Quarterly FCPA Report: Second Quarter 2012

Author:Mr Timothy Dickinson, Jennifer D. Riddle, Joshua R. Christensen, Elizabeth L. Norton, Matthew T. Crossman and Lucy B. Jennings
Profession:Paul Hastings LLP


The second quarter of 2012 saw a new level of media attention focused on the enforcement of the Foreign Corrupt Practices Act ("FCPA"), indicating that the press and the public, not just the government, are taking an increased interest in anti-corruption enforcement. In the biggest FCPA news of the quarter, the New York Times detailed allegations of corrupt payments by Wal-Mart subsidiary Wal-Mart de Mexico to obtain building permits and licenses to facilitate the company's rapid expansion in Mexico. The New York Times article, based in part on information disclosed in a privileged client memorandum, reported that these payments were allegedly known and concealed by Wal-Mart executives in the United States. This in-depth report from a major U.S. newspaper has since sparked a broader public consciousness and dialogue about the FCPA and its perceived costs and benefits. The increased public awareness and debate will be an important trend to follow throughout the year, especially in light of the current efforts by the U.S. Chamber of Commerce and some members of Congress to reform the FCPA.

This quarter also continued the trend of significant enforcement activities against individuals for violation of the FCPA. Three more executives in the LatiNode telecom case, as well as Jean Duperval of the Haiti Teleco case, were sentenced for FCPA violations. Duperval, a former director of international relations for Telecommunications D'Haiti, received a nine year sentence in federal prison, one of the longest FCPA sentences to date. This quarter also saw a number of guilty pleas, including four executives in the Control Components Inc. case, and Garth Peterson of Morgan Stanley.

Corporate enforcement has continued to be active, as the Department of Justice ("DOJ") and Securities Exchange Commission ("SEC") began investigations into several new alleged corporate offenders this quarter. These investigations include inquiries into Hewlett Packard's involvement in the former Soviet Union; the interactions that U.S. movie studios, including Disney and DreamWorks, have with Chinese officials; and Wal-Mart's expansion in Mexico. Yet in the courts, the DOJ continues to face setbacks, as prosecutors were forced to drop their appeal of the first ever trial of a corporate defendant, Lindsey Manufacturing, due to the government's false representations during trial.

At the mid-point of the year, many are eagerly awaiting new guidance from the DOJ and SEC on the enforcement of the FCPA, which is expected to be available before the end of 2012. Given the dearth of case law and agency guidelines, this forthcoming guidance has the potential to be the most comprehensive interpretation of the FCPA to date. Specifically, the guidance is expected to clarify several aspects of the FCPA and its enforcement, including (1) U.S. interagency and international cooperation in global anti-corruption efforts, (2) the required criminal intent, (3) the facilitation payments exception, (4) penalties, (5) cooperation credit for corporate compliance programs, and (6)the definition of a "foreign official." More robust guidance on the foreign official issue may soon come from the courts as well, as Joel Esquenazi, former president of Terra Telecommunications, has sought to determine an appropriate definition in his appeal to the 11th Circuit which argues, in part, that the DOJ's interpretation is too expansive. This potentially groundbreaking appeal will be an essential development to monitor in the months ahead, as no Court of Appeals has ever had the opportunity to interpret this statutory language.


Wal-Mart – Under Investigation

On April 25, 2012, the New York Times reported that Wal-Mart's Mexican subsidiary, Wal-Mart de Mexico, allegedly made $24 million in improper payments for licenses to expand the company's presence in Mexico. The article also reported an alleged cover-up of the activity after the discovery of the payments in 2005.

According to the article, investigators, dispatched by Wal-Mart executives in the United States, allegedly discovered hundreds of suspect payments to Mexican officials. The investigators also allegedly discovered documents showing that Wal-Mart de Mexico's senior executives knew about the payments and took steps to conceal...

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