2012 Mid-Year FCPA Update

July 9, 2012

As the Foreign Corrupt Practices Act ("FCPA") turns 35 years old, the spike in enforcement activity that we first observed five years ago appears (at least for the moment) to be leveling off.  Nevertheless, numerous developments this year bespeak a statute that is maturing rather than falling into obscurity:  the first sustained pattern of trial activity; increasing "private attorney general" enforcement; and serious policy debates between industry, executive, and legislative interests leading up to much-anticipated statutory guidance from government regulators.  The first half of 2012 was packed with important FCPA developments. 

This client update provides an overview of the FCPA and a survey of FCPA enforcement, litigation, and legislative developments from the first six months of 2012.  It also analyzes recent trends and offers practical guidance to help companies and their executives avoid or minimize liability under the FCPA.  A collection of Gibson Dunn’s publications on the FCPA and its U.K. Bribery Act counterpart, including prior enforcement updates and more in-depth discussions of the statutes’ complex frameworks, may be found on our FCPA/U.K. Bribery Act Website.


The FCPA’s anti-bribery provisions make it illegal to corruptly 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 "agents" acting on behalf of issuers and domestic concerns, as well as to "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 listed 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 its 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 frequently invoke these latter two sections–collectively known as the accounting provisions–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.


The following table and graph detail the number of FCPA enforcement actions initiated by the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC") during the past nine years. 














































2012 FCPA Enforcement Statistics


          Marubeni Corporation

The most recent (and perhaps final) chapter in the long-running TSKJ Bonny Island joint venture investigation was announced on January 17, 2012, when Marubeni Corporation, a Japanese trading company, agreed to enter into a deferred prosecution agreement with DOJ and pay a $54.6 million fine to resolve criminal FCPA charges.  According to the charging documents, the four-company TSKJ joint venture authorized the payment of millions of dollars to Nigerian government officials over a 10-year period to obtain approximately $6 billion worth of engineering, procurement, and construction contracts to build liquefied natural gas facilities on Bonny Island, Nigeria.  The joint venture members allegedly used two third-party intermediaries to make these corrupt payments.  U.K. solicitor Jeffrey Tesler (who pleaded guilty to FCPA charges in 2011) allegedly paid as much as $132 million to senior members of Nigeria’s Executive Branch, while Marubeni allegedly paid as much as $51 million to lower-level Nigerian officials.  With respect to Marubeni, DOJ alleges that Marubeni employees met with Nigerian officials on at least two occasions to request that they designate representatives with whom TSKJ could negotiate bribe payments. 

The criminal information against Marubeni alleges that the Tokyo-based company was an "agent of an issuer" and an "agent of a domestic concern" (referring to the TSKJ members) under the FCPA and that it both conspired with and aided and abetted the FCPA violations of these joint venture partners.  In addition to the $54.6 million criminal penalty, Marubeni agreed to retain a compliance consultant for a two-year term.  In announcing the settlement, DOJ Principal Deputy Assistant Attorney General Mythili Raman proclaimed that the Government has obtained more than $1.7 billion in penalties and forfeiture orders from its prosecution of the four joint venture partners, the two third-party intermediaries, and other culpable individuals. 

For a detailed discussion of this and other recent developments concerning deferred and non-prosecution agreements, please see Gibson Dunn’s 2012 Mid-Year Update on Corporate Deferred Prosecution and Non-Prosecution Agreements, forthcoming on July 10, 2012.

          Cecilia Zurita

On January 19, 2012, Cecilia Zurita became the latest indictee in DOJ’s ongoing investigation of allegedly corrupt relationships between U.S. telecommunications providers and officials of Télécommunications d’Haiti S.A.M. ("Haiti Teleco").  Zurita was named in a second superseding indictment that includes numerous other, previously-charged defendants, including her former employer, Cinergy Telecommunications, Inc., and her husband (and former president of Cinergy), Washington Vasconez Cruz. 

The indictment alleges that Zurita "was in charge of overseeing . . . Cinergy’s finances" and that, in that role, she funneled bribes to Haitian officials through a Miami-based shell company that claimed to assist telecommunications companies wishing to do business in Haiti, but provided no actual services.  The improper payments were allegedly made to obtain business advantages for Cinergy, such as "telecommunications contracts, preferred telecommunications rates, and credits toward sums owed."  Additional 2012 developments from this wide-ranging investigation are discussed below. 

          Noble Corporation Employees

On February 24, 2012, the SEC charged Thomas F. O’Rourke, Mark A. Jackson, and James J. Ruehlen, three current and former employees of worldwide oil services contractor Noble Corporation, with alleged FCPA violations arising from Noble’s purported payment of monies to Nigerian customs officials.  The SEC alleges that these payments were made with the intent to improperly obtain and extend temporary importation permits that allowed Noble to import its rigs into Nigerian waters without paying import duties.  As discussed in our 2010 Year-End FCPA Update, Noble was one of seven oil, oil services, and freight-forwarding companies to settle FCPA charges in November 2010 arising from this same alleged course of conduct, agreeing to pay more than $8 million to resolve the matter.

O’Rourke, Noble’s former Controller and Head of Internal Audit, settled the SEC’s charges.  He consented to the filing of a civil complaint alleging that he violated the FCPA’s accounting provisions and aided and abetted the company’s violations of the anti-bribery and accounting provisions and agreed to pay a $35,000 civil penalty.  Jackson and Ruehlen, respectively Noble’s former CEO and West Africa Division Manager, have opted to litigate the SEC’s charges before the Honorable Keith P. Ellison of the U.S. District Court for the Southern District of Texas.  Both defendants filed motions to dismiss on May 8, 2012, with the SEC filing its consolidated response on June 22.  Because the SEC is very rarely forced to prove its FCPA allegations in court, members of the FCPA bar have been watching this matter unfold with great interest.  Ruehlen is represented in this matter by Gibson Dunn. 

          Smith & Nephew PLC

On February 6, 2012, Smith & Nephew PLC, a U.K.-based medical devices manufacturer whose ADRs are traded on the New York Stock Exchange, became the second company to settle FCPA charges with DOJ and the SEC as part of their ongoing joint investigation of the medical devices industry.  (The first was Johnson & Johnson, which resolved FCPA charges in April 2011, as described in our 2011 Mid-Year FCPA Update.)  The Government alleges that, from 1997 through 2008, Smith & Nephew entities utilized a Greek distributor to make up to $9.4 million in improper payments to doctors at state-owned hospitals in Greece.  To fund the bribes, Smith & Nephew allegedly sold its products to the distributor at full list price, but then transferred payments equal to an agreed-upon "distributor discount" to an offshore shell company controlled by the distributor.  The charging documents detail correspondence suggesting that senior executives of Smith & Nephew’s U.S. subsidiary were aware of the scheme and that legal counsel advised the company that the bribes were neither legal nor ethical as early as 1999, nine years before the payments ceased.  This would make Smith & Nephew the unusual FCPA case where a foreign-based parent company is held liable for the allegedly corrupt actions of its U.S.-based subsidiary. 

To resolve the criminal charges, Smith & Nephew entered into a deferred prosecution agreement with DOJ, agreeing to pay a $16.8 million criminal fine for alleged FCPA anti-bribery violations and to retain a compliance monitor for an 18-month term.  Smith & Nephew also settled related civil FCPA anti-bribery, books-and-records, and internal control charges with the SEC, agreeing to disgorge $4,028,000 in profits plus $1,398,799 in prejudgment interest. 

          Biomet, Inc.

Less than two months after the Smith & Nephew settlement, on March 26, 2012, DOJ and the SEC announced the third FCPA settlement stemming from the medical devices industry sweep.  Biomet, Inc., an Indiana-based medical devices company with worldwide operations, settled charges alleging that, between 2000 and 2008, it made improper payments to doctors employed by public institutions in Argentina, Brazil, and China.  According to the Government, Biomet paid 10-20% commissions (totaling $436,000) to state-employed doctors in connection with its sales in Argentina (obtaining fake invoices for professional services that were never performed by these doctors), used a distributor to pay up to $1.1 million in "scientific incentives" to state-employed doctors in Brazil, and paid unspecified amounts of rebates and travel sponsorships to state-employed doctors in China.  The charging documents also allege that the conduct continued even after internal auditors raised questions about the payments to senior U.S.-based executives. 

To resolve the criminal FCPA anti-bribery and books-and-records charges, Biomet entered into a deferred prosecution agreement with DOJ, agreeing to pay a $17.28 million criminal penalty and to retain a compliance monitor for an 18-month term.  The company simultaneously settled civil FCPA anti-bribery, books-and-records, and internal controls charges with the SEC, pursuant to which it disgorged $4,432,998 in profits and $1,142,733 in prejudgment interest. 

          BizJet International Sales and Support, Inc.

On March 14, 2012, DOJ announced an FCPA settlement with BizJet International Sales and Support, Inc., an Oklahoma-based provider of aircraft maintenance, repair, and overhaul services.  The charging documents allege that, between 2004 and 2010, BizJet authorized the payment of hundreds of thousands of dollars to Mexican and Panamanian government officials to secure aircraft service contracts.  Among other things, DOJ alleged that two senior BizJet executives briefed the company’s Board of Directors about its intention to pay "commissions" to government officials in order to "gain market share." 

To resolve the FCPA anti-bribery charges, BizJet agreed to enter into a deferred prosecution agreement pursuant to which it is required to pay an $11.8 million criminal fine and undertake other remedial measures.  BizJet’s indirect parent company, German aircraft service provider Lufthansa Technik AG, also entered into a non-prosecution agreement with DOJ, obliging it to cooperate with DOJ and to continue to implement rigorous internal controls.  Neither company is a U.S. issuer, hence the lack of an SEC settlement.  

          Garth R. Peterson

In the case better known for the prosecution that wasn’t than for the prosecution that was, on April 25, 2012, Garth R. Peterson resolved criminal and civil FCPA charges arising from his alleged evasion of his employer’s system of internal controls to make corrupt payments to an official of a government-owned real estate company in Shanghai, China.  According to the charging documents, Peterson, a U.S. citizen living in Singapore and the former Managing Director of Morgan Stanley & Co., Inc.’s real estate practice in China, colluded with the Chinese government official and a Canadian attorney to establish a jointly owned holding company.  After the Chinese official approved the sale of an apartment building to Morgan Stanley, Peterson induced Morgan Stanley to sell shares in the complex to the holding company at a discounted price, while concealing the true ownership of the holding company from his employer.  As a result, the Chinese official immediately realized a paper profit of approximately $2.88 million. Peterson also benefited because of his personal stake in the holding company, but failed to disclose his interest in annual financial disclosures to Morgan Stanley.  Further, Peterson allegedly executed other schemes with the Chinese official, including the creation of a "3-2-1 Deal," pursuant to which Peterson arranged for Morgan Stanley to sell the Chinese official a 3% interest in all real estate transactions facilitated by the official for the price of a 2% interest, thereby allowing the Chinese official to keep the extra 1% as a "finder’s fee." 

To resolve the criminal charges, Peterson pleaded guilty to conspiring to violate the FCPA’s internal controls provision, and he is currently scheduled to be sentenced this summer.  To resolve the civil charges, Peterson consented to the filing of a settled civil complaint alleging violations of the FCPA’s anti-bribery and internal controls provisions, as well as violations of the Investment Advisers Act, and agreed to disgorge $254,589, to accept a permanent bar from working in the securities industry, and to relinquish his interest in the ill-gotten real estate (currently valued at approximately $3.4 million). 

Notably, DOJ and the SEC declined to charge Peterson’s employer, Morgan Stanley.  This decision is discussed in greater detail below. 

          Data Systems & Solutions LLC

Rounding out the enforcement actions initiated during the first half of 2012, on June 18, 2012, Virginia-based power plant component manufacturer Data Systems & Solutions LLC ("DS&S") resolved criminal FCPA anti-bribery charges stemming from allegedly improper payments to various employees of a Lithuanian state-owned nuclear power plant.  According to the charging documents, from 1999 through 2004, DS&S subcontractors paid hundreds of thousands of dollars to Lithuanian government officials to obtain numerous contracts worth, in the aggregate, more than $35 million.  DS&S allegedly funded the improper payments by inflating its subcontract agreements to include unnecessary work.  DS&S also allegedly provided direct benefits to the Lithuanian officials, including sponsored trips to Florida and Hawaii and a Cartier watch. 

To settle this matter, DS&S entered into a two-year deferred prosecution agreement with DOJ, agreeing to pay an $8.82 million criminal fine.  As a non-issuer, DS&S did not settle separate charges with the SEC. 


          O’Shea Trial

On January 17, 2012, the Honorable Lynn N. Hughes of the U.S. District Court for the Southern District of Texas entered a directed judgment of acquittal in DOJ’s criminal prosecution of former ABB Inc. General Manager John Joseph O’Shea.  In 2009, O’Shea was indicted on 18 counts of substantive FCPA, FCPA conspiracy, money laundering, and obstruction-related offenses arising out of DOJ’s investigation of ABB and its allegedly corrupt dealings with officials of Mexico’s Comisión Federal de Electricidad ("CFE").  As described in our 2009 Year-End FCPA Update and our 2010 Year-End FCPA Update, ABB and its third-party agent, Fernando Maya Basurto, each pleaded guilty to criminal FCPA charges previously, while O’Shea opted to take the Government to trial. 

After the Government’s presentation of four days of evidence, the Court granted O’Shea’s motion for a judgment of acquittal as to the 12 substantive FCPA counts.  Ruling from the bench, Judge Hughes stated that the testimony of the "principal witness" against O’Shea, Basurto, "was abstract and vague, generally relating gossip" and evidenced that he "knows almost nothing."  Judge Hughes also commented on DOJ’s difficulty tracing particular payments to particular government officials.

On February 9, 2012, the Court granted DOJ’s motion to dismiss the remaining counts of the indictment with prejudice, thereby ending the criminal prosecution of O’Shea.   

          SHOT Show Trial

In February and March 2012, the Government’s two-year prosecution of the 22 "SHOT Show" defendants (so called because FBI agents arrested 21 of the 22 defendants at the Las Vegas SHOT industry trade show in January 2010) came to a dramatic end, with DOJ dismissing all charges against all defendants. 

After the trial of the first four defendants ended in a mistrial due to a hung jury, as described in our 2011 Mid-Year FCPA Update, DOJ began what would ultimately be a three-and-a-half-month trial of the six defendants in the second trial grouping on September 28, 2011.  As summarized in our 2011 Year-End FCPA Update, at the close of the Government’s case-in-chief, the Honorable Richard J. Leon of the U.S. District Court for the District of Columbia granted the defendants’ Rule 29 motion for a judgment of acquittal as to the over-arching conspiracy count of the indictment.  That terminated the case as to defendant Stephen Giordanella, but defendants R. Patrick Caldwell, John G. Godsey, Marc F. Morales, Jeana Mushriqui, and John M. Mushriqui, who also faced substantive FCPA counts that were not dismissed on Rule 29, would put their fate in the hands of the jury in 2012.

The jury deliberated for two-and-one-half weeks until, on January 30, it returned a partial verdict, unanimously voting to acquit Caldwell and Godsey of their remaining charges.  Finally, on January 31, Judge Leon declared the jury to be hopelessly deadlocked with respect to the remaining defendants and declared a mistrial.  Jury polling revealed that the jury was deadlocked 10-2 in favor of acquitting Morales and 9-3 in favor of acquitting each of the Mushriqui defendants. 

In a fascinating post-trial development, one week after the jury was dismissed, the jury foreperson, a non-practicing attorney, posted a lengthy and insightful summary of the jury’s deliberative process and its assessment of the evidence to Mike Koehler’s well-known "FCPA Professor" blog.  The post is well worth a careful read by any attorney–whether Government or private, criminal or civil–preparing to undertake a lengthy jury trial, particularly one with multiple parties. 

It seemed as though there would be no rest for the weary following the Round 2 mistrial, as a trial date for the third grouping of defendants was set to commence at the end of February 2012.  But, on February 21, DOJ filed a motion to dismiss the charges against the 16 remaining defendants who had not already been either acquitted by judge or jury or entered a pre-trial guilty plea.  Judge Leon, reflecting upon the Herculean task of managing the two completed trials and clearly relieved not to have three or four more to look forward to, "applaud[ed] the Department for having the wisdom and the courage of its convictions to face up to the limitations of its case . . . and the courage to do the right thing under the circumstances." 

But that still left the three SHOT Show defendants who had pleaded guilty prior to trial to the same FCPA conspiracy count that Judge Leon dismissed as legally insufficient during the second trial.  That is, until March 27, 2012, when DOJ moved to dismiss the charges facing Daniel Alvirez, Haim Geri, and Jonathan M. Spiller, stating that, although it respectfully disagreed with Judge Leon’s ruling dismissing the FCPA conspiracy charges in the second trial, it believed that this ruling should apply with equal force to the defendants who had previously pleaded guilty.  In an interesting twist suggesting that even now this case might not be finished, DOJ moved to dismiss all of the charges with prejudice (meaning that the defendants may not be retried), except for a single count to which Alvirez had pleaded guilty relating to a completely separate scheme to make allegedly corrupt payments to the Georgian Minister of Defense in a "real world," non-sting transaction.  DOJ moved to dismiss this latter count without prejudice (meaning that it may refile the charges in the future) and explicitly stated at the hearing that it was continuing to investigate the Georgian scheme and would "determine whether to bring criminal charges relating to that conduct" at some point in the future. 

          CCI Litigation

For the last several years, we have been tracking DOJ’s prosecution of California-based valve manufacturer Control Components, Inc. ("CCI"), and eight of its former employees.  After the corporation and two executives pleaded guilty to FCPA anti-bribery violations and Travel Act charges in 2009, trial was scheduled and rescheduled several times for the remaining individual defendants.  By the beginning of 2012, four of the defendants still had not pleaded guilty.  However, developments in 2012 render it substantially less likely that a jury will ever be empaneled to hear this case. 

On April 17, 2012, husband and wife defendants Stuart and Rose Carson each pleaded guilty to FCPA anti-bribery charges as part of a "package deal."  Stuart Carson, who is represented by Gibson Dunn, faces up to ten months in prison, while Rose Carson faces up to three years of probation, which may include up to six months of home confinement.  Subsequently, on May 29 and June 15, 2012, respectively, defendants Paul Cosgrove and David Edmonds each pleaded guilty to FCPA anti-bribery charges.  Both Cosgrove and Edmonds face up to 15 months in prison.  This completely resolves the cases against CCI and seven of its executives.  Former CCI Korea employee Han Yong Kim remains in his home country of South Korea and is not yet before the Court. 

The CCI case did not conclude, however, without igniting a debate that continues to reverberate in federal courthouses from California to Texas to Florida and even throughout the hallways of Congress.  As detailed in our 2011 Mid-Year FCPA Update, Gibson Dunn, on behalf of Stuart Carson, was at the vanguard of litigating who qualifies as a "foreign official" for purposes of the FCPA, particularly as that term relates to employees of state-owned enterprises ("SOEs") that perform a traditionally commercial function.  On May 18, 2011, the Honorable James V. Selna of the U.S. District Court for the Central District of California ruled in the Carson case that the question of whether SOE employees qualify as "foreign officials" is one for the jury.  After an additional round of briefing focused on proposed jury instructions, on February 16, 2012, Judge Selna issued a ruling adopting an eight-factor, non-exclusive test that instructs the jury to consider the following when determining whether a particular SOE qualifies as a foreign official:

1.      "the circumstances surrounding the entity’s creation;

2.      "the foreign government’s characterization of the entity, and whether the entity is widely perceived and understood to be performing official (i.e., governmental) functions;

3.      "whether the governmental end or purpose sought to be achieved is expressed in the policies of the foreign government;

4.      "the degree of the foreign government’s control over the entity, including the foreign government’s power to appoint key directors or officers of the entity;

5.      "the purpose of the entity’s activities, including whether the entity provides a service to the citizens of the jurisdiction;

6.      "the entity’s obligations and privileges under the foreign country’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;

7.      "the status of employees under the foreign government’s law, including whether the employees are considered public employees or civil servants[; and]

8.      "the extent of the foreign government’s ownership of the entity, including the level of financial support by the foreign government (e.g., subsidies, special tax treatment, and loans)."

Beyond instructing the jury to consider these factors, the instruction would state that no one factor is dispositive and that the jury may consider factors other than those listed. 

Several other parts of Judge Selna’s ruling bear mentioning.  First, the Court ruled in accord with prior FCPA cases, including United States v. Kay (5th Cir. 2007) and Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt Int’l B.V. v. Schreiber (2d. Cir. 2003), that the FCPA does not require that a defendant know the terms of the statute and the fact that he or she is violating the statute in order to act "willfully."  Second, Judge Selna stated that the Government must prove in every case that the defendant "knew or believed" that he was bribing a foreign official and that the recipient was, in fact, a foreign official.  Third, Judge Selna rejected a "deliberate avoidance" defense, finding that knowledge of a high probability of improper payments is sufficient to meet the FCPA’s knowledge requirement, regardless of a defendant’s alleged efforts to avoid learning the truth.  This last issue is also before U.S. Court of Appeals for the Second Circuit in the Bourke case, as discussed below. 

          Haiti Teleco Litigation

As noted above, 2012 saw DOJ continue its wide-ranging prosecution of numerous defendants in the Haiti Teleco matter.  Dating back to 2009, when the first charges were filed, DOJ has prosecuted one dozen defendants for FCPA and FCPA-related money laundering offenses arising from this investigation.  As we have discussed in prior updates, DOJ has aggressively prosecuted both the supply- and demand-side of the alleged bribery, charging the purported bribers under the FCPA and the purported bribees (foreign officials from Haiti Teleco) with money laundering. 

Most notably, DOJ secured its second trial victory in this case in 2012 when, on March 12, a federal jury in the Southern District of Florida convicted Haiti Teleco’s former head of international relations, Jean Rene Duperval, on 21 money laundering counts.  After a week-long trial, it took the jury but three hours to deliberate as to Duperval’s guilt.  At the May 21, 2012 sentencing, the Honorable Jose E. Martinez described Duperval’s trial testimony–during which he claimed that the payments he received were not bribes, but rather "tokens of appreciation"–as "ludicrous" before handing down a nine-year sentence and a $433,000 forfeiture order. 

Duperval’s sister and the president of one of the "shell" companies allegedly used to funnel corrupt payments to Duperval and other Haiti Teleco officials, Marguerite Grandison, appears to have fared comparatively better in 2012.  Recent court filings suggest that Grandison has been allowed to participate in an 18-month pre-trial diversion program, upon the completion of which DOJ would dismiss the outstanding money laundering charges.  Although the corporate forms of pre-trial diversion (deferred and non-prosecution agreements) are well known to FCPA practitioners, this is to our knowledge the first such agreement for an individual defendant in an FCPA-related case. 

Also hoping to fare better from a sentencing perspective, Patrick Joseph, Haiti Teleco’s former director general, pleaded guilty to one count of conspiring to commit money laundering on February 8, 2012.  Joseph has already agreed to forfeit just over $955,000 and to cooperate with prosecutors in connection with his plea, although the term of incarceration will be set by Judge Martinez later this year.  But no matter what happens at sentencing, Joseph’s plea appears to have already had a devastating effect.  According to press reports, just days after his plea (and agreement to cooperate) was announced, Joseph’s father (himself a former high-level official in the Haitian government) was gunned down on a Port-au-Prince street by unidentified motorcyclists.  These same press reports suggest that Joseph has implicated former Haitian president Jean-Bertrand Aristide in the Haiti Teleco corruption probe and also that this probe could implicate a telecommunications company that had multiple high-level U.S. government officials on its board. 

On yet another front in the Haiti Teleco investigation, defendants Joel Esquenazi and Carlos Rodriguez, who were convicted on FCPA charges after a jury trial described in our 2011 Year-End FCPA Update, appealed their convictions to the U.S. Court of Appeals for the Eleventh Circuit.  Although the briefs attack various aspects of their trial, most importantly for this audience, they challenge the District Court’s jury instruction concerning whether Haiti Teleco, an SOE, qualifies as an "instrumentality" (and thus its employees as "foreign officials") for purposes of the FCPA.  At trial, Judge Martinez instructed the jury that an "instrumentality" under the FCPA "is a means or agency through which a function of the foreign government is accomplished."  Esquenazi and Rodriguez now argue that the Eleventh Circuit has previously rejected this definition of "instrumentality" in a similar statutory context and that Congress considered, but intentionally excluded, SOEs from the definition of "instrumentality" when drafting the FCPA (an argument that Judge Selna rejected in the CCI case).  The Government’s opposition is currently due on August 17, 2012.

Finally, the short-lived prosecution of the only corporate defendant to face charges thus far in the Haiti Teleco investigation came to an abrupt end in 2012.  On February 24, DOJ moved to dismiss the 2011 indictment against Cinergy Telecommunications, Inc., claiming that it had recently learned that Cinergy "is a non-operational entity that effectively exists only on paper."  DOJ further alleged that Cinergy "has no employees and no payroll [and] retired its telecommunications assets several years ago," but "was portrayed as existing at least in part to further the fugitive defendants’ litigation strategy."  (Defendants Cruz, Zurita, and Amadeus Richers are, and have been at all times since the indictment, located outside of the United States.) 

          The Bourke Litigation

As described in our 2011 Year-End FCPA Update, the U.S. Court of Appeals for the Second Circuit recently affirmed the 2009 FCPA conviction of Dooney & Bourke co-founder Frederic Bourke, endorsing the District Court’s "ostrich instruction" to the jury, which stated that "[w]hen knowledge of [the] existence of a particular fact is an element of the offense, such knowledge may be established when a person is aware of a high probability of its existence, and consciously and intentionally avoided confirming that fact."  On January 27, 2012, Bourke filed a petition for rehearing or, in the alternative, for rehearing en banc, arguing that the Second Circuit’s decision is inconsistent with Global-Tech Appliances, Inc. v. SEB S.A., a 2011 Supreme Court decision in a civil patent case that was decided after Bourke’s case was argued in the Second Circuit.  Specifically, Bourke argues that, under Global-Tech, so-called "willful blindness" requires not only knowledge of a high probability that a fact exists, but also "deliberate actions to avoid learning of that fact."  In a move that suggests that Bourke’s petition is being seriously considered, the Second Circuit ordered the Government to respond to Bourke’s petition by July 10, 2012. Bourke remains free on bail while he awaits the Court’s decision.

In another prong of the Bourke litigation, on March 28, 2012, the U.K. Privy Council ruled that Czech citizen Viktor Kozeny cannot be extradited from the Bahamas, where he currently resides, to stand trial in the United States on FCPA charges.  The 27-count U.S. indictment accuses Kozeny of orchestrating the scheme to bribe senior Azeri government officials to encourage them to privatize Azerbaijan’s state oil company, which was the foundation of the prosecution of Bourke and other co-defendants.  The London-based Council, which is the highest court of appeal for certain British Commonwealth countries (including the Bahamas), ruled that, as a matter of U.K. law, it did not possess appellate jurisdiction over the writ of habeas corpus granted by the Bahamian trial court after Kozeny was arrested and spent 19 months in an island prison on a U.S. arrest warrant.  The Council further ruled that, even if it did have jurisdiction, extradition would not be permissible because, even if true, the transnational bribery allegations "would not constitute offenses against the law of the Bahamas if they took place within the Bahamas."

          Lindsey Manufacturing Appeal

In our 2011 Mid-Year FCPA Update and 2011 Year-End FCPA Update, we detailed the jury convictions of Lindsey Manufacturing Company and its CEO Keith E. Lindsey and CFO Steve K. Lee in the U.S. District Court for the Central District of California for FCPA violations, followed by the judicial dismissal of those charges.  On May 30, 2012, DOJ withdrew its appeals of the District Court’s post-trial decision dismissing the indictment on prosecutorial misconduct grounds, thereby conclusively ending the case as to the Lindsey defendants.  This appeal (and thus the decision to dismiss the appeal) did not automatically apply to the fourth defendant convicted at trial, third-party intermediary Angela Aguilar, because Aguilar dropped the challenge to her conviction in 2011 as part of a sentencing deal.  Nevertheless, on June 5, 2012, the Honorable Howard A. Matz granted Aguilar’s 18 U.S.C. § 2255 habeas petition to vacate her conviction.  In a classy move similar to the position it took vis-à-vis the SHOT Show defendants who pleaded guilty pre-trial as discussed above, DOJ did not challenge the vacatur of Aguilar’s conviction. 


The following table catalogues recent sentences imposed upon individuals convicted of FCPA (and FCPA-related) offenses in 2012.  As detailed below, individuals convicted of FCPA and related offenses generally are sentenced to prison.  Indeed, a Gibson Dunn study reveals that 23 individuals have been sentenced to six months or more in prison for these offenses since January 2010.  The average sentence over this period is three years, with two defendants serving up to 9 and 15 years, respectively, on FCPA and FCPA-related charges. 



Date of Sentence

Date of Conviction

Court (Judge)


Manuel Salvoch

10 months



S.D. Fla.

Latin Node prosecution.

Robert Antoine

18 months



S.D. Fla.

Haiti Telco prosecution.  Antoine’s original 48-month sentence was reduced to 18 months upon DOJ’s 5K1.1 substantial assistance motion.

Jean Rene Duperval

108 months



S.D. Fla.

Haiti Telco prosecution.  Conviction for money laundering (not FCPA) violations. 

Juan Vasquez

36 months’ probation



S.D. Fla.

Latin Node prosecution.

Manuel Caceres

23 months



S.D. Fla.

Latin Node prosecution.

Fernando Maya Basurto

25 months (time served)



S.D. Tex.

ABB prosecution.  Basurto testified against co-defendant O’Shea at trial.

Albert Stanley

30 months



S.D. Tex.

TSKJ prosecution.

Jeffrey Tesler

21 months



S.D. Tex.

TSKJ prosecution.

Wojciech Chodan

12 months’ probation



S.D. Tex.

TSKJ prosecution.


In every one of our bi-annual updates in recent memory, we have advised that the law is clear:  the FCPA does not provide for a private right of action.  The plaintiffs’ bar apparently does not read our updates, as evidenced by the continued stream of FCPA-inspired derivative, securities, tort, contract, and RICO litigation in the first six months of 2012.  Further, the first half of the year has seen several new fronts in this landscape, including a legal malpractice claim brought by an FCPA defendant against its counsel for missing a document suggestive of improper payments in acquisition due diligence, a receivership claim seeking to recover the proceeds of foreign corruption in the increasingly high-risk hedge fund sector, and several decisions concerning the intersection of the FCPA and Dodd-Frank whistleblower claims. 

          Shareholder Derivative and Securities Class Action Lawsuits

In our 2008 Mid-Year FCPA Update, we first reported that the Kingdom of Bahrain’s state-owned aluminum smelter, Aluminum Bahrain ("Alba"), had filed a $1 billion Racketeering Influenced Corrupt Organizations Act ("RICO") lawsuit in the U.S. District Court for the Western District of Pennsylvania against Alcoa, Inc., and an executive and third-party intermediary of an Alcoa subsidiary.  Shortly thereafter, Alcoa shareholders filed a derivative action in the same court based on the same predicate allegations, namely that Alcoa and its affiliates conspired to bribe senior Alba officials to induce them to pay inflated prices for Alcoa products.  The derivative suit additionally alleged that "the director and officer defendants breached their duties of loyalty and good faith by allowing or by themselves causing [Alcoa] to pay illegal bribes[, which] were facilitated by defendants’ knowing and/or reckless failure to maintain an adequate system of internal controls."  The 2008 RICO case was stayed at the request of DOJ, which intervened and sought the stay so that it could conduct its criminal investigation free from the ongoing distraction of civil litigation.  Although DOJ did not seek a similar stay in the derivative litigation, Chief Judge Donetta W. Ambrose, presiding over both cases, granted Alcoa’s motion to dismiss the derivative suit on the ground that the shareholders lacked standing due to their failure to make a pre-suit demand on Alcoa’s Board or show that such a demand would have been futile under Pennsylvania law.

As discussed below, the stay in the RICO case has been lifted, and Chief Judge Ambrose denied the defendants’ motion to dismiss that matter on June 11, 2012.  Nine days later, on June 20, the shareholder plaintiffs refiled their derivative lawsuit.  The summonses have been issued, but no further proceedings have occurred to date. 

A high-profile dispute between Wynn Resorts, Ltd., and one of its directors and largest shareholder, Kazuo Okada, found its way into the FCPA realm in 2012.  On February 19, after an internal investigation concluded that Okada paid more than $110,000 in bribes to gaming regulators in the Philippines, Wynn dismissed Okada from its Board and redeemed his 20% stake in the company.  It also filed a lawsuit against Okada in Nevada state court for breach of fiduciary duty and related offenses.  For his own part, Okada sued Wynn Resorts in January 2012, seeking disclosure of information about a $135 million charitable donation by the company to the University of Macau Development Foundation. 

Not to be left out, starting in March 2012, Wynn shareholders filed five separate derivative lawsuits against Wynn directors and officers in the U.S. District Court for the District of Nevada, piggy-backing on the allegations publicized in the Okada dispute.  One of the suits has been voluntarily dismissed, and the other four were consolidated on June 6, 2012. 

As reported in our 2011 Year-End FCPA Update, on July 21, 2010, shareholders filed a derivative action in the U.S. District Court for the Southern District of New York against directors and officers (one of whom Gibson Dunn represents) of cosmetics and perfume manufacturer Avon Products, Inc., alleging that the defendants failed to establish sufficient anti-corruption compliance controls, thereby enabling company employees to make improper payments to Chinese government officials.  On February 13, 2012, after defendants filed their motion to dismiss, plaintiffs voluntarily withdrew their complaint without prejudice to enable Avon to conclude its internal investigation and resolve any potential related enforcement actions.

On a similar note, on May 24, 2012, shareholder plaintiffs voluntarily dismissed their 2011 derivative lawsuit against officers and directors of Bio-Rad Laboratories, Inc.  The parties have stipulated that the dismissal was without prejudice and that the statute-of-limitations shall be tolled until 60 days after the company resolves ongoing DOJ and SEC investigations. 

As reported in our 2011 Year-End FCPA Update, the parties to the consolidated derivative suit filed against directors and officers of Maxwell Technologies, Inc., in California state court reached agreement to submit the case to mediation in late 2011.  On February 9, 2012, Maxwell Technologies announced that it resolved the matter by agreeing to adopt a supplemental FCPA compliance program on top of the one that the company was already required to implement as part of its January 2011 FCPA settlement with U.S. regulators and to pay $3 million in attorneys’ fees and expenses incurred on behalf of the shareholders.  Aspects of the newly enhanced FCPA compliance program include an FCPA/anti-corruption compliance department headed by a chief compliance officer and FCPA audits of all newly acquired businesses within 18 months of acquisition.

On July 2, 2012, the Honorable Jane T. Milazzo of the U.S. District Court for the Eastern District of Louisiana granted Tidewater, Inc.‘s motion to dismiss its 2011 derivative suit.  Filed in the wake of the oil services provider’s 2010 FCPA settlements with DOJ and the SEC, the complaint alleged that the defendant directors and officers breached their fiduciary duties by knowingly or recklessly disregarding the allegedly corrupt payments forming the basis for the $15.45 million government settlements and by failing to maintain proper anti-corruption compliance controls.  But even accepting the underlying misconduct as true, Judge Milazzo found no evidence that the defendants acted in bad faith or knowingly violated any laws.  In this respect, the Court found relevant the fact that Tidewater’s Board voted to initiate an FCPA investigation and to voluntarily disclose the findings of that investigation to the Government.  Therefore, plaintiff shareholders could not meet the demand futility test, and their failure to make a pre-suit demand upon the Board as required by Delaware law (where Tidewater is incorporated) was fatal.  The Court has given plaintiffs 20 days to file an amended complaint. 

          Legal Malpractice Lawsuit

In a new twist on FCPA civil litigation–one that is certain to grab the attention of transactional lawyers everywhere–on June 6, 2012, Watts Water Technologies, Inc., filed a malpractice suit in the Superior Court for the District of Columbia against its former corporate counsel, a major international law firm.  In our 2011 Year-End FCPA Update, we discussed Watts Water’s settlement with the SEC as an example of the risk of FCPA liability in connection with acquisitions.  According to the SEC’s October 2011 cease-and-desist order, a Chinese subsidiary that Watts Water had recently acquired had a sales policy that explicitly permitted its sales personnel to kickback up to 3% of a contract’s value to employees of state-owned customers.  Watts Water agreed to pay more than $3.77 million to the SEC to resolve allegations of corrupt payments by employees of this Chinese subsidiary and divested itself of the subsidiary during the course of the investigation. 

In its malpractice suit, Watts Water claims that, during due diligence for the 2006 acquisition of the Chinese subsidiary, law firm attorneys discovered the "kickback" sales policy in question, but failed to bring that policy to Watts Water’s attention.  Watts Water further claims that it did not discover that policy or the underlying conduct until years after the acquisition closed and that the law firm is therefore responsible for the cost of the FCPA settlement, the cost of the internal investigation, and the "substantial loss" that Watts Water incurred when it sold the Chinese subsidiary.  A scheduling conference is presently set for September 2012. 

          Hedge Fund Receivership Litigation

In yet another strand of FCPA-related civil litigation, John J. Carney, a court-appointed receiver for a group of hedge fund investors, has filed suit in the U.S. District Court for the District of Connecticut against Juan S. Montes, a former pension fund manager for Venezuelan state-owned oil company Petróleos de Venezuela, S.A. ("PDVSA").  Carney, who was appointed to his receivership position after former hedge fund manager Francisco Illarramendi settled criminal and civil charges arising from his alleged misappropriation of investor funds to finance a $500 million Ponzi scheme, alleges that Illarramendi paid Montes more than $35 million in bribes to induce Montes to engage in bond-swap transactions between Illarramendi’s funds and the PDVSA pension funds.  (These transactions allegedly gave Illarramendi the temporary liquidity he needed to sustain his Ponzi scheme.)  Carney seeks the return of these allegedly illicit payments for the benefit of the victims of Illarramendi’s Ponzi scheme. 

          Dodd-Frank Whistleblower Litigation

On April 3, 2012, in the first published decision to examine an FCPA-related whistleblower retaliation claim brought pursuant to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), the Honorable Aleta A. Trauger of the U.S. District Court for the Middle District of Tennessee dismissed a wrongful termination lawsuit brought by a putative whistleblower against the Southern Baptist Convention, Inc. ("SBC").  Husband and wife plaintiffs Ron and Beverly Nollner sued SBC for retaliatory discharge after Ron Nollner was terminated from his position overseeing the construction of an SBC office building in New Delhi, India.  Nollner claimed that his discharge was impermissibly motivated by complaints that he allegedly made concerning purportedly corrupt payments by SBC contractors to Indian government permitting officials. 

The Court never reached the merits of the dispute, however, because it held that Dodd-Frank’s anti-retaliation provision "only protects [an] employee against retaliation if the federal violation [reported by the employee] falls within the SEC’s jurisdiction."  Because the SEC does not have FCPA jurisdiction over non-issuers, such as SBC (at least under these facts), Dodd-Frank does not protect Nollner for making his claim.  In summary, Judge Trauger held that "the court will not interpret [Dodd-Frank] as extending its whistleblower protections to companies that otherwise have no relationship to the SEC and that have not committed securities violations." 

On June 28, 2012, the Honorable Nancy F. Atlas of the U.S. District Court for the Southern District of Texas dismissed another Dodd-Frank whistleblower claim in the FCPA context, but for a different reason.  Khaled Asadi, a dual Iraqi/U.S. citizen residing in Jordan, sued GE Energy (USA), LLC (his former employer and a subsidiary of an issuer), for wrongful discharge, claiming that he received a "surprisingly negative" performance review and was then asked to leave the company after being interviewed by an internal ombudsman investigating Asadi’s complaint that the company hired a third-party intermediary "closely associated" with a senior Iraqi government official.  The Court first discussed an interesting issue that has been simmering its way through the federal courts–whether an employee who reports alleged misconduct internally qualifies as a "whistleblower" under Dodd-Frank, which defines a "whistleblower" as one who provides information concerning a securities violation to the SEC.  But Judge Atlas did not resolve this question because she held that Dodd-Frank did not apply to Asadi under the "longstanding principle" that legislation does not apply extraterritorially absent clear congressional intent. 

The Court held that, because Dodd-Frank’s anti-retaliation provision is silent concerning extraterritoriality, whereas other provisions of Dodd-Frank explicitly apply outside the United States, there is a strong presumption that the anti-retaliation provision does not apply extraterritorially.  Judge Atlas also rejected Asadi’s argument that the FCPA itself expands the jurisdictional bounds of the anti-retaliation provision because the FCPA applies extraterritorially.  Asadi’s own complaint alleged that "the majority of events giving rise to the suit occurred in a foreign country," and the Court therefore concluded that Dodd-Frank’s anti-retaliation provision did not extend to Asadi’s purported whistleblowing activity. 

          Lawsuits Brought by Foreign Sovereigns

As noted above, Alba’s billion-dollar RICO lawsuit against Alcoa, Inc., William J. Rice, and Victor Dahdaleh was stayed at DOJ’s request shortly after it was filed in 2008.  Subsequently, as reported in our 2011 Year-End FCPA Update, Chief Judge Ambrose granted Alcoa’s 2011 motion to reopen the case for the limited purpose of filing a motion to dismiss.  That motion was filed on January 27, 2012, and denied by the Court on June 11, 2012. 

Rejecting the defendants’ claim that the alleged RICO "enterprise" was "essentially foreign" and thus excluded from RICO’s domestic reach, Chief Judge Ambrose found that the scheme alleged in the complaint (which she presumed to be true for this motion to dismiss) was "conceived, orchestrated and directed by Alcoa . . . and its senior executives" from Alcoa’s corporate headquarters in Pittsburgh, Pennsylvania.  With respect to the individual defendants, the Court held that the complaint pled with sufficient specificity that Rice was involved in directing the corrupt "enterprise’s" affairs and that Pennsylvania’s long-arm statute extends far enough (under the "absent co-conspirator" doctrine) to reach Dahdaleh, a dual Canadian/U.K. citizen who was born in Jordan and now resides in London and Switzerland.  Dahdaleh’s company allegedly passed the commissions that it received from an Australian entity that was 60% owned by Aloca to Alba officials. 

Shortly after Chief Judge Ambrose’s decision, DOJ filed a position statement advising the Court that, after four years, it no longer objects to allowing civil discovery to proceed.  Dahdaleh has indicated his intent to seek interlocutory review of the District Court’s jurisdictional ruling and also to seek a stay of discovery as to him until resolution of the related criminal corruption case now pending against him in London (as described in our 2011 Year-End FCPA Update).

Since 2008, we have been following a lawsuit filed by the Republic of Iraq in the U.S. District Court for the Southern District of New York against nearly 100 companies and corporate executives, alleging that the defendants violated RICO by making corrupt payments to secure contracts under the United Nations Oil-for-Food Program.  On April 30, 2012, the U.S. Court of Appeals for the Second Circuit affirmed the Honorable Sidney H. Stein’s 2011 decision denying Iraq’s motion to compel arbitration against certain defendants.  The District Court has yet to rule on the consolidated motions to dismiss, which have been pending since January 2010.


          Forthcoming DOJ Guidance and Continued Public Debate on FCPA Reform

In our 2011 Year-End FCPA Update, we reported Assistant Attorney General Lanny Breuer’s views concerning efforts, championed by the U.S. Chamber of Commerce and others, to amend the FCPA: 

[W]e have no intention whatsoever of supporting reforms whose aim is to weaken the FCPA and make it a less effective tool for fighting foreign bribery.  Indeed, at this crucial moment in history, watering down the Act . . . would send exactly the wrong message. . . .  Having come this far, on what I believe is a noble journey, we cannot, and should not, start going backwards.  On the contrary, the United States must continue leading the charge against transnational bribery. 

On March 22, 2012, U.S. Secretary of State Hillary Clinton echoed this message, emphasizing the Obama Administration’s strong support for the FCPA.  Speaking at Transparency International-USA’s Annual Integrity Award Dinner, Clinton addressed those who claim the FCPA handicaps American businesses operating in the international marketplace: 

[O]f course, this Administration, like those before us, has taken a strong stand when it comes to American companies bribing foreign officials.  We are unequivocally opposed to weakening the Foreign Corrupt Practices Act.  We don’t need to lower our standards.  We need to work with other countries to raise theirs.  I actually think a race to the bottom would probably disadvantage us.  It would not give us the leverage and the credibility that we are seeking. 

Lest there was any doubt, these statements make clear that the Executive Branch will not in the foreseeable future support any effort to amend the FCPA in a way that it perceives as dilutive of the statute’s potency. 

Nevertheless, Breuer has pledged that DOJ will update its Lay Person’s Guide to the FCPA in 2012 to provide "detailed," "transparent," and "useful" guidance on the FCPA’s criminal and civil enforcement provisions.  The SEC is also working with DOJ on this initiative, and halfway through the year, DOJ and SEC officials have revealed some limited information about the forthcoming guidance. 

For example, on June 5, 2012, Deputy Assistant Attorney General John Buretta, participating with SEC FCPA Unit Deputy Chief Charles Cain in an American Bar Association program, discussed the timing and substance of the guidance in broad terms.  Buretta stated that he was "not going to give . . . a precise answer to the timing, other than to say that both [DOJ] and the SEC have been very hard at work" on drafting the guidance "and have taken very seriously comments that we’ve received from a myriad of individuals."  On substance, Buretta stated:  "I do think it’s safe to say that we will be talking about many aspects of the FCPA," including compliance programs, the definition of "foreign official," and gifts and entertainment. 

And, in a written response to questions posed by Senator Grassley last November, DOJ recently commented that "the new [Lay Person’s] Guide will provide a more comprehensive and user-friendly reference source for business managers, compliance officers and practitioners."  Noting that it "is already in communication with outside groups regarding many of the issues that the Guide will address" and "will continue to meet with interested parties," DOJ predicted that the Guide will address the following topics, among others:  

1.      "U.S. interagency and international cooperation in global anti-corruption efforts;

2.      "The civil and criminal provisions of the FCPA, including the criminal intent requirement, the definitions of a ‘foreign official’ and facilitation payments, and issues such as conspiracy law and aiding and abetting in the FCPA context;

3.      "FCPA penalties, sentencing and enforcement, including examples of civil and criminal penalties, different types of negotiated resolutions (plea agreements, deferred prosecution agreements and non-prosecution agreements), and the guiding principles of FCPA enforcement, such as the Principles of Federal Prosecution and the Principles of Federal Prosecution of Business Organizations; and

4.      "Corporate compliance programs, including discussion of successor liability and due diligence, and guidance regarding the benefits of effective compliance programs."

Confirming statements that DOJ and the SEC are considering input from interested parties outside the Government, the U.S. Chamber of Commerce announced on April 11, 2012, that it met that day with Breuer, SEC Director of Enforcement Robert Khuzami, and Commerce Department General Counsel Cameron Kerry concerning the forthcoming guidance.  The Chamber stated it was "pleased with [the] frank and productive discussion on the significant uncertainty that many U.S. businesses face when attempting to comply in good faith with the FCPA" and "encouraged by the thoughtful dialogue that helped us reach a mutual understanding on many of these important issues." 

In light of the clear commitment to robust FCPA enforcement by DOJ and the SEC, we do not expect the forthcoming guidance to change the enforcement landscape in any substantial way.  Nevertheless, we applaud Breuer and Khuzami for this initiative and look forward to the guidance.  Additional insight into the thought processes of the regulators will no doubt help inform the decisions of corporate executives, their in-house and external lawyers, and compliance professionals. 

          Pending Legislative Proposals

Two bills introduced in 2011 that would, respectively, require debarment of government contractors that violate the FCPA under certain circumstances and create a private right of action under the statute, remain pending in House committees.  Both of these bills are described in our 2011 Year-End FCPA Update.

A third bill meriting attention, the Digital Accountability and Transparency Act of 2012 (H.R. 2146), passed the U.S. House of Representatives in April 2012 and is now pending in the Senate Committee on Homeland Security and Governmental Affairs.  The bill is generally intended to increase transparency and accountability in federal spending and includes a provision that would establish a new Executive Branch agency responsible for auditing federal expenditures, with a particular focus on funds provided to any government contractor "found to be in violation of" the FCPA.


          The Year-to-Date in Anti-Corruption Enforcement

We are now one year into the tenure of the landmark U.K. Bribery Act 2010, which came into effect on July 1, 2011.  For all the attention it has (rightly) received, prosecutions under the new law are off to a relatively slow start, with only one conviction to date–the Munir Patel prosecution, profiled in our 2011 Year-End FCPA Update

Nevertheless, prosecutions under pre-Bribery Act statutes continued at a robust pace in 2012, with no fewer than 14 convictions of individuals.  Nine of those convictions are related to foreign bribery in jurisdictions including Egypt, Indonesia, Iran, Iraq, Russia, Singapore, and the United Arab Emirates.  The sentences imposed in these cases have ranged up to five years in prison, and related civil recovery orders have required forfeitures as high as £1 million.  Notably, on June 11, 2012, former Innospec Ltd. CFO Paul W. Jennings pleaded guilty to two counts of violating pre-Bribery Act legislation for his role in allegedly making corrupt payments to government officials in Indonesia and Iraq.  As discussed in our 2011 Mid-Year FCPA Update, Jennings settled related civil FCPA charges with the SEC last year.

Further, the U.K. Serious Fraud Office ("SFO") recently reported to the Organisation for Economic Co-operation and Development ("OECD") that it has 11 active foreign bribery and corruption cases and 18 further cases under consideration. 

          The Changing of the Guard

In April 2012, Richard Alderman QC retired as the head of the SFO.  Mr. Alderman skillfully guided the SFO’s implementation of the U.K. Bribery Act and its related guidance.  His efforts for clarity, understanding, and the balancing of prosecutorial zeal with reasonable, common-sense approaches were hallmarks of his administration.  He leaves a substantial legacy.

On April 23, David Green QC stepped into Mr. Alderman’s large shoes as the new SFO Director and immediately walked into controversy as the OECD Working Group on Bribery criticized the United Kingdom’s implementation of the OECD Anti-Bribery Convention:  "the Working Group is concerned that, to settle foreign bribery-related cases, UK authorities are increasingly relying on civil recovery orders which require less judicial oversight and are less transparent than criminal plea agreements. 

We believe that the Working Group may be mistaken in this particular criticism.  U.K. regulators have substantially stepped up their efforts to combat transnational corruption in recent years, increasing them to a level rivaled only by the United States.  Civil recovery orders are one important tool in the U.K. regulators’ kit for reaching creative and reasonable resolutions to what would otherwise be knotty disputes.     

Perhaps in response to the OECD’s criticism, Green immediately announced that the SFO will be taking a more adversarial stance in the future:  "The perception has emerged over the last few years that perhaps there’s more willingness to compromise than to prosecute . . . .  I would like to look to rebalance the relationship between prosecution and civil settlement.  We are primarily a crime-fighting agency, and we’ve got to remember that."

Green has stated that he is unequivocally in favor of using deferred prosecution agreements like those employed by DOJ, although they are not currently available under English law.  That may change soon, as U.K. Solicitor General Edward Garnier QC recently told Parliament that he intends to introduce legislation to authorize deferred prosecution agreements by the end of 2012.  Although no such legislation was outlined in the Queen’s Speech, which describes the anticipated legislative agenda for the next 12 months, the Ministry of Justice initiated a consultation period on May 17, 2012, to solicit public comments on the proposed use of such agreements.  The consultation period will run until August 9, 2012. 

          Civil Recovery by the SFO

In the final chapter of the long-running prosecution of Mabey and Johnson Ltd., the SFO announced on January 13, 2012, that it had won a civil recovery order from the High Court requiring Mabey and Johnson’s parent company to forfeit approximately £130,000 in share dividends funded by unlawfully obtained contracts to build bridges in Iraq.  This action stems from the September 2009 prosecution of Mabey and Johnson and the February 2011 prosecution of several of its former officers for breaching United Nations sanctions against Iraq.  This is the first time that a civil recovery order has been used to recover corruptly derived dividends paid to shareholders. 

More recently, on July 3, 2012, the SFO entered into a £1.9 million settlement of civil recovery proceedings with Oxford Publishing Ltd. relating to allegedly unlawful payments by certain of the company’s East African subsidiaries in connection with government contracts won between 2007 and 2010.  As part of the settlement, Oxford Publishing will retain an independent compliance monitor to assess its compliance procedures and report to the SFO within 12 months.  The settlement follows the company’s voluntary disclosure to both the SFO and the World Bank, which funded two of the tenders at issue.

          FSA’s Assessment of Anti-Bribery and Corruption Systems and Controls

In March 2012, the U.K. Financial Services Authority ("FSA") published the findings of its review of anti-bribery and corruption systems and controls at investment banks.  In its review, the FSA found that most firms had not properly taken account of applicable anti-corruption rules, that nearly half of the firms sampled did not have adequate anti-bribery controls and corruption risk assessment systems in place, and that only 2 of 15 firms had conducted a compliance audit during the past two years.  Further, the FSA found "significant weaknesses in firms’ dealings with third parties used to win or retain business."  These findings will likely support forthcoming proposed amendments to the FSA’s regulatory guidance on financial crime, which applies to all firms within the jurisdiction of the FSA, not only investment banks.  The FSA also has signaled that its review will result in enforcement actions against some of the individual banks reviewed. 


It is axiomatic that DOJ and the SEC have come to expect cooperation from corporations that find themselves entwined in FCPA investigations.  These agencies have had corporate cooperation policies on the books for decades, dating back to when the "Holder Memorandum" did not refer to the Attorney General and junior associates spent inordinate amounts of time locating copies of the "Seaboard Report."  But there has perhaps been a change in degree as to how the agencies have discussed this subject in 2012. 

The following chart summarizes DOJ and SEC statements concerning corporate cooperation in the first half of 2012, including the landmark public announcement of a declination in the Morgan Stanley matter. 


Enforcement Action


Favorable Factors Noted in Settlement

Data Systems & Solutions


  • Two-year DPA

  • $8.82MM fine (~30% reduction from the minimum Guidelines fine)


  • N/A (non-issuer)


  • "extraordinary cooperation"

  • "extensive, thorough and swift internal investigation"

  • "extensive remediation, including terminating the officers and employees responsible for the corrupt payments; instituting a more rigorous compliance program; enhancing its due diligence protocol for third-party agents and subcontractors; strengthening its ethics policies; providing FCPA training for all agents and subcontractors; and establishing heightened review of most foreign transactions"

Morgan Stanley


  • Declination


  • Declination


  • "The company voluntarily disclosed this matter and has cooperated throughout the . . . investigation"

  • "Between 2002 and 2008, Morgan Stanley employed over 500 dedicated compliance officers, and its compliance department had direct lines to Morgan Stanley’s Board of Directors and regularly reported through the Chief Legal Officer to the Chief Executive Officer and senior management committees"

  • "Between 2002 and 2008, Morgan Stanley trained various groups of Asia-based personnel on anti-corruption policies 54 times [and] trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times"

  • "compliance personnel regularly monitored transactions, randomly audited particular employees, transactions and business units, and tested to identify illicit payments"

  • "conducted extensive due diligence on all new business partners and imposed stringent controls on payments made to business partners"

  • "provided its employees with a toll-free compliance hotline that was available 24 hours a day, 7 days a week [and] was staffed to field calls in every major language"

  • "required each of its employees annually to certify adherence to Morgan Stanley’s Code of Conduct, which included a section specifically addressing corruption risks and activities that would violate the FCPA"

  • "required Peterson on multiple occasions to certify his compliance with the FCPA and kept those written certifications in Peterson’s permanent employment record"

  • "compliance personnel regularly reviewed and updated Morgan Stanley’s compliance program and policies to reflect regulatory developments and changing risk[, including] annually conduct[ing] a formal review of each of its anti-corruption policies"



  • Three-year DPA

  • $17.28MM fine (20% reduction from the minimum Guidelines fine)

  • One-point reduction for "substantial assistance in the prosecution of others," per 8C4.1

  • Compliance monitor


  • Civil complaint

  • $5,575,731 in disgorgement and prejudgment interest


  • "investigated and disclosed to [DOJ] and [the SEC] the [relevant] misconduct . . . , a portion of which was voluntarily disclosed"

  • "cooperated fully with [DOJ]’s investigation . . . , as well as the SEC’s investigation"

  • "undertook remedial measures, including the implementation of an enhanced compliance program and agreed to undertake further remedial measures as contemplated by [the DPA]"

  • "[w]ere [DOJ] to initiate a prosecution of Biomet and obtain a conviction, instead of entering into [the DPA], Biomet would potentially be subject to exclusion from participation in federal health care programs"

BizJet Int’l


  • Three-year DPA

  • $11.8MM fine (~30% reduction from the minimum Guidelines fine)

  • Also NPA with the parent company


  • N/A (non-issuer)


  • "voluntary disclosure"
  • "extraordinary [cooperation], including  conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing and organizing voluminous evidence and information for the Department"

  • "extensive remediation, including terminating the officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all BizJet contracts" 

Smith & Nephew


  • Three-year DPA

  • $16.8MM fine (20% reduction from the minimum Guidelines fine)

  • Compliance monitor


  • Civil complaint

  • $5,426,799 in disgorgement and prejudgment interest


  • "investigated and disclosed to [DOJ] and [the SEC] the [relevant] misconduct"

  • "cooperated fully with [DOJ]’s investigation . . . , as well as the SEC’s investigation"

  • "undertook remedial measures, including the implementation of an enhanced compliance program and agreed to undertake further remedial measures as contemplated by [the DPA]"

  • "[w]ere [DOJ] to initiate a prosecution of Smith & Nephew and obtain a conviction, instead of entering into [the DPA], Smith & Nephew would potentially be subject to exclusion from participation in federal health care programs"



  • Two-year DPA

  • $54.6MM fine (minimum Guidelines fine)

  • Compliance consultant


  • N/A (non-issuer)


  • "Marubeni has agreed to undertake remedial measures as contemplated by [the DPA]"

  • "the impact on Marubeni, including collateral consequences, of a guilty plea or criminal conviction"


The anti-corruption enforcement activities of the first half of 2012 demonstrate that the vigor of FCPA and international anti-corruption enforcement efforts has not subsided.  U.S. regulators remain in regular contact with their international counterparts and have learned to conduct effective, collaborative cross-border investigations.  Coupled with the seemingly ever-growing inventory of disclosed FCPA investigations, it is clear that a robust FCPA enforcement regime will be with us for years to come.   

Gibson, Dunn & Crutcher LLP

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors, spread throughout the firm’s domestic and international offices.  Joe Warin, a former Assistant U.S. Attorney, currently serves as FCPA counsel to the first non-U.S. compliance monitor and as compliance monitor for another company that settled FCPA charges during 2010.  In 2009, he completed his compliance consultancy for Statoil A.S.A. pursuant to its DOJ and SEC FCPA settlements.  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])  
Judith A. Lee (202-887-3591, [email protected])
David P. Burns (202-887-3786, [email protected])
David Debold (202-955-8551, [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])
Oleh Vretsona (202-887-3779, [email protected])
Elizabeth H. Goergen (202-887-3623, [email protected])
Jeremy Joseph (202-955-8218, [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])
Lawrence J. Zweifach (212-351-2625, [email protected])
Adam P. Wolf (212-351-3956, [email protected])

Evan S. Tilton (214-698-3156, [email protected])

Robert C. Blume (303-298-5758, [email protected])
Jessica H. Sanderson (303-298-5928, [email protected])
Laura M. Sturges (303-298-5929, [email protected])
John D.W. Partridge (303-298-5931, [email protected])

Los Angeles
Debra Wong Yang (213-229-7472, [email protected])
Michael M. Farhang (213-229-7005, [email protected])
Douglas M. Fuchs (213-229-7605, [email protected])
Marcellus A. McRae (213-229-7675, [email protected])

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

San Francisco
Michael Li-Ming Wong (415-393-8234, [email protected])
Winston Y. Chan (415-393-8362, [email protected])

Patrick Doris (+44 20 7071 4276, [email protected])
Charlie Falconer (+44 20 7071 4270, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Barbara Davidson (+44 20 7071 4216, [email protected])

Benoît Fleury (+33 1 56 43 13 00, [email protected])  
Bernard Grinspan (+33 1 56 43 13 00, [email protected])
Jean-Philippe Robé (+33 1 56 43 13 00, [email protected])
Audrey Obadia-Zerbib (+33 1 56 43 13 00, [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])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Adam S. Goldberg (+852 2214 3717, [email protected])
Oliver D. Welch (+852 2214 3716, [email protected]

© 2012 Gibson, Dunn & Crutcher LLP

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