Hypothetical - Ethical Issues in Anti-Corruption Matters

Practising Law Institute
CORPORATE LAW AND PRACTICE

Course Handbook Series
Number B-2247
The Foreign Corrupt

Practices Act
and International
Anti-Corruption
Developments 2016
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Richard W. Grime
Kimberly A. Parker
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Hypothetical: Ethical Issues in

Anti-Corruption Matters
Karen A. Popp
Sidley Austin LLP
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From a Foreign Corrupt Practices Act (FCPA) enforcement perspective, 2015 may be most
remembered as the year in which authorities refocused their priorities and efforts. In 2015, the
Department of Justice (DOJ) made identifying individuals responsible for corrupt behavior within
business organizations a top priority and indicated a refocus of its enforcement resources on bigger,
higher impact FCPA cases. As a result of this refocusing, 2015 was not a banner year for FCPA
enforcement by the numbers. While anti-corruption enforcement in the U.S. may have been subdued,
authorities in other countries picked up the slack. Perhaps most notably, last year saw a significant uptick
in anti-corruption enforcement in Brazil, including the highly publicized investigation into corrupt
practices at Petrleo Brasileiro S.A. (Petrobras).
In 2015, 12 companies settled FCPA-related cases with the DOJ and Securities and Exchange
Commission (SEC). This was the fewest settlements in the past decade and marked a significant decline
from the 30 cases announced in 2014. Combined, those 12 companies paid nearly $145 million in
penalties for FCPA violations, the lowest amount in fines collected since 2006. Rather than indicating that
FCPA enforcement is slowing down, this decline signals a change in how the DOJ and SEC intend to
prosecute corruption. As Assistant Attorney General Leslie Caldwell suggested in November, the DOJ is
focusing on pursuing culpable individuals and on high-impact cases. Because such matters take
significantly more resources, Caldwell announced in November that DOJ plans to add 10 new line
prosecutors to its FCPA Unit, increasing the offices size by 50 percent. Earlier in 2015, the FBI
announced it would form three dedicated international corruption squads to investigate foreign bribery
and kleptocracy-related crimes.
The DOJ has long stressed the importance of pursuing charges against those individuals in
companies who are responsible for criminal violations. However, as the director of the SECs Division of
Enforcement, Andrew Ceresney, noted in a November speech, U.S. authorities face formidable
challenges to holding individuals accountable for corrupt acts beyond U.S. borders. In most FCPA cases,
he noted, those most directly responsible for corrupt acts are foreign nationals who live outside of the
United States. It is difficult for U.S. authorities to gain custody of these individuals and access to
witnesses and documents needed for trial.
To address these challenges, DOJ Deputy Attorney General Sally Yates issued new guidance to
line prosecutors in September. Known as the Yates Memo, the guidance includes three novel features.
First, to get any credit for cooperation, a company must provide all information about individual
wrongdoers to the government. Second, before a prosecutor may resolve a case against a company, he or
she must document what was done to establish a case against individuals. Third, prosecutors are now
being instructed to bring civil actions against individuals regardless of their ability to pay any damages or
fines. These features are likely to require significant changes to how a company conducts internal
investigations and cooperates with the government.
In 2015, the DOJ and SEC announced charges against nine individuals for FCPA violations and
secured six guilty pleas. While slightly lower than the previous year, this number fails to capture the full
picture of individuals ensnared in federal corruption investigations. It does not include, for example, the
39 individuals who have been charged as part of the DOJs investigation into corruption in the Fdration
Internationale de Football Association (FIFA), one of DOJs high-impact cases.
The DOJ settled only two matters involving corporations, for a combined $24.2 million in
penalties, while the SEC settled 10, for a total of $117.9 million. There were no parallel DOJ and SEC
corporate settlements. Eight of the 10 SEC matters were resolved through administrative cease-and-desist
orders. Administrative proceedings pose unique challenges for companies because there is a lower burden
of proof to show a violation occurred, the SEC may avoid traditional rules of evidence, and judicial
review and approval of the terms of the settlement are not required.
These changes in policy, enforcement actions and trends, along with other major developments
related to anti-corruption in 2015, are discussed in more detail below.
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DOJ Emphasizes Individual Accountability

In a memo (Yates Memo) released on Wednesday, September 9, 2015, followed by a major
policy address on Thursday, September 10, 2015, by Deputy Attorney General (DAG) Sally Q. Yates, the
Department of Justice (DOJ) issued new guidance regarding individual accountability for corporate
wrongdoing. The memo articulates several changes to DOJ policy. Although some of its major points
largely reflect and expand upon existing practices regarding the investigation and prosecution of
corporate wrongdoing, other aspects of the memo introduce new challenges for corporate internal
investigationsparticularly with regard to the ability to protect privileged information while still
receiving credit for cooperating with a government investigation.
The Yates Memo sets out six principles to guide DOJ enforcement actions:
1. To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts
about the individuals involved in corporate misconduct.
2. Both criminal and civil corporate investigations should focus on individuals from the inception of
the investigation.
3. Criminal and civil attorneys handling corporate investigations should be in routine
communication with one another.
4. Absent extraordinary circumstances, no corporate resolution will provide protection from
criminal or civil liability for any individuals.
5. Corporate cases should not be resolved without a clear plan to resolve related individual cases
before the statute of limitations expires and declinations as to individuals in such cases must be
memorialized.
6. Civil attorneys should consistently focus on individuals, as well as the company, and evaluate
whether to bring suit against an individual based on considerations beyond that individuals
ability to pay.
The principal thrust of the new guidancethe requirement that a self-reporting company seeking
cooperation credit make a full disclosure to the DOJ, particularly by identifying culpable individuals
expands on the already-existing DOJ practices in criminal cases. In distinguishing between cases in which
companies have been punished severely and ones in which companies have received lenient treatment, the
DOJ has already emphasized the significance of a companys disclosures regarding corporate officers
involved in wrongdoing. For example, several companies that have recently been charged and convicted
of serious offensesand have paid steep fines as punishmentwere criticized by the DOJ for dragging
[their] feet in ways that thwarted the departments ability to bring charges against responsible
individuals. 1 By contrast, the DOJ has applauded the efforts of PetroTiger, which engaged Sidley Austin
to conduct an internal investigation into allegations of bribery in Colombia and to represent it before the
DOJ. After that investigation, PetroTiger self-reported and fully cooperated with the departments
investigation 2 of Foreign Corrupt Practices Act violations, including by providing extensive evidence
against Petrotigers co-CEOs and general counsel developed during the internal investigation. All three
individuals were convicted of a variety of bribery and fraud offenses, but the company itself was
rewarded for its disclosures with a complete declination of prosecution and has been held out as a model
for effective corporate cooperation with a criminal investigation.
1
http://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-delivers-remarks-new-york-citybar-0
2
Id.
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DAG Yates indicated, however, that this policy may now be enforced more stringently. In her
speech, she described the new approach to corporate cooperation as all or nothing, and stated that
companies would now be held to the same standards of disclosure that the DOJ would apply to
cooperators in any other type of criminal prosecutions, analogizing a company that fails to identify
responsible individuals to a drug trafficker who is unwilling to testify against a cartel boss. These
considerations will also apply to charging decisions in civil casesin particular DAG Yates highlighted
that the scope of cooperation would determine whether DOJ chooses to bring the action against a parent
or its subsidiary.
Some aspects of this new requirement will likely pose challenges for companies conducting
internal investigations. The 2008 Filip Memo (also known as the Principles of Federal Prosecution of
Business Organizations) established that a corporation does not need to produce, and prosecutors may
not request privileged materials as a condition for the corporations eligibility to receive cooperation
credit, including memos of interviews conducted during an investigation, so long as the corporation
timely discloses relevant facts about the putative misconduct. 3 Although both the Yates Memo and the
accompanying speech carefully limit the required disclosures to non-privileged information, it is
unclear how the DOJ will address assertions of privilege in internal investigations in the assessment of
total cooperation, particularly with regard to any decisions not to share interview memos reflecting the
statements of individuals who may be potential targets for prosecution. Likewise, if a company is unable
to establish individual culpability through an internal investigation, it may have no choice but to waive
privilege in order to demonstrate why not. The Yates Memos emphasis on both discovering and
disclosing any and all relevant facts about potentially culpable individuals has the potential to put
companies in an untenable position in which maintaining privilege and receiving cooperation credit are
mutually exclusive aims. DAG Yates indicated that the changes announced today would be accompanied
by revisions to the U.S. Attorneys Manual and to the Filip Memo, so it is possible that the safe harbor
provided by the Filip Memo may be limited in the future.
An additional challenge going forward will be determining what scale of internal investigation is
required to satisfy these requirements. DAG Yates indicated that the DOJ would not expect companies to
embark upon a multimillion-dollar investigation every time they learn about misconduct, but rather that
they should pursue an investigation that is tailored to the scope of the wrongdoing. That limited
expectation, however, may be in tension with the newly-broadened requirement that a company both
investigate and disclose all facts relevant to individual liability. DAG Yates acknowledged that in
diffuse corporate structures, identifying any particular individual responsible for wrongdoing may be
difficult, but nevertheless emphasized that the onus is on the corporation to resolve that question, stating
that [i]f they dont know who is responsible, they need to find out. Establishing culpability for any one
individual can be extremely difficult, particularly in cases involving failures to implement adequate
safeguards, and can require a deep and probingand potentially expensiveinvestigation beyond what
might be required solely to identify the wrongdoing and enable basic remediation within the company
itself. It may be possible to identify individuals whose role in certain conduct would warrant termination,
but the new guidance suggests that the DOJ expects companies to go further, developing evidence of legal
culpability sufficient to assist materially in prosecuting those individuals. Given the description of the
new approach as all or nothing, careful consultation with experienced counsel will clearly be required
for any company seeking cooperation credit to determine just what sort of tailoring is appropriate for a
given investigation.
A second major issue raised by the guidance is its stated preference for resolving individual cases
before corporate ones. The Yates Memo requires that if investigation of individual wrongdoing is still
ongoing, an accompanying corporate case can be closed only if prosecutors memorialize a clear plan for
the resolution of the individual cases. During her speech, DAG Yates indicated that, in practice, the DOJ
will seek [i]n most instances [to] resolve cases with individuals before or at the same time that we
3
http://www.justice.gov/sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf
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resolve the matter against the corporation. This raises the possibility that corporations could spend long
periods of time in limbo, cooperating with the DOJ, and for public companies, making the relevant public
disclosures of pending legal issues, but nevertheless unable to obtain closure. Similarly, the requirement
that prosecutors memorialize the reasons for any declination of prosecution against individualsthe most
obvious addition of the Yates Memohas the potential to encourage more such prosecutions, imposing
ongoing cooperation obligations for companies and further extending the time before any issues can be
closed.
Finally, the DOJ is reducing the role that an individuals ability to satisfy a civil judgment can
play in determining whether to bring civil charges. DAG Yates indicated that, going forward, civil
lawyers will be looking at factors similar to those considered by criminal prosecutors and that financial
resources will only be one factor in making civil charging decisions, recasting the role of civil litigation
against individuals as focused on establishing accountability and broader deterrence, rather than achieving
a monetary recovery.
While some aspects of these changes have an immediate and obvious effectnotably the clear
expectation that companies not only cooperate in the prosecution of corporate officers but also actively
identify and procure evidence against individualsmany consequences of these changes are yet to be
determined. The renewed focus on individual liability raises questions about the exposure of responsible
corporate officers who may have no knowledge of wrongdoing under the doctrine of United States v.
Park, 421 U.S. 658 (1975). Even in areas not subject to that doctrine, this new guidance could represent a
paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement,
such as environmental law, where crimes typically require only general intent, with simple negligence
sufficient to establish criminal liability and strict liability often the standard for civil cases. Likewise, the
impact of assertions of either legal privilege by corporations or Fifth Amendment protections by
individuals on the ability of a company to receive cooperation credit are likewise unresolved. Until there
is further clarity, however, corporate internal investigations must proceed with great care, and corporate
executives should be on notice that a company may be obligated to put them in the crosshairs of the DOJ.
On November 16, 2015, Deputy Attorney General Yates reported that the principles outlined in
the September Yates Memo had been incorporated into the U.S. Attorneys Manual (USAM). The
USAM, which applies to all DOJ personnel, is considered one of the most important documents in the
department. In her announcement, Yates highlighted three important changes to the USAM.
First, Yates indicated that the DOJ had added to the USAM the threshold requirement that
organizations must identify individual wrongdoing to receive any cooperation credit. This is likely to be
the most significant revision to the USAM. While companies were always encouraged to provide
information about the conduct of individuals, there may be new consequences for not doing so.
Previously, according to Yates, cooperation credit was a sliding scale of sorts where companies could
receive at least some credit for cooperation, even if they failed to fully disclose all facts about
individuals. As Yates made clear, [t]hats changed now. Under the new policy, companies must
provide complete information about individuals involved in wrongdoing [as] a threshold hurdle that
must be crossed before well consider any cooperation credit. Yates noted, however, that cooperation
does not require the company to characterize anyone as culpable: [W]ere not asking companies to pin a
scarlet letter on their employees. Rather, companies must provide all facts about the individuals
involved.
Yates emphasized that the new policy will not require companies to waive attorney-client
privilege. She stressed, however, that only legal advice is privileged and [f]acts are not. Responding
to concerns about the new policys implications for the attorney-client privilege and attorney work
product doctrine, Yates acknowledged that notes and memos from a lawyers interview of a corporate
employee during an internal investigation may be protected. However, she noted that to earn
cooperation credit, the corporation does need to produce all relevant factsincluding those learned
through those interviewsunless identical information has already been provided.
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Second, the USAM now divides a corporations voluntary disclosure and its willingness to
cooperate as separate factors to be considered when deciding whether to charge a company. Yates noted
that this change was designed to emphasize that they are distinct factors and are to be given separate
consideration in charging decisions. Yates stated: In recognition of the significant value early reporting
holds for us, prompt voluntary disclosure by a company will be treated as an independent factor weighing
in the companys favor. The revisions make it clear that self-reporting will not necessarily result in a
declination to prosecute, but treating voluntary disclosure as a separate factor may result in a clearer
understanding of its value.
Third, the DOJ changed portions of the USAM regarding parallel proceedings and civil cases.
Yates stated that in the area of corporate wrongdoing, it is particularly important to have our criminal
prosecutors and our civil attorneys working together. She also emphasized a new principle that DOJ
attorneys should consider civil actions even if the individual may be unable to pay any damages or fines,
stating [j]ust because wrongdoers are judgment-proof, doesnt mean they should escape judgment.
SEC Requires Self-Reporting for Certain Types of Resolutions
On November 17, SEC Enforcement Director Andrew Ceresney announced that going forward,
a company must self-report in order to be eligible for the Division [of Enforcement] to recommend a
DPA [deferred prosecution agreement] or NPA [non-prosecution agreement]. Ceresney stated that he is
hopeful that this condition on the decision to recommend a DPA or NPA will further incentivize firms to
promptly report FCPA misconduct to the SEC. Citing voluntary disclosure as critical to the SEC,
Ceresney noted that there are significant benefits available to companies who self-report violations and
cooperate fully with our investigations. Ceresney also noted that companies that do not voluntarily
disclose take the chance that the SEC will learn of misconduct through other means and the consequences
for a company will likely be worse and the opportunity to earn additional cooperation credit may well be
lost.
Ceresney also reaffirmed the SECs commitment to pursue individuals for violating the FCPA,
despite significant difficulties in doing so, including the fact that most individuals and evidence are
located abroad. Ceresney noted that unlike international requests for information from DOJ, requests from
the SEC to foreign authorities do not toll the statute of limitations. Nonetheless, he noted that over 20
percent of the SECs FCPA cases in the past fiscal year (which runs from Oct. 1 to Sept. 30) were brought
against individuals. He stated that the SEC has seen a transformation in the ability to get meaningful and
timely assistance from international partners.
The DOJ Reportedly Mulls a Sea Change in FCPA Enforcement
The DOJ is reportedly contemplating a potentially significant transformation in its approach to
FCPA enforcement. The Washington Post reported that DOJ has written a draft policy designed to reduce
the number of FCPA cases prosecutors pursue if companies voluntarily disclose misconduct to the
department and cooperate in its investigation. The guidance apparently is still being finalized, and details
could change. The DOJ has declined to comment on the draft.
The proposed policy, if the report is correct, may provide a clear understanding of additional
steps companies must take to obtain a declination from federal prosecutors. The DOJ has been criticized
for years for its perceived lack of transparency in its exercise of prosecutorial discretion to decline to
bring FCPA cases. Clarity regarding the benefits of self-reporting and cooperating with the DOJ may be
even more valuable in light of the Yates Memo.
This proposed policy would be in line with comments recently made by Assistant Attorney
General Caldwell in November 2015. Without confirming the reported policy change, Caldwell discussed
voluntary disclosure and cooperation in FCPA investigations. Noting her desire of increasing
transparency regarding charging decisions in corporate prosecutions, she stated that if companies know
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the consideration they are likely to receive from self-reporting or cooperating in the governments
investigation, we believe they will be more likely to come in early, disclose wrongdoing and cooperate.
It is unclear under the alleged proposed policy whether and when companies would be able to
avoid liability altogether. According to the Washington Post, the proposal contemplates that a DOJ
decision not to pursue charges may still be accompanied by a fine in the form of forfeiture of ill-gotten
gains. But such a settlement may have reduced fines and may not include publication of the companys
alleged misconduct.
In addition, the potential new FCPA policy reportedly addresses the long-standing criticism that
the tangible benefits the DOJ has promised companies for their voluntary disclosure of FCPA violations
are unclear at best or illusory at worst. As such, the policy would reflect Caldwells statement that
voluntary self-disclosure in the FCPA context does have particular value to DOJ, and the department
wants to make it clear that it does provide a tangible benefit.
In illustrating the benefits of early self-reporting and cooperation, Caldwell cited a recent DOJ
declination against PetroTiger, which engaged Sidley Austin to conduct an internal investigation into
allegations of bribery in Colombia and to represent it before the DOJ. The former co-CEO pleaded guilty
in June to a scheme to bribe Colombian officials to secure an oil-services contract. Caldwell stated that
DOJ declined to prosecute the company, or to seek any NPA or DPA with it, even though we clearly
could have done so because PetroTiger voluntarily disclosed the misconduct and fully cooperated with
DOJs investigation.
Companies that do not cooperate with federal prosecutors already face severe consequences. In
December 2014, Alstom, a French power company, pleaded guilty to violating the FCPA and paid $772
million in penalties, the most ever imposed in a foreign bribery case. In assessing the fine, Caldwell noted
that DOJ considered Alstoms failure to voluntarily disclose the misconduct and its reluctance to
cooperate with the investigation.
While the existence of the policy and its content are currently unclear, such a transformation
would be in line with DOJs recent comments and may finally offer companies a tangible way to weigh
the benefits of disclosure. Given that under the Yates Memo companies must pass a certain threshold
requirement to gain any benefit from cooperating with the government, the adoption of such a policy may
enable companies to discern the value of crossing that threshold.
Cross-Border Cooperation
The U.S. and foreign governments are increasingly cooperating on the global anti-corruption
front, a trend that increases risk for companies doing business abroad. Many jurisdictions, including the
United States, do not recognize the concept of international double jeopardy, meaning a company may
find itself being charged by multiple nations for the same violation. In addition, some jurisdictions have
yet to develop processes to settle prosecutions that reward self-disclosure, cooperation, and remediation
during the investigation.
In the global anti-corruption arena, U.S. regulators and foreign governments are increasing their
coordination in investigating and prosecuting cases. As the U.S. DOJ and SEC push to extend the already
long arm of the FCPAs jurisdictional reach, U.S. authorities often find themselves shoulder-to-shoulder
with law enforcement and regulatory authorities in other countries, as Assistant Attorney General Leslie
Caldwell noted in a 2014 speech. This increasingly close cooperation magnifies the potential risks facing
businesses that operate across borders. Law enforcement agencies are integrating prosecution strategies,
sharing evidence and coordinating arrests. Such cross-border collaboration not only increases the ability
of U.S. prosecutors to pursue crimes committed abroad, but it also increases the chance that such charges
will be duplicated by authorities in other countries.
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Perhaps the most prominent example of international cooperation occurred in May 2015, when
nine officials of the Fdration Internationale de Football Association (FIFA) and five corporate
executives were indicted on charges of racketeering and corruption. Working in concert with DOJ, Swiss
authorities arrested seven defendants a few hours before the indictments were announced. Several days
later, Interpol agents raided the Buenos Aires offices of three Argentine businessmen the U.S. accused of
paying tens of millions of dollars in bribes as part of the corruption scandal. This level of international
law enforcement coordination suggests a well-planned cross-border strategy and demonstrates DOJs
continued leadership in prosecuting corruption around the globe.
Cross-border collaboration was also on display in DOJs prosecution of Alstom S.A. (Alstom)
and its subsidiaries for alleged bribes to foreign officials in connection with power grid, and
transportation projects in five countries to secure $4 billion in contracts. In announcing Alstoms more
than $770 million settlement with DOJ, federal prosecutors noted the significant cooperation provided
bylaw enforcement colleagues in nine other countries. DOJs investigation also appeared to spur other
nations to prosecute related cases. Following DOJs settlement, the U.K.s Serious Fraud Office (SFO)
brought charges against a U.K. subsidiary of Alstom and a French national for bribing foreign officials in
connection with a contract to supply trains to the Budapest Metro in 2006 and 2007. Similarly, Polish
authorities subsequently filed charges against five employees of an Alstom subsidiary for suspected
bribes in connection with contracts to deliver subway cars and tramways to the Polish capital. Indonesian
authorities have also brought charges related to misconduct by Alstom and its employees.
Foreign governments are also reaching out to U.S. authorities for assistance with home-grown
anti-corruption investigations. Last year, the task force of Brazilian prosecutors investigating the alleged
Petrobras bribery scheme began sending information on Petrobras to U.S. authorities. Because Petrobras
trades shares on a U.S. exchange, the company is an issuer under the FCPA. DOJ and SEC are now
working with Brazil to review the matter, and news reports speculate that Petrobras may have to pay
record penalties to settle U.S. criminal and civil probes.
The U.S. is not the only country engaging in cross-border anti-corruption cooperation. In July, a
Norwegian court convicted four former executives of Yara International (Yara) of offering around $8
million in bribes to officials in Libya and India. As part of its investigation into Yara, Norway requested
assistance from 13 countries. Yara was charged with corruption and fined roughly $48 million.
As part of this trend to increase global cooperation, several nations are already devoting more
resources to fighting international corruption. In July, the FBI created three foreign bribery and antikleptocracy squads. In August, the SFO followed suit, setting up a specialized International Corruption
Unit that has pledged to work closely with overseas partners. As more resources are devoted to crossborder cooperation and as more nations successfully prosecute the offering of bribes, companies may find
themselves subject to greater liability in more jurisdictions for corrupt practices.
SEC Enforcement Approach
In another development, several recent settlements reflect a continued SEC trend toward
resolving FCPA cases through the use of administrative proceedings. The SECs FCPA Unit Chief, Kara
Brockmeyer, disclosed last year that the SEC will begin to rely more frequently on administrative
proceedings, as opposed to more traditional district court actions, to resolve FCPA-related enforcement
matters. She recently called administrative proceedings the new normal. This approach is made
possible by the Dodd-Frank Act which expanded the SECs authority to obtain penalties in administrative
proceedings, giving the SEC the ability to assess a variety of civil penalties on companies without going
to court. This trend will likely continue into upcoming years, especially in light of the advantages that
administrative proceedings afford the SEC. Most notably, the cost and burden of managing FCPA
prosecutions through the administrative process is lower since administrative proceedings are heard
before administrative law judges and are not subject to the traditional rules of evidence. Furthermore,
FCPA settlements brought in administrative proceedings require no judicial approval. This is crucial,
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especially in light of recent cases where district court judges have complicated and scrutinized several
SEC prosecutions. Lastly, the imposition of a cease-and-desist order under an administrative proceeding
requires only that the SEC establish a likelihood that a defendant will violate federal securities law, in
contrast with the higher reasonable likelihood standard required by a court-ordered injunction.
Another trend is the governments continued emphasis that companies cooperation in FCPA
investigations will result in meaningful credit when it comes time to reach a resolution. SEC Enforcement
Director Andrew J. Ceresney highlighted the agencys commitment to giving credit for cooperation. He
said that the SEC recognize[s] that it is important to provide benefits for cooperation to incentivize
companies to cooperate. And we have been focused on making sure that people understand there will be
such benefits. He highlighted the agencys wide spectrum of tools to facilitate and reward meaningful
cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements
in instances of outstanding cooperation.
FCPA Implications of Recent Dodd-Frank Whistleblower Awards
Under the Dodd-Frank Act, whistleblowers who provide information that helps the SEC recover
money for violations of federal securities lawsincluding the FCPAcan receive as much as 30 percent
of the amount recovered. This whistleblower bounty creates a strong financial incentive to report potential
violations. Recent whistleblower awards show just how strong that incentive is. And the rise in
whistleblower tips related to potential FCPA violations, combined with an increase in awards to
individuals abroad, suggests that the whistleblower provision is likely to have an increasing influence on
corporate FCPA compliance.
When Congress passed Dodd-Frank in 2010, one of the components that had the potential to have
a significant impact on FCPA compliance was the whistleblower bounty provision in Section 922 of the
Act. Under Section 922, a whistleblower who provides original information about violations of the
securities laws that leads to a successful SEC enforcement action and monetary sanctions, exceeding $1
million, is entitled to an award of between 10 and 30 percent of the total recovery. Unlike the previous
law, which generally limited the SECs ability to make whistleblower payments to insider trading cases,
Section 922 applies broadly to any judicial or administrative action brought by the [SEC] under the
securities laws, including the FCPA. As noted at the time, the potential for massive whistleblower
rewards incentivizes employees who think they are aware of a violation to err on the side of disclosure
and to disclose to the SEC, rather than internally. When combined with the SECs sustained focus on anticorruption compliance, the effect this has on companies operating overseas cannot be overstated.
Payments under this provision, in general, are increasing. One helpful feature of Dodd-Frank,
from a compliance perspective, is that the SEC Office of the Whistleblower (OWB) is required to make
annual reports to Congress detailing OWBs activities, whistleblower complaints and the SECs response
to such complaints. The SECs FCPA enforcement activities can thus be monitored and analyzed, and
companies can evaluate compliance priorities accordingly.
Since Dodd-Frank, OWB has received whistleblower tips from individuals in 83 countries outside
the United States. Moreover, while 40 percent of all whistleblower awards have been made to current or
former employees, 20 percent have been to actual or prospective contractors, consultants and other
agents, which also raises a risk for companies that operate abroad through local partners or agents.
The rise in whistleblower tips and awards, and the amount of recent awards, will only increase the
attention on the bounty program and the likelihood that would-be whistleblowers will seek to take
advantage of it. This possibility should serve as a reminder to companies of the benefits of implementing
an effective internal reporting program for would-be whistleblowers. Developing a corporate culture and
reporting mechanisms that encourage employees to report internally rather than to the SEC can help blunt
the financial incentives that Dodd-Frank creates.
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Hiring Family Members of Foreign Officials Comes With a Risk

The U.S. government recently increased scrutiny of companies hiring of the children of foreign
officials, alleging that such practices could amount to bribery under the FCPA. The SEC and DOJ
reportedly are investigating whether the hiring of children of prominent foreign officials was done for the
purpose of assisting companies in winning lucrative business. The investigations initially focused on U.S.
banks, but in 2014 the government began widening its net, asking global companies in a range of
industries for information on their hiring practices, with a focus on Asia.
While these investigations are ongoing, some believe the DOJ sent mixed signals at the June 2015
International Bar Association Anti-Corruption Conference, where Assistant Chief Matthew Queler of the
DOJs FCPA unit told the audience that hiring children of foreign officials does not necessarily run afoul
of the FCPA. Queler added that, if a foreign officials child is the best qualified for the job and the
employment offer is not extended in order to seek a business advantage, hiring the child is acceptable.
These comments, however, are not particularly surprising; intent is always a factor in any bribery
violation. Thus, Quelers comments should not be viewed as a retreat on the part of the government from
closely examining companies hiring practices.
Instead, what the comments and investigations shed light on is the fact that, while the government
believes there are situations in which the hiring of a family member of a government official may be
legitimate, this is also an area the government believes may be ripe for potential abuse. Thus, companies
are well advised to treat any such hiring with caution.
These cases are also a reminder that the SEC and DOJ tend to define bribery very broadly under
the FCPA. While cash and expensive gifts are the most obvious forms of bribery, the prohibition against
providing anything of value to foreign officials may extend beyond that, and may be viewed by the
government, in specific cases, to extend to the hiring of family members.
Protecting Your Brand: International Franchises and the FCPA
Franchising has gained popularity as a form of international expansion, but it comes with some
unusual FCPA risks. The governments enforcement of the FCPA focuses, in part, on a companys
awareness of alleged misconduct and the degree of control a company exerts over intermediaries that act
on its behalf. In franchising, a franchisor not only licenses the use of a trademark to an independent
franchisee, but also continues to exert some degree of control over aspects of the franchisees operations,
such as advertising and training. Yet, despite the control a franchisor may exercise over its franchisee, and
despite the FCPAs broad language, there has not been to date an FCPA enforcement action against a
franchisor for franchisee-related conduct. Nevertheless, depending on the details of the franchising
agreement and the degree of practical control over the franchisee, a franchisor may have potential FCPA
exposure from the foreign operations of its franchisee. U.S. franchisors looking to expand their brand
overseas need to be attentive to the risks in doing so.
For decades, the franchise model has been successful in the U.S., and now many companies are
looking to use that model to expand operations into foreign markets. According to a 2008 survey by the
International Franchise Association of almost 1,600 franchise systems, nearly two-thirds (61 percent) of
respondents currently franchise or operate in non-U.S. markets and three-fourths (74 percent) plan to
begin international expansion efforts or accelerate their current ventures immediately. Franchising has
been an attractive model for international expansion for a number of reasons: it is relatively rapid and
inexpensive when compared with other methods of expansion; the franchisee can provide knowledge and
expertise of a local market; tariffs and restrictions on foreign investment can be avoided; and each
franchisee typically handles its own day-to-day operations, so there is generally less risk of liability for
the franchisor than if the company directly owned the foreign business.
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But the franchise model still carries certain risks. The doctrine of vicarious liabilitywhere a
corporation can be held liable for the conduct of its agent is routinely invoked in U.S.-based litigation
involving franchises. Many courts have held that the franchise relationship becomes an agency
relationship when the franchisor exerts significant control over the subject matter of the litigation. See,
e.g., Wu v. Dunkin Donuts, Inc., 105 F. Supp. 2d 83, 87 (E.D.N.Y 2000). For its part, the FCPA
expressly prohibits corrupt payments to foreign officials made by third parties or intermediaries, and the
statute applies to any person who has knowledge of this conduct, whether directly or with a belief that
circumstances exist such that the conduct is substantially certain to occur. Given the FCPAs broad
language and long jurisdictional reach, it is possible for enforcement agencies to think, in some
circumstances, that foreign franchisees could be agents of the franchisor for purposes of FCPA liability.
As a result, franchisors looking to expand abroad should carefully consider how best to structure the
franchise to avoid the risk of FCPA liability.
Although the FCPA has not yet been enforced in the franchise context, if the government did
pursue an FCPA case against a franchisor, the government would likely focus on the degree of control the
franchisor exercised over the foreign franchisees practices and its knowledge of the alleged misconduct.
Liability may therefore depend on the type of franchise being utilized.
There are various global franchising models available to a company considering foreign
expansion. Master franchisingthe most common methodgives the master franchisee the right to
operate a specific number of units in a defined area. On the one hand, this model permits the master
franchisee more flexibility in its operations, and less involvement by the franchisor, which may reduce the
potential FCPA risks to the franchisor. On the other hand, less control means greater unpredictability, and
the franchisee may have more incentives or opportunities to shirk its responsibilities toward the
franchisor. This would certainly raise concerns from a business perspective and may also be an issue for
FCPA compliance.
At the other end of the spectrum is the direct unit franchising model, in which the franchisor
licenses to one franchise owner at a time. Here, the trade-offs are reversedthe franchisor has more
control over the franchisees operations, which facilitates oversight and predictability, while at the same
time increasing the likelihood of vicarious liability. Variations and hybrid arrangements also exist, and
any company looking to expand its franchise abroad must consider which model works best for its
business.
International franchisors must balance their interest in minimizing liability with their interest in
ensuring that the franchisee adheres to uniform quality controls and standards. And while the risk of
FCPA enforcement may be minimized through careful structuring of the franchised business, there is no
way to eliminate the risks entirely. No matter which model is used, every franchisor should take specific
measures to guarantee FCPA compliance.
A franchisors FCPA risks are related to the degree of control it has over the operations of its
franchisees and the knowledge it has, or the knowledge it reasonably should have, of the franchisees
operations. When approaching FCPA compliance, franchisors have to balance maintaining enough
control over the franchisee so that they can protect their brand, while at the same time reasonably keeping
the franchisee at arms length so that it is not considered an agent of the franchisor, understanding that,
even at arms length, the government has taken an increasingly expansive view of its jurisdiction under
the FCPA.
With this understanding, franchisors doing business overseas can take a number of practical steps
to limit the risk of FCPA violations. Most importantly, franchisors should have strong anti-corruption
compliance language in their international franchise contracts. Also, franchisors should develop an
effective compliance and training program for their own employees and should institute reporting
obligations for these employeesincluding for issues that might arise with their franchisees. A franchisor
cannot simply put its head in the sand if it learns of an issue with the franchisee, but must reasonably
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respond to potential misconduct. And just as franchisors typically have thorough financial vetting
requirements before allowing someone to become a franchisee, these companies should perform a robust
FCPA compliance due diligence on any prospective overseas franchisee. Franchisors should consider
whether franchise agreements that include audit rights will help reduce their overall potential FCPA
liability. Finally, franchisors must evaluate the degree of control they have over their franchisees and
modulate their compliance program as their degree of control increases.
Franchising can be a valuable method for expanding a business abroad, but in developing and
overseeing their franchisees, franchisors must be aware of, and take active steps to protect against, the
risks of FCPA enforcement, especially considering the lack of precedent on how the FCPA will be
applied to international franchises.
Brazil Ramps Up Anti-Corruption Efforts
The FCPA is no longer the only game in town when it comes to anti-corruption enforcement.
For years, the U.S. drove anti-bribery efforts globally, but more recently countries from China to Ukraine
have passed their own anti-bribery laws and have stepped up enforcement. Companies working overseas
should be cognizant that they may be liable not only under the FCPA, but also under the local laws of the
countries where they do business.
Brazil is one of the latest and most significant examples of a country that has begun to pursue
corruption aggressively. While Brazilian authorities have yet to bring an action under their rigorous new
anti-corruption law passed in 2013the Brazilian Clean Companies Act (CCA), their recent aggressive
activity signals a new era in anti-bribery enforcement in Brazil and may be a sign of things to come under
the CCA.
The most significant anti-corruption enforcement effort in Brazil in recent years Operation Car
Wash was launched in 2014 to investigate allegations of bribery within the primarily state-owned oil
conglomerate, Petrleo Brasileiro S.A. (Petrobras). The investigation has led to what may be the largest
corruption scandal in Brazils history, with charges filed against more than 80 people and the resignations
of top officials, including the CEO of Petrobras.
Operation Car Wash kicked off in March 2014, when police arrested 28 people in connection
with a complex kickback scheme regarding contracts worth upwards of $4 billion. Prosecutors alleged
that Petrobras contracts were overinflated and the cash either skimmed off for personal use or paid off to
political parties, including the governing Workers Party. The contracts involved several different
Petrobras refineries, including Abreu e Lima and Comperj, which have both suffered from three- four
year operational delays and substantial cost overruns. As of October 2014, Brazils Federal Court of
Accounts had found overpayments of $99.2 million in four contracts related to Abreu e Lima alone.
In November 2014, police arrested dozens more in connection with the scheme, including highranking executives from some of Brazils largest construction and engineering companies, including
Camargo Correia group, OAS, UTC and Queiroz Galvo. By December 2014, charges had been filed
against 35 people and, by February 2015, that number had climbed to 80, with prosecutors alleging that
Petrobras managers illegally diverted billions of dollars from Petrobras accounts for the purposes of
bribery and money laundering. Amid the growing scandal, Petrobras CEO Maria das Gracas Foster and
five other executive directors resigned their posts in early February.
Paulo Costa, a former Petrobras director, is alleged to have run the complex scheme along with
money-changer Alberto Youssef. Costa, jailed during the early round-up in 2014, turned states evidence
in exchange for a plea bargain and Youssef agreed to provide information in exchange for reduced jail
time. Costa has admitted to accepting bribes from construction firms and other contractors to win bids
from Petrobras, and Youssef has told police that he laundered hundreds of millions of dollars in the
scheme and that the governing party benefitted from it.
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On February 16, the scandal spread to British aircraft engine-maker Rolls- Royce, when Pedro
Barusco, another former Petrobras employee who has been cooperating with authorities, told police that
he personally received at least $200,000 from Rolls-Royce. Rolls-Royce has been contracting with
Petrobras for more than 10 years and the allegations against the British engine-maker relate to bribes paid
on a $100 million contract.
Operation Car Wash is not the only example of stepped-up anti-corruption enforcement in
Brazil in recent months. In October 2014, Brazilian authorities launched a criminal case against eight
employees of the Brazilian aerospace conglomerate Embraer for bribing officials in the Dominican
Republic in connection with contracts there. The case marked one of the first times that Brazil has
prosecuted its own citizens for allegedly paying bribes abroad. Brazilian officials received assistance from
DOJ and SEC, highlighting growing cross-border cooperation in anti-corruption enforcement.
Finally, Brazilian federal police are also investigating companies in the medical device industry,
which are accused of paying bribes to doctors in order to promote use of their prosthetic devices. Media
investigations uncovered schemes showing manufacturers marking up the price of a prosthetic implant by
20 or 30 percent and passing that amount along to doctors as a commission or a consulting fee. Other
media reports indicate that doctors may have even conducted unnecessary surgeries to obtain higher or
additional commissions. Spurred by these local media reports, the Brazilian federal government has
launched a cross-agency task force comprised of officials from the Ministry of Health, the Brazilian
Internal Revenue Service and the Federal Police to investigate these and other similar allegations.
While the world waits for the governments first action under the CCA, the recent surge of anticorruption enforcement actions suggests robust enforcement of that law as well. Brazil may be entering a
new era of anti-corruption enforcement, and companies hoping to do business in the country should
therefore act carefully and compliantly.
The DOJ Hires Its Own Anti-Corruption Compliance Expert
Hui Chen, the former global head for anti-bribery and corruption at Standard Chartered Bank in
London, began working as a compliance counsel for the DOJ Fraud Section in November. Chen had
previously worked as an assistant general counsel for Pfizer and Director of Legal Compliance for the
Greater China Area for Microsoft. Chen began her legal career as a trial attorney in the Criminal Division
of the DOJ and served as an assistant United States attorney in the Eastern District of New York.
In a roundtable discussion regarding her new position, Chen stated that she intends to bring an
in-house perspective to the Fraud Section. Chen noted that current compliance guidelines offered by the
DOJ and SEC apply at a very high level. Given a variety of factors that are unique to each company,
Chen noted that compliance programs will vary significantly even among companies in the same industry.
Chen also stressed that compliance programs are dynamic and should evolve to changing risks.
Chen said that one important metric to evaluating a compliance program is whether employees in
the field are aware of the policies and compliant with internal controls. Referring to these employees in
the field as frontline gatekeepers, Chen suggested that compliance personnel would benefit from
visiting these individuals in person to discuss the companys potential risks.
Chen outlined four primary areas she anticipates reviewing when assessing corporate
compliance programs. First, she will look at whether the program is thoughtfully designed to address
compliance issues facing the company. Second, she will look at how operationalized the compliance
program is to the various aspects of the companys business. Third, Chen will review how compliance
personnel communicate with other stakeholders in the business. This includes not only discussions with
finance, human resources and legal departments but also the frontline gatekeepers. Fourth, she will
consider the resources devoted to compliance in a company, including not only funding and personnel
but also attention and commitment from the companys board and senior directors.
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While it is unclear how Chen may affect DOJs decisions on whether to charge a company, Chief
of the Fraud Section Andrew Weissmann suggested Chen will help the Fraud Section be smarter about
compliance programs and help the DOJ avoid imposing measures on companies that may be a waste of
their resources.
This change also has implications for companies that do not have active investigations with DOJ
on FCPA issues. For years, federal prosecutors have counseled businesses on the importance of
implementing effective anti-corruption compliance programs. Federal prosecutors recognize that no
compliance program will be able to stop every bad actor. DOJs November 2012 FCPA Resource Guide
notes that a company may avoid prosecution even when its compliance program fails to prevent a
violation if its internal controls are well-designed and effective. And even when prosecutors decide to
pursue charges, the existence of an effective compliance program is a factor that mitigates punishment.
However, in a speech explaining the hiring, Assistant Attorney General Leslie Caldwell stated that a
surprising number of companies still lack rigorous compliance programs, even more have good
structures on paper, but fail in practice to devote adequate resources and management attention to
compliance, and others fail to consider obvious risks.
In announcing the new compliance counsel position, Caldwell noted that we are prosecutors, not
compliance professionals. She described the expert as someone who may provide a reality check to
prosecutors when evaluating compliance programs. However, Caldwell was quick to dispel any notion
that DOJ would recognize or institute a compliance defense. Rather, she stated [o]ur hiring of a
compliance counsel should be an indication to companies about just how seriously we take compliance.
Given this announcement, it is important to note that any deference granted to companies is likely
to be contingent on whether the business actively keeps up with potential risks and the best practices in
their industry. Caldwell noted that there are vast differences in the quality and effectiveness of programs,
even among similar companies. Thus, a company may risk being held liable if it does not stay ahead of
the curve in fashioning and updating its compliance programs.
To reduce their exposure, companies should routinely reassess the specific risks facing their
businesses; update their policies and procedures accordingly; train their employees on these risks; and
update their tools for monitoring and auditing transactions. It is important for companies to document
their efforts to keep their programs up to date and benchmark their policies and procedures against other
companies in their industry.
DOJ and SEC Compliance Program Guidance
On October 1, 2014, Assistant Attorney General for the Criminal Division, Leslie R. Caldwell,
articulated 10 criteria of an effective compliance program: 4
1. High level commitment (the tone from the top)
2. Written Code, Policies and Procedures
3. Periodic risk-based review
4. Proper oversight and independence
5. Training and guidance
6. Internal reporting (effective system for confidential, internal reporting)
4
Remarks by Assistant Attorney General for the Criminal Division, Leslie R. Caldwell at the 22nd Annual Ethics
and Compliance Conference.
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7. Investigation (effective process, with resources, for responding to, investigating and documenting
alleged violations)
8. Enforcement and discipline (incentivizing and disciplining violations)
9. Third-party relationships (agents and business partners need to be compliant)
10. Monitoring and testing
The elements are almost identical to the ones set forth in the FCPA Guidance issued by the
Department of Justice and SEC (Guide) 5 in 2012, as well as some of the various FCPA settlement
documents in prior years. These pronouncements are helpful given the previous uncertainty in this area
when companies were in the position of having to rely on (often cryptic) press releases and statements
from government officials in determining what the DOJ or SEC would view as a good compliance
program. This recent guidance provides companies with a more specific and concrete model of what the
government expects from their compliance programs. Virtually all of these tips are also informative for
building non-FCPA compliance programs. DOJ also announced in 2015 the hiring of a compliance
counsel who will advise DOJ on whether companies should receive credit for having an effective
compliance program.
According to the 2012 Guidance and settlements, the following elements are hallmarks of
effective compliance programs:
1. Tone at the Top Senior management should create a culture of compliance and openly provide
strong commitment for the companys policies and compliance code.
2. Compliance Code and Standards and Procedures A company should have a written
compliance code that clearly articulates a policy against violating the FCPA and other applicable
laws. A company should develop standards and procedures designed to minimize the risk of
corruption, including financial and accounting procedures designed to ensure that books, records,
and accounts cannot be used for foreign bribery or to conceal bribes. The company should take
measures to encourage and support observance of its standards and procedures at all levels of the
company and where appropriate by third parties acting on behalf of the company in foreign
countries. These standards and procedures should include policies that govern gifts, expenses,
travel, political and charitable contributions, facilitation payments, solicitation and extortion.
3. Oversight, Autonomy and Resources A company should designate one or more senior
personnel as compliance officers who are responsible for the implementation and oversight of
anti-corruption standards and procedures. These officers must have an adequate level of
autonomy, resources and direct reporting obligations to independent monitoring bodies.
4. Risk Assessment A company must base its compliance standards and procedures on a risk
assessment that considers the companys circumstances, including its size, locations, industry,
business activities and interactions with government officials.
5. Training and Continuing Advice A company should provide periodic training on its anticorruption standards, procedures, and policies to all personnel and appropriate business partners,
and require annual certification of compliance with the training requirements. A company should
have a system for providing guidance and advice regarding compliance with its standards,
procedures and policies.
U.S. Dept of Justice, Crim. Div. & U.S. Sec. & Exchange Commn., Enforcement Div., FCPA: A Resource Guide
to the U.S. Foreign Corrupt Practices Act (2012).
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6. Incentives and Disciplinary Measures A company should adopt incentives for compliance
and appropriate disciplinary and remedial procedures for violation of anti-corruption laws and its
compliance code, policies and procedures.
7. Third-Party Due Diligence and Monitoring of Payments A company that uses agents or
business partners should conduct and document appropriate risk-based due diligence prior to
hiring the third party to identify bribery risks and conduct regular oversight of the third-partys
activities. Additionally, a company should inform the third party of its commitment to ethics and
anti-corruption compliance and seek a reciprocal commitment. The provisions could include anticorruption representations, rights to audit books and records, and rights to terminate because of
any breach of anti-corruption laws, regulations or representations.
8. Confidential Report and Internal Investigation A company should have a system that
facilitates internal, and, where appropriate, anonymous or confidential reporting of criminal
conduct and violations of company standards, procedures and policies. The company should also
have a process in place to investigate those reports and remediate as necessary.
9. Continuous Improvements, Periodic Testing and Review A company should annually
review and update its compliance standards and procedures to consider evolving industry and
international standards and to ensure continued effectiveness. A company should periodically
review its anti-corruption compliance code and consider relevant developments and evolving
standards.
10. M&A Pre-Acquisition Due Diligence and Post-Acquisition Integration A company should
have a process in place to conducted anti-corruption due diligence on a target prior to an
acquisition or merger. They should also have a procedure in place to integrate the companys
compliance program post-acquisition of the target.
The Guide acknowledges that the effectiveness of a companys compliance program is a
significant factor in reaching a settlement with the enforcement agencies. The effectiveness of a
compliance program can determine whether a deferred prosecution agreement (DPA) or non-prosecution
agreement (NPA) is appropriate. Effective compliance programs can also reduce the fine amount and
affect the decision to impose an independent monitor. The Guide concedes that a companys failure to
prevent every single violation does not necessarily mean that a particular companys compliance program
was not generally effective. The DOJ and SEC do not hold companies to a standard of perfection. An
assessment of a companys compliance program, including its design and good faith implementation and
enforcement, is an important part of the governments assessment of whether a violation occurred, and if
so, what action should be taken.
Given the current enforcement environment and the potential risks facing companies as they
continue to expand and compete in the global marketplace, companies should take swift action to
implement or supplement their compliance programs in line with this guidance. The ultimate objective of
a compliance program is to prevent fraud and corruption, but when the program fails to do so, it must also
provide the platform to detect, report and correct the violation. Furthermore, companies should be
reminded that the elements described above are essential but not necessarily sufficient for an effective
compliance program. Companies must evaluate their own specific risks and tailor their program to
address those risks. And because circumstances evolve over time, companies must devote ongoing
resources to be informed of, and respond to, new risks as they emerge.
No company aspires to have the SEC or DOJ investigate it for possible FCPA violations. A
company can reduce the brunt of potential penalties, however, by engaging with government agencies and
bolstering its internal compliance programs as part of a negotiation process and/or settlement. Such an
approach can lead to important financial savings in negotiating a resolution. A recent SEC settlement with
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Layne Christensen illustrates the point, as the company slashed its potential penalties in half, as a result,
at least in part, of its compliance remediation and enhancements.
In October 2014, the SEC found that Texas-based drilling company Layne Christensen (Layne),
through its African and Australian subsidiaries, made improper payments to government officials in five
African countries in order to receive tax breaks, customs clearance, work permits, inspection approval,
and avoidance of several tax and employment penalties. In total, the SEC found that from 2005 through
2010 Layne made over $1 million in payments and received benefits of $3.9 million in these countries.
The SEC ultimately found the company had violated the FCPAs books and records, internal controls and
anti-bribery provisions. The company agreed to pay a $5.1 million penalty. Media reports cited the DOJs
decision to close its investigation and Laynes cooperation with the SEC as contributing factors that
lowered the companys penalties.
In explaining its settlement figures, Kara Brockmeyer, the Chief of the FCPA Unit of the SEC
Enforcement Division, cited, among other things, Laynes commitment to overhauling its internal
compliance program as a factor credited in determining the appropriate remedy.
Layne initiated a detailed outside investigation, disciplined executive-level employees involved
with the violations, publicly disclosed its wrongdoings, and self-reported its findings to the SEC. In
addition, Layne committed itself to revamping its compliance program. The company revised its antibribery and accounting policies, internal compliance training, and due diligence efforts with outside
vendors. Layne installed a chief compliance officer and three full-time compliance staffers to monitor
developments and consult outside groups opinions on future compliance improvements. In contrast, none
of the five other companies who settled FCPA investigations with the SEC this year took remedial
measures to hire new compliance-dedicated employees.
Laynes compliance enhancements followed much of what the government has declared as best
practices.
CASES
Eleventh Circuit Narrowly Interprets FCPAs Facilitating Payment Exception
On February 9, 2015, the Eleventh Circuit affirmed Jean Rene Dupervals convictions for
conspiracy to commit money laundering and concealment of money laundering, which derived from
FCPA violations. United States v. Duperval, No. 12-13009 (11th Cir. Feb. 9, 2015). Duperval, who was
considered a foreign official under the FCPA, was sentenced to nine years in prison followed by three
years of supervised release. While foreign officials cannot be prosecuted under the FCPA, the DOJ
pursued charges against Duperval under the U.S. Money Laundering Control Act (MLCA), which
prohibits the receipt of proceeds of FCPA violations. The DOJ established that the bribes Duperval
received, in fact, were proceeds of FCPA violations that had been laundered through the U.S. financial
system, in violation of the MLCA. In its opinion, the Eleventh Circuit added to the limited body of federal
case law interpreting the FCPA by addressing both the meaning of an instrumentality of a foreign
government and the routine governmental action prong of the FCPAs facilitating payments exception.
Duperval received nearly $500,000 in bribes from U.S. companies in his role as Assistant
Director General and Director of International Affairs at Telecommunications DHaiti (Teleco), a
company owned by the Haitian government. Teleco controlled landline telephone services in Haiti and
foreign companies bid to provide international calling services to Telecos customers. Duperval was
responsible for negotiating and awarding contracts to these foreign customers, a role that he used to
accept bribes from U.S. companies in exchange for the contracts and favorable treatment. In connection
with these bribes, a jury found Duperval guilty of various money laundering charges.
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On appeal, Duperval argued, among other things, that the evidence was insufficient to prove that
Teleco was a government instrumentality and that Duperval was a foreign official. The Eleventh Circuit
relied heavily on its opinion in United States v. Esquenazi to reject Dupervals instrumentality argument.
In Esquenazi, the court broadly defined an instrumentality as an entity controlled by the government of
a foreign country that performs a function the controlling government treats as its own and identified
non-exhaustive factors for courts to consider in defining control and function. The court noted that
the government introduced evidence about Teleco in Dupervals case that was identical to the evidence
introduced in Esquenazinamely that the Central Bank of Haiti owned 97 percent of its shares and the
government granted Teleco a monopoly over telecommunications services. Consequently, the Eleventh
Circuit reaffirmed its relatively expansive construction of instrumentality under the FCPA that it
adopted in Esquenazi and held that there was sufficient evidence to find that Teleco was an
instrumentality of the Haitian government.
Duperval also argued that the trial court erred when it refused his proffered jury instruction
related to the routine governmental action portion of the facilitating payments exception. The FCPA
includes an exception under the anti-bribery provisions for a facilitating or expediting payment made
to expedite or to secure the performance of a routine governmental action. The FCPA provides that
routine governmental actions include granting permits to do business; processing governmental
paperwork, such as visas and work orders; providing police protection; mail pick-up and delivery;
scheduling inspections; providing phone service, power and water supply; loading and unloading cargo;
and protecting perishable products. Duperval admitted that he received payments, but he asserted that the
money was for the high quality of his work in the administration of contracts with international
companies. He argued that the administration of these contracts was a routine governmental action.
The Eleventh Circuit rejected Dupervals argument and adopted the narrow interpretation of the
facilitating payment exception outlined in the Fifth Circuits 2004 decision in United States v. Kay, 359
F.3d 738, 750 (5th Cir. 2004). In Kay, the Fifth Circuit explained that routine governmental actions are
largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries. In
rejecting Dupervals argument, the Eleventh Circuit contrasted the FCPAs enumerated examples of
routine governmental action with the multi-million dollar contracts Duperval administered. The Eleventh
Circuit reasoned that Duperval was not a low-level employee who provided a routine service; he was a
high-ranking official who administered international contracts. The court also reasoned that Dupervals
interpretation of the exception would allow for an end-run around the prohibitions in the FCPA. Under
Dupervals interpretation of the FCPA, a party would not be allowed to pay a foreign official to continue
a contract with the government, but a party could circumvent this limitation by rewarding the foreign
official for doing a good job in administering the current contract.
In light of Duperval confirming that the facilitating payment exception applies to only grease
payments made to government employees performing low-level and routine governmental actions, U.S.
companies should continue to be wary of relying on this exception. Indeed, many companies have
decided to prohibit facilitating payments altogether not only because of the difficulty of fitting within the
FCPA exception, but also because they are often prohibited under other applicable laws, such as the local
law of the foreign country in which they are made. If companies do not prohibit facilitating payments,
they should ensure that an appropriate process is in place so that such payments are only made if they fall
clearly within the FCPA exception, are allowed under local law, and are recorded properly in the
companys books and records.
Goodyear Tire & Rubber Co.
On February 24, 2015, the SEC announced that it had reached an agreement with Goodyear Tire
& Rubber Co. (Goodyear) under which Goodyear would disgorge more than $16 million to settle FCPA
accounting violations. Unlike traditional FCPA cases, the charges against Goodyear notably stem both
from instances of commercial bribery and official corruption by Goodyears subsidiaries in Kenya and
Angola.
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In Kenya, managers of a majority-owned subsidiary of Goodyear paid over $1.5 million in bribes
to employees of both private companies and state-owned enterprises and then falsely recorded the
payments in the companys books as expenses for promotional products. The general manager of the
subsidiary approved payments for fake promotional products and directed the finance assistant to make
the checks out to cash. The checks were cashed and the money was used to make the bribes.
In Angola, the general manager of a wholly owned Goodyear subsidiary paid more than $1.6
million in bribesagain to employees of both private companies and state-owned enterprises. The funds
were generated by falsely marking up prices of tires with additional freight and clearing costs. As tires
were sold, the freight and clearing costs were reclassified to a balance sheet account on a monthly basis.
As bribes were paid, the amounts were debited from the balance sheet account and falsely recorded as
payments for freight and clearing costs.
Goodyear was charged under the so-called books and records provisions of the FCPA. These
provisions require that issuers make and keep books, records, and accounts, which, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the issuer and also devise
and maintain a system of internal accounting controls sufficient to reasonably ensure that: (i)
transactions are executed in accordance with managements authorization, (ii) transactions are recorded as
necessary, (iii) access to assets is permitted only in accordance with managements authorization, and (iv)
records of assets are compared with existing assets and action is taken to address any differences.
Notwithstanding the FCPAs extensive focus on official corruption, the SECs resolution of the
Goodyear case serves as a reminder that instances of commercial bribery can also be sanctioned through
the books and records provisions of the FCPA. Whereas the anti-bribery provisions apply only to corrupt
payments to certain types of foreign officials, a company can violate the books and records provisions
through accounting that conceals bribes paid to private entities with no government affiliation.
Goodyears case involves both official and commercial corruption, and the charges are consistent with the
position taken by the SEC and the DOJ in their 2012 FCPA Resource Guide that books and records cases
can be brought, involving a wide range of misconduct, such as financial fraud, commercial bribery,
export controls violations, and embezzlement or self-dealing by company employees if it results in a
failure to accurately maintain company accounts.
Goodyears SEC resolution reflects more than $14 million in disgorged profits resulting from the
corrupt African subsidiaries. In accepting that penalty on a neither admit nor deny basis, the SEC noted
that Goodyear had made substantial efforts both to assist in the investigation and to remedy its internal
control problems. Goodyear self-reported the bribes to the SEC and voluntarily produced the results of an
internal investigation. In addition, Goodyear is in the process of divesting its ownership interests in both
African subsidiaries involved, as well as taking disciplinary action against executives with oversight
responsibility for FCPA training and controls. Perhaps most importantly, consistent with the FCPAs
requirement of an effective system of internal accounting controls, Goodyear is undertaking an
extensive revamping of its internal processes, providing for additional training of employees, regular
audits focused on corruption risk, and technological enhancements to better link subsidiaries with global
management. Goodyear has also agreed to submit its compliance program for oversight by the SEC for a
three-year period.
The books and records provisions of the FCPA are an issue for any public company with
securities traded on a U.S. exchange. As the Goodyear case illustrates, it is not sufficient to simply take at
face value the accounting of foreign subsidiaries. Even if bribes are made only on a commercial basis, if
they are misreported as promotional or other expenses, they can be the basis for FCPA liability, including
both financial penalties and intrusive government oversight of internal compliance functions. The FCPA
itself makes clear that the best solution for U.S. issuers is a strong system of internal controls that is
regularly updated to protect against emerging risks. Among the best means to avoid potential problems
with accounting violationsand with corruption in generalis a strong set of internal procedures for
documenting expenses that most frequently arouse the attention of regulators addressing corruption
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issues, including commissions or royalties, consulting fees, marketing expenses, travel and entertainment
for potential customers, and petty cash. Employees must then be trained to follow the established
procedures, educated about the potential FCPA exposure that results from noncompliance, and regular
audits of these records should be conducted to ensure that procedures are being followed.
BHP Billiton
On May 20, 2015, the SEC charged BHP Billiton (BHPB), a global resources company, with
violating the books and records and internal controls provisions of the FCPA for sponsoring the
attendance of foreign officials at the Beijing Summer Olympics. BHPB was an official sponsor of the
Olympics and supplied the materials used to make the Olympic medals. The case against the company
was pursued through an SEC administrative cease-and-desist proceeding. BHPB agreed to pay a $25
million fine to settle the charges. BHPB was charged with violating the books and records and internal
controls provisions of the FCPA. The company neither admitted nor denied the SECs charges.
The charges stemmed from hospitality packages that BHPB offered to 176 officials of stateowned enterprises primarily from countries in Africa and Asia to attend the Olympics. Sixty officials, as
well as 24 spouses and guests, ultimately accepted these packages, which included event tickets, luxury
hotel accommodations and sightseeing excursions valued at $12,000 to $16,000 per package. The SEC
order notes that BHPB recognized that these packages posed a heightened risk of violating anticorruption laws but found the companys efforts to address this risk insufficient. Specifically, the SEC
found there was inadequate training and supervision of the business units that sought hospitality
packages, which caused the company to invite government officials who were connected with pending
contracts or regulatory dealings.
Notably, the SEC did not charge BHPB with violating the anti-bribery provisions of the FCPA. In
addition to the fine, BHPB is also required to regularly report on its anti-corruption compliance program
for the next year. As part of its remediation, BHPB has already created a compliance group, enhanced its
policies and procedures for hospitality and other high-risk areas and embedded independent anticorruption managers into its business.
FIFA Scandal:DOJ Targets International Corruption Beyond the FCPA
On May 27, 2015, the Department of Justice announced an indictment against nine high-ranking
Fdration Internationale de Football Association (FIFA) officials and five corporate executives on
corruption charges. The 164-page indictment alleges that the defendants took advantage of their positions
in organized soccer to unlawfully enrich themselves. While none of the current allegations gives rise to an
FCPA violation, the FIFA indictment, together with other recent enforcement actions against Goodyear
Tire & Rubber Company and Diebold, Inc., demonstrates that federal prosecutors are pursuing
aggressively all forms of corrupt payments, not just those that violate the FCPA. According to the
indictment, the defendants and their co-conspirators perpetrated different schemes for decades to
personally enrich themselves through wire fraud, honest services fraud, money laundering, tax evasion
and obstruction of justice. Most of the alleged schemes relate to bribes and kickbacks paid by sports
marketing executives to soccer officials for media and marketing rights associated with various soccer
tournaments, including the World Cup.
As the DOJ and SECs Resource Guide to the FCPA has noted, the FCPA does not cover every
type of bribe paid around the world for every purpose. The anti-bribery provisions of the FCPA apply
only to corrupt payments offered to foreign officials for the purpose of obtaining or retaining business.
FIFA executives do not qualify as foreign officials under the FCPA, and thus the FIFA indictment
currently does not include an FCPA charge. Nonetheless, federal prosecutors are using a variety of other
statutes to target corruption that is not within the reach of the FCPA.
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The FIFA defendants are charged under the Racketeer Influenced and Corrupt Organizations
(RICO) statute. Enacted to provide federal prosecutors with enhanced tools to pursue organized crime
syndicates, RICO prohibits an individual from conducting the affairs of an enterprise through a pattern
of racketeering activity. RICO requires at least two predicate crimes within 10 years of each other to
demonstrate a pattern of racketeering activity.
Using RICO to pursue commercial bribery allows federal prosecutors to reach crimes that might
otherwise be time-barred so long as one predicate racketeering act occurred within the five-year statute of
limitations period. In the FIFA indictment, this allowed the DOJ to allege crimes dating back nearly 25
years. RICO also allows prosecutors to pursue multi-faceted and diversified conduct. The FIFA
indictment includes charges against FIFA officials and sports marketing executives from 10 different
countries, many of whom participated in a dozen separate schemes. Even though the FCPA anti-bribery
provisions have not yet been implicated in the FIFA investigation, one scheme has the potential to fall
under the FCPAs books and records and internal controls provisions. According to the indictment, in
1996, a U.S. sportswear company, which is unnamed and referred to as Sportswear Company A, agreed
to a 10-year sponsorship contract with the Brazilian soccer federation, a national association of FIFA. The
$160 million deal included the right to be the federations exclusive footwear, apparel, accessories and
equipment supplier. As part of the arrangement, the company also agreed to pay the federations
marketing agent an additional $40 million for marketing fees. The agent, in turn, promised to pay half
of the money he made from the sponsorship as a kickback to officials in the Brazilian soccer federation.
The FCPAs anti-bribery provisions likely do not apply because officials at the Brazilian soccer
federation are not foreign officials under the FCPA, but FCPA charges indeed could arise out of the
FIFA investigations if Sportswear Company A is an issuer subject to the FCPAs books and records
and internal controls provisions. Violations of these provisions do not require violations of the FCPAs
anti-bribery provisions. Because the agreement with the sportswear company terminated in 2002,
however, the statute of limitations may present a hurdle for federal prosecutors. The hurdle may not be
insurmountable. There are a variety of ways in which the DOJ might pursue this conduct, including
sweeping it into a RICO conspiracy charge. While we will have to wait to see if the FCPA is implicated
in the FIFA investigation, the DOJs prosecution underscores its commitment to pursue all forms of
corruption, not just activity that falls under the FCPA. It also highlights the variety of tools available for
prosecutors to pursue such conduct. The FIFA investigation provides another example of why companies
should ensure that their anti-corruption compliance programs and trainings focus on all corrupt activities,
including commercial bribery, in addition to conduct that falls under the FCPA.
IAP Worldwide Services Inc.
On June 16, DOJ announced an NPA with IAP Worldwide Services Inc. (IAP), a Florida-based
defense and government contracting company, for conspiring to bribe Kuwaiti officials. This was the
DOJs only FCPA NPA in 2015. IAP agreed to pay a $7.1 million criminal penalty.
In 2004, Kuwaits Ministry of Interior launched a security project designed to provide nationwide
surveillance capabilities, primarily through closed-circuit television. The project was divided into
feasibility and installation phases. Revenues from the installation phase were expected to be substantially
greater than from the feasibility phase. To obtain installation contracts, IAP sought to deceive Kuwaiti
officials during the feasibility phase. Specifically, IAP established a seemingly independent shell
company that bid on and obtained a $4 million contract to work as a consultant during the feasibility
phase. The shell company was to direct revenue on installation contracts to IAP. To ensure that IAP
received installation contracts, over $1.7 million of the consulting contract was funneled to a third party
with the understanding that some or all would be offered as bribes to Kuwaiti officials. Citing IAPs
cooperation, the DOJ announced it had entered into a NPA with the company. The NPA requires IAP to
review its existing internal controls, policies and procedures and make modifications to ensure the
company has accurate books and records and a rigorous anti-corruption compliance program. IAP is also
required to periodically report its remediation and improvements to its compliance program.
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PetroTiger Declination: DOJ Cites Voluntary Disclosure, Cooperation and Remediation

In June 2015, the DOJ announced that it declined to prosecute PetroTiger Ltd., an oil and gas
services company involved in a scheme to secure a $39 million oil services contract through improper
payments to Colombian officials which was self-reported to U.S. and Colombian authorities. DOJ
officially announced this decision after PetroTiger co-founder and CEO Joseph Sigelman pleaded guilty
last month to one count of conspiring to violate the FCPA. PetroTigers other co-founder and its former
general counsel had previously pleaded guilty to conspiracy, as well. Sigelman admitted to conspiring
with the two other executives to make payments totaling more than $333,000 to a former employee of a
state-owned oil and gas company in Colombia. In declining to prosecute PetroTiger, the DOJ cited the
companys voluntary disclosure, cooperation, and remediation, among other factors.
This case marks only the second time that the DOJ has publicly announced its decision to decline
to prosecute a cooperating company after prosecuting individuals within the company. Multiple DOJ
attorneys have publicly cited the PetroTiger declination as an example of the Departments favorable
treatment of companies that choose to cooperate with DOJ investigations. In May 2015, the Assistant
Attorney General for the Criminal Division noted that, when companies cooperate with a government
investigation, they have a real chance that the company might not be prosecuted at allnot just an NPA
or DPAbut a declination. But another DOJ official noted last fall that if there is no cooperation, we
will continue to investigate and prosecute the old-fashioned way. And companies will face the
consequences.
Louis Berger International Inc.
On July 17, Louis Berger International Inc. (LBI), a New Jersey construction management
company, entered into a DPA with the DOJ to resolve charges that it bribed foreign officials in four
countries to secure government contracts. This was the only FCPA-related DPA that DOJ entered into in
2015. LBI agreed to pay a $17.1 million criminal penalty. LBI also agreed to accept a corporate
compliance monitor for at least three years.
According to admissions made by LBI, from 1998 until 2010, LBI and its employees orchestrated
$3.9 million in bribe payments to foreign officials in India, Indonesia, Vietnam and Kuwait. These
payments were concealed using descriptions such as commitment fee, counterpart per diem,
marketing fee and field operation expense. Employees also submitted inflated or false invoices to
generate cash to use as bribes.
Mead Johnson Nutrition Company
On July 28, the SEC announced that Mead Johnson Nutrition Company agreed to settle charges
that its Chinese subsidiary made improper payments to healthcare professionals at government-owned
hospitals to influence decisions to recommend the companys infant formula to new or expecting mothers.
The SEC used an administrative cease-and-desist proceeding to resolve this matter. Mead Johnson agreed
to pay $12 million in fines to settle the SECs charges. Mead Johnson was charged with violating the
books and records and internal controls provisions of the FCPA. The company settled without admitting
or denying the findings.
The SEC alleged that employees categorized improper payments as distributor allowances to
third parties who sold the companys products in China. The SEC noted that although the distributor
allowances belonged to the distributors, Mead Johnson exercised some control over how the money was
spent. The third parties provided cash and other incentives to healthcare distributors to recommend Mead
Johnson products and provide information on expecting mothers so Mead Johnson could advertise
directly to them. The SEC alleged that over a five-year period, Mead Johnson paid nearly $2.1 million in
bribes and received nearly $7.8 million in resulting profits.
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The SEC charged Mead Johnson with violating FCPA books and records and internal controls
provisions. The SEC order noted that Mead Johnson conducted an initial internal investigation in 2011,
but failed to uncover that distributor allowances were being used to funnel improper payments.
Nonetheless, the Company still opted to discontinue distributor allowances.
BNY Mellon
On August 28, the SEC charged BNY Mellon with violating the FCPA by providing valuable
student internships to family members of foreign government officials affiliated with a sovereign wealth
fund. The SEC used an administrative cease-and-desist proceeding to bring this case. During the relevant
time period, BNY Mellon managed roughly $55 billion in assets from the sovereign wealth fund and
sought to increase the amount under its custody. BNY Mellon agreed to pay $14.8 million to settle the
charges. BNY Mellon was charged with violating the anti-bribery and books and records provisions of the
FCPA. The company settled without admitting or denying the charges.
The SEC found that family members of officials of the sovereign wealth fund requested the
internships, which were provided without the same stringent hiring standards required for other
internship applicants. The SEC order noted that despite an anti-corruption compliance policy, there were
few internal controls around the hiring of relatives of customers. Specifically, legal and compliance staff
did not review hires approved by sales staff and client relations managers. The SEC found that BNY
Mellons internal controls were insufficiently tailored to the corruption risks inherent in the hiring of
client referrals.
The company has enhanced its anti-corruption policy to address the hiring of relatives of foreign
officials.
Standard for Charging a Nonresident Foreign National Under the FCPA
In August, a federal district court in Connecticut held that for an individual to be convicted of
conspiring to violate the FCPA or aiding and abetting a violation of the FCPA, the individual must also
fall within a category of persons directly liable under the FCPA. Thus, according to the court, individuals
who are not among the classes of persons enumerated in the statute may not be swept up in an FCPA
charge using theories of conspiracy or aiding and abetting. If this ruling is upheld and adopted by other
courts, it will mean that DOJ may only charge a nonresident, foreign national under the FCPA by
proving that the nonresident, foreign national is part of a class of persons directly subject to the FCPA. In
U.S. V. Hoskins, the court ruled that because the defendant was not himself a domestic concern or an
employee of an issuer or a domestic concern, the government must prove he was an agent of a domestic
concern or acted within the United States for him to be convicted.
Internal Investigations Privileges
In In re: Kellogg Brown & Root, Inc., No. 14-5319 (D.C. Cir. Aug. 11, 2015), the Court of
Appeals for the District of Columbia Circuit issued the drastic and extraordinary remedy of a writ of
mandamus, vacating the District Court for the District of Columbias order compelling production of
documents prepared during a companys internal investigation. This is the latest decision in an ongoing
debate surrounding the scope of the attorney-client privilege and work product protection in internal
investigations. The D.C. Circuits decision, finding that the district courts rulings would generate
substantial uncertainty about the scope of the attorney-client privilege in the business setting and erode
the confidentiality of an internal investigation, provides practical guidance for companies seeking to
avoid disclosure of the contents of their internal investigations in subsequent litigation.
Barko I. This is not the first time the D.C. Circuit has admonished and overturned the district
court for its decisions related to privilege in this litigation. In an earlier ruling, the district court ordered
documents prepared during Kellogg Brown & Roots (KBR) internal investigation, conducted pursuant to
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its code of business conduct (COBC), to be produced as non-privileged business records. On a petition for
mandamus, the D.C. Circuit vacated that order, ruling that, in the context of an organizations internal
investigation, the privilege applies as long as one of the significant purposes of the internal investigation
was to obtain or provide legal advice. The D.C. Circuit did, however, permit the district court to consider
other arguments for why the documents were not covered by either the attorney-client privilege or the
work product protection.
Rule 612 waiver. In a later ruling in the same litigation, the district court did just that, ordering
disclosure of certain COBC documents on alternative bases. The district court first found disclosure of the
investigation documents appropriate because KBRs employee had reviewed them before testifying in a
deposition. According to the court, disclosure was appropriate under Federal Rule of Evidence 612, which,
in certain circumstances, allows an opposing party to inspect documents a witness used to refresh his
memory.
The D.C. Circuit disagreed, finding two reasons why the district court erred in ordering disclosure.
First, there was no indication that the deponent relied on the documents in his testimony. Second, the
district courts conclusions ran counter to the Supreme Courts decision in Upjohn Co. v. United States,
449 U.S. 383 (1981), which sought to remove uncertainties regarding privilege in the corporate context.
Ordering disclosure of the materials based on the deponents review would erode the protections made
clear in Upjohn and allow the attorney-client privilege and work product protection covering internal
investigations to be defeated routinely by a counter-party noticing a deposition on the topic of the
privileged nature of the internal investigation.
At issue waiver. Alternatively, the district court found disclosure of the COBC documents
appropriate because KBR had placed privileged materials in controversy. KBR had cited portions of the
deposition relating to the investigation in its subsequent motion for summary judgment. The district court
found that, in doing so, KBR impliedly waived the attorney-client privilege because it affirmatively used
the COBC contents in its filing and actively sought a positive inference in its favor based on what KBR
claims the documents show. Because KBR was relying on the materials in its defense, the plaintiff, in
fairness, was entitled to see them.
The D.C. Circuit disagreed. Although it presented a difficult question, the court ultimately
found that, [w]here KBR neither directly stated that the COBC investigation had revealed no
wrongdoing nor sought any specific relief because of the results of the investigation, KBR ha[d] not based
a claim or defense upon the attorneys advice. Therefore, KBR did not waive privilege.
Substantial need. In a separate opinion and order, the district court compelled production of
certain COBC documents on the alternative basis that they were discoverable fact work product. Federal
Rule of Civil Procedure 26(b)(3) permits discovery of fact work product if a party shows that it has
substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their
substantial equivalent by other means. The Rule exempts from disclosure opinion work productthe
mental impressions, conclusions, opinions, or legal theories of a partys attorney.
In ordering disclosure, the district court reiterated that the attorney-client privilege protects
communications between employees and lawyers or their agents, but not communications only between
lawyers, or their agents, alone. Therefore, materials produced by non-attorney investigators were not
attorney-client privileged unless they contained information obtained from the client. The investigators
reports related to the investigation, however, were work product protected because they were prepared by
agents of the legal department in anticipation of litigation. After conducting an independent assessment of
the documents, the court found that excerpts of the documents were discoverable fact work product
because they scrupulously avoid[ed] stating conclusions about the allegations investigated.
The D.C. Circuit disagreed. First, portions of the COBC documents were, in fact, attorney-client
privileged because they summarized statements of KBR employees. Second, those materials that were not
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privileged were nevertheless protected work product because they contained the mental impressions of
the investigators, who were acting on behalf of the legal department.
Guidance. This drawn-out discovery dispute highlights the need for attorneys to initiate and
oversee internal investigations to ensure that privileged documents and attorney work product are
protected from disclosure. Although both the circuit court and district court considered the non-attorney
investigators to be agents of the attorneys, in-house or outside counsel should be used to gather and
review evidence and conduct witness interviews, when possible. If non-attorneys are used, companies
should ensure and document that these non-attorneys are acting at the direction, and under the supervision
of, counsel to avoid any possibility of doubt. Attorneys and their agents also should clearly label all
documents developed during the course of a privileged investigation as subject to the attorney-client
privilege and/or the work product doctrine.
Moreover, attorneys and their agents should be mindful of the different levels of protection
afforded opinion work product and fact work product when creating written materials concerning the
investigation. The district court found that certain documents were fact work product because the
investigators did not judge credibility, demeanor, or evasiveness of witnesses; did not label reviewed
documents as relevant or irrelevant; and did not conclude that particular statements or records were
indicators of fraud. Although the D.C. Circuit disagreed with this assessment, the inquiry is fact-specific.
To avoid possible disclosure, investigation documents should include a clear disclaimer that they record
factual information necessary to provide legal advice to the company and that their contents include
thoughts, impressions, conclusions, and opinions in connection with the pending matters.
Hyperdynamics Corporation
On September 29, the SEC charged Hyperdynamics Corporation with violating the FCPA by
failing to accurately record payments made by a subsidiary in Guinea. The SEC brought the case using an
administrative cease-and-desist proceeding. Hyperdynamics agreed to pay a civil fine of $75,000 to settle
the matter. Hyperdynamics was charged with violating the books and records and internal controls
provisions of the FCPA. The Company settled without admitting or denying the findings.
The SEC order charges Hyperdynamics with spending $130,000 through its subsidiary for
public relations and lobbying services in Guinea. The SEC found these payments were made to two
companies controlled by a Hyperdynamics employee, and there was no evidence the funds were used on
legitimate public relations or lobbying activities. The SEC noted that Hyperdynamics did not have a due
diligence and monitoring process in place to vet third-party vendors. The SEC did not allege that any of
the money was used to offer bribes.
Tokyo-Based Conglomerate
On September 28, the SEC charged a Tokyo-based conglomerate with inaccurately recording
improper payments to South Africas ruling party in connection with contracts to build two multibilliondollar power plants. The SEC brought its case against the company in U.S. district court. The company
agreed to pay $19 million to settle the charges without admitting or denying the allegations. The company
was charged with violating the books and records and internal controls provisions of the FCPA but not the
anti-bribery provisions.
The SEC alleged that the company sold a 25 percent stake in a South African subsidiary to a
company serving as a front for the African National Congress (ANC), the ruling party in South Africa.
This arrangement gave the company the ability to share any profits with the ANC. The company was
ultimately awarded two contracts and provided roughly $5 million in dividends to the ANC front
company. The company paid the front company an additional $1 million in success fees that were
recorded as consulting fees.
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As part of the announcement, the SECs FCPA unit chief stated: [w]e particularly appreciate the
assistance we received from the African Development Banks Integrity and Anti-Corruption Department
and hope this is the first in a series of collaborations. The SEC also noted the cooperation of the South
African Financial Services Board.
Bristol-Myers Squibb
On October 5, the SEC announced charges against New York-based pharmaceutical company
Bristol-Myers Squibb for charges relating to a joint venture in China that made cash payments to
healthcare providers at state-owned and state-controlled hospitals in exchange for prescription sales. This
case was pursued through an SEC administrative cease-and-desist proceeding. Bristol-Myers Squibb
agreed to pay more than $14 million to settle the charges. Bristol-Myers Squibb was charged with
violating the books and records and internal controls provisions of the FCPA. The Company settled the
charges without admitting or denying the findings.
The SECs order alleges that sales representatives from a majority-owned Chinese joint venture
sought to secure and increase sales by providing healthcare providers with investments or cash, jewelry
and other gifts, meals, travel, entertainment and sponsorships for conferences. Despite operating in China
since 1982, the company did not implement a formal FCPA compliance program there until 2006. The
SEC alleged that once a compliance program was implemented, compliance assessments and audits
revealed weaknesses in approving and documenting expenditures. The SEC order states that these internal
control deficiencies were not timely remediated. The SEC also described compliance resources in China
as minimal, noting that responsible officers rarely traveled to China.
Bristol-Myers Squibb terminated over 90 employees and disciplined an additional 90 employees
who failed to comply with relevant policies. Most of the officers of the Chinese joint venture were
replaced to enhance the tone at the top. The company also implemented a 100 percent prereimbursement review of all expense claims. Bristol-Myers agreed to report to the SEC on its remediation
and improved compliance measures for two years.
Standard Bank plc
On November 30, the SEC announced charges against Standard Bank for failing to disclose
payments in connection with debt issued by the government of Tanzania. The SEC brought the case using
an administrative cease-and-desist proceeding. Standard Bank agreed to pay a $4.2 million penalty to the
SEC.
As part of a coordinated global settlement, the announcement came on the same day as the
UKs Serious Fraud Office (SFO) announced a DPA with Standard Bank for violating the UK Bribery
Act. While the SEC did not have jurisdiction to bring an FCPA charge against the company because it
was not an issuer as defined by the FCPA, the SEC used the same underlying facts to bring a charge
under Section 17(a)(2) of the Securities Act of 1933. Section 17(a)(2) is the antifraud provision and
prohibits any person in the offer or sale of a security from obtaining money by a materially untrue
statement or omission. As part of the SECs announcement, Gerald Hodgkins, associate director of the
SECs Division of Enforcement, stated, when suspicious payments made anywhere in the world result in
tainted securities offerings in the United States, the SEC is fully committed to taking action against the
responsible parties.
In addition to the civil penalty, the SEC also required Standard Bank to disgorge $8.4 million.
However, the SEC deemed this payment satisfied by payment of an equal amount in the UK matter. If
Standard Bank pays less than $8.4 million in disgorgement to the UK, any remaining balance will be due
to the SEC.
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KAREN A. POPP
Partner
Washington, D.C.
+1.202.736.8053
+1.202.736.8711 Fax
kpopp@sidley.com
PRACTICES
x White Collar: Government Litigation & Investigations
x Privacy, Data Security and Information Law
x Complex Commercial Litigation
AREAS OF FOCUS
x Antitrust Government Investigations
x Compliance Counseling - White Collar
x Congressional Investigations
x Cybersecurity, Cybercrime and Data Breaches
x False Claims Act
x FCPA/Anti-Corruption
x Healthcare Enforcement
x Internal Investigations
x Sports
x Trials
ADMISSIONS & CERTIFICATIONS

x U.S. Supreme Court, 1996
x U.S. Court of Appeals, 2nd Circuit, 1992
x U.S. Court of Appeals, 4th Circuit, 1988
x U.S. District Court, District of Columbia, 2002
x U.S. District Court, District of Maryland, 2000
x U.S. District Court, E.D. of New York, 1987
x U.S. District Court, S.D. of New York, 1987
x District of Columbia, 1989
x New York, 1987
x North Carolina, 2011
EDUCATION
x University of North Carolina School of Law (J.D.,
1985, cum laude, Order of the Coif)
x University of North Carolina - Charlotte (B.A.,
1980, cum laude)
CLERKSHIPS
U.S. Court of Appeals, 4th Circuit, Sam J. Ervin
III
KAREN A. POPP, is a member of the firms Executive Committee and global coordinator of the White
Collar: Government Litigation & Investigations group, which is recognized by US News as one of the
nations top-tier practices and by Chambers USA (2012) for its impressive breadth, with expertise across a
wide range of areas. Karen has an expansive practice representing companies and individuals in highprofile matters with legal, political and public relations components, such as corporate criminal defense,
internal investigations, SEC Enforcement, Congressional investigations, corporate compliance, and civil
and commercial litigation. Chambers USA has recognized her as a leader in the field. Her practice is
informed by a wealth of government and private sector experience, including service as a federal
prosecutor in New York, a lawyer in the Office of Legal Counsel at the U.S. Department of Justice, and
Associate White House Counsel to President Clinton.
Karen represents Sidley clients across a host of industries in a wide range of matters involving allegations
of criminal, civil and ethical wrongdoing. Her clients range from major corporations to prominent
business and political figures, including a U.S. Presidential Cabinet Member. She has been retained to
lead confidential worldwide internal investigations and defend corporations and individuals in
government investigations relating to alleged FCPA and OFAC violations, securities and financial fraud,
accounting irregularities, kickbacks, tax fraud, qui tams, misuse of corporate assets, false claims, antitrust
and other bribery, corruption and fraud. Her recent experience includes:
x
Successfully obtained prosecutorial declinations for companies in significant criminal investigations.
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Representing several companies in connection with ongoing FCPA investigations before the
Department of Justice and S.E.C. These large-scale investigations span dozens of countries across the
globe.
Representing a major national food distribution corporation in State Attorney General investigations
involving alleged false claims in connection with contracts with state entities.
Successfully represented a senior executive of an auto parts manufacturer in a criminal cartel

investigation into allegations of price-fixing, bid-rigging and market allocation.
Successfully represented a U.S. Presidential Cabinet member in DOJ and congressional

investigations.
Karen also assists clients in developing, auditing and enhancing corporate compliance and ethics
programs, and currently serves as outside counsel to several corporate compliance departments. She
helps companies to respond to internal allegations of wrongdoing, conducts training for Boards of
Directors, management, compliance departments and other company personnel, and conducts
compliance due diligence regarding corporate acquisitions and joint ventures.
Repeatedly recognized for her work, the Legal 500 US notes that, The highly experienced and
knowledgeable Karen Popp provides expert and practical advice. Benchmark Litigation names Karen a
Litigation Star (both nationally and in Washington, D.C.) for her White Collar practice. Washingtonian
magazine has included Karen in its current roster of Top Lawyers in Washington, and she has been
recognized yearly by The Best Lawyers in America in Criminal Defense: White-Collar and Commercial
Litigation, and is included in the Washington, D.C. edition of the Super Lawyer directory, as well as
recognized by The International Who's Who of Business Crime Defence Lawyers. Karen has been named for
several years to the Top 250 Women in Litigation, a publication honoring the achievements of female
lawyers in litigation practices in the United States. The recipient of the First Annual Transformative
Leadership Award given by InsideCounsel Magazine in 2010, Karen also was the 2006 recipient of the
Star of the Bar award by the Womens Bar Association of the District of Columbia. She received the
Thurgood Marshall Award given by the New York City Bar Association.
A frequent speaker at national conferences and before various other groups, Karen has provided legal
commentary on CNN, Fox News and NPR, and served as a consultant on the television show The West
Wing.
EXPERIENCE
The breadth of Karens practice is reflected in the following sampling of her representative engagements.
FCPA
Karen has been involved in numerous FCPA matters involving corporate activities in dozens of countries,
and has represented:
x
A major international oil company in internal and government investigations involving allegations of
international bribery and violations of the FCPA in 30+ countries.
Several major pharmaceutical companies in internal and government investigations arising from
allegations of FCPA and OFAC violations in 20+ countries, and a biologics corporation in internal
and government investigations of alleged FCPA violations in more than a dozen countries.
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A major defense contractor in an internal investigation relating to joint venture operations in the
Middle East.
A conglomerate corporation in a multi-country internal investigation and related government

investigations.
An international retail clothing store chain in several worldwide investigations relating to allegations
of FCPA violations, other bribery, fraud and compliance policy violations.
A national non-profit organization relating to allegations of violating FCPA, OFAC and other laws
and compliance rules relating to international operations, and in Congressional, OIG, DOJ and state
AG investigations relating to fraud.
A KBR executive in the DOJ/SEC investigations of FCPA violations by KBR/Halliburton.
Several major corporations and financial entities in building compliance programs and conducting
proactive FCPA risk assessments with remedial steps and compliance due diligence on M&A and
joint venture transactions.
Other Internal & Government Engagements

Karen regularly assists corporations facing internal and government investigations. Among those she has
represented are:
x
A major technology company in an internal investigation relating to accounting irregularities in

foreign operations.
A major food distribution corporation in a S.D.N.Y. investigation, as well as internal investigations

involving allegations of bribery, antitrust violations, unfair trade practices, kickbacks, employment
discrimination and other violations of company ethics and compliance policies.
A national real estate holding company in several internal investigations involving allegations of
bribery, tax and accounting fraud and executive misuse of corporate assets.
A transportation company in several internal, federal and state investigations relating to bribery and
fraud.
A national electronic services corporation in an internal investigation arising from allegations of

fraud and other commercial wrongdoing.
An international retail corporation in an internal investigation relating to stock option grants, and a
national department store corporation in internal, SEC and DOJ investigations into allegations
relating to securities fraud and accounting irregularities.
A monoline insurance corporation in several internal investigations relating to allegations of market

manipulation through cybersmearing by company executives and employees and a separate
investigation into alleged fraud and other misconduct by an officer of the company.
Major pharmaceutical corporations in internal, DOJ and State AG investigations of alleged fraud,
kickbacks, qui tams and other violations of the False Claims Act.
A labor-related company in investigations by the SEC, DOJ and Congress, among others, relating to
alleged securities fraud and other commercial misconduct.
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A major psychiatric hospital corporation in several internal and DOJ investigations involving alleged
kickbacks and False Claims, and in related litigation to stop the airing of a 60 Minutes II program
based upon a hidden camera in one of the psychiatric hospitals.
Representative Engagements by Individuals

Karen also represents individuals facing a government investigation or other allegations of wrongdoing.
She has represented:
x
Senior financial officer of McKesson HBOC in the accounting irregularity investigation by the SEC
and DOJ.
The CEO of an international animal medicine corporation in an investigation by the SEC and DOJ
into alleged securities fraud.
The president of a healthcare company relating to allegations of fraud and False Claims.
A dozen employees of a major technology corporation relating to an investigation by the SEC and
DOJ for alleged securities fraud.
A major national bank executive in the municipal bond market antitrust investigation by DOJ and the
SEC.
A partner of a major accounting/consulting firm in a criminal and civil investigation by DOJ for
work as a consultant to a hospital corporation.
An investment banker in a SEC and NASD investigation relating to alleged securities fraud.
An executive of a major national bank in the market timing investigation conducted by the NY State
Attorney General.
Employees of a global investment firm in a federal and state corruption investigation of the state
Governor and Treasurer.
A senior government official in the Countrywide bank loan investigations by DOJ, Congress and
OIG.
An FBI official in the federal leak investigation and civil litigation relating to the anthrax investigation
after 9/11.
A senior government official regarding fraud, misuse of government property, and other alleged
misconduct; represented another senior government official regarding allegations of kickbacks.
Before joining Sidley, Karen served as Associate Counsel to the President of the United States, where she
advised President Clinton and the White House staff on Congressional and grand jury investigations and
domestic policy issues. She worked with Senior Administration officials at various federal agencies and
Congressional members and staffs on the Administrations policy initiatives.
Prior to joining the White House, Karen served in the Office of Legal Counsel at the U.S. Department of
Justice where she advised Attorney General Janet Reno and the Department, the White House and other
agencies of the Executive Branch on a wide range of legal matters. Before moving to Washington, D.C.,
Karen was an Assistant U.S. Attorney in the U.S. Attorneys Office for the Eastern District of New York,
where she prosecuted RICO and other charges involving fraud, bribery, extortion, tax evasion, money
laundering, obstruction of justice, witness tampering and perjury.
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Karen was a commercial litigator in New York City for five years before joining the government. While
on Wall Street, she represented corporations and investment banking firms in a wide range of litigation
matters, including securities fraud and hostile corporate takeovers.
Karen graduated cum laude from the University of North Carolina School of Law, where she served as an
editor on the North Carolina Law Review and was a member of the Order of the Coif. Upon graduation
from law school, Karen clerked for the Honorable Sam J. Ervin III of the U.S. Court of Appeals for the
Fourth Circuit. She received her undergraduate degree from the University of North Carolina at
Charlotte, where she graduated cum laude, and thereafter studied law at Oxford University before
attending law school at UNC.
PUBLICATIONS
x
Co-Author, Business and Commercial Litigation in Federal Courts, Third Edition (2012)
Co-Author, Defending Federal Criminal Cases, Attacking the Governments Proof (Chapter 3) (2012)
Co-Author, Dropping the Blinders from the Governments Willful Blindness Standard: Global-Tech
Appliances v. Seb, Benchmark Litigation (2011)
Co-Author, Inside the Minds: White Collar Law Client Strategies chapter on Strategies for White Collar
Representation (2007)
The Impeachment of President Clinton: An Ugly Mix of Three Powerful Forces, Duke Law and
Contemporary Problems (Winter/Spring 2000)
Search Warrants, Seizing Electronic Data, The National Law Journal, (November 20, 2000)
A View From the White House, St. Peters College Record, Oxford University (2000)
MEMBERSHIPS & ACTIVITIES

In addition to serving as global chair of Sidleys White Collar practice, Karen is a member of the firm's
Executive Committee, the firmwide Practice Development Committee and the Womens Task Force.
Karen serves as a member of the Planning Committee for the ABA Criminal Justice Section, Global White
Collar Crime Institute, which was held in Shanghai, China in 2015 and will be held again in 2017 in Latin
America. She is also the Chair of the Chief Compliance Officers Forum and is Co-Founder and Chair of
the Womens White Collar Defense Association. Karen serves as a Board Member of the Women in Law
Empowerment Forum and serves on the Advisory Board for the Womens Power Summit on Law and
Leadership.
Karen holds several leadership positions at the University of North Carolina (UNC), serving as Chair of
the Board of Trustees at UNC Charlotte, member of the Board for the Kenan Institute of Private
Enterprise, member of the Board of Directors of the UNC Law School Alumni Association and Chair of
the Chancellors Scholars Committee of UNC Law School.
Karen is a former member of the North Carolina Council for Women, a position to which she was
appointed by the governor of the state. She also served on the faculty of the National Institute for Trial
Advocacy and was a member of the Host Committees Steering Committee for the 2012 Democratic
National Convention. Karen also previously served on the Advisory Board for Best Buddies International,
Inc.
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SIDLEYS WORLD OFFICES

BEIJING
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Oriental Plaza
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1202 Geneva
Switzerland
T: +41.22.308.00.00
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San Francisco, California 94104
T: +1.415.772.1200
BOSTON
60 State Street
34th Floor
Boston, Massachusetts 02109
T: +1.617.223.0300
BRUSSELS
NEO Building
Rue Montoyer 51 Montoyerstraat
B-1000 Brussels
Belgium
T: +32.2.504.6400
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Level 39
Two Intl Finance Centre
8 Finance Street
Central, Hong Kong
T: +852.2509.7888
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1000 Louisiana Street
Suite 6000
Houston, TX 77002
T: +1.713.495.4500
LONDON
One South Dearborn

Chicago, Illinois 60603
T: +1.312.853.7000
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London, EC2V 5HA
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T: +44.20.7360.3600
CENTURY CITY
LOS ANGELES
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17th Floor
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T: +1.310.595.9500
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Los Angeles, California 90013
T: +1.213.896.6000
CHICAGO
DALLAS
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Suite 3600
Dallas, Texas 75201
T: +1.214.981.3300
NEW YORK
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New York, New York 10019
T: +1.212.839.5300
PALO ALTO
1001 Page Mill Road
Building 1
Palo Alto, California 94304
T: +1.650.565.7000
SHANGHAI
Suite 1901
Shui On Plaza
333 Middle Huai Hai Road
Shanghai 200021
China
T: +86.21.2322.9322
SINGAPORE
Level 31
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T: +65.6230.3900
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Level 10, 7 Macquarie Place
Sydney NSW 2000
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T: +61.2.8214.2200
TOKYO
Sidley Austin Nishikawa Foreign
Law Joint Enterprise
Marunouchi Building 23F
4-1, Marunouchi 2-chome
Chiyoda-Ku, Tokyo 100-6323
Japan
T: +81.3.3218.5900
WASHINGTON, D.C.
1501 K Street N.W.
Washington, D.C. 20005
T: +1.202.736.8000
www.sidley.com
Sidley Austin refers to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer.
The FCPA/Anti-Corruption Practice of Sidley Austin LLP

Our FCPA/Anti-Corruption practice, which involves over 90 of our lawyers, includes creating and implementing
compliance programs for clients, counseling clients on compliance issues that arise from international sales and
marketing activities, conducting internal investigations in more than 90 countries and defending clients in the course
of SEC and DOJ proceedings. Our clients in this area include Fortune 100 and 500 companies in the pharmaceutical,
healthcare, defense, aerospace, energy, transportation, advertising, telecommunications, insurance, food products
and manufacturing industries, leading investment banks and other financial institutions.
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