Food Program, Novo Nordisk admitted to inflating its contract submissions to the United Nations escrow account by 10% and to passing the difference to the Iraqi government as "after sales service fee" payments. 

The SEC’s complaint alleges that Novo Nordisk violated the FCPA’s books-and-records and internal controls provisions.  To settle those allegations, Novo Nordisk agreed to pay a civil penalty of $3,025,066 and to disgorge $6,005,079 in profits plus prejudgment interest.  To resolve the criminal charges, Novo Nordisk entered into a deferred prosecution agreement with DOJ, agreeing to pay a $9 million criminal fine, and consented to the filing of a criminal information charging the company with conspiracy to commit wire fraud and to violate the books-and-records provision of the FCPA.  Assuming that Novo Nordisk successfully complies with the deferred prosecution agreement’s terms, DOJ will defer prosecution for the agreement’s three-year term and dismiss the charges in 2012. 

Numerous Executives of Control Components, Inc.

As part of its ongoing investigation of Control Components, Inc. ("CCI"), a California-based manufacturer of service control valves, on April 8, 2009, DOJ indicted six former CCI executives on charges of violating the FCPA’s anti-bribery provision and the Travel Act.  The indictment alleges a conspiracy to cultivate "friends-in-camp" at CCI’s government-owned and private customers worldwide by making corrupt payments to influence these individuals either to award CCI contracts or to influence the technical specifications of competitive tenders to favor CCI.  The defendants charged in this indictment include the following:

  • Stuart Carson – former Chief Executive Officer;
  • Hong "Rose" Carson – former Director of Sales for China and Taiwan;
  • Paul Cosgrove – former Head of Worldwide Sales;
  • David Edmonds – former President of Worldwide Customer Service;
  • Flavio Ricotti – former Head of Sales for Europe, Africa, and the Middle East; and
  • Han Yong Kim – former President of CCI’s Korean office. 

The government’s allegations are far-ranging, claiming that the co-conspirators authorized and made 236 payments, totaling approximately $6.85 million, to customers in more than thirty countries to secure contracts for CCI that generated approximately $46.5 million in profits.  Indeed, so expansive are the government’s charges that Stuart Carson’s attorneys successfully moved the Court for a bill of particulars, resulting in DOJ filing a ten-page chart, with endnotes, ostensibly identifying, where known, the dates, beneficiaries, and recipients for each of the 236 allegedly unlawful payments.  Pre-trial litigation continues in this matter, and trial is set to begin on December 8, 2009.

The April 2009 indictment followed a February 3, 2009 guilty plea by CCI’s former Finance Director, Richard Morlok, to charges of conspiring to violate the FCPA.  And, in December 2008, former Director of Worldwide Factory Sales Mario Covino also pleaded guilty to FCPA conspiracy charges.  Covino and Morlok are both presently scheduled to be sentenced in July 2009, but look for these dates to move as they continue to cooperate in DOJ’s ongoing investigation.  The company, CCI, has yet to be charged in this matter, although IMI plc, CCI’s parent company, announced on March 4, 2009, that it expects to "reach final agreement in the near future on a settlement with [DOJ] in respect of certain irregular payments by [CCI] that violated the [FCPA]."  IMI’s 2008 preliminary results announcement also noted that an investigation concerning other "possible incidental breaches of US trade law by CCI" has been completed and that the company will "have to deal with a number of collateral issues in other jurisdictions." 

Latin Node, Inc.

On April 7, 2009, Latin Node, Inc., a Miami-based telecommunications provider, pleaded guilty to criminal FCPA charges filed in connection with allegedly unlawful payments made to government officials in Honduras and Yemen in return for the award of new contracts and the negotiation of favorable terms on existing contracts, including reduced per-minute connectivity rates.  DOJ alleged that, between 2004 and 2007, Latin Node paid approximately $2.25 million in bribes, directly and through intermediaries, to officials at Hondutel and TeleYemen, the state-owned telecommunications companies in Honduras and Yemen, respectively. 

Latin Node’s payments came to light after eLandia International, Inc. ("eLandia"), a public telecommunications provider that acquired Latin Node in June 2007, discovered irregularities during its post-acquisition financial integration review.  Within three months of uncovering the suspected misconduct, eLandia voluntarily disclosed the payments to the DOJ and SEC.  eLandia then conducted an extensive internal investigation and took substantial remedial actions, most notably shutting down Latin Node’s business operations at a cost to the company of millions of dollars.  DOJ’s sentencing memorandum makes clear that all of the alleged improper payments were made prior to eLandia’s acquisition, but it also implicitly suggests that eLandia conducted little, if any, FCPA due diligence in connection with its acquisition. 

Latin Node, which eLandia maintained as a separate legal entity solely for purposes of resolving the criminal investigation, pleaded guilty to a one-count information charging it with violating the anti-bribery provisions of the FCPA and agreed to pay a $2 million fine.  A corporate guilty plea may well seem a harsh result in light of eLandia’s remediation and the presumed availability of the commonly employed deferred and non-prosecution agreements, but this might well have been eLandia’s choice resolution.  Although corporate entities with ongoing operations typically prefer a deferred or non-prosecution agreement to a guilty plea, eLandia had already ceased Latin Node’s business operations and therefore likely had lesser concerns relating to potential collateral actions, such as debarment proceedings.  Indeed, a deferred or non-prosecution agreement would have entailed substantial future reporting obligations that eLandia may have preferred to avoid. 

Halliburton, KBR, Wojciech Chodan, and Jeffrey Tesler

On February 11, 2009, Kellogg, Brown & Root LLC pleaded guilty to criminal violations of the FCPA, and Halliburton Co. and KBR, Inc., its former and current parent companies, respectively, settled related civil FCPA charges.  The road that led them there was long and winding, even by FCPA standards.

In 1998, Halliburton acquired M.W. Kellogg Co. and merged it with an existing Halliburton subsidiary to form Kellogg, Brown & Root LLC.  At the time of the acquisition, M.W. Kellogg was a member of a four-party joint venture that had allegedly been engaged for several years in the practice of bribing Nigerian officials, through purported consulting payments to two different third-party agents, in return for the award of natural gas pipeline engineering, procurement, and construction ("EPC") contracts.  Halliburton conducted minimal due diligence on the agents, and the payments continued for another six years.  All told, between 1995 and 2004, the joint venture allegedly paid nearly $182 million in consulting fees to the two agents with the expectation that some or all of the payments would be passed along to Nigerian officials.  These unlawful payments allegedly led to the award of $6 billion in contracts to the joint venture, netting approximately $235.5 million in profits to Kellogg, Brown & Root. 

To settle the charges, Kellogg, Brown & Root LLC pleaded guilty, paid a $402 million criminal fine, and agreed to retain an independent compliance monitor for a term of three years.  Both Halliburton and KBR settled civil FCPA charges filed by the SEC, agreeing to be held jointly liable for $177 million in disgorgement of ill-gotten gains.  This resolution, both individually at the DOJ and SEC, and in the aggregate, represents the second largest FCPA settlement in the statute’s history, behind only the record-shattering Siemens settlement of 2008. 

On February 17, 2009, less than one week after finalizing the Halliburton/KBR settlements, DOJ filed a sealed indictment against two British citizens for their alleged roles in the bribery scheme.  The indictment charges Wojciech Chodan, a former sales vice president for M.W. Kellogg who was retained as a consultant after its acquisition by Halliburton, and Jeffrey Tesler, a U.K. solicitor and agent of the joint venture, with one count of conspiracy and ten substantive counts of violating the FCPA’s anti-bribery provision.  Chodan and Tesler allegedly participated in "cultural meetings" at which the joint venture members agreed to hire two agents to pay bribes to Nigerian officials in order to secure the EPC contracts.  Tesler was retained to bribe top-level officials in the Executive Branch of the Nigerian government, including three successive vice presidents, while a second, as yet uncharged Japanese agent was hired to bribe lower level Nigerian officials.  

The Chodan/Tesler indictment was unsealed on March 6, 2009, after London police arrested Tesler at DOJ’s request.  Extradition proceedings have just begun, with Tesler "strongly den[ying] any wrongdoing" and promising a "hotly contested" fight.  Chodan has not yet been arrested, and press reports suggest that he has not been seen recently at his Somerset Village home. 

The Halliburton, KBR, Chodan, and Tesler cases follow the 2008 guilty plea by former KBR Chairman and Chief Executive Officer Albert "Jack" Stanley.  Stanley’s sentencing has been delayed as he continues to cooperate in DOJ’s investigation with the hope that DOJ will file a pre-sentencing motion under § 5K1.1 of the U.S. Sentencing Guidelines requesting a reduced sentence due to Stanley’s "substantial assistance in the investigation or prosecution of another person."  Stanley is currently scheduled to be sentenced on August 27, 2009.

ITT Corp.

On February 11, 2009, the SEC filed a settled civil complaint against global conglomerate ITT Corporation, alleging violations of the FCPA’s books-and-records and internal controls provisions.  The SEC’s complaint alleges that, from 2001 to 2005, ITT’s Chinese subsidiary, Nanjing Goulds Pumps, Ltd. ("NGP"), paid approximately $200,000 to officials at Chinese state-owned entities that designed the specifications for large infrastructure projects on which NGP was a bidder.  The payments, which were allegedly transmitted directly by NGP and through NGP’s third-party agents, were tendered for the purpose of influencing the officials to formulate bid specifications that would favor NGP’s products.  NGP then allegedly improperly recorded the payments to the government officials as "commissions" in its corporate ledger, which was then consolidated into ITT’s financial statements at year end. 

Upon discovering the potentially unlawful payments, ITT voluntarily disclosed the payments to the government.  Without admitting or denying the allegations, ITT agreed to pay a $250,000 civil penalty and to surrender $1,428,650 in disgorgement of profits and prejudgment interest.  DOJ has not yet filed any charges against ITT, and it remains unclear whether any criminal prosecution will be brought. 

2009 Mid-Year Sentencing Docket

In addition to the settlements described above, on April 7, 2009, Shu Quan-Sheng, who pleaded guilty to violating the FCPA and the Arms Export Control Act in November 2008, was sentenced to fifty-one months incarceration followed by two years of supervised release.  This sentence is demonstrative of the significant periods of incarceration that may follow from an FCPA conviction.

Ongoing Criminal Litigation

Throughout more than three decades of FCPA enforcement, only a handful of defendants charged with criminal violations of the statute have opted to take their cases before a jury rather than settle before trial with DOJ.  Indeed, coming into this year, the most recent FCPA trial occurred nearly five years ago, with the fall 2004 prosecution of David Kay and Douglas Murphy.  But, with the significant uptick in FCPA enforcement, trials are beginning to line up for the next several years.  DOJ’s recent focus on individual defendants, who face a much different calculus in weighing their settlement options due to the prospect of incarceration, appears to be driving this trend.  As we go to press with this publication, two FCPA cases are currently in trial, and verdicts will soon follow. 

Frederic Bourke Trial

For years, we have been reporting on the winding progress in the prosecution of Frederic Bourke.  First indicted in 2005 along with alleged co-conspirators Victor Kozeny and David Pinkerton, Bourke is presently on trial in the U.S. District Court for the Southern District of New York for conspiring to bribe senior Azeri government officials, including the nation’s former President, to influence these officials to privatize Azerbaijan’s state-owned oil company ("SOCAR").  Specifically, Bourke is alleged to have invested $8 million with Kozeny, while knowing that Kozeny was paying millions of dollars in bribes to Azeri officials and had promised these officials a two-thirds share of the profits from the privatization effort.  Bourke stands alone in this trial, with Pinkerton having been dismissed from the case in the wake of a significant statute-of-limitations decision in 2008 by Judge Shira Scheindlin and Kozeny remaining a fugitive in the Bahamas, which has refused U.S. extradition requests. 

In the months leading up to the June 1, 2009 trial date, both DOJ and Bourke continued to aggressively litigate against each another.  On May 26, DOJ filed a second superseding indictment, dismissing the substantive FCPA count against Bourke and foreshadowing that the government would focus on Bourke’s knowledge of (or willful blindness to) the alleged corrupt payments, rather than his facilitation of the payments themselves.  Just three days later, Judge Scheindlin issued a significant evidentiary ruling permitting DOJ to introduce background evidence relating to corruption in Azerbaijan.  Judge Scheindlin held that evidence demonstrating that (i) Azerbaijan was widely known to be a corrupt nation, (ii) post-Communism privatization efforts in other states had been tainted by corrupt practices, and (iii) Kozeny was notoriously known as the "Pirate of Prague" due to alleged prior corrupt dealings arising from privatization efforts in the Czech Republic, all made it more probable that Bourke was aware that Azeri officials were being bribed in connection with the SOCAR privatization effort.  Further, Judge Scheindlin ruled that DOJ could present evidence that Bourke’s alleged co-conspirators, with whom he had substantial direct contacts, were aware of corruption in Azerbaijan in order to demonstrate that Bourke likely also had such knowledge. 

On June 2, 2009, DOJ Attorney Robertson Park opened the government’s case before the jury by stating:  "This is a case about money – lots of it.  This is a case about bribes.  This is a case about lies."  As the opening statements for each side unfolded, it became clear that a central piece of evidence in the case would be a tape-recorded conversation between Bourke and his attorney in which Bourke can be heard to ask, if he learned that Kozeny was bribing government officials in Azerbaijan, "What are you going to do with that information? …  You got knowledge of it.  What do you do with that?"  DOJ characterized these statements as evidence that Bourke knew of, or was willfully blind to, the bribery scheme.  But the defense, which itself turned the tape over to DOJ during proffer negotiations, claimed that the tape is "the best piece of evidence in the case of Mr. Bourke’s innocence," because it shows that Bourke took his concerns about Kozeny to his attorneys so that he would not break the law. 

After three weeks of testimony from more than a dozen witnesses, the prosecution rested its case on June 26.  The two star witnesses for the prosecution were Hans Bodmer and Thomas Farrell, a former attorney and aide to Kozeny, respectively, who each have pleaded guilty to their own FCPA violations and were testifying as cooperating witnesses for the government.  Bodmer and Farrell both testified that they told Bourke that Kozeny was using the investments he raised to bribe Azeri officials, but the defense countered with its own witnesses undercutting their recitation of events and affirmatively testifying that, although Bourke knew that Azeri officials had financial interests in the privatization scheme, Bourke had been told that the officials had paid for their stake and that the arrangement had been blessed by their lawyers. 

The defense rested on June 30, electing not to call Bourke to testify on his own behalf.  One highlight of the defense was more than four hours of testimony from former Democratic Senate Majority Leader and current Special Envoy to the Middle East, George Mitchell.  Mitchell, a friend of Bourke’s, testified that he personally lost approximately $200,000 when the SOCAR privatization investment that Bourke had recommended to him failed, but that Bourke never suggested to him that bribes were being paid to ensure that the deal succeeded. 

Closing arguments began on July 6, with DOJ concurrently putting forward two theories of its case.  First, relying principally on the testimony of Bodmer and Farrell, prosecutors argued that Bourke actually knew of the alleged conspiracy to bribe Azeri officials.  And second, as an alternative theory, the government argued that Bourke "stuck his head in the sand" and "consciously avoided" the "high probability" that his co-investors were paying bribes (the FCPA provides that knowledge of improper payments may be established by evidence that the defendant was "aware of a high probability of the existence of [the payments]").  Bourke’s defense team is scheduled to deliver its summation on July 7, and the jury should see the case before the week is out. 

William Jefferson Trial

On June 9, 2009, just one week after the first FCPA trial in nearly five years began, a second FCPA trial kicked off before U.S. District Court Judge T.S. Ellis in the Eastern District of Virginia with the long-awaited trial of former U.S. Congressman William Jefferson.  Jefferson faces a sixteen-count indictment alleging nearly a dozen distinct bribery schemes in which Jefferson variously plays the role of briber and bribee.  With respect to the FCPA, Jefferson is charged with substantive and conspiracy counts alleging that he attempted to bribe then-Nigerian Vice President Atiku Abubakar to induce favorable regulatory action for iGate, Inc., a Kentucky-based technology company for which Jefferson was acting as an agent.  A cooperating witness allegedly provided Jefferson with $100,000 in marked bills for ultimate delivery to Abubakar, $90,000 of which agents of the Federal Bureau of Investigation ("FBI") recovered from Jefferson’s freezer during a 2005 raid of his Virginia home.  Other evidence to come out at trial includes an allegation that Jefferson accepted $100,000 in bribes from Abubakar in return for introducing him to other congressmen so that Abubakar could build political contacts to support his bid for the Nigerian presidency.  As we go to publication, the government’s case continues with the fourth week of prosecution testimony. 

Pre-trial litigation in the Jefferson case illustrates how it can be quite difficult for defendants to obtain foreign-based testimony and documentary evidence.  Several months before his trial began, Jefferson sought a court order requiring the U.S. government to invoke its Mutual Legal Assistance Treaty ("MLAT") with Nigeria to secure a deposition of Abubakar and Suleiman Yahyah, another alleged Nigerian co-conspirator.  Judge Ellis denied Jefferson’s request, holding that the MLAT process is available only to its signatories and cannot be invoked by private parties.  As an alternate route, Jefferson asked the Court to issue letters rogatory to secure deposition testimony from Abubakar and Yahyah.  Noting that such a request requires "exceptional circumstances" not present in this case due to the likelihood that the alleged co-conspirators would invoke their Fifth Amendment right not to testify, the Court instead issued only a preliminary letter rogatory seeking Nigerian judicial assistance in questioning Abubakar and Yahyah about their willingness to waive their Fifth Amendment rights.  After several months of silence from Nigerian judicial authorities, the Court ultimately directed the government to withdraw the preliminary letter rogatory, meaning that Jefferson will not have the testimony of either party available for his defense. 

Other Ongoing Criminal Litigation

Other post-indictment FCPA matters currently set for trial in 2009-2010 include the following: 



Mid-Year 2009 Developments

Trial Date (Venue)

Gerald Green

Patricia Green

The husband and wife film producers are accused of paying more than $1.7 million in bribes to a senior official with the Tourism Authority of Thailand in exchange for at least $14 million in contracts to administer a film festival and to market an "elite privilege card" to wealthy foreigners.  

  • The 9th Circuit dismissed an appeal from the District Court ordering the Greens’ attorney to testify before a grand jury because the attorney had not yet submitted to a contempt citation, and, alternatively, in camera review provided a basis for concluding that the communications at issue were subject to the crime-fraud exception to the attorney-client privilege.
  • DOJ filed a second superseding indictment, adding a 22nd count alleging that Gerald Green sought to alter and falsify business records to disguise the bribe payments after learning of the FBI’s investigation. 

Aug. 4, 2009
(C.D. Cal.)

Paul Novak

James Tillery

The former President (Tillery) and consultant (Novak) of Willbros International are accused of conspiring to pay more than $6 million in bribes to Nigerian government officials in return for the award of more than $380 million in gas pipeline contracts and agreeing to make an additional $300,000 in corrupt payments to officials of the Ecuadorian state oil company in return for the award of a $3 million gas pipeline project.   

  • Multiple continuances to facilitate discovery, including interviews in foreign jurisdictions, in the Novak prosecution. 
  • Tillery remains a fugitive.

Aug. 10, 2009
(S.D. Tex.)

Leo Winston Smith

The former Director of Sales and Marketing of Pacific Consolidated Industries is accused of paying more than $300,000 to secure U.K. Ministry of Defense contracts. 

  • Trial date continued.

Sept. 29, 2009
(C.D. Cal.)

Nexus Technologies

Joseph Lukas

An Quoc Nguyen

Kim Anh Nguyen

Nam Quoc Nguyen


The export company and its executives are all accused of bribing Vietnamese officials to influence purchases of a wide variety of equipment and technology, including underwater mapping equipment, bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts, and air tracking systems.

  • Lukas pleaded guilty to FCPA conspiracy charges on June 29, 2009.  His sentencing is currently scheduled for April 2010. 
  • The Court ordered DOJ to "work out the declassification and production of documents" to the remaining defendants by September 18, 2009.

Mar. 1, 2010
(E.D. Pa.)

Collateral Civil Litigation

Much as individuals implicated in foreign bribery schemes are increasingly finding themselves targeted for prosecution, companies unfortunate enough to find themselves under investigation by the DOJ and SEC are increasingly finding themselves embroiled in follow-on private civil litigation.  Although the FCPA does not provide for a private right of action, enterprising plaintiffs’ lawyers have not been deterred from shoehorning alleged FCPA violations into a variety of civil causes of actions that do provide for private redress, including securities fraud actions, shareholder derivative suits, contract claims, and tort claims.  On the other side of the coin, some corporate defendants in government enforcement actions have brought suit against the individuals responsible for those violations.

Securities Fraud Actions

The protracted securities fraud litigation initiated in 2004 against the former executives and the controlling shareholder of UTStarcom, Inc., gathered momentum in the early months of 2009.  Among the numerous claims, the plaintiff-shareholders allege that UTStarcom knowingly violated the FCPA by bribing officials in China, Mongolia, and India to secure contracts, ultimately forcing the company to restate its financial results and leading to joint DOJ/SEC investigations.  In March 2009, the U.S. District Court for the Central District of California denied the defendants’ motion to dismiss the plaintiffs’ fourth amended complaint, leading the Court to finally set a class certification hearing for September 21, 2009.  Additionally, the Court outlined a schedule for pre-trial motions and discovery continuing through the latter part of 2010.

Shareholder Derivative Suits

Perhaps no company better exemplifies the myriad pains that can accompany an FCPA investigation than FARO Technologies, Inc. ("FARO").  In 2009, FARO appears finally to have closed the book on the legal actions stemming from its alleged improper payments to Chinese government officials.  As originally reported in our 2008 Mid-Year FCPA Update, FARO settled FCPA charges in June 2008 with the DOJ and SEC, immediately after settling a § 10(b) suit with investors, who alleged that the company knowingly or recklessly attested to the adequacy of its internal controls, when it knew that they were inadequate.  As if this series of settlements was not enough, in April 2009, FARO settled a shareholder derivative lawsuit alleging that its officers and directors breached their fiduciary duties by failing to properly oversee the company’s internal activities.  The shareholder derivative settlement mandates the implementation of certain corporate governance changes at FARO and the payment of $400,000 in plaintiffs’ attorneys’ fees.  Personifying the axiom that crime doesn’t pay, FARO has now shelled out more than $10.2 million in criminal and civil settlements, not including its own attorneys’ fees or the costs of remedial measures, arising from roughly $450,000 in allegedly improper payments that netted it less than $1.9 million in profits. 

The defendants in two other shareholder derivative lawsuits arising from settled FCPA enforcement actions fared somewhat better than FARO in 2009.  On May 26, 2009, Judge Vanessa Gilmore of the U.S. District Court for the Southern District of Texas dismissed a derivative claim filed by the Midwestern Teamster Pension Trust Fund on behalf of Baker Hughes, Inc., against twenty-five current and former directors.  Originally filed in June 2008, the lawsuit alleged that the company’s directors breached their fiduciary duties by not ensuring adequate oversight of Baker Hughes’s FCPA and Exchange Act compliance efforts.  Under Delaware law, a plaintiff filing a derivative claim must, with few exceptions, initially request that the Board of Directors bring the lawsuit on behalf of the corporation.  Judge Gilmore held that the exceptions did not apply in this case and that Baker Hughes’s Board was improperly denied the opportunity to decide whether the corporation should seek redress from its current and prior directors.  She therefore rejected the plaintiff’s demand futility argument and dismissed the claim because of the plaintiff’s failure to make an initial demand on the Board.

Similarly, on March 10, 2009, Superior Court Judge David Flynn dismissed a 2007 derivative lawsuit filed in California state court on behalf of Chevron Corporation.  The plaintiffs originally filed the complaint after media reports described a then-pending FCPA settlement arising from Chevron’s participation in the United Nations Oil-for-Food Program.  But rather than dismiss the plaintiffs’ complaint, the Court instead treated the claim as a formal demand on Chevron’s Board of Directors to investigate whether a claim should be brought.  That challenge was accepted, with the Board appointing a special investigative committee to investigate the allegations, including by interviewing thirty-four witnesses and reviewing more than 150,000 pages of evidence.  After reviewing the results of the rigorous inquiry, the Board determined that a lawsuit would not be in Chevron’s best interest.  A board’s refusal to pursue a legal claim, after an initial demand is made, is protected by the business judgment rule under Delaware law.  A plaintiff can only overcome this obstacle in rare instances in which there is reasonable doubt about whether the board acted in good faith, with independence, or in a thorough manner.  Judge Flynn found that the plaintiffs offered little evidence that Chevron’s Board acted improperly in refusing to bring a lawsuit and therefore dismissed the derivative claim.

Litigation surrounding two other recently filed derivative lawsuits arising from potential FCPA violations is ongoing.  On April 8, 2009, a shareholder filed a derivative action in the District of Massachusetts against BG Group P.L.C.’s current directors.  The complaint alleges that BG Group participated in a consortium of large oil companies that made at least $90 million in payments to Kazakh officials to secure oil and gas drilling opportunities in violation of the FCPA and other laws.  The plaintiff-shareholder further claims that BG’s Board wasted corporate assets when it later sold the company’s interest in this consortium for a fraction of its true market value.  And on May 14, 2009, three months after settling FCPA claims with the DOJ and SEC, numerous current and former directors of Halliburton and KBR found themselves named as defendants in a Texas state derivate suit filed by the Policemen and Firemen Retirement System of the City of Detroit.  The lawsuit alleges that the defendants breached their fiduciary duties by failing to oversee the companies’ operations, citing the FCPA settlement, alleged illegal exports to Libya, over-billing on government contracts in Iraq, hazardous waste dumping, and impermissible business with Iran.  The plaintiff further asserts that making a demand upon either company’s board of directors would be futile and, thus, should be excused.  On June 19, 2009, the defendants filed a notice of removal to the U.S. District Court for the Southern District of Texas.

Lawsuits Brought by Foreign Governments and Business Partners

As reported in our 2008 Mid-Year FCPA Update, on June 21, 2008, the Republic of Iraq filed suit in Manhattan federal district court against ninety-one companies and two individuals, alleging that the defendants conspired with Saddam Hussein’s regime to corrupt the United Nations Oil-for-Food Program by diverting as much as $10 billion in funds intended for the humanitarian use of the Iraqi people to the illicit use of Hussein’s government.  After a long period of stagnation, during which the Iraqi government sought and received continuances to effect service on the many defendants, this action picked up steam in February 2009, with Iraq applying to the Court to issue letters rogatory to courts in Austria, Jordan, Malaysia, South Africa, and the United Arab Emirates to effect services on numerous of the foreign defendants.  Since then, attorneys for more than fifty of the defendants have appeared in the case, and Judge Gerald Lynch has set a motion to dismiss briefing schedule that runs into February 2010. 

Litigation continues in the previously reported civil dispute pitting Supreme Fuels Trading FZE ("Supreme Fuels") against its competitor, International Oil Trading Co. ("IOTC").  A civil claim filed by Supreme Fuels in October 2008 alleges that IOTC bribed Jordanian officials to receive the only license for transporting fuel through the country to Iraq.  IOTC filed a motion to dismiss the lawsuit on March 13, 2009, and Supreme Fuels has requested that the court schedule oral arguments on the motion.  The trial in this matter is tentatively set to begin on January 11, 2010, in the U.S. District Court for the Southern District of Florida.

Discovery proceeded during the first half of 2009 in Argo-Tech Corporation’s civil case against Yamada Corporation and its subsidiary, Upsilon International Corporation.  Yamada served as an authorized distributor of Argo-Tech’s fuel pumps and related equipment, as well as the products of many other defense contractors.  A Japanese government investigation launched in 2007 uncovered evidence suggesting that Yamada bribed a Vice Defense Minister and fraudulently over-billed the Japanese Ministry of Defense for equipment.  Argo-Tech alleges that Yamada’s unlawful acts, including FCPA violations, breached its distributorship contract.  The complaint seeks damages resulting from the breach and attorneys’ fees.  The U.S. District Court for the Northern District of Ohio recently extended discovery into early 2010 and intends to refer the case to mediation during the summer of 2009.

Lawsuits Filed by Companies That Have Settled FCPA Actions

In a legal battle certain to be repeated in the coming years, given the government’s increasingly aggressive stance in successor liability FCPA actions (as discussed below), eLandia filed suit in June 2008 in Florida state court against Retail Americas VoIP, LLC, Latin Node’s former parent company, and Jorge Granados, the former Chief Executive Officer of Latin Node.  eLandia alleged breach of contract, breach of the obligation of good faith and fair dealing, and fraudulent inducement in connection with the defendants’ failure to disclose during acquisition due diligence information concerning the improper payments that ultimately led to Latin Node’s post-closing FCPA conviction.  On February 12, 2009, the defendants settled the matter, agreeing to return 375,000 of the 3.2 million shares of eLandia stock that they had received in connection with the acquisition. 

There has been little movement thus far in 2009 on the December 2008 civil claim filed by Willbros International, Inc. ("Willbros"), in the U.S. District Court for the Southern District of Texas, against several former executives and consultants.  Willbros pleaded guilty to violating the FCPA in 2008 and now alleges that the defendants were responsible for the unlawful conduct.  Of the five defendants named in the lawsuit, only Paul Novak has responded, and he is currently embroiled in a parallel criminal proceeding stemming from the same acts.  The Court is currently considering Novak’s motion to dismiss.  No trial date has yet been scheduled.

International Anti-Corruption Enforcement Activities

As the DOJ and SEC have accelerated FCPA prosecutions, governmental authorities in a number of other countries have likewise stepped up their own anti-corruption enforcement efforts.  This internationalization of the fight against graft has resulted in an increasing pace of prosecutions for violations of foreign anti-corruption laws and further fostered cooperation between U.S. regulators and their foreign counterparts. 

And yet, despite the increasingly global focus on combating corruption, international anti-corruption watchdog Transparency International is not prepared to rest.  In its fifth annual progress report on member states’ adherence to the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention"), Transparency International makes the case that there is still much progress to be made in the fight against international graft.  Never afraid to name names, Transparency International categorized the enforcement efforts of thirty-six of the thirty-eight OECD member states, finding that twenty-one are engaged in "little or no enforcement."  Only four nations were classified as actively enforcing the OECD Convention, while eleven countries moderately enforce the Convention. 

 OECD 2009 Report

Developments Across the Pond

On January 8, 2009, the British Financial Service Authority ("FSA") announced a settlement with London-based reinsurer Aon Ltd.  According to the FSA, between 2005 and 2007, Aon made nearly $7 million in payments to multiple firms and individuals as a consequence of the company’s alleged failure "to properly assess the risks involved in its dealings with overseas firms and individuals who helped it win business."  In announcing the £5.25 million fine, the highest ever imposed by the nongovernmental U.K. financial regulator, FSA Director Margaret Cole noted that the action "sends a clear message to the U.K. financial services industry that it is completely unacceptable for firms to conduct business overseas without having in place appropriate anti-bribery and corruption systems and controls." 

But the FSA was also clear in commending Aon’s current management for identifying the past issues and substantially improving upon the firm’s systems and controls, an approach that the regulator called "a model of best practice that other firms may wish to adopt."  In accordance with FSA settlement procedures, the company’s substantial cooperation and early agreement to settle qualified it for a 30% discount on what would otherwise have been a £7.5 million fine. 

Coupled with the U.K. Serious Fraud Office’s ("SFO") £2.25 million settlement with Balfour Beatty plc in 2008, described in our 2008 Year-End Update, the Aon settlement suggests that British authorities are seeking to put behind them their reputation for lax anti-corruption enforcement.  And they may receive some assistance from Parliament in the near future.  On March 25, 2009, the U.K. Ministry of Justice introduced draft legislation to modernize and tighten anti-bribery laws in the U.K.  The bill, offered in response to sharp criticism by the OECD, contains several important changes to the U.K.’s foreign and domestic anti-bribery laws, including the creation of a new, stand-alone offense for bribing foreign officials, the extension of British anti-bribery law to cover foreign nationals living and working in the U.K., and the creation of a corporate offense of negligently failing to prevent bribery. 

Similar legislative reforms may be needed in France, according to a report published on March 12, 2009, by the Group of States Against Corruption ("GRECO").  GRECO, established in 1999 by the Council of Europe to monitor member states’ anti-corruption efforts, explained, "France has severely restricted its jurisdiction and its ability to prosecute cases with an international dimension, which, given the country’s importance in the international economy and the sale of many of its companies, is very regrettable."  According to the report, anti-corruption offenses committed outside of France can be investigated by French officials only "at the request of the state prosecution service and must be preceded by a complaint from the victim or his or her beneficiaries, or an official report by the authorities of the country where the offense was committed."  Moreover, French prosecutors also lack the power to prosecute foreign companies that have bribed French public officials abroad.

The report stands in stark contrast to a decision handed down by the most senior French investigating judge, Françoise Desset, on May 7, 2009.  In his decision, Judge Desset ruled that a case brought by the French chapter of Transparency International could proceed, demanding that French authorities investigate how three African presidents acquired a large amount of expensive French real estate.  Transparency International hopes that the investigation "will uncover the truth about the origin of the contested assets, and eventually lead to the concrete implementation of the right to restitution – a fundamental principle of the United Nations Convention against Corruption," which France ratified in 2005. 

Elsewhere in Europe, German authorities are following their blockbuster 2007 and 2008 settlements with Siemens AG, described in our 2008 Year-End Update, with another substantial corruption investigation concerning MAN AG.  The Munich Public Prosecutor’s Office is investigating allegations that MAN paid approximately €14 million in bribes to customers between 2002 and 2005 to secure business.  More than 300 police personnel are reported to be involved in the investigation of the company and more than 100 individuals.  MAN has announced that it is fully cooperating with prosecutors, and it has promised to terminate any employees involved in the corruption and to share the results of the internal investigation with prosecutors. 

Rounding out European enforcement efforts, on June 26, Danish authorities announced settlements with seven different companies arising from their alleged payment of after-sales-service fees to the Government of Iraq in connection with the United Nations Oil-for-Food Program.  Collectively, the companies agreed to disgorge $8.4 million in profits.  Among the defendants was Novo Nordisk, which disgorged $5.6 million in profits to Danish authorities after settling the above-described joint DOJ/SEC enforcement actions filed earlier this year. 

Developments in Asia

Not to be outdone by their counterparts in Europe, anti-corruption enforcement authorities in Asia have also recently stepped up their fight against international graft. 

On January 29, 2009, Tokyo-based consulting company, Pacific Consultants International, and three of its former executives, were convicted in a Japanese court of bribing a senior Vietnamese official to secure contracts for road projects backed by Japanese aid money.  The executives admitted at trial to paying $820,000 in bribes to a senior transport official in Ho Chi Minh City.  After the conviction and issuance of a ¥70 million fine, however, the judge suspended the sentences of all three convicted men, a common result for white-collar criminals in Japan who admit the allegations against them.  The convictions represent Japan’s first foreign bribery prosecution. 

As a result of the Pacific Consultants investigation, Japan suspended all aid to Vietnam, including low-interest loans for infrastructure projects.  In response, Vietnamese officials arrested the alleged recipient of the bribes for "abuse of power" and asked Japan, the country’s largest source of aid, to resume the loan program.  The Japanese Ministry of Foreign Affairs has announced its intention to do so. 

Prosecutors in Bahrain are in the midst of an investigation concerning $8.7 million in bribes allegedly paid by the Sojitz Group, a large Japanese commodities-trading firm, to two employees of Aluminum Bahrain BSC ("Alba"), Bahrain’s state-operated aluminum producer.  Affiliates of Sojitz Group and Swiss commodities trader Glencore International AG are alleged to have made the improper payments, between August 1998 and April 2004, in exchange for negotiated discounts on the purchase of aluminum.  State prosecutors filed money-laundering charges against the two Alba employees in March 2009.  And, according to news reports, Glencore has agreed to pay Alba more than $20 million in connection with a settlement of Alba’s internal probe into the payments.

Legislative Anti-Corruption Developments

In Congress, the first six months of 2009 have seen the reintroduction of legislation that would create a private right of action under the FCPA and a hearing before the Financial Services Committee of the U.S. House of Representatives that suggests that Congress may be interested in adopting stricter anti-corruption legislation.

In an effort to level the playing field between firms subject to the FCPA and their foreign competitors not subject to the same stringent levels of anti-corruption scrutiny, Representative Ed Perlmutter (D. Colo.) reintroduced H.R. 2152, The Foreign Business Bribery Prohibition Act.  Similar to the proposed legislation of the same name that Representative Perlmutter introduced in 2008, the bill would create a private right of action enabling individuals and entities subject to the FCPA to sue foreign concerns not subject to the statute for actions that would be FCPA violations if the jurisdictional element of the statute were satisfied.  Successful plaintiffs would be awarded treble damages for the value of any contract that they had lost because of the defendants’ corrupt practices or for the value of any contract that the defendants thereby gained. 

Because the bill implicates issues under the jurisdiction of both the House Judiciary Committee and the House Energy and Commerce Committee, portions of it were assigned to each committee in April 2009.  Although the 2008 bill never received much attention, the 2009 bill was mentioned during the House Financial Services Committee hearing described below as one possible way to discourage foreign corruption.  Neither committee has held any hearings specifically considering the bill, however, and no immediate action is expected.  Nevertheless, Representative Perlmutter’s Office continues to solicit comments and suggestions on the proposal.

On May 19, 2009, the House Financial Services Committee held a hearing regarding "Capital Loss, Corruption and the Role of Western Financial Institutions."  During that hearing, the Committee members heard impassioned pleas for greater international anti-corruption cooperation from the representatives of nongovernmental organizations and former top-level law enforcement officials of Nigeria and Romania.  The witnesses’ chief concern was the huge transfer of wealth, which one witness claimed to be between $850 billion and $1 trillion per year, from developing nations to developed countries in the form of illicit money transfers, the use of tax havens, and graft by local officials invested in developed countries. 

Nuhu Ribadu, the former Chief of Nigeria’s Economic and Financial Crimes Commission who obtained more than 275 corruption convictions and was the target of two assassination attempts, testified, "In a globalized and networked world, we all need to believe that the fight against corruption must assume a transborder dimension."  He then asked that Congress "push the boundaries of the [FCPA] to be expanded … to bite both givers and takers of bribes" and proposed "that Congress support civil society monitoring programs and direct support for programs building investigative journalism, which can support transparency and anti-corruption efforts."  Similarly, Anthea Lawson of Global Witness urged the Committee to consider legislation requiring banks to know the identity of the beneficial owners of accounts and to take steps to ensure that the funds that they accept are not the fruits of government corruption.  And Raymond Baker of Global Financial Integrity called for the creation of an international database of "Politically Exposed Persons," whose transactions would be subject to particular scrutiny because of their political power and opportunities for corrupt behavior.

Although no formal legislative proposals have yet emerged from the hearing, it is clear that Committee Chairman Barney Frank (D. Mass.) intends to pursue concrete legislative action:  "I will reiterate that we have the entire legislative jurisdiction in this committee and it is our intention to move legislation, so I thank the witnesses.  You are helping us with a process that we think is going to result in better law."

Regulatory Anti-Corruption Developments

Complementing the heightened enforcement and legislative focus on the FCPA, on March 9, 2009, FINRA sent out its 2009 Examination Priorities Letter to broker-dealers and other financial services firms outlining the areas on which the self-regulatory organization intends to focus during its 2009 routine examinations, including FCPA compliance.  More generally, the letter suggests that the financial services industry may be the subject of increasingly FCPA scrutiny.  Accordingly, firms subject to FINRA’s examination authority should take steps to assess the effectiveness of their anti-corruption compliance programs and implement any required enhancements prior to undergoing a FINRA examination. 

And, on June 29, 2009, New York’s then-Insurance Superintendent, Eric Dinallo, issued Circular Letter No. 11 (2009), admonishing all companies subject to his state’s insurance regulations to "assess their business models and circumstances to determine the extent to which they should formulate or revisit their policies to ensure proper compliance" with the FCPA and various other federal laws.  Dinallo warned that in future examinations, his Department "may make limited inquiry into a licensee’s compliance function to assess how well the licensee takes into consideration the risks of money laundering, bribery of foreign persons, and recognition of federal economic sanctions, … [including by] specifically ask[ing] the members of a licensee’s senior most governing body or senior management about those policies." 

Avoiding Successor Liability through Acquisition Due Diligence

For years now, we have consistently emphasized the perils associated with failure to conduct adequate pre-acquisition FCPA due diligence.  In recent years, the DOJ and SEC have frequently addressed this topic in public speeches and have initiated multiple enforcement actions against companies that merged with or acquired entities that had paid bribes.  Indeed, three of the five corporate FCPA enforcement actions filed during the first half of 2009 implicate successor liability issues. 

The Latin Node case is the first FCPA enforcement action ever filed based entirely on pre-acquisition conduct that was unknown to the acquirer when the transaction closed.  As described above, eLandia appears to have conducted little, if any, FCPA due diligence in connection with its acquisition of Latin Node, discovering the alleged unlawful payments only after the acquisition closed.  Sufficient pre-acquisition due diligence could possibly have enabled eLandia to avoid purchasing an entity that it subsequently had to shut down, at great expense to the business, not to mention the attendant headache of the government enforcement action.   

The Halliburton/KBR settlement further highlights the substantial penalties that companies may face if they fail to conduct adequate pre-acquisition due diligence and then follow up with targeted post-integration FCPA reviews (which, in the Latin Node case, at least prevented the problem from growing on eLandia’s watch).  As described above, Halliburton did not know about M.W. Kellogg’s participation in a joint venture that was making unlawful payments because it did not conduct FCPA due diligence prior to acquiring the company.  Subsequently, it did not implement an effective compliance program in the newly formed subsidiary or conduct sufficient due diligence on M.W. Kellogg’s legacy operations or agents.  Consequently, the unlawful conduct continued long after the acquisition, and both Halliburton and KBR were subjected to FCPA enforcement actions and more than $575 million in fines and disgorgement. 

UIC‘s2009 civil settlement with the SEC also implicates the assessment of successor liability.  By the time of UIC’s settlement, the company had been acquired by Textron, Inc.  But Textron was on notice of the FCPA investigation due to UIC’s pre-acquisition public filings, and thus was able to factor any attendant liability into the purchase price.  Textron was then mentioned only as a footnote to the UIC settlement documents, making clear that the improper payments occurred entirely prior to the acquisition. 

The topic of successor liability is one that U.S. authorities have often discussed publicly, providing some guidance to companies considering international mergers or acquisitions.  Most recently, in September 2008, Mendelsohn stated at an FCPA Conference in Washington, D.C. that the "nature and quality" of pre-acquisition due diligence is "one of the most critical factors" DOJ considers when making charging decisions in the context of a merger or acquisition.  If a company is unable to conduct effective pre-merger due diligence, Mendelsohn noted that DOJ expects the acquirer to move "aggressively and quickly" post-acquisition to investigate high-risk areas.  Although he declined to establish a specific timeline, he advised that waiting a full year to look for and remediate FCPA issues would be inadequate. 

And in 2007, then-Assistant Attorney General Alice Fisher described the specific steps that DOJ expects companies to take when conducting effective pre-acquisition FCPA due diligence.  In prepared remarks delivered at a 2007 FCPA Conference, Fisher set forth the following five pieces of information that an acquirer should know, at a minimum, about a potential target:

    1. The extent to which the company’s customers are government entities, including state owned companies;
    2. Whether the company is involved in any joint ventures with government entities;
    3. What government approvals and licenses the company needs to operate abroad, how it obtained them, and when they require renewal;
    4. The company’s requirements relating to Customs in foreign countries and how it fulfills those requirements; and
    5. The company’s relationships with third party agents or consultants who interact with foreign officials on the company’s behalf, including how those agents were chosen and vetted by the company.

Advising that "an acquiring company should be comfortable that it has assessed [these five] risks before closing a deal," Fisher further noted:

If any of these due diligence exercises result in the discovery of a potential FCPA problem, we, of course, encourage the company to voluntarily disclose that problem to the Department.  If a company does not conduct some sort of due diligence, and it finds out a year later that the conduct has continued, the Department will want to know why there wasn’t any effort to assess whether there had been criminal conduct?

Accordingly, the quality of an acquirer’s pre-acquisition due diligence efforts and voluntary disclosure of any potential FCPA issues uncovered during that process may influence the government’s position regarding successor liability in the FCPA context. 

For additional guidance on the topic of acquisition due diligence, please see the article by F. Joseph Warin, et al., Acquisition Due Diligence: A Recipe to Avoid FCPA Enforcement, TEXAS STATE BAR OIL, GAS & ENERGY RESOURCES LAW SECTION REPORT 2 (June 2006).


The number of recent enforcement actions and ongoing investigations suggests that the heightened FCPA enforcement environment that we have observed over the past several years is here to stay.  This increased enforcement activity has created an ever-changing anti-corruption enforcement landscape, and we anticipate that new developments in enforcement and compliance will continue to emerge in the coming years.  It is essential that companies with international operations stay abreast of these developments to avoid running afoul of the FCPA and to address effectively any potential corruption issues. 

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. We have more than 20 attorneys with substantive FCPA expertise. Joe Warin, a former federal prosecutor, currently serves as a compliance consultant pursuant to a DOJ and SEC enforcement action and as FCPA counsel for the first non-U.S. compliance monitor. The firm has 20 former Assistant U.S. Attorneys and DOJ attorneys. Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C.
 F. Joseph Warin (202-887-3609, [email protected])  
Daniel J. Plaine
(202-955-8286, [email protected]
Judith A. Lee
(202-887-3591, [email protected]
David P. Burns
(202-887-3786, [email protected])  
Jim Slear
(202-955-8578, [email protected])
Michael S. Diamant (202-887-3604, [email protected])
John W.F. Chesley (202-887-3788, [email protected])
Patrick F. Speice, Jr. (202-887-3776, [email protected])

New York
Joel M. Cohen (212-351-2664, [email protected])
Lee G. Dunst
(212-351-3824, [email protected])
Mark A. Kirsch (212-351-2662, [email protected])
Jim Walden (212-351-2300, [email protected])
Alexander H. Southwell (212-351-3981, [email protected])

Robert C. Blume (303-298-5758, [email protected])
J. Taylor McConkie (303-298-5795, [email protected])

Orange County
Nicola T. Hanna (949-451-4270, [email protected])

Los Angeles
 Debra Wong Yang (213-229-7472, [email protected]), 
the former United States Attorney for the Central District of California,
Michael M. Farhang (213-229-7005, [email protected])
Douglas M. Fuchs (213-229-7605, [email protected])

Benno Schwarz (+49 89 189 33-110, [email protected])
Michael Walther (+49 89 189 33-180, [email protected])
Mark Zimmer
(+49 89 189 33-130, [email protected])

© 2009 Gibson, Dunn & Crutcher LLP

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