Quarterly FCPA Report: Fourth Quarter 2012

Author:Mr Timothy Dickinson, Ryan M. Fawaz, Morgan Miller, Jennifer D. Riddle, Lisa A. Nowlin, Michael Oliverio and Katie Sheridan
Profession:Paul Hastings LLP
  1. Introduction

    The final quarter of 2012 was a relatively quiet one, with the U.S. Department of Justice ("DOJ") and U.S. Securities and Exchange Commission ("SEC") declining more corporate enforcement actions than they settled. In addition, for the first time, the DOJ ended a deferred prosecution agreement earlier than scheduled, giving Pride International Inc. a one-year break from its three year agreement.

    The highlight of the quarter was the release of the highly anticipated Resource Guide to the U.S. Foreign Corrupt Practices Act (the "Guide"). While the Guide may not clarify many of the gray areas surrounding the FCPA, it does provide many useful real-life and hypothetical examples. Notably, the Guide does not signal any retreat from the government's assertive enforcement of the FCPA nor does it provide any additional defenses to an FCPA violation.

    Several recent challenges to FCPA enforcement actions suggest that the era of nearly automatic cooperation from corporate and individual defendants may be nearing a turning point. After a decade of enforcement mostly against cooperative defendants, the SEC and DOJ are now facing challenges in three separate actions, suggesting that such challenges are becoming more common. In the first challenge, two former executives of Noble Corporation ("Noble") filed motions to dismiss the SEC's charges against them for failure to plead necessary facts, namely failure to name the foreign officials who allegedly received improper payments. A federal judge recently dismissed the SEC's monetary claims without prejudice (which would allow the SEC to file an amended complaint), but allowed the SEC's claims for injunctive relief to go forward. In the second and third cases, former Magyar Telecom executives and a former Siemens executive, respectively, filed motions to dismiss the cases against them for lack of personal jurisdiction. Whether these challenges are the beginning of a trend of significant pushback against FCPA enforcement actions remains to be seen.

  2. Summary of Recent Corporate Enforcement Actions

    1. W.W. Grainger, Inc. - Declination

      In a November 1, 2012 SEC filing, industrial supply company W.W. Grainger, Inc. ("Grainger") stated that the DOJ closed its inquiry into possible FCPA violations. The DOJ inquiry stemmed from allegations that a subsidiary of the company, Grainger China LLC, may have falsified expense reimbursement documentation. Grainger launched an internal investigation in which it uncovered evidence that sales employees of the Chinese subsidiary may have given prepaid gift cards to certain customers in China. The company first disclosed its internal investigation to the DOJ and SEC in January 2012, and submitted the results to the government in July 2012. According to Grainger, its investigation "did not substantiate initial information suggesting significant use of gift cards for improper purposes." The DOJ closed its inquiry on August 14, 2012, although the SEC has not yet indicated whether it too will close its investigation.

    2. Nabors Industries Ltd. - Declination

      In its November 2, 2012 SEC filing, Nabors Industries Ltd. ("Nabors"), an oil services firm, stated that the SEC determined not to pursue an enforcement action against it in connection with the SEC's investigation of Panalpina. The DOJ initiated its inquiry of Panalpina in 2007, which provided Nabors with freight forwarding services. Panalpina previously admitted to making improper payments to assist its customers with customs clearance in Kazakhstan, Saudi Arabia, Algeria, and Nigeria.

      According to its SEC filing, Nabors, with the assistance of outside counsel, launched an internal investigation into its transactions involving Panalpina. After Nabors provided the results of its investigation to both the SEC and DOJ, the SEC declined to bring an enforcement action. The DOJ has not yet indicated whether it too will decline to bring an action.C. Pride International Inc. - Termination of Deferred Prosecution Agreement

      On November 5, 2012, the DOJ ended Pride International Inc.'s ("Pride") deferred prosecution agreement, one year earlier than scheduled. Pride and its French subsidiary, Pride Forasol, were originally charged with making improper payments to government officials in Venezuela, Mexico, and India through their vendor Panalpina. In November 2010, Pride entered into a three-year deferred prosecution agreement with the DOJ and paid $23.5 million in disgorgement and interest to the SEC, while its French subsidiary Pride Forasol paid $32.6 million in criminal penalties. Pride was subsequently acquired by Ensco Corp., which agreed to be bound by the deferred prosecution agreement.

      In its decision to terminate the deferred prosecution agreement, the DOJ cited Pride's good corporate citizenship, including the quality of its...

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