Tag Archives: Department of Justice

The Walmart FCPA Investigation Revisited (Again): Some Musings and Speculations on the Most Recent Reports

Posted on by
1

Earlier this month, there was yet another intriguing story about new developments in the US government’s investigation into possible Foreign Corrupt Practices Act (FCPA) violations by the Walmart’s foreign operations. The Walmart case is probably the most high-profile (and controversial) FCPA case of the last decade, and the reports suggest that it may finally be lurching toward a conclusion, though the recent story raises as many questions than it answers.

Before proceeding to the most recent developments, here’s a quick, and admittedly oversimplified, recap: In 2005, Walmart received a report from a disgruntled former employee that its Mexican subsidiary had engaged in an extensive bribery scheme to pay off government officials to speed the opening of new stores. After internal investigation, however, Walmart’s executives decided in 2006 not to take meaningful action or disclose the apparent FCPA violations to the US government. In 2011, Walmart’s new general counsel initiated a review of Walmart’s anticorruption compliance worldwide; this audit revealed evidence of significant problems in several countries, including Mexico, China, Brazil, and India. Around the same time, Walmart learned that reporters from the New York Times were conducting an extensive investigation into bribery allegations involving Walmart’s Mexico operations. In attempt to get out in front of the story, in December 2011 Walmart disclosed to the DOJ and SEC potential FCPA problems in its Mexican subsidiary, but indicated that the problems were limited to a handful of discrete cases. In April and December 2012, the New York Times published two lengthy articles (here and here) detailing extensive bribery by Walmart’s Mexican subsidiary, orchestrated by the subsidiary’s CEO and general counsel—allegations that went far beyond the isolated incidents Walmart had disclosed the previous year. Since then, the DOJ and SEC investigation into Walmart’s alleged FCPA violations—not only in Mexico, but in other foreign subsidiaries as well—has been ongoing.

There have been quite a few twists and turns in the story. Perhaps the most dramatic was the Wall Street Journal’s surprising report, from almost exactly one year ago. The highlights from that report included the claims (from “people familiar with the probe”) that (1)the investigation was nearly complete (and, by implication, the case would be resolved soon); (2) the US government’s investigation had found “few signs of major misconduct in Mexico”; and (3) although the investigation had uncovered evidence of “widespread but relatively small payments” in India, the Walmart case turned out to be “a much smaller case than investigators first expected” that “wouldn’t be likely to result in any sizeable penalty.”

The first of those three claims has been refuted by the passage of time—it’s more than a year after the WSJ story, and the case has still not been resolved. The latter two claims are flatly contradicted by the more recent report published by Bloomberg (also based on anonymous “people familiar with the matter”). According to the Bloomberg report: Continue reading →

Against Alarmism: Frank Vogl’s Misguided Critique of the DOJ’s Decision Not To Re-Try Bob McDonnell

Posted on by
9

Earlier this month, the ongoing saga of the bribery charges against former Virginia Governor Bob McDonnell came to an end—not with a bang but a whimper—when the U.S. Department of Justice announced that it would not seek a re-trial in the aftermath of the Supreme Court’s decision to vacate McDonnell’s original conviction. Given that we’ve already had plenty of discussion of the McDonnell case on GAB (including commentary on the Supreme Court’s decision here and here), I wasn’t planning to say more about this.

But then I read Frank Vogl’s blog post on The Globalist. Mr. Vogl’s view is that the DOJ’s decision shows that, with respect to corruption, it’s now the case that “[a]nything goes in America, third-world style” and that “[t]he United States, once an admirable leader on combatting political corruption, has now fallen into line with the lax standards of business-political relationships that pervade many other countries.” (He later refers to the U.S. “a stinking city on the Hill.”) Mr. Vogl also declares that the “core message” of the DOJ’s decision not to re-try McDonnell is that the DOJ has “accepted an increasingly narrow definition of corruption,” and he further insinuates that Hillary Clinton and the mainstream Democratic Party (as well as the Republican Party) are “content to accept money in politics in all its forms.”

This is histrionic nonsense. The core arguments are so obviously flawed that at first I didn’t think it was worth writing a rebuttal. But Mr. Vogl is an influential voice in the world of anticorruption advocacy, given that he’s one of the 852 co-founders of Transparency International. (OK, OK, that’s an exaggeration. But if I had a quarter for every person I’ve heard claim to have been one of the founders of TI, I’d be able to buy myself a Grande Frappuccino at my local Starbucks, maybe even a Venti.) So I thought it would be worthwhile to explain why I had such a negative reaction to his piece. Here goes: Continue reading →

Lacey Act Corruption-Based Risks Should Prompt Wood Importers to Branch Out

Posted on by
2

The Lacey Act, a century-old U.S. statute, provides a unified set of penalties for possession of illegally procured animals or plants from the U.S. and, after amendments five years ago, those procured in violation of foreign laws as well. The Act was envisioned as a conservation statute, not an anticorruption statute; big cats (Siberian tigers) rather than big cronies were named as the motivation behind a recent prosecution under the new amendments. Yet in finalizing that case—involving retailer Lumber Liquidators’ purchase and import of illegally sourced wood—the Department of Justice (DOJ) seemed to suggest that companies could be held to a higher standard of diligence where they source natural goods from countries with high levels of corruption. In announcing Lumber Liquidators’ agreement to plead guilty to various Lacey Act charges for importing timber procured in violation of foreign logging laws, the DOJ emphasized the company’s failure to address red flags that the imports were illegally acquired. Those flags included that the imported wood came from a region known “to carry a high risk of [timber] being illegally sourced due to corruption and illegal harvesting.” Furthermore, the case suggests heightened scrutiny when natural resource products travel through intermediary agents whose countries also suffer from corruption or lack of robust enforcement of laws against illegal logging and the like. (In the Lumber Liquidators case, Russia was the source of the stock in question, and China was the intermediary seller’s base.)

The fate of Lumber Liquidators should put companies sourcing wood from regions with entrenched corruption on alert. The DOJ’s statement, if it is carried forward, foreshadows positive results. The Lacey’s Act’s potential in the fight against corruption is significant, straightforward, and good for everyone. A Bloomberg analysis notes that enforcement of foreign laws benefits U.S. producers as well as combatting foreign corruption. The Sierra Club emphasizes the role that corruption plays in global illegal logging and the Lacey Act’s role in “leading the fight” against it. The Natural Resources Defense Council blog also advocated the role of the Act in helping “countries establish rule of law and crackdown on corruption.” Such commentary highlights a second takeaway from the DOJ order: to reach the corruption-combatting potential of the statute, wood sourcing companies need to allow the Lacey Act threat to improve compliance in their source nations, rather than leaving for greener pastures. Indeed, using the Lacey Act to incentivize companies to “engage their supply chain” to avoid forestry corruption is both achievable and worthwhile:

Continue reading →

The U.S. Government’s New Anticorruption Proposals: A Cause for Cynicism, Optimism, or Both?

Posted on by
5

Last Thursday, two United States cabinet departments – the Department of the Treasury and the Department of Justice – issued separate but thematically related announcements (see here and here) regarding new initiatives to combat corruption, money laundering, and related malfeasance:

  • Treasury announced the finalization of a new Customer Due Diligence (CDD) rule (discussed previously on this blog), which would require that financial institutions collect and verify the personal information of the beneficial owners of accounts held at those institutions. Treasury also announced a proposal for new regulations that would require certain foreign-owned entities (single-member limited liability companies (LLC)) to obtain a tax ID number and report comply with the associated reporting requirements—a move that would close a loophole that currently allows these entities to shield the foreign owners of non-U.S. assets.
  • Treasury also announced that it plans to send draft legislation to Congress (the text of which does not yet seem to be publicly available) that would require companies to know and report accurate beneficial ownership information at the time of a company’s creation, and to file this information with the Treasury Department.
  • Justice also submitted proposed legislation to Congress that would give the Department new investigative powers (including the use of administrative subpoenas, rather than slower and less flexible grand jury subpoenas, for money laundering investigations, enhanced authority to access foreign bank and business records, and the ability to restrain property based on a request from a foreign country for 90 rather than 30 days). The draft legislation would also creating a mechanism to use and protect classified information in civil asset recovery cases, and would expand the scope of the money laundering offense to include, as a sufficient predicate offense, any violation of foreign law that would be a violation of U.S. law if committed in the United States.

I have not yet had time to review the final CCD rule or the proposed LLC rule, and as I noted above, I don’t think the full text of the legislative proposals is yet available. So I’m not yet in a position to comment on the substance, but at least on the surface, all this seems encouraging. It’s possible to take the cynical view that most of this doesn’t mean very much or represent genuine progress. And I’ll admit part of me is inclined to embrace the cynical view. But on the whole, I do think that last week’s announcements are genuinely encouraging, and signal the possibility of building greater political momentum for real progress.

First, though, the reasons for cynicism: Continue reading →

Senator Menendez and the Great Speech or Debate Clause

Posted on by
3

The corruption allegations against Senator Robert Menendez (D-NJ) have the hallmarks of a classic Capitol Hill scandal. The Department of Justice’s Public Integrity Section indicted Senator Menendez last spring for allegedly using his official position to promote the business and personal interests of his friend and long-time donor Dr. Salomon Melgen, a Florida ophthalmologist. According to the allegations, Dr. Melgen provided Senator Menendez with lavish trips to Florida, Paris, and the Dominican Republic, as well as political contributions to allies. In exchange, Senator Menendez allegedly interceded with immigration authorities to help Dr. Melgen secure visas for his foreign girlfriends, sought to influence an administrative enforcement action against Dr. Melgen for $8.9 million in Medicare overbilling, and pressured the Executive Branch to intervene in Dr. Melgen’s contract dispute with the Dominican Republic.

Unsurprisingly, this legal fight has been ugly. Senator Menendez and his legal team have accused the prosecution of gross misconduct in the grand jury investigation, of “misapplying” and “making up from whole cloth” certain legal standards, and “disparaging defendants’ motives and defense counsel.” The prosecution, for its part, has accused the Senator’s camp of deploying “vituperation” instead of substance and of advancing “false factual premises and specious legal reasoning.”

The latest iteration of this saga is taking place at the appellate level, where the Third Circuit recently heard oral arguments on Senator Menendez’s assertion that his actions on behalf of Dr. Melgen are entitled to immunity under the U.S. Constitution’s “Speech or Debate” Clause (an argument the trial court rejected). The Speech or Debate Clause provides that “for any Speech or Debate in either House, [Members of Congress] shall not be questioned in any other Place.” Like many legislative immunity clauses in other countries, the Speech or Debate Clause was born in part out of a desire to protect legislators from political prosecution for the views they express when legislating, and to encourage free and informed debate.

U.S. courts have interpreted the Clause quite generously over the years, reading it to cover not only actual speeches and debates, but also other “legislative acts” (such as voting on legislation, authorizing an investigation by a Congressional Committee, preparing reports, and holding hearings). Senator Menendez, however, argues for an even broader understanding of the conduct that qualifies as “legislative acts” shielded by the Clause. These arguments should be rejected. Not only are Senator Menendez’s claims legally dubious under existing precedents, but, if accepted, they would also hamstring the prosecution of classic quid pro quo corruption.

Continue reading →

Is the Kleptocracy Initiative Worth It?: A Tentative Yes

Posted on by
2

The New York Times ran a very nice piece last week (with a GAB mention!) about the U.S. Department of Justice’s Kleptocracy Asset Recovery Initiative, and its ongoing efforts to seize foreign assets held by corrupt foreign leaders (and their cronies) in the United States. We’ve already had a lot of blog commentary on some of the issues associated with the Kleptocracy Initiative (see here, here, here, here, and here). But I wanted to pause for a moment to consider a question raised in the NYT piece: Is the effort worthwhile, given its resource costs and the relatively modest successes to date? The answer is not obvious; as Rick (quoted in the article) put it: “In terms of really helping the global anticorruption struggle, I wonder if this is the highest use of resources.” (Rick further suggests that the DOJ’s resources would be better spent on assisting countries pursuing their own anticorruption and asset recovery cases.)

Rick is right to raise these questions about the Kleptocracy Initiative—but my instincts are different from his. Even if it is the case, as the NYT reports, that the DOJ has so far only been able to recover around 8% of the assets it has gone after under the Kleptocracy Initiative, this still strikes me as a good use of DOJ resources. Here’s why: Continue reading →

The “FCPA Cash Cow” Story Is Bull: Why Vigorous Enforcement Is Not About Raising Revenue

Posted on by
13

Occasionally one hears—particularly though not exclusively from the U.S. business community and corporate defense bar—the assertion that aggressive U.S. enforcement of the Foreign Corrupt Practices Act (FCPA) is the result, at least in part, of the desire to raise revenue for the U.S. government. (See here, here, here, and here.) This claim that the FCPA is a government “cash cow” is sometimes offered as a knowing (or cynical) explanation for why the government is allegedly “over-enforcing” the statute. Even among some scholars with less of a personal or professional stake in criticizing the U.S. government’s motives, the idea that FCPA enforcement advances the U.S. national interest by increasing U.S. government revenues seems to be occasionally finding its way into the discourse.

There are, to be sure, lots of legitimate questions about the motives and wisdom of the U.S. government’s current approach to enforcing the FCPA. But the notion that FCPA enforcement is driven by the desire to raise revenue (from beleaguered, helpless multinational corporations) is just implausible. Indeed, I’m surprised so many extremely intelligent people seem to entertain this argument rather than dismissing it outright.

Why do I think it’s so implausible? Two main reasons: Continue reading →

NYU Roundtable on the DOJ Fraud Section’s New “Corporate Compliance Counsel”: The Video and Some Thoughts

Posted on by
1

As many readers are likely aware, the U.S. Department of Justice Fraud Section (now headed by Andrew Weissmann), which has responsibility for enforcing the Foreign Corrupt Practices Act (among other things), recently created a new position called the “Corporate Compliance Counsel,” and appointed to the post Hui Chen, a former corporate compliance officer for a number of major firms (including Microsoft, Pfizer, and Standard Chartered). The avowed purpose of the new position is to assist the DOJ in assessing the quality of a company’s internal compliance program and remediation measures. In the FCPA context (and others), these assessments are relevant to the DOJ’s decisions regarding whether to prosecute, what penalties to seek, and what additional remedial measures to pursue, even though there is not a formal “compliance defense” under the FCPA (or other statutes that the Section enforces). Thus, the thinking behind the creation of the new DOJ position seems to be that having someone in the Section with a lot of background in corporate compliance will enable the DOJ prosecutors to do a better job in evaluating the quality of a company’s compliance program and remedial efforts.

The creation of the Corporate Compliance Counsel position has garnered praise in some quarters, but also attracted some criticism; the critics tend to argue that the creation of the new position is, at best, a public relations move with little real consequence, and at worst an indirect effort to weaken the enforcement of corporate criminal laws.

Last week, the NYU Program on Corporate Compliance and Enforcement (PCCE) hosted a public forum where Mr. Weissmann and Ms. Chen discussed the new position and answered some questions posed by NYU Professor (and PCCE co-director) Jennifer Arlen. Because I thought that this might be of interest to some readers, here’s a link to a video of the discussion.

A few additional thoughts about what I thought were the more interesting exchanges: Continue reading →

All the Stars are Aligned in the Sky(net): Why Chinese Fugitives are Being Extradited

Posted on by
14

Skynet. To most American audiences, this word is evokes images of the omniscient, malevolent computer in Arnold Schwarzenneger’s classic, The Terminator. But in 2015, Skynet also means something else. Media outlets and the blogosphere (including this blog) are abuzz over Chinese President Xi Jiping’s “Operation Sky Net”: the Chinese government’s efforts to repatriate a “most wanted” list of over 100 Chinese nationals suspected of criminal corruption. (The name “Sky Net” traces its origins to the Chinese idiom, “The sky may look thin and sparse, but it is vast and won’t let you escape.”) Forty of the 100 are suspected of being in the United States—a prime destination chosen for its high standards of living and, more importantly, lack of extradition treaty with China.

It is hardly news that China is doing all it can to repatriate these fugitives abroad, and it is also old news that the U.S. and China have a rocky history when it comes to extradition. As Rick mentioned in a prior post, the United States is extremely reluctant to negotiate a formal extradition treaty with China, and the reasons are plenty: In the U.S. view, China suffers from weak rule of law, lack of due process, and an ignominious record for human rights violations. In addition to precluding the negotiation of an extradition treaty, these factors also stymie case-by-case extraditions. Indeed, until last month, only two Chinese fugitives in the U.S. had been extradited in the previous two decades. All of the above would seem to suggest that China’s recent efforts would be a presumed uphill battle. But in September 2015 alone, two suspected fugitives, Yang Jinjun and Kuang Wanfang, wanted for their separate parts in vast bribery, money laundering, and public corruption schemes, were successfully repatriated to China. What changed?

One way to explain China’s recent success in securing extraditions from the U.S. is that China’s recent requests for assistance in repatriating alleged fugitives involved in corruption crimes have come at a time when the United States has made anticorruption a point of special focus. In short, the stars (in the Sky Net) aligned. Continue reading →

Is the Walmart Case Not Such a Big Deal After All?

Posted on by
1

Last week I published a post with some conjectures as to why the DOJ’s investigation into alleged Foreign Corrupt Practices Act violations by Walmart – triggered by New York Times reports, published in 2012, of widespread bribes paid by Walmart’s Mexican subsidiary, Wal-Mex – might be taking a long time to resolve. I noted that there was as yet no evidence of an especially lengthy investigation, compared to the norm in big FCPA cases, but I nevertheless speculated that perhaps the case might take a long time because the seriousness of the misconduct, coupled with Walmart’s failure to disclose (or even to conduct a reasonable internal investigation), meant that the DOJ was going to insist on particularly severe penalties (which Walmart’s lawyers might be resisting). But I may have been completely wrong about that: According to a report in this past Sunday’s Wall Street Journal, the Walmart investigation is likely to be wrapped up soon, and the fine may be much smaller than expected, in part because (at least according to the sources for WSJ report) the bribery violations in Mexico were not as extensive as many (myself included) had thought.

It’s important to emphasize that the WSJ report has not been confirmed by the Justice Department, Walmart, or any other source. It may well turn out to be inaccurate. But let’s suppose for the moment that it’s (mostly) right. Suppose we see a Walmart settlement within the next few months in which the extent of (admitted) violations, and/or the severity of the penalties, are much lower than expected. What to make of this? A few thoughts: Continue reading →