The following is the second in a two-part series by Wendy Wysong
Part One of this article discussed the six corporate Foreign Corrupt Practices Act (FCPA) settlement agreements in 2012 that involved business operations in the Asia Pacific region. It is notable that these six cases represent half of all settlements reach by the US government under the FCPA last year, confirming that this region remains a focus of their enforcement efforts. As noted, however, the settlements do not tell the whole story; rather, it is important to also understand the impact of prosecutions of individuals who were involved in these bribery schemes as the decisionmakers. Those individual prosecutions, plus the case of a Japanese company that got caught in the largest prosecution of an international joint venture, as well as some significant declinations are discussed in Part Two of this article. Declinations can be quite illuminating as the agency press releases and company disclosures discussing the factors underlying the decision not to charge can provide as much guidance as the settlement agreements
7. Control Components Inc. (CCI) officials: The former president Stuart Carson, former director of China and Taiwan sales Hong “Rose” Carson, former director of worldwide sales Paul Cosgrove, and former vice president of customer service worldwide David Edmonds pleaded guilty in 2012 and were sentenced to four months imprisonment, six months home confinement, 13 months home confinement, and four months imprisonment, respectively, and $20,000 in fines for each except $200,000 for Stuart Carson. This followed denial of their motions to dismiss (based on their challenge to the DOJ definition of “instrumentality” and procedural deficiencies) and to suppress (based on CCI’s agreement with the government forcing the officials to cooperate with DOJ interviews or face termination). CCI’s bribery occurred in over 36 countries and involved employees of both state-owned and private companies.
Key: The defendants raised a rare challenge to DOJ’s broad reach and while ultimately unsuccessful, their motions forced DOJ to defend its position and provided judicial parameters for the definition of ”foreign officials.”
8. Garth Peterson: The former Managing Director of Morgan Stanley’s real estate practice in China, pleaded guilty on April 25, 2012, to conspiracy to violate the FCPA’s internal controls provisions. Peterson circumvented Morgan Stanley’s internal controls to transfer ownership interest in real estate to the former Chairman of a Chinese state-owned entity, which served as the real estate development arm for a district government in Shanghai. In return, the former Chairman helped obtain business for Peterson, a US citizen. Peterson was sentenced on August 13, 2012, to nine months in prison, disgorgement of profits of $254,589, forfeiture of his interest in property worth $3.4 million, and a permanent ban on working in the securities industry.
(a) Morgan Stanley was trumpeted this year as an example of a declination by DOJ, which did not hold the corporation responsible for Garth Peterson’s misconduct. Because Morgan Stanley had discovered and disclosed the misconduct (which had occurred despite Peterson’s participation in the corporate FCPA training program at least seven times), had warned Peterson of the FCPA risk of the transactions some 35 times, had terminated the transaction before it was completed, and fired Peterson as soon as the misconduct was discovered, neither the SEC nor DOJ charged Morgan Stanley. The company’s internal controls provided reasonable assurance that its employees were not engaged in bribery of government officials. This case is described extensively in the new Guidance on the FCPA, p.61.
(b) W.W. Grainger, a US-issuer, announced the declination by DOJ of criminal charges, following voluntary disclosure of an internal investigation of accounting lapses that suggested possible use of prepaid gift cards for Chinese customers as bribes. The results of the internal investigation ultimately did not “substantiate initial information suggesting significant use of gift cards for improper purposes” and on August 14, 2012, DOJ reportedly closed its inquiry according to the 10-Q Quarterly Report.
(c) Sensata Technologies Holding, a US-based automotive, appliance and aircraft sensor manufacturer, announced in its 10-Q Report that DOJ closed its inquiry on July 27, 2012, following its voluntary disclosure of an internal investigation into a third-party relationship in China with one of its subsidiaries.
(d) Huntsman Corp, a US-issuer, announced in its 10-Q Report on August 1, 2012, that the DOJ and SEC will not take enforcement action against the company for bribes paid in India by employees of its joint venture. The declination may have been based on the relatively low volume of payments– less than $11,000 in payments during a nine-month period– the company’s self-disclosure, and termination of involved employees.
10. Marubeni Corp: On January 17, 2012, the Department of Justice resolved its investigation of the Japanese trading company that was allegedly used as a third-party intermediary by TSKJ, a four-partner joint venture, to pay bribes to Nigerian officials relating to liquefied natural gas facilities development contracts on Bonny Island. The Company entered into a two-year deferred prosecution agreement (DPA) with the US Department of Justice (DOJ), agreeing to pay $54.6 million in criminal fines and to retain a compliance consultant for that period. This brings the total penalties for this bribery scheme to $1.7 billion.
Key: The almost unlimited extraterritorial reach of the FCPA was confirmed when DOJ extended jurisdiction over this non-US issuer, non-US company based on its role as an “agent of an issuer” (American JV partner KBR) and as an “agent of a domestic concern” (French JV partner Technip), a co-conspirator, and an aider and abettor of the joint venture’s FCPA violations.
Conclusion. US enforcement activity in the Asia Pacific region is unlikely to wane in the coming years. Transparency International’s Corruption Perception Index for 2012 gave failing scores to 2/3 of Asia Pacific countries, ranking these countries as highly corrupt, although there are countries in this region that score in the top ranks for non-corruption. Because of the US enforcement focus on Asia Pacific, treating these practices as business as usual is even riskier in this region than elsewhere in the world.