This article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.
Rarely does one hear of offensive use of the FCPA to accomplish a business objective. Usually it is the other way around – the FCPA thwarts a business objective such as acquiring a foreign target, not hiring the foreign agent who says he knows a way to get that lucrative contract, etc.
But then again, rarely does one hear of a corporate board member accusing the company of conduct that could implicate the FCPA, which then causes the SEC to open an inquiry, which then results in the company accusing the board member of separate and distinct conduct that could implicate the FCPA.
This article discusses Wynn’s internal investigation report that accuses Kazuo Okada (a member of its board) of prima facie FCPA violations. For previous posts on the Wynn-Okada dispute, see here and here. The Wynn internal investigation report discusses a number of issues (such as breach of fiduciary duty, issues under Nevada gaming laws and issues under Philippine law), but this article will focus on the FCPA issues in the report authored Louis Freeh (former director of the FBI) of Freeh, Sporkin & Sullivan LLP.
In summary, the Freeh Report states:
“Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (‘PAGCOR’), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country. Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.”
The report categorizes this conduct as “prima facie violations” of the FCPA.
Because jurisdiction will clearly be an issue in any potential FCPA enforcement action against Okada (a Japanese national currently serving as Director and Chairman of the Board of Universal Entertainment Corporation, a Japanese company), the Freeh Report sensibly begins with a jurisdictional analysis.
According to the report, Aruze USA Inc. (Aruze USA) is a wholly-owned subsidiary of Universal incorporated in Nevada and Okada is a director of Aruze USA and serves as its president, secretary and treasurer. In addition, the report states that Okada also currently serves as a director, secretary and treasurer of Aruze Gaming America Inc. (Aruze Gaming), a U.S. company.
Thus, based on the information in the Freeh report, depending upon which “hat” Okada wears at any given time, he is, in the language of the FCPA, a “domestic concern” or “any person other than an issuer or a domestic concern.” The Freeh Report covers both bases and correctly notes that FCPA violations can be committed by a “domestic concern” regardless of any U.S. nexus (this was part of the FCPA’s 1998 amendments), but that FCPA violations can be committed by “any person” only if the “while in the territory of the U.S.” jurisdictional test is met.
If Okada is merely “any person” under the FCPA, the Freeh Report states that “means or instrumentalties of interstate commerce” were used by Okada. Specifically, the Freeh Report states that many of Okada payments at issue passed through the accounts (either the Universal City Ledger Account or the Aruze City Ledger Account) ”maintained at the corporate offices of Wynn Resorts Limited in Las Vegas, Nevada, where periodic deposits are made from Universal into the Wynn Resorts Limited operating account at Bank of America in Las Vegas, Nevada.”
Back to the Freeh Report’s discussion of Philippine PAGCOR Officials at Wynn Resort properties. The report highlights 36 “separate instances, from May 2008 through June 2011 when Mr. Okada, his associates and companies made payments exceeding $110,000 which directly benefited senior PAGCOR officials, including two chairman and their family members.” For starters, 35 of the 36 instances involve charges to the Aruze City Ledger account in amounts ranging from $253 to $5,380 for stays (generally multinight stays) at the Wynn Macau or Wynn Las Vegas. As separately discussed below, the one instance that sticks out is the September 2010 stay of various PAGCOR officials at the Wynn Macau for which approximately $50,000 was charged to the Aruze City Ledger.
The Freeh Report terms all of these instances “prima facie” FCPA violations, a term presumably chosen carefully because as every first-year law student knows “prima facie” means on first appearance, on the face of it, a fact presumed to be true unless disproved by some evidence to the contrary.
It is here that the Freeh Report is shockingly deficient as it does not contain any discussion of the FCPA’s affirmative defense for payments, gifts, etc. that are a “reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official … directly related to (a) the promotion, demonstration, or explanation of products or services; or (b) the execution or performance of a contract with a foreign government or agency thereof.”
The Freeh Report notes, yet disagrees with, Okada’s assertion that “all his efforts in the Philippines prior to the change of presidential administration in the summer of 2010 were undertaken on behalf of and for the benefit of Steve Wynn and Wynn Resorts.” Summer 2010 is obviously a vague term, but Okada’s assertion could be relevant to 23 of the 36 instances detailed in the Freeh Report.
The one instance identified in the Freeh Report that sticks out is approximately $50,000 charged to the Aruze City Ledger in September 2010 for a five-day stay at the Wynn Macau by “then and current PAGCOR Chairman and CEO Cristino L. Naguiat, Jr., his wife, three children, nanny and other PAGCOR officials.”
The Freeh Report devotes five pages to this visit and states, among other things, that Chairman Naguiat occupied Villa 81 (the most expensive accommodation at Wynn Macau – a room that costs approximately $6,000 per day and is mostly reserved for “high-rollers”). Even if Chairman Naguiat and his delegation visited the resort, in whole or in part, for a business purpose, it is unlikely that such expenses would be viewed as “reasonable and bona fide” and directly related to a business purpose – even if the Freeh Report does note that some of the charges may have been reimbursed by Chairman Naguiat’s delegation.
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