International Travel, Gifts Result in FCPA Penalty for FLIR.

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FLIR Systems agreed to pay $9.5 million to the SEC for FCPA violations. The company providing foreign officials with a 20-night world tour, luxury watches and other expenses. The government officials played a key role in a government contract for the purchase FLIR products by Saudia Arabia.

The world tour included stops at multiple locations including Dubai, Paris and New York. The stops served no legitimate business purpose. Travel and entertainment can be legitimate business expenses that do not violate the law. However, if the travel is actually a bribe to obtain or retain business, it violates the Foreign Corrupt Practices Act.

FLIR Systems is a U.S. defense contractor that makes infrared night vision and heat sensing devices. The products at issue in the investigation were binoculars. FLIR self-disclosed the violations to the U.S. Government. The penalty included disgorgement of more than $7.5 million in profits. Two employees of FLIR previously settled the allegations against them. The SEC resolved the enforcement action against the individuals in November.

Saudia Arabia is currently in the top 10 countries for the most active corporate investigations regarding violations of the FCPA.  Transparency International ranks it on its corruption perceptions index as number 55 out of the 175 countries.  It has a score of 49 out of 100, putting it right in the middle of the scale from most corrupt (0) to least corrupt (100).

Improper travel expenses seems to be at the heart of a few different FCPA cases recently. The allegations against GlaxoSmithKline, for example, involve trips for doctors in China to fictitious conferences and paying for the spouses of doctors in Jordan to accompany them on trips. The investigation of Avon which resulted in a $135 million settlement last May also reportedly included allegations of payment for travel within China, Europe and the United States.

Individuals with evidence of corporate payments for improper travel of government officials or employees of state-owned enterprises should contact one of our FCPA lawyers for additional information about the SEC whistleblower program.

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Next FCPA Investigation From Brazil: Eletrobras

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Eletrobras, the tenth largest power utility company in the world and the largest electricity provider in Brazil, has hired a law firm to investigate potential violations of the Foreign Corrupt Practice Act. For those that have been paying attention to the bribery scandals involving the country generally and Petrobras specifically, this should not be a big surprise.

Media attention may have shifted away from Brazil momentarily because of the breaking news over the FIFA corruption scandal. But the pendulum should swing back to the Latin American country soon. It seems that corruption is everywhere there.

Eletrobras delayed its annual report in April because of allegations that the chief executive of Eletronuclear, its subsidiary, took bribes. The investigation by law firm Hogan Lovells is focused on contracts with construction companies implicated in the Brazilian Government’s investigation and other large contracts entered into by the company.

The FCPA Blog is predicting that Petrobras and Eletrobras could yield a substantial number of enforcement actions by the SEC or the DOJ. Since they are publicly traded in the United States, they are subject to the FCPA, the U.S. anti-bribery law. And as state-owned enterprises, any individual or company that bribed them in order to obtain or retain a contract or other business would also violate the FCPA. So the potential is there for these two disclosures to kickstart enforcement actions against many other companies, if the corruption was widespread.

Are you considering blowing the whistle on bribery by a publicly traded company? Review our FCPA whistleblower guide and then contact one of our SEC whistleblower attorneys to have your questions answered. An attorney can be reached by our contact form or by phone at 1-800-590-4116.

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Banks Object to FCPA Probes on Hiring

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Wall Street banks are disputing bribery investigations into their hiring of relatives of state-owned company employees, according to the Wall Street Journal. The banks claim that the Foreign Corrupt Practices Act bars only hiring done to win specific business. They argue that the law as interpreted by the SEC punishes them for hiring well-connected individuals who are qualified for their positions.

I agree with the commentary in the WSJ article that the arguments seem like posturing prior to settlement negotiations. Only one public company has challenged an enforcement action concerning FCPA violations in court. Because most cases are settled without creating judicial precedent interpreting the law, an 11th Circuit ruling in Esquenazi last year on the definition of an instrumentality made significant headlines as the first appellate court interpretation of the term foreign official in the law. It’s unlikely that we actually get a court ruling addressing this issue from a challenge by one of the banks.

A number of Wall Street banks are the target of FCPA investigations into their hiring practices right now. The investigation into J.P. Morgan Chase related to its hiring of the sons and daughters of Chinese government officials is one of the farthest along. A Bank of New York Mellon settlement of its hiring of relatives of officials at a so far unnamed sovereign wealth fund is expected in the coming months. BNY Mellon received a Wells Notice at the end of 2014 informing it of the SEC’s preliminary determination to proceed with an enforcement action.

A Wall Street Journal article published in 2013 indicates that government regulators have been closely watching hiring practices at pharmaceutical and energy companies for some time. The inquiry into the connection between hiring practices and bribes in the financial industry seems to have started around 2010.

If you are aware of a company in a different industry, please contact one of our FCPA whistleblower attorneys to discuss reporting it to the SEC program. You may qualify for a reward of between 10 and 30 percent of any monetary sanction over $1 million that results from your information.

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BNY Mellon Fined for Internships; Ford Investigated for Russian Customs Bribes

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Bank of New York Mellon has agreed to pay $14.8 million to settle the SEC investigation into possible violations of the Foreign Corrupt Practices Act regarding internships it provided to family members of sovereign wealth fund officials.

The SEC accused BNY Mellon of hiring the family members to win or keep investment contracts involving the sovereign wealth fund assets. Their internship programs are highly competitive and the investment bank did not apply the normal rigorous process to applicants related to individuals qualifying as foreign officials under the FCPA. BNY Mellon neither admitted nor denied the charges in the settlement.

Investment banks have been under investigation since 2011 when the SEC began its industry-wide bribery investigation by seeking information from multiple banks within its jurisdiction. Goldman and Deutsche Bank have also disclosed investigations into their hiring practices.

In other FCPA news, the SEC is reportedly investigating Ford for Russian customs bribes. The SEC has joined a German investigation into bribes by U.S. automaker Ford and German freight company Schenker into suspected bribery at the port of St. Petersburg in Russia. According to Reuters, the port is known for long delays and the alleged bribes were to speed the passage of containers through Russian customs. As a U.S. issuer trading on the New York Stock Exchange, Ford must comply with the terms of the Foreign Corrupt Practices Act.

Questions about this or other FCPA issues? We have put together an informational guide for FCPA whistleblowers that may answer your question. If you have need additional information, contact one of our FCPA whistleblower attorneys. We can also assist you in reporting your evidence of bribery by a publicly traded company or other covered entity to the Securities and Exchange Commission. Please contact an attorney via our contact form or call 1-800-590-4116.

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Qualcomm Settles Intern FCPA Case with SEC for $7.5 Million

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Another princeling investigation has wrapped up at the Securities and Exchange Commission, although this one didn’t involve suspicions of violations of the Foreign Corrupt Practices Act by an investment bank. Instead, it was mobile technology company Qualcomm that paid $7.5 million to resolve the government probe into bribery of employees of state-owned enterprises in China.

SEC Starts to Notify Banks of FCPA Enforcement

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Since Bank of New York Mellon revealed at the end of last month that they received a Wells Notice from the SEC in 2014, the speculation has started that 2015 will be the year of enforcement of the Foreign Corrupt Practices Act against financial institutions.

A Wells Notice is a letter sent by the SEC which notifies the parties under investigation that the Commission has made a preliminary decision to bring an enforcement action against them. According to a Wall Street Journal article a few years ago, the SEC drops approximately 20% of cases without bringing an enforcement action after sending a Wells Notice.

The SEC began the investigations into the financial industry back in 2010 or 2011, around the time of the creation of the SEC whistleblower program. It has cast a wide net over the past 4 years, with Goldman Sachs, JPMorgan, Citigroup, Blackstone, Barclays, Deutsche Bank, Credit Suisse and Morgan Stanley all on the list of those targeted.

The FCPA prohibits U.S. corporations, as well as companies listed on a U.S. stock exchange, from giving anything of value to a foreign official to obtain or retain business improperly. The investigations appear to target the banks for two practices.

First, some banks are under investigation for employing intermediaries, a.k.a. fixers, to gain access to foreign government officials for a fee. If the “consultants” used the fee to bribe the government officials, the bank has violated the FCPA. Specifically, several banks were investigated for gaining access to the Libyan Sovereign Wealth Fund.

An employee of a sovereign wealth fund is considered a foreign official for the purposes of the FCPA. The sovereign wealth fund is a state-controlled investment entity that typically invests money from foreign currency operations, fiscal surpluses, or the revenue from exported resources.

The Libyan Investment Authority has already sued a couple investment banks in a London court. It has accused Goldman Sachs, for example, of throwing lavish parties that hoodwinked officials into investing more than $1 billion with them. Goldman has disputed the allegations.

Although many violations of the FCPA involve bribes of cash payments or their equivalent as describe above, the challenged practices also involve the hiring of family or relatives of foreign officials in either jobs or internships.The investigation of BNY Mellon relates to the provision of a limited number of internships to family members of sovereign wealth fund officials.

When the position is a sham, either because the individual is not qualified for it or they have to do no work, then the use of the position as a bribe is fairly clear.  However, there had been speculation in legal circles that a properly qualified individual completing the work required by the position might not be a a violation of the FCPA simply because it was offered to a person connected to a foreign official.

Our SEC whistleblower attorneys haven’t seen any news reports about individuals that have filed reports with the government in this area, but feel free to contact one of our whistleblower lawyers handling FCPA matters to discuss the issue further if you are curious or have evidence of similar violations at other companies.

The banks aren’t the only ones in potential trouble. Another industry on the hot seat for the FCPA is the pharmaceutical and medical device manufacturers.  They must be careful to comply with the law because doctors and other medical professionals working at state-run hospitals are considered foreign officials.  Teva recently admitted in its annual report that its investigation has resulted in a finding that it ‘likely’ violated the FCPA.  Additionally, GlaxoSmithKline is potentially subject to an enforcement action because of lavish trips it provided to foreign officials.  GSK paid nearly $500 million to China to settle their bribery charges at the end of 2014.

 

Whistleblower Involvement Helps Government Recover $50 Million More.

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A new study reinforces the role of insiders as a key law enforcement tool.

Executives and corporations are fined an average of $50 million more when a whistleblower is involved in an enforcement action, according to the study by Andrew C. Call, Gerald S. Martin, Nathan Y. Sharp and Jaron H. Wilde. The paper, titled The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions, is available for download on the Social Science Research Network

The study examined all SEC and DOJ enforcement actions involving financial misrepresentation between 1978 and 2012. It discovered 1,133 enforcement actions brought by the DOJ or SEC under the accounting provisions of the Foreign Corrupt Practices Act. At least one whistleblower was identified in only 12.8 percent of the cases studied, for a total of 145 cases.

Despite the low percentage of enforcement actions, whistleblowers helped the government obtain judgments of more than $20 billion in excess of the amount they would have received without inside information from a tipster. If the government did not have information from whistleblowers, the data suggests it would have received 30% less in penalties during the time period studied.

The data adds further support to a Taxpayers Against Fraud Education Fund published paper by Jack A. Meyer of Health Management Associates called Fighting Medicare & Medicaid Fraud: The Return on Investment from False Claims Act Partnerships. The study of the costs of fighting fraud with the False Claims Act from 2008 to 2012 concluded that the whistleblower statute returns $20 for every $1 invested by the U.S. government.

The study by Call, Martin, Sharpe and Wilde also examined an interesting side issues that is frequently cited by opponents of the new laws rewarding informants. It suggested that the benefits of the excess penalties greatly exceeded any cost to the government of wading through frivolous claims. Although most tips do not lead to enforcement actions according to the data, the additional penalties received by the Government in successful cases would outweigh the cost of examining them as long as less than $25 million is spent on each frivolous tip investigation.

The FCPA Under Attorney General Jeff Sessions

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Attorney General Jeff Sessions reaffirmed the Justice Department’s commitment to enforce the Foreign Corrupt Practices Act (FCPA) spoke last Monday in a speech at the Ethics and Compliance Initiative Annual Conference. Statements by President Trump before running for office ridiculing the anti-bribery law had put the administration’s enthusiasm for enforcing the law into doubt.

The Cost of Retaliation Against Whistleblowers is Increasing for Business

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Firing whistleblowers for informing the government about corporate activities has been standard practice at many businesses for a long time. That practice may be changing quickly if the government continues to pursue enforcement actions against companies engaged in retaliation and juries continue to provide multi-million dollar verdicts to whistleblowers.

SEC Settles First FCPA Enforcement Action Under President Trump

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At the end of July, the U.S. Securities and Exchange Commission announced a $29.2 million settlement against Halliburton for payments made to a local Angola company in the course of winning lucrative oilfield services contracts. The corporate settlement was the first under the Foreign Corrupt Practices Act (FCPA) since President Trump’s inauguration, although there have been two declinations with disgorgement reached by the DOJ.

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