Agenda
*All times EST.
12:00 pm
Lunch & Registration
12:30
Introduction of Program
Dick Thornburgh
Panel 1:
Foreign Corrupt Practices Act: From Under-the-Table to
Behind Bars?
12:35
FCPA Law and Practice
Jeffrey B. Maletta, Fred D. Heather, Michael J. Missal and Walter
P. Loughlin
1:35
Break
Panel 2:
Office of Foreign Assets Control and Anti-Terrorism: New
Focus in the Post-9/11 World
1:45
Basics of OFAC Law and Practice
Donald W. Smith and Michael J. O Neil
2:15
Handling an OFAC/Anti-Terrorism Case
Dick Thornburgh and Michael D. Ricciuti
Panel 3:
Anti-Trust: Increasingly International
2:45
US Anti-Trust Abroad
Douglas F. Broder and Jeffrey L. Bornstein
3:10
Questions
3:30
Program Concludes
Contents
K&L Gates Speaker Biographies
Tab 1
Jeffrey L. Bornstein
Michael J. Missal
Douglas F. Broder
Michael J. O Neil
Fred D. Heather
Michael D. Ricciuti
Walter P. Loughlin
Donald W. Smith
Jeffrey B. Maletta
Dick Thornburgh
Foreign Corrupt Practices Act (FCPA):
From Under the Table to Behind Bars?
Tab 2
PowerPoint Slides:
The Foreign Corrupt Practices Act: What Clients Need to Know
K&L Gates Client Alert:
FCPA Enforcement Activity and Severity of Penalties Relating to Business
Activities in China Likely to Increase Dramatically as Global Trade with China
Surges to Record Levels, by Edward J. Fishman and Jeffrey B. Maletta,
February 2007.
Prepared Remarks:
Alice S. Fisher, Assistant Attorney General, United States Department of Justice,
at The American Bar Association National Institute on the Foreign Corrupt
Practices Act, October 16, 2006.
Court Filing:
United States of America v. David Kay; Douglas Murphy, U.S. Court of Appeals
Fifth Circuit, October 24, 2007.
Office of Foreign Assets Control (OFAC)
and Anti-Terrorism: New Focus in the Post 9/11 World
PowerPoint Slides:
Basics of Export and Embargo Compliance
Memorandum:
Overview of U.S. Export Regulations
PowerPoint Slides:
Handling an OFAC/Anti-Terrorism Case
Tab 3
U.S. Attorneys Bulletin:
Fundamental Principles Governing Extraterritorial Prosecutions Jurisdiction
and Venue, March 2007.
Recent Case Material:
Chiquita Brands International
Recent Case Material:
Chevron Corporation
Anti-Trust: Increasingly International
Tab 4
PowerPoint Slides:
The Long Arm of U.S. Law: Foreign Criminal Antitrust Enforcement by the U.S.
DOJ
Book Excerpt:
Chapter 8, Antitrust Enforcement, A Guide to US Antitrust Law by Douglas F.
Broder, 2005.
Attachment A:
Dram Criminal Antitrust Litigation Corporate & Individual Dispositions
Attachment B:
Sentencing Table
2007, U.S. Sentencing Commission
Antitrust Division:
Sherman Act Violations Yielding a Corporate Fine of $10 Million or More
Antitrust Division:
Workload Statistics FY 1997-2006
General Criminal Resources
Tab 5
Memorandum:
Principles of Federal Prosecution of Business Organziations, from Paul J.
McNulty, Deputy Attorney General, U.S. Department of Justice.
Monograph:
Waiver of the Attorney-Client Privilege: A Balanced Approach, by The
Honorable Dick Thornburgh, 2006.
Book Excerpt:
Chapter 8, Criminal Enforcement of Securities Laws: A Primer for
the Securities Practitioner, The Securities Enforcement Manual,
2nd Ed., August 2007.
K&L Gates Client Alert:
White Collar and Corporate Prosecution After the McNulty Memorandum: An
Overview with Comments and Insights by Former United States Attorney General
Dick Thornburgh and Former ABA President Michael S. Greco, by Mark Rush,
Michael D. Ricciuti and Brian F. Saulnier, January 2007.
K&L Gates comprises approximately 1,400 lawyers in 22 offices located in North America, Europe
and Asia, and represents capital markets participants, entrepreneurs, growth and middle market
companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For
more information, please visit www.klgates.com.
K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name
Kirkpatrick & Lockhart Preston Gates Ellis LLP qualified in Delaware and maintaining offices
throughout the U.S., in Berlin, and in Beijing (Kirkpatrick & Lockhart Preston Gates Ellis LLP Beijing
Representative Office); a limited liability partnership (also named Kirkpatrick & Lockhart Preston
Gates Ellis LLP) incorporated in England and maintaining our London office; a Taiwan general
partnership (Kirkpatrick & Lockhart Preston Gates Ellis) which practices from our Taipei office; and a
Hong Kong general partnership (Kirkpatrick & Lockhart Preston Gates Ellis, Solicitors) which
practices from our Hong Kong office. K&L Gates maintains appropriate registrations in the
jurisdictions in which its offices are located. A list of the partners in each entity is available for
inspection at any K&L Gates office.
©1996-2007 Kirkpatrick & Lockhart Preston Gates Ellis LLP. All Rights Reserved.
Jeffrey L. Bornstein
AREAS OF PRACTICE
SAN FRANCISCO OFFICE
415.249.1059 TEL
415.882.8220 FAX
jeff.bornstein@klgates.com
Mr. Bornstein joined K&L Gates in 2005 following a successful career in both the civil
and criminal divisions of the San Francisco United States Attorneys Office. Mr.
Bornstein concentrates his practice in white collar crime/criminal defense, securities
enforcement matters, internal and special committee investigations, class action and
complex civil litigation. Mr. Bornstein is an accomplished trial attorney having tried
approximately 35 criminal and civil jury and non-jury trials, primarily in federal court,
involving the full diversity of his litigation experience. He is also an experienced
appellate litigator. He has been involved in, among other types of matters: securities
investigations including insider trading, revenue recognition and other accounting frauds;
commodities manipulation; government contracting, healthcare, ERISA and other mail
and wire fraud; theft of trade secrets; Foreign Corrupt Practices Act; money laundering;
false claims; and criminal environmental and antitrust cases.
PROFESSIONAL BACKGROUND
Mr. Bornstein was with the United States Attorney s Office for 19 years, most recently as
an Assistant United States Attorney, Senior Litigation Counsel for the Criminal Division,
White Collar/Securities Fraud Unit. Mr. Bornstein also spent several years as the
Supervisor of the Major Crimes Unit. His prior work experience includes several years
as a civil litigator in the United States Attorney s Office Civil Division, a San Francisco
law firm, and the San Francisco City Attorney s Office
AWARDS
United States Department of Justice Director s Award for Superior Performance as an
Assistant United States Attorney
United States Department of Justice Environment and Natural Resources Division
Award for Outstanding Performance and Invaluable Assistance
United States Attorney General s Award for Furthering Equal Employment
Opportunity
Commendations from numerous federal agencies including United States Secret
Service, Federal Bureau of Investigation, United States Postal Service, United States
Coast Guard, United States Department of Health and Human Services, United States
Customs Service, United States Drug Enforcement Agency and United States
Department of Labor
PROFESSIONAL/CIVIC ACTIVITIES
Bar Association of San Francisco
American Bar Association (Criminal Law Section, White Collar Subcommittee)
National Association of Criminal Defense Lawyers
California Attorneys for Criminal Justice
Federal Bar Association
Criminal Justice Act Panel Attorney for NDCA, 2006- present
K&L Gates ProBono Coordinating Partner
Created and implemented Building Our Leaders of Tomorrow (BOLT) drug education
and violence prevention program for youth in the Northern District of California
Jeffrey L. Bornstein
Founding Board Member: Nicaraguan Children's Friendship Committee
PUBLICATIONS
Co-author, Chapter 8: Criminal Enforcement of Securities Laws: A Primer for the
Securities Practitioner, American Bar Association s Securities Enforcement Manual,
2nd Ed., October 2007.
Cal Law 2006 Corporate Governance Roundtable Series, GC California, Spring
2006.
Judicial Decision Will Significantly Impact Coordination of Investigations by the
SEC and DOJ, Securities Regulation & Law, February 6, 2006.
Judicial Decision to Significantly Affect Coordination of Investigations by the SEC
and DOJ, K&LNG White Collar Crime/Criminal Defense Alert, January 2006.
New memo won t help, The National Law Journal, November 14, 2005.
Justice Department Addresses Waivers of Privilege, K&LNG White Collar
Crime/Criminal Defense Alert, October 2005.
COURT ADMISSIONS
California and various federal courts including the United States Court of Appeals for
the Ninth Circuit
BAR ADMISSIONS
California
EDUCATION
J.D., University of California at Berkeley, Boalt Hall School of Law, 1981
B.A., University of California at Berkeley, 1977 (with High Honors and Distinction in
General Scholarship); Varsity Football Letterman
Douglas F. Broder
AREAS OF PRACTICE
NEW YORK OFFICE
212.536.4808
TEL
212.536.3901
FAX
douglas.broder@klgates.com
Mr. Broder has practiced for over 30 years in federal and state courts throughout the
United States and abroad. His practice includes providing antitrust counsel to national
and international clients in a wide variety of industries, as well as assisting clients in
obtaining antitrust clearance for mergers, acquisitions and joint ventures. Mr. Broder
litigates all manner of antitrust matters, including criminal matters, as well as
insurance coverage, securities and other commercial cases. Mr. Broder also has an
extensive appellate practice.
PROFESSIONAL BACKGROUND
Prior to joining K&L Gates, Mr. Broder was a partner in the New York office of a
major national law firm where he headed the firm s antitrust practice.
PUBLICATIONS
Mr. Broder is the author of A Guide to U.S. Antitrust Law (Sweet & Maxwell,
London, 2005), which explains U.S. antitrust laws to European lawyers and business
interests, and of Antitrust Law Desk Book (Aspen Law & Business, New York, 2001).
Mr. Broder is also the author of a chapter in Inside the Minds: Antitrust Laws
(Aspatore Press, 2005) and was the principal editor of, and a contributing author to,
International Joint Ventures (Professional Information Publishing, Ltd., 1996). Mr.
Broder has published numerous articles on a variety of legal subjects and is a member
of the editorial board of, and the U.S. law reporter for, the monthly European
Competition Law Review.
PRESENTATIONS
Mr. Broder has presented numerous talks and continuing legal education seminars on
antitrust/competition law topics and on effective brief writing and appellate advocacy.
PROFESSIONAL/CIVIC ACTIVITIES
American Bar Association (Antitrust and International Law Sections)
Association of the Bar of the City of New York (Antitrust and Trade Regulation
Committee)
International Bar Association (Competition Law Section)
Listed: Who s Who in the World, Who s Who in America, Who s Who in
American Law, Who s Who in the East
Recognized by peers as New York Superlawyer in the area of antitrust litigation.
COURT ADMISSIONS
New York Supreme Court, First Judicial Department
United States Courts of Appeals for the Second, Fourth, Sixth, and Ninth Circuits
United States Court of International Trade
United States District Courts for the Southern and Eastern Districts of New York
and the Eastern District of Michigan
United States Supreme Court
United States Tax Court
Douglas F. Broder
BAR ADMISSIONS
New York
EDUCATION
J.D., Boston University School of Law, 1977 (cum laude; Editor, Boston University
Law Review)
B.A., Vassar College, 1970
Fred D. Heather
AREAS OF PRACTICE
LOS ANGELES OFFICE
310.552.5015
TEL
310.552.5001
FAX
fred.heather@klgates.com
Mr. Heather focuses his practice on complex civil litigation and white collar criminal
defense. He has served as chief trial/litigation counsel in a wide variety of complex civil
and white collar criminal cases. He has represented numerous aerospace companies and
their senior executives in the defense of False Claims Act ( qui tam ) actions. He has
served as trial counsel on behalf of a major tobacco company in more than 10 individual
smoker cases, all of which resulted in complete defense outcomes. The substantive areas
of his cases have ranged from government contracts and securities fraud to environmental
regulation, Foreign Corrupt Practices Act, copyright, products liability and antitrust, as
well as numerous high-stakes corporate business disputes. While many of these cases
have been in state and federal courts in Los Angeles, Mr. Heather has handled complex
cases in all other jurisdictions in California, the Southern and Eastern Districts of New
York and other jurisdictions around the country. In addition to extensive first-chair jury
trial experience, he has argued many cases before appellate courts. Mr. Heather was
named a Southern California "Super Lawyer" by Los Angeles Magazine in 2006 and
2007. The Martindale-Hubbell Law Directory has awarded Mr. Heather an "AV" rating,
the directory's highest accolade.
PROFESSIONAL BACKGROUND
Prior to joining the firm, Mr. Heather was a partner with an international law firm. He
served as assistant U.S. attorney with the Criminal Division of the Central District of Los
Angeles from 1983 to 1987, where he prosecuted a number of high-profile cases
involving political corruption, fraud against the government and other complex business
crimes.
Mr. Heather was an Army Intelligence Officer from 1967 to 1969. He was awarded a
Bronze Star and Air Medal for service in Vietnam.
PROFESSIONAL/CIVIC ACTIVITIES
Federal Indigent Defense Panel, United States District Court for the Central District
of California, member, 1988-present
Advisory Board, Institute for Corporate Counsel, The Law Center, University of
Southern California, member, 1994-present
COURT ADMISSIONS
United States District Court for the Central District of California
United States District Court for the Southern and Eastern Districts of New York
United States Court of Appeals for the Second and Ninth Circuits
United States Supreme Court
Fred D. Heather
BAR MEMBERSHIPS
California
New York
EDUCATION
J.D., Hofstra University School of Law, 1977 (Editor-in-Chief, Hofstra Law Review)
M.A. (International Affairs), Columbia University, 1971
A.B., Bucknell University, 1966
Walter P. Loughlin
AREAS OF PRACTICE
NEW YORK OFFICE
212.536.4065
TEL
212.536.3901
FAX
walter.loughlin@klgates.com
Mr. Loughlin s practice focuses on complex civil and criminal litigation, SEC
enforcement matters, internal corporate investigations, appeals, and advising corporate
Boards of Directors and Audit Committees on litigation and corporate governance
issues. Mr. Loughlin has tried fifteen cases to jury verdict in federal court and has
briefed and argued appeals in the United States Court of Appeals in the Second, Third,
Fourth, Sixth and Eleventh Circuits. Some of Mr. Loughlin s significant matters
include:
SEC investigation of alleged management concealment of losses from Audit
Committee and Board of Directors of an insurance company.
Representation of a technology company in an SEC investigation concerning
governance issues and market-impact conduct of prior management.
Representation of an individual trader in an SEC investigation of short-selling
practices.
Representation of hedge funds and general partners in litigation disputes with
limited partners.
Multiple litigation matters for the Bank of China.
Internal investigation of FCPA issues for a Special Board of Directors Committee
of a global defense contractor.
Representation of HCA Inc., previously known as Columbia/HCA Healthcare
Corporation, in criminal and civil matters, including serving as lead counsel for
HCA in United States ex rel. Alderson v. HCA and United States ex rel. Schilling
v. HCA, in which the Justice Department alleged 14,000 violations of the False
Claims Act over a ten year period.
Internal investigation for the Audit Committee of an international commodity
broker of alleged financial irregularities in exchange-traded derivatives.
Analysis and report to the Board of Directors and Audit Committee of an
international Bank concerning the adequacy of internal controls and procedures
for assessing litigation risk exposure and contingent liability accruals under
Financial Accounting Standards.
Representation of current and former Managing Directors of Marsh, Inc., in
connection with the New York State Attorney General s investigation of the
insurance brokerage industry.
Internal investigation for the Audit Committee of an international financial
services company of a possible material illegal act, raised by external auditor,
involving Section 10A of the Securities Exchange Act of 1934.
Internal investigation of a European military contractor in connection with a
Justice Department investigation of the re-export of restricted U.S.-origin
technology to a Middle Eastern country.
Representation of the former Chief Financial Officer of Empire Blue Cross Blue
Shield in multiple criminal investigations and related proceedings, including a
two-month jury trial on charges of perjury and obstruction of justice, in the
United States District Court for the Southern District of New York.
Representation of an international pharmaceutical company in the first U.S.
prosecution of a foreign-based drug manufacturer for alleged violations of the
Walter P. Loughlin
Food, Drug, and Cosmetic Act in connection with the submission of drug safety
reports and a new drug application to the FDA.
PROFESSIONAL BACKGROUND
Private Practice (1990-present).
Chief Appellate Attorney and Assistant United States Attorney, United States
Attorney s Office for the Southern District of New York (1979-83).
Associate Independent Counsel, Iran-Contra prosecutions and the prosecution of
White House Deputy Chief of Staff Michael K. Deaver (1986-89).
Director, London Office, Vera Institute of Justice (1985-86).
Law Clerk, Judge Walter R. Mansfield, United States Court of Appeals for the
Second Circuit (1977-78).
Law Clerk, Judge Jon O. Newman, United States District Judge for the District of
Connecticut (1976-77).
PUBLICATIONS
Co-author, with Judge Leonard B. Sand and others, of Modern Federal Jury
Instructions, a standard reference work for judges and practitioners in federal
trials, cited with approval by the United States Supreme Court and by the United
States Courts of Appeals for every circuit.
PROFESSIONAL/CIVIC ACTIVITIES
Lecturer in Law, Columbia Law School. Mr. Loughlin has previously taught
Civil Procedure, Evidence, Criminal Law, Criminal Procedure, and Legal Ethics
at Columbia, Fordham, Rutgers, and Cardozo Law Schools.
Recognized by peers as a SuperLawyer in the areas of Business Litigation and
White Collar Crime.
ABA White Collar Crime Committee (Co-chair, New York Regional
Subcommittee).
Association of the Bar of the City of New York (Member). Previously served on
Committee on Federal Courts and Criminal Courts Committee.
Federal Bar Council (Member). Previously served on Second Circuit Courts
Committee.
BAR ADMISSIONS
Connecticut
New York
EDUCATION
J.D., Yale Law School, 1976 (Note Editor, Yale Law Journal)
M.A., Yale University, 1976 (Political Science)
B.A., UCLA, 1972 (magna cum laude; Phi Beta Kappa)
Jeffrey B. Maletta
AREAS OF PRACTICE
Mr. Maletta represents public and private companies, broker-dealers, investment
companies and their advisors, and individuals in securities and corporate litigation,
and in investigations by the Department of Justice and Securities and Exchange
Commission involving the federal securities laws and related statutes. . Mr. Maletta
also counsels clients on director and officer liability insurance matters and advises law
firms and individual attorneys on professional responsibility issues.
WASHINGTON, D.C. OFFICE
202.778.9062
TEL
202.778.9100
FAX
jeffrey.maletta@klgates.com
PROFESSIONAL BACKGROUND
Prior to practicing at K&L Gates, Mr. Maletta served as law clerk to
Barrington D. Parker, United States District Judge for the District of Columbia, and in
the Office of General Counsel of the Securities and Exchange Commission.
PUBLICATIONS
Co-Author, Standards for Professional Conduct in Sarbanes-Oxley Act:
Planning & Compliance, Aspen, 2006
Co-Author, Securities Litigation, in Business and Commercial Litigation in the
Federal Courts, West Group, 2d ed., 2005
Author, Litigating SEC Injunctive Actions and Ethical Issues chapters, and
co-author, Sanctions and Collateral Consequences chapter in SEC Enforcement
Manual, American Bar Association, 1997
PROFESSIONAL/CIVIC ACTIVITIES
American Bar Association, Business Law and Litigation Sections, Federal Reg. of
Securities Committee
Adjunct Professor, Georgetown University Law Center, 2006
COURT ADMISSIONS
Court of Federal Claims
U.S. Courts of Appeal for the District of Columbia, Fourth, Fifth, Tenth and
Eleventh Circuits
U.S. District Courts for the District of Columbia, District of Maryland, and
District of Colorado
U.S. Supreme Court
U.S. Tax Court
BAR MEMBERSHIP
District of Columbia
EDUCATION
J.D., Stanford University, 1979 (Member and Senior Editor, Stanford Law Review)
B.A., Harvard University, 1975 (magna cum laude)
Michael J. Missal
AREAS OF PRACTICE
Mr. Missal concentrates in securities enforcement matters, internal investigations and
broker-dealer regulation. He represents a number of public and private companies, and
their officers and directors, on a variety of regulatory and corporate governance matters.
Mr. Missal regularly appears before the Securities and Exchange Commission, the
Financial Industry Regulatory Authority, the Department of Justice, state attorney
generals and state securities regulators. Some of his more significant matters include:
WASHINGTON D.C. OFFICE
202.778.9302
TEL
202.778.9100
FAX
michael.missal@klgates.com
Examiner in the New Century Financial Corporation bankruptcy proceeding, one
of the largest subprime lenders. Investigated a number of issues, including
accounting and financial reporting irregularities and the potential use of postpetition cash collateral.
Lead Counsel to the Independent Review Panel for CBS investigating the
September 8, 2004 60 Minutes Wednesday segment concerning President Bush s
Texas Air National Guard Service.
Representation of numerous public companies, broker-dealers, investment
advisors, officers and directors in securities regulatory investigations before the
SEC, DOJ, FINRA, state attorney generals and state securities regulators. Recent
matters have included issues of insider trading, financial reporting and
disclosures, potential conflicts of interest between the research and investment
banking departments and mutual fund market timing.
Lead Counsel to the Examiner in the WorldCom bankruptcy proceeding. Led
team of lawyers and accountants investigating a number of issues, including
accounting and financial reporting irregularities, WorldCom's relationships with
investment bankers and auditors, loans to senior officers, WorldCom's
acquisitions and the fiduciary duties of WorldCom's officers and directors.
Representation of Michael Milken in an SEC action regarding a potential
violation of a previous court order enjoining him from associating with a brokerdealer.
Advice to Boards of Directors of various public companies on corporate
governance issues
Appointment as escrow agent and trustee by various federal courts for several
multi-million dollar SEC disgorgement funds.
PROFESSIONAL BACKGROUND
Partner, K&L Gates, 1987-Present
Practice Area Leader, K&L Gates Management Committee, 1998-Present
Senior Counsel, Division of Enforcement, Securities and Exchange Commission,
1983-1987
Law Clerk, Chief Judge H. Carl Moultrie, District of Columbia Superior Court, 1982
1983
Staff Assistant, President Jimmy Carter, 1978-1980
PUBLICATIONS
Conducting Corporate Internal Investigations, International Journal of Disclosure
and Governance, November 2007, Vol. 4 No. 4
Michael J. Missal
Co-Editor and Contributing Author, The Securities Enforcement Manual, Second
Edition, ABA Section of Business Law, 2007.
Co-Author, Improve Corporate Governance, The Brookings Institute Opportunity
08, 2007.
Co-Author, The SEC s New Executive Compensation Disclosure Rules:
Liability Concerns for Officers and Directors, Andrews Litigation Reporter,
September 18, 2006.
Co-Author, The Foreign Corrupt Practices Act: US Legislation with Global
Implications, Cross-Border Quarterly, April 2006.
Co-Author, Where the Buck Stops, European Lawyer, September 2005,
Co-Author, Six Lessons From WorldCom, Corporate Counsel, September
2004.
Co-Author, Manage Your CEO or Else, Chief Legal Executive, Fall 2003.
When the SEC Comes Calling, ACCA Docket, April 2001.
PROFESSIONAL/CIVIC ACTIVITIES
NASDAQ Market Operations Review Committee, 2001 to 2006
Chairman, Broker-Dealer Regulation and Securities Enforcement Committee, District
of Columbia Bar Association, 1995-1998
Lectured to the Russian Federal Securities Commission and the National Association
of Securities Market Participants in November 1999 as part of the Financial Services
Volunteer Corps.
BAR MEMBERSHIP
District of Columbia
EDUCATION
J.D., Catholic University, 1982 (Staff Member, Catholic University Law Review)
B.S., Washington and Lee University, 1978
Michael J. O Neil
AREAS OF PRACTICE
Mr. O Neil s practice focuses on export, security, trade, information technology, and
federal policy. He advises foreign and domestic clients on both regulatory and
legislative solutions. His recent work has involved counseling foreign government
officials and assisting a range of U.S. clients on critical infrastructure protection, base
closing, privacy, export compliance, and insurance regulation.
WASHINGTON, D.C. OFFICE
202.661.6226 TEL
202.331.1024 FAX
mike.oneil@klgates.com
Mr. O Neil also serves as the North American Director of the Trilateral Commission.
He heads up the Trilateral office, meets regularly with Trilateral members in North
America, Europe and Pacific Asia, and helps coordinate Trilateral studies. Mr. O Neil
has had a distinguished public service career in defense and intelligence matters and
has served in positions in the Central Intelligence Agency, the Department of Defense
and the U.S. House of Representatives.
Immediately prior to joining the firm, Mr. O Neil served as the general counsel of the
Central Intelligence Agency. In this position he was responsible for the conduct of all
legal affairs of the Agency. He also served as the chief of staff of the Agency where
he coordinated the legislative and public affairs strategy and acted as the Agency s
liaison to the National Security Council and Intelligence Community agencies.
In 1995, Mr. O Neil served as the counselor to the secretary and deputy secretary of
defense. In this position he advised the secretary and deputy secretary on policy,
organizational and legislative matters. From 1989 to 1994, he served as the counsel to
the Speaker of the U.S. House of Representatives, Thomas S. Foley (D-WA). In
addition to advising the speaker on all legal and national security issues, he acted as
liaison to foreign embassies and U.S. national security agencies. Before his work for
the speaker, Mr. O Neil served as the chief counsel to the House Permanent Select
Committee on Intelligence from 1977 to 1989.
Mr. O Neil is the recipient of the Distinguished Intelligence Medal, the highest honor
awarded by the Central Intelligence Agency, and a member of the Council on Foreign
Relations.
BAR MEMBERSHIPS
District of Columbia
Ohio
EDUCATION
Masters of Law, Georgetown University Law Center, Tax, 1976
M.Sc., London School of Economics and Political Science, 1973
J.D., Georgetown University Law Center, 1971
B.A., College of Holy Cross, 1968
Michael D. Ricciuti
AREAS OF PRACTICE
Mr. Ricciuti has extensive experience as a trial lawyer, appellate lawyer, investigator and
litigator. In addition to handling criminal matters, Mr. Ricciuti concentrates his practice
in the areas of securities enforcement/internal investigations, complex civil litigation and
homeland security.
BOSTON OFFICE
PROFESSIONAL BACKGROUND
617.951.9094 TEL
Since joining K&L Gates in 2005, Mr. Ricciuti has handled a variety of state and federal
criminal matters, internal investigations related to SEC and NASD inquires and
enforcement actions, complex domestic and international commercial arbitrations and
cases, and a variety of matters related to homeland security. Mr. Ricciuti has also
handled matters involving foreign assets and export controls.
617.261.3175 FAX
michael.ricciuti
@klgates.com
From 2002 to 2005, Mr. Ricciuti served as the first chief of the Anti-Terrorism and
National Security Unit, where he investigated and prosecuted cases involving terrorism,
export controls, and foreign assets control. During that time period, Mr. Ricciuti also
served as the coordinator of the Massachusetts Anti-Terrorism Advisory Council, a
comprehensive anti-terrorism collaboration of federal, state and local law enforcement,
public safety, public health and emergency response agencies, as well as private sector
entities. In addition, in 2005, Mr. Ricciuti served as the first chief of the Anti-Terrorism
and National Security Section. From 2000 to 2002, Mr. Ricciuti served as deputy chief
of the Organized Crime Drug Enforcement Task Force.
From 1989 to 1991, Mr. Ricciuti was a trial attorney with the Employment Litigation
Section of the Civil Rights Division, Department of Justice, Washington, DC, and
litigated employment cases around the country. In addition, in 2005, Mr. Ricciuti was
named as the first chief of the newly-formed Anti-Terrorism and National Security
Section in a re-organization of the U.S. Attorney's Office. From 2000 to 2002, Mr.
Ricciuti served as deputy chief of the Organized Crime Drug Enforcement Task Force in
the U.S. Attorney's Office, and handled dozens of federal criminal cases involving
narcotics and money laundering.
Mr. Ricciuti previously served as a judicial clerk for the Honorable A. David Mazzone of
the United States District Court in Massachusetts from 1987 to 1988. Mr. Ricciuti also
served as an assistant district attorney in Norfolk and Middlesex Counties,
Massachusetts.
Mr. Ricciuti is a member of the adjunct faculty at Suffolk Law School, where he teaches
constitutional law and criminal procedure.
PUBLICATIONS
Co-Author, Multistate Investigations of the Pharmaceutical Industry, Food & Drug
Law Institute Update, March/April 2006
Michael D. Ricciuti
Co-Author, Essential Disaster Plan components for Persons Responsible for Human
Resource Matters, K&LNG Employment Law Alert, November 2005
New Guidelines on Direct-to-Consumer Ads for Prescription Drugs: Too Little Too
Late? , Metropolitan Corporate Counsel, September 2005
Co-Author, Corporate Liability for Data Loss/Identity Theft and Defensive Legal
Strategies, K&LNG Privacy, Data Protection and Information Management Alert,
August 2005
Co-Author, Pharmaceutical Industry Adopts Voluntary Guidelines for Direct to
Consumer Advertising, K&LNG Life Sciences Alert, August 2005
Renewing The USA Patriot Act What Every Business Should Know,
Metropolitan Corporate Counsel, July 2005
Co-Author, Burden of Production and Proof in Employment Discrimination Cases:
An Endangered Future for Summary Judgment Motions?, FEB Boston Bar Journal,
1994.
Co-Author, ADA to have Limited Impact on Massachusetts Employers,
Massachusetts Lawyer's Weekly, 1992.
Equality and Accountability in the Reform of Settlement Procedures in Mass Tort
Cases: The Ethical Duty to Consult, Geo. J. of Legal Ethics, 1988.
Reservations on Indian Policy, Harvard Political Review, 1983
PRESENTATIONS
Panelist, This Week in Business (NECN cable television), "Stock Options and
Backdating" (2006)
Guest lecturer, United States Military Academy, National Security Law, AntiTerrorism Law and Practice (2003-present)
Panelist, Internal Investigations (K&LNG, Harrisburg, Pennsylvania, 2006)
Panelist, Anti-Money Laundering in the Securities & Investment Industries
(Financial Markets World, 2006)
Presenter, Eastern Massachusetts Compliance Network, Annual Meeting, Banks,
SARS and the Investigation of Financial Crimes: A Prosecutor s Perspective (2005)
The USA PATRIOT Act and Homeland Security, presented at Society for Scholarly
Publishing Annual Conference, 2005
PROFESSIONAL/CIVIC ACTIVITIES
Commonwealth of Massachusetts Anti-Crime Council
Governor s Commission on Criminal Justice Innovation
Intelligence and Counter-Terrorism Subcommittee, Democratic National Convention
Planning Committee
Area Maritime Security Committee, United States Coast Guard
American Bar Association, White Collar Crime Section
Boston Bar Association, Criminal Law Section, Steering Committee Co-Chair
Moot Court Judge: Harvard Law School Ames Moot Court Competition, Harvard
Law School First-Year Moot Court Program, Boston College Law School Grimes
Moot Court Competition
Nelson Fellowship Program, Mentor
Discovering Justice Program, Presenter
Citizen Schools, Chelsea Public School System, Participant
Long Range Planning Committee, Milton Public Schools
Michael D. Ricciuti
Assistant Coach, Milton Little League
Massachusetts ATAC Tear Line, Editor
Mass ATAC Weekly Summary, Editor
Suffolk University Law School, Adjunct Faculty Member
Member of Adjunct Faculty and instructor, Constitutional Law and Criminal
Procedure, Suffolk Law School
Guest lecturer, National Security Law, United States Military Academy
Member, Internet Radicalization Task Force (George Washington University)
Co-chair, Steering Committee, Criminal Law Section, Boston Bar Association
Advisor, Harvard Law School Trial Advocacy Workshop
COURT ADMISSIONS
Massachusetts
U.S. Supreme Court
First Circuit Court of Appeals
United States District Court, Districts of Massachusetts and Maryland
BAR ADMISSIONS
Massachusetts
EDUCATION
J.D., Harvard Law School, 1987 (cum laude)
A.B., Harvard College, 1984 (magna cum laude; Phi Beta Kappa)
AWARDS
Federal Bureau of Investigation Director s Letter of Appreciation
Federal Bureau of Investigation Appreciation Award
Department of Homeland Security Appreciation Award
United States Secret Service Appreciation Award
Organized Crime Drug Enforcement Task Force Awards for achievement in
narcotics cases
Drug Enforcement Administration Awards for achievement in narcotics cases
Internal Revenue Service, Criminal Investigations Division, Appreciation Awards
Department of Justice performance awards
United States Marshals Service Certificate of Appreciation
Donald W. Smith
AREAS OF PRACTICE
WASHINGTON OFFICE
202.778.9079
TEL
202.778.9100
FAX
dsmith@kl.com
Mr. Smith regularly counsels domestic and international clients regarding the U.S.
Government s extensive system of export control laws and regulations. He is
experienced with classification, licensing and compliance issues arising under regulations
administered by the U.S. Department of Commerce, U.S. Department of State, Office of
Foreign Assets Controls of the U.S. Treasury Department, and the U.S. Customs Service.
Mr. Smith also provides advice to clients concerning the customs laws regulating imports
and the anti-boycott regulations administered by the Department of Commerce.
PROFESSIONAL BACKGROUND
For a number of years, Mr. Smith has been a regular panelist at the Coping With U.S.
Export Controls Conference sponsored annually by the Practicing Law Institute. He is
the author of Defense of Export Control Enforcement Actions in the PLI coursebook.
PROFESSIONAL/CIVIC ACTIVITIES
American Bar Association (Business Law Section)
District of Columbia Bar Association
BAR MEMBERSHIP
District of Columbia
EDUCATION
B.A., Yale University, 1966
M.A., University of Virginia, 1969
LL.B., University of Virginia, 1978
Dick Thornburgh
AREAS OF PRACTICE
Mr. Thornburgh serves as an active advisor and counselor to the firm s government
affairs clients with respect to matters concerning federal, state and local governments
as well as international organizations.
PROFESSIONAL BACKGROUND
WASHINGTON, D.C. OFFICE
202.778.9080
TEL
202.778.9100
FAX
dick.thornburgh@klgates.com
Mr. Thornburgh served as Governor of Pennsylvania, Attorney General of the United
States under two presidents and the highest-ranking American at the United Nations
during a public career which spanned over 25 years.
Elected Governor of Pennsylvania in 1978 and re-elected in 1982, Mr. Thornburgh
was the first Republican ever to serve two successive terms in that office. He served
as Chair of the Republican Governors Association and was named by his fellow
governors as one of the nation's most effective big-state governors in a 1986
Newsweek poll.
During his service as Governor, Mr. Thornburgh balanced state budgets for eight
consecutive years, reduced both personal and business tax rates, cut the state's recordhigh indebtedness and left a surplus of $350 million. Under his leadership, 15,000
unnecessary positions were eliminated from a swollen state bureaucracy and widely
recognized economic development, education and welfare reform programs were
implemented. Pennsylvania's unemployment rate, among the ten highest in the nation
when he was elected, was among the ten lowest when he left office.
Following the unprecedented Three Mile Island nuclear accident in 1979, he was
described by observers as one of the few authentic heroes of that episode as a calm
voice against panic.
After his unanimous confirmation by the United States Senate, Mr. Thornburgh served
three years as Attorney General of the United States (1988-1991) in the cabinets of
Presidents Ronald Reagan and George H.W. Bush. He mounted an unprecedented
attack on white-collar crime as the Department of Justice obtained a record number of
convictions of savings and loan and securities officials, defense contractors and
corrupt public officials. Mr. Thornburgh established strong ties with law enforcement
agencies around the world to help combat drug trafficking, money laundering,
terrorism and international white-collar crime. The Legal Times noted that Mr.
Thornburgh as Attorney General built a reputation as one of the most effective
champions that prosecutors have ever had. He currently chairs a panel of the
National Academy of Public Administration examining the transformation of the
Federal Bureau of Investigation.
As Attorney General, Mr. Thornburgh played a leading role in the enactment of the
Americans with Disabilities Act. He also took vigorous action against racial, religious
and ethnic hate crimes, and his office mounted a renewed effort to enforce the
nation's anti-trust and environmental laws. In 2002, he received the Wiley E. Branton
Dick Thornburgh
Award of The Washington Lawyers Committee for Civil Rights and Urban Affairs in
recognition of his commitment to the civil rights of people with disabilities.
All told, Mr. Thornburgh served in the Justice Department under five Presidents,
beginning as United States Attorney in Pittsburgh (1969-1975) and Assistant Attorney
General in charge of the Criminal Division (1975-1977), emphasizing efforts against
major drug traffickers, organized crime and corrupt public officials. In August 2002,
he was appointed Examiner in the WorldCom bankruptcy proceedings, the largest
ever filed, to report on wrongdoing and malfeasance that led to the company s
downfall. He was also chosen in 2004 by CBS to conduct an investigation into the 60
Minutes Wednesday segment on President Bush s service in the Texas Air National
Guard. In 2004, he was named as one of Washington s top criminal defense lawyers
by Washingtonian magazine.
During his service as Under-Secretary-General at the United Nations (1992-1993),
Mr. Thornburgh was in charge of personnel, budget and finance matters. His report to
the Secretary-General on reform, restructuring and streamlining efforts designed to
make the United Nations peacekeeping, humanitarian and development programs
more efficient and cost-effective was widely praised. He also has served as a
consultant to the United Nations and the World Bank on efforts to battle fraud and
corruption.
Throughout his career, he has traveled widely, visiting over 40 countries and meeting
with leaders from Canada, Mexico, Europe, Africa, the Middle East, Russia, Ukraine,
Japan, China, Taiwan, Korea, Cambodia, Australia and Central and South America.
He served as an observer to Russia's legislative (1993) and presidential (1996)
elections, is Chairman of the U.S. Committee for Hong Kong and is a member of the
board of advisors of the Russian-American Institute for Law and Economics.
PROFESSIONAL/CIVIC ACTIVITIES
American Bar Foundation
American Judicature Society
American Law Institute
Council on Foreign Relations
National Academy of Public Administration
Urban Institute
Washington Legal Foundation
World Council on Disability
COURT ADMISSIONS
U.S. Supreme Court and Courts of Pennsylvania and District of Columbia
BAR MEMBERSHIP
District of Columbia
Pennsylvania
Dick Thornburgh
EDUCATION
LL.B., University of Pittsburgh, 1957 (Order of the Coif; Case Editor, Law Review)
Bachelor of Engineering, Yale University, 1954
Honorary degrees from 31 other colleges and universities
The Foreign Corrupt Practices Act
What Clients Need to Know
Jeffrey B. Maletta
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006-1600
(202) 778-9062
jeffrey.maletta@klgates.com
December 7, 2007
The Foreign Corrupt Practices Act of 1977
( FCPA )
The Basics
Expanding Reach
Compliance
Mergers and Acquisitions
2
History
Revelations in Watergate Investigations
Off-the-books funds
Political contributions
Payments to foreign officials
3
1
FCPA Basics
Two Distinct But Complementary Remedies
Anti-bribery provisions
Accounting provisions ( issuers only)
Books and records
Internal controls
4
Anti-Bribery Provisions: Prohibited Conduct
A payment, an offer to pay or an authorization
to pay money or anything of value directly or
indirectly to any:
foreign government official
foreign political party, party official or candidate
officers of a public international organization, or
third person knowing it will go to a foreign
official
5
Anti-Bribery Provisions: The Corrupt Purpose
To induce the recipient:
To act in violation of his or her lawful duty, or
To use his or her influence to affect or influence
any act of the government or instrumentality
In order to obtain or retain business or to direct
business to any person
6
2
Anti-Bribery Provisions: Persons Covered
Issuers, US and foreign companies with securities
registered or who file reports with the SEC
Domestic concerns, US citizens and residents, and
entities organized under US law or which have their
principal place of business in the US
Directors, officers, employees and agents (US or
foreign) of issuers and domestic concerns
Foreign nationals and entities that commit an act in
the US in furtherance of a prohibited payment
7
Anything of Value
Cash, securities or equivalents
Interest in or profits from a business
Improvements in real property
Personal property (e.g., jewelry)
Employment
Services by third parties
Travel and entertainment (if excessive)
8
Foreign Government Official
Elected and appointed officials
Legislators
Officers and employees of public utilities
Officers and employees of government-owned
businesses
Managers and employees of government
instrumentalities (hospitals, schools)
9
3
Obtaining, Retaining or Directing Business
Government contracts
Approvals, licenses or permits
Favorable tax or customs rulings
Other purposes with a business nexus
10
Anti-Bribery Provisions: Exceptions
Routine facilitating or grease payments
Payments unrelated to obtaining or retaining
business
Gifts, if not in cash and if nominal in value
Reasonable, bona fide expenditures associated
with product promotion or contract performance
Payments lawful under written laws of foreign
country
11
Anti-Bribery Provisions: Intermediaries
Payment to third party knowing that a foreign
official will receive all or part of it
Knowing an awareness by a reasonable person
under similar circumstances that a violation is
substantially certain or highly probable
Deliberate ignorance
Conscious disregard
Willful blindness
12
4
Knowledge
FCPA Red Flags
A history of corruption in a country
Any family relationship between participants and
government officials
Any unusual means of payment
The size of the commission paid to the agent in
relation to the services performed
Apparent lack of qualifications on the part of the
agent to perform services
13
Knowledge
FCPA Red Flags (cont.)
Refusal by any participants to sign affidavits or make
representations that they will not violate FCPA
Any misrepresentations in connection with proposed
transaction
Requests for false or incomplete documentation
Lack of transparency in financial records
14
Anti-Bribery Provisions: Recent Examples
Payments to officials to encourage privatization of
oil industry
Payments to doctors in state-run hospitals to
purchase pharmaceuticals
Payments to customs officials to lower duties
Payments to tax officials to obtain favorable
treatment on transfer pricing
15
5
Anti-Bribery Provisions: Penalties
Criminal Penalties
Up to $2 million per violation for entities
Up to $250,000 fine and 5 years in prison for individuals
Alternative fines equal to twice amount of total profit
Civil Penalties
Injunctions against future violations
Civil monetary penalties
Collateral consequences (e.g., debarment)
No indemnification
16
FCPA Accounting Provisions
Books and Records
Accurately and fully reflect transactions and
dispositions of assets
Reasonable detail
No materiality component
17
FCPA Accounting Provisions (cont.)
Internal Controls
Transactions executed as authorized
Transactions recorded to permit
preparation of GAAP statements
accountability for assets
Access to assets is restricted
Assets examined periodically
18
6
FCPA Accounting Provisions (cont.)
Limited Reach
Apply only to issuers and their officers
and directors, and certain subsidiaries
SEC civil enforcement
Criminal prosecution for deliberately
false entries
19
FCPA Accounting Provisions (cont.)
Subsidiaries
Majority owned subsidiaries must comply
Issuers must make good faith efforts to have
subsidiaries owned fifty percent or less comply
Actual control renders parent responsible for
compliance of subsidiary
20
Expanding Jurisdiction
Use of an instrumentality of interstate commerce
such as the telephone, e-mail, fax, air
transportation, or the mail, or
US Persons for an act outside US
US citizen or other US nationals
Entities organized under US law
Entities with their principal place of business in US
21
7
Expanding Jurisdiction (cont.)
FCPA amended in 1998 to foreign persons
committing an act in furtherance of corrupt payment
while in the territory of the US
Enacted to address OECD Convention requirement
of prohibiting bribes by any person in the territory
of the member state
Broadly enforced to include US territories, and
airplanes flying under its flag or headed to the US
22
FCPA s Long Arm
SEC and DOJ have sought to apply FCPA
provisions to foreign nationals:
Who reside outside the US
Who pay bribes outside the US
Who act for the benefit of non-US companies
Who make minimal use of US instrumentalities of
commerce, such as e-mail, facsimiles, or wire
transfers to or from the US
23
FCPA s Long Arm Getting Longer
United States v. Bodmer
Hans Bodmer: A Swiss national, extradited from
South Korea for bribes in Azerbaijan
Statute could be applied to Bodmer as Agent of a
US Domestic Concern, without need for acting in
furtherance while in the US
BUT dismisses FCPA claim against Bodmer under
circumstances of that case
24
8
FCPA s Long Arm Getting Longer (cont.)
United States v. Sapsizian
Christian Sapsizian: A French national, arrested
during a layover in Miami for bribes in Costa Rica
Agent of an Issuer, not a foreign person acting in
furtherance while in the US
Only US connection: Bank transfers from issuer s
US accounts to Costa Rican recipient
25
Expanding Jurisdiction
Recent Examples
SEC v. DPC (Tianjin) Ltd.
Wholly owned subsidiary of US company
No act in furtherance of improper payments in the US
Possible US connection:
Approval of a budget from the US
E-mail describing costs that included amounts allocated to
improper payments
Possible theory: agent of its California-based parent
But no apparent agency relationship involved in standard
parent-subsidiary arrangement
26
Expanding Jurisdiction
Recent Examples (cont.)
SEC v. Samson, et al.
Three UK nationals and one US national work for ABB, Ltd.
Bribe to Nigerian officials for oil drilling contract
UK nationals contacts:
Wire transfers into and out of US
Fax from a Nigerian official who was in US at the time
US co-conspirator made payments to Nigerian officials visiting
US in the form of lodging, meals, cash, and gifts
Settled case without admitting or denying allegations
27
9
International Anticorruption Initiatives
Inter-American Convention Against Corruption
1996
Organization for Economic Cooperation and
Development Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions 1997
Council of Europe Criminal Law Convention on
Corruption 1999
United Nations International Convention on
Corruption 2005
28
FCPA Compliance
Three Elements
Internal compliance program
Due diligence for particular transactions
Prompt response to violations, or indications
of a violation
29
FCPA Compliance (cont.)
Compliance Program Essentials
A clearly defined corporate policy
Training
Certifications of compliance
Audit testing of high-risk areas
30
10
FCPA Compliance (cont.)
Transactional Due Diligence
Evaluate the overall climate of the foreign country
where you plan to transact business
Government sources
Transparency International
Private sources
31
FCPA Compliance (cont.)
Transactional Due Diligence
Evaluate the other parties
Competence and expertise
Relationships with government officials
Former governmental or military service
Family and business relationships
32
FCPA Compliance (cont.)
Transactional Due Diligence
Representations and Warranties
No violation of FCPA
No payment to foreign officials
33
11
New Focus: Mergers and Acquisitions
Audit books and records and controls
Examine FCPA compliance history
Review due diligence on agents and joint ventures
Obtain legal opinions on compliance with local law
34
Recent FCPA Cases Involving Acquisitions
ABB Ltd.
Titan Corp.
GE/Invision
Pacific Consolidated Industries
ITXC Corp./Teleglobe Corp.
35
Acquisitions
ABB Ltd.
Investors buy oil, gas and petrochemical units from
ABB
Two acquired entities recently entered into guilty
pleas and consent decree for FCPA violations
36
12
Acquisitions (cont.)
ABB Ltd. (cont.)
Response
Extensive joint compliance review
Results provided to government
Extensive remedial measures by acquirors
37
Acquisitions (cont.)
Titan Corporation
Due diligence conducted after merger agreement
with Lockheed signed reveals potential issues
Government investigations following voluntary
disclosures
Lockheed reduces offer and sets deadline for
resolution
Merger agreement abandoned when Titan cannot
resolve issues
38
Acquisitions (cont.)
Titan Corporation (cont.)
Titan had done no diligence on its own acquisitions
Problems had been, in large part, acquired
SEC v. Titan Corp. (D.D.C. 2005)
U.S. v. Titan Corp. (S.D. Cal. 2005)
39
13
Acquisitions (cont.)
InVision Technologies, Inc.
Merger with subsidiary of GE
Pre-merger due diligence identifies issues
Joint investigation by InVision and GE
Pre-merger resolution with DOJ and SEC
InVision pays fine and disgorges profits
GE agrees to continue cooperation and report on
integration into GE compliance
40
Acquisitions (cont.)
Pacific Consolidated Industries
Private equity investors acquired PCI and
subsequently discovered suspicious payments
Disclosed matter to DOJ and fully cooperated
Responsible individual prosecuted - United States
v. Smith, No. 8:07-cr-00069-AG (C.D. Cal. 2006)
Acquiror not prosecuted
41
Acquisitions (cont.)
ITXC Corp. and Teleglobe Corp.
ITXC and Teleglobe merged in 2004
ITXC failed to disclose FCPA violations in response
to questions from Teleglobe s attorneys
Post-merger discovery leads to voluntary disclosure
July 2007, two former ITXC executives pled guilty to
FCPA violations from 1999 to 2004 (United States
v. Ott (D.N.J. 2007))
42
14
Avoiding FCPA Successor Liability
Transactional Due Diligence
Evaluate the overall climate of the foreign country
where target has operations
Government sources
Transparency international
Private sources
43
Avoiding FCPA Successor Liability (cont.)
Transactional Due Diligence
Evaluate the other parties
Competence and expertise
Relationships with government officials
Former governmental or military service
Family and business relationships
44
Avoiding FCPA Successor Liability (cont.)
Transactional Due Diligence
Audit books and records and controls
Examine FCPA compliance history
Review due diligence on agents and joint ventures
Obtain legal opinions on compliance with local law
45
15
Avoiding FCPA Successor Liability (cont.)
Transactional Due Diligence
Representations and Warranties
No violation of FCPA
No payment to foreign officials
46
Avoiding FCPA Successor Liability (cont.)
What To Do When You Encounter Red Flags
Increase Level of Due Diligence Investigation
Require Investigation by Target
Conduct Joint Investigation
47
What To Do When You Discover Violations
Require Disclosure
Government
Public filings
Require Resolution as Condition to Closing
Delay
Material changes
Accept Risk and Close
Protection through escrow
Obligation to continue investigation
Open-ended liability
48
16
Disclosure Considerations
Disclosure of potential FCPA liabilities by acquiror
and by target
Periodic reports
Proxy materials
Report of Investigation Pursuant to Section 21(a) of
the Securities Exchange Act of 1934 and
Commission Statement on Potential Exchange Act
Section 10(b) and Section 14(a) Liability
(Titan Corp.)
49
17
Basics of Export and Embargo Compliance
Donald W. Smith
Michael J. O Neil
December 7, 2007
Compliance with U.S. Export Controls
& Trade Embargoes
Principal Regulations
Export Administration Regulations (EAR) Bureau of
Industry and Security, Dept. of Commerce (BIS)
Trade Embargo Regulations Office of Foreign Assets
Control, US Dept. of Treasury (OFAC)
International Traffic in Arms Regulations (ITAR)
Directorate of Defense Trade Controls, US Dept. of State
(DDTC)
Export Compliance (cont.)
Who is subject to US Export Controls
and Trade Embargoes?
All persons throughout the world dealing in US Origin
Items are subject to US Export Controls
All US Persons and persons present in the US are subject
to US Trade Embargoes (which overlap with export
controls) even when trading in non US Origin Items
Cuba: US Persons include owned or controlled foreign
subsidiaries/affiliates in the case of trade with Cuba.
1
Export Compliance (cont.)
US Export Controls
Apply to any person participating in:
Exports from the United States
Re-exports from third countries of 100% US Origin Items
Exports of non-US Origin Items with more than de
minimis US content
Exports of non-US Origin Items based on US technology
(limited)
Export Compliance (cont.)
What Constitutes an Export ?
Physical shipment
Hand-carry
Transmissions (e-mail, fax, Web download, etc.)
Release (visual/oral) to foreign persons
No sales transaction is required for an export to occur
Export Compliance (cont.)
Basic Compliance Checklist
Export classification of the item (goods, software,
technology (technical data))
Destination
Restricted end-user
Restricted end-use
2
Export Compliance (cont.)
Classification of U.S. Origin Items
BIS: Controlled items identified on Commerce Control List of
EAR
BIS licenses required for export or re-export of controlled items
to most countries (including embargoed), restricted end-users and
end-uses
EAR99 items, the all other basket category, generally do not
require a license to most countries
DDTC: Items on Munitions List of ITAR
DDTC licenses required for all ITAR items.
Export Compliance (cont.)
Destination
BIS: Check Country Chart in EAR for controls on
exports of various categories to specific country
destinations
Licenses may be necessary to destinations other than
embargoed countries
Licenses may not be required to US allies
DDTC: Identify Munitions List classification in license
application
Export Compliance (cont.)
Restricted End-users
Prohibited recipients are found on several lists:
Denied Parties List:
http://www.bis.doc.gov/complianceandenforcement/index.htm#ltc
Entity List:
http://www/bis.doc.gov/complianceandenforcement/index.htm#ltc
Unverified End-users:
http://www.bis.doc.gov/complianceandenforcement/index.htm#ltc
Specially Designated Nationals and Other Blocked Entities:
http://www.ustreas.gov/offices/eotffc/ofac/sdn/index.html
3
Export Compliance (cont.)
Reason to Know Standard
Red flags
Duty to inquire
Knowledge from:
willful blindness
deliberate ignorance
conscious disregard
Export Compliance (cont.)
Red Flags
Similarity of name or address to listed person.
Customer reluctance to offer information about the end-use of the
item.
Product capabilities inconsistent with customer s business.
Item is incompatible with the technical level of
the country.
Cash offered or paid where financing is norm.
Customer unfamiliar with the product but persists
US Trade Embargoes
Comprehensive Embargoes
Limited Embargoes
Burma (Myanmar)
Cuba
Syria
Iran
North Korea
Sudan
Specially Designated Nationals Zimbabwe
Federal Republic of
(SDN)
Yugoslavia/W. Balkans
Terrorists
Narcotics traffickers
4
Trade Embargoes (cont.)
Embargoes: Who is a US Person ?
US companies and foreign branches
US citizens and permanent resident aliens (green card
holders), wherever located or employed
Any person or business in the US
For Cuba only: Foreign subsidiaries of
US companies
Trade Embargoes (cont.)
Comprehensive Trade Embargoes
US persons may not engage in any trade or financial
transaction, directly or indirectly, involving a sanctioned
country/government/SDN
US persons may not facilitate transactions by non-US
persons that would be prohibited as to
US persons
Trade Embargoes (cont.)
Prohibited US Person Activity
Exports
Approvals/directions
Facilitation
Financing, bank guarantees, warranties
Referral of orders to non-US persons
Supply of components/products
Negotiation/review of commercial terms
Other support (technical, legal, credit review, etc.)
5
Trade Embargoes (cont.)
Trade Embargoes
Cuba Embargo is nearly absolute
Prohibits facilitation
Applies to foreign subsidiaries
Similar controls on trade with Iran
and Sudan (but not foreign subs)
OFAC licenses are available for trade with all embargoed
countries of food and medicines
Trade Embargoes (cont.)
Penalties
Significant new fines
Civil: $250,000 or 2x value of transaction
Criminal: $1 million
Imprisonment: Up to 20 years
Denial of export privileges
Listing as restricted party
Export Compliance (cont.)
International Emergency Economic Powers
Act ( IEEPA )
IEEPA penalizes a violation of any Executive
Order ( E.O. ) issued under IEEPA.
E.O. 13224 prohibits transactions by US
persons with designated persons (terrorists,
terrorist groups, and their supporters).
OFAC: the SDN List.
SDN s also include drug traffickers, weapons
proliferators, war criminals etc.
6
Export Compliance (cont.)
IEEPA
Both criminal and civil penalties: State of
mind determines extent of liability.
Civil penalty of $11,000 for each violation.
Criminal penalty for willful violations : Ten
years for individuals and fines of $50,000 for
individuals and entities.
Officers, directors and agents of an entity
may be liable for knowingly participating in
violation.
Export Compliance (cont.)
EAR: Antiboycott Regulations
Agreements to refuse or actual refusals to do business
with or in Israel or with blacklisted companies.
Agreements to discriminate or actual discrimination
against other persons based on race, religion, sex,
national origin or nationality.
Agreements to furnish or actually furnishing information
about business relationships with or in Israel or with
blacklisted companies.
Export Compliance (cont.)
Antiboycott Regulations continued
Agreements to furnish or the actual furnishing of
information about the race, religion, sex, or national
origin of another person.
Furnishing information about business relationships with
Israel or with blacklisted persons.
Implementing letters of credit containing prohibited
boycott terms or conditions.
Similar IRS rules.
7
Export/Embargo Compliance
Internal Control Program
Corporate policy statement & procedures
Training for relevant employees
Compliance supervisor
Review of individual transactions
Licensing compliance, e.g. SDN list
Examination for red flags
Review of contract documents
Record maintenance
Audit
8
International Enforcement, 2008:
The Long Arm of US Criminal and Regulatory Law
Overview of U.S. Export Regulations
By Donald W. Smith and Michael J. O Neil
The Regulatory System
The Office of Foreign Assets Control ( OFAC ) of the Department of Treasury
generally administers embargoes on trade and financial transactions by U.S. persons
with countries such as Sudan, Iran and Cuba and with certain designated individuals
and entities that are the target of U.S. government sanctions.
Most exports from the U.S. of nonmilitary materials (including technology) are
subject to the controls administered by the Bureau of Industry and Security ( BIS ) of
the Department of Commerce pursuant to the Export Administration Regulations
( EAR ). The Department of Commerce also administers the antiboycott laws that, in
essence, prohibit assistance to the boycott of Israel by Arab countries.
Exports of defense articles and defense services are controlled by the
Directorate of Defense Trade Controls ( DDTC ) of the Department of State. These
controls are regulated pursuant to the International Traffic in Arms Regulations
( ITAR ).
Regulation of Foreign Branches and Affiliates of U.S. Companies
As discussed below, the U.S. export laws administered by BIS and DDTC
regulate all trade in U.S. origin items, including technology, wherever this occurs.
Offshore transactions involving U.S. origin items by foreign persons and entities are fully
regulated by the U.S. even though the parties to the transactions may have no
connection with the U.S. Consequently, all companies, including foreign affiliates of
U.S. companies, must comply with these laws when dealing with U.S. origin items.
Note: Even foreign manufactured items may be U.S. origin if they contain
certain levels of U.S. content, have ever been exported from the U.S. or, in a few
special circumstances, if they result from U.S. technology.
The embargo restrictions administered by OFAC and the BIS antiboycott
regulations regulate activities of U.S. persons or entities wherever located and, in some
cases, foreign subsidiaries of these entities.
OFAC Controls
OFAC administers a series of laws that impose very broad sanctions against
certain countries, individuals and entities to further U.S. foreign policy and national
security objectives.
Countries Subject to OFAC Sanctions
The OFAC embargo provisions currently impact principally the following
countries:
1.
Cuba
2.
Iran
3.
Sudan
In addition to sanctions against countries, OFAC prohibits transactions with
certain specially designated nationals and blocked persons, foreign terrorists and
terrorist organizations , narcotics traffickers and designated persons identified as
engaging in activities related to the proliferation of weapons of mass destruction
(collectively, Designated Persons). More limited restrictions are applicable to certain
other countries including Syria,1 Burma, Zimbabwe, North Korea and Liberia.
Persons and Entities Covered by the OFAC Regulations
The OFAC Regulations apply to the following persons and entities:
1.
located;
2.
American citizens and permanent resident aliens, wherever they are
Individuals and entities located in the U.S.;
3.
Corporations, partnerships and other organizations organized under U.S.
law, including foreign branches; and
4.
In the case of sanctions against Cuba, entities owned or controlled by any
of the above, the most important being foreign-organized subsidiaries of U.S.
corporations.
1
The OFAC sanctions regarding Syria are related to the blocking or freezing of certain assets in
the possession of U.S. persons. The export of U.S. origin items to Syria (except for food and medicine
classified as EAR99) is prohibited unless a party obtains a license from BIS.
2
Prohibited Activities
Generally, persons subject to OFAC rules may not engage in any trade or other
transactions with persons or entities located in the embargoed countries or with
Designated Persons, including the provision of services. Moreover, covered persons
may not facilitate any such trade or transactions by non-covered persons with Cuba,
Iran, or Sudan. Thus, for example, a U.S. person or entity may not provide services to a
British company in connection with the sale of British goods to Cuba, Iran, or Sudan.
The regulations typically have some narrow exceptions and may provide for licensing of
transactions by OFAC. In practice, few such licenses are granted.
Department of Commerce Controls
Control of Items
The EAR controls the export and reexport of U.S. origin items. 2 The term
items means commodities, technology, and software subject to the EAR. These
terms broadly include all items in the United States and U.S. origin items outside the
United States. U.S. origin includes foreign manufactured items that are brought into
the U.S. and subsequently exported. Technology includes specific information
necessary for the development, production, or use of a product. The information
takes the form of technical data or technical assistance. Technical assistance may
take forms such as instruction, skills training, working knowledge, and consulting
services. Technology is usually controlled to the extent that the underlying product or
item is controlled.
There are 3 exceptions to EAR controls over items subject to the EAR: (a) Items
exclusively controlled for export by another U.S. agency, primarily military items
controlled by DDTC; (b) Publicly available technology and software; and (c) Foreignorigin items with U.S.-origin content where the U.S. content is below a specified
percentage (either <10% or <25%, depending on the country of ultimate destination). In
the case of Cuba, Iran and Sudan, OFAC regulations may impose additional criteria on
use of the de minimis exception.
Classification of Items
The EAR lists items that are subject to specific controls. U.S. origin items to be
exported or reexported must be classified under the EAR and the specific controls,
including possible need for a license, determined by reference to the Country Chart in
the EAR depending on destination. Most items are not specially controlled and fall
under the catch all category of EAR99. However, even EAR99 items may be
restricted or require licenses to certain countries listed and designated end users. For
2
The EAR defines reexport as the actual shipment or transmission of items subject to the EAR from
one foreign country to another foreign country or the release of technology or software subject to the
EAR to a foreign national [of another country] outside the United States.
3
example, all items subject to the EAR, including EAR99 items, destined for Syria require
a BIS license (except for food and medicine). Moreover, all U.S. origin items may not
be exported or reexported to certain restricted end users, specified in lists maintained
by BIS and OFAC, and for certain restricted end uses such as nuclear or chemical
weapons development. Consequently, the end user and end use must be determined
and screened against these prohibited destinations
License Exceptions
The EAR provides numerous exceptions to its licensing requirements, often
depending on the destination country. Virtually all of the license exceptions in the EAR
apply to both exports and reexports. Consequently, the number of reexports that
require application to BIS for a license is generally a small proportion of overall
reexports of U.S.-origin items.
Catch-all Provisions
The EAR also utilizes catch-all controls that apply to reexports as well as to
exports. These provisions were added in an attempt to curtail the spread of weapons of
mass destruction and of missile delivery systems. Under these controls, a reexporter is
required to apply to BIS for a license if the reexporter knows that a U.S.-origin item is
going to a proliferation-related end-user or restricted end-user specified in part 744 of
the EAR or if the reexporter has been informed by BIS that a license is required due to
unacceptable risk of use in or diversion to such activities, anywhere in the world. The
catch-all applies even if the EAR otherwise indicates that no license is required in order
to send the item to the destination country. Moreover, the catch-all applies to any item
that is subject to the EAR, even if it is not on the control list. This includes a broad
range of commercial items that would not generally be regarded as sensitive. An
exporter should also be aware that the proliferation-based listing of certain entities in the
EAR triggers a license requirement even if the intended use is not related to
proliferation.
Proliferation Controls
In addition to control of U.S. items , the EAR also controls any activity of a U.S.
Person that can contribute to the proliferation of weapons of mass destruction and the
control of technical assistance by U.S. persons with respect to certain encryption
commodities or software.
For proliferation purposes, U.S. Person is defined to include:
1.
any individual who is a citizen of the United States, a permanent resident
alien of the United States, or a protected individual as defined by 8 U.S.C. §
1324b(a)(3);
2.
any juridical person, including a partnership or corporation, organized
under the laws of the United States or any jurisdiction within the United States, including
foreign branches; and
4
3.
any person in the United States.
Antiboycott Regulations
The antiboycott laws were adopted to require U.S. firms to refuse to participate in
foreign boycotts that the United States does not sanction. The Arab League boycott of
Israel is the principal foreign economic boycott that U.S. companies must be concerned
with today. The EAR antiboycott rules have two aspects to their application. First, the
provisions apply to all U.S. persons, defined to include individuals and companies
organized in the United States and their foreign controlled in fact affiliates. Second,
these persons are subject to the law only when their activities relate to the sale,
purchase, or transfer of goods or services between the United States and a foreign
country. This covers U.S. exports and imports, financing, forwarding and shipping, and
certain other transactions that may take place wholly offshore.
The Internal Revenue Code contains similar, but more sweeping, restrictions on
boycott cooperation which may result in adverse tax consequences to companies doing
business in boycotting countries. These restrictions extend to foreign subsidiaries of
U.S. companies and do not require a nexus with U.S. commerce.
DDTC
DDTC controls the export, reexport or transfer of defense articles, defense
services, and associated technical data as identified in the United States munitions list
pursuant to the ITAR. Like the EAR, the ITAR controls U.S. origin items wherever
located after export from the U.S.
SEC
Issuers of securities traded on a U.S. exchange should be aware of a division
within the SEC called the Office of Global Security Risk ( Global Security Office ). The
Global Security Office was created by a mandate from Congress in 2004 to develop a
process to identify publicly traded companies with operations in terrorist-sponsoring
states and to review documents that are filed with the SEC by these companies to see
whether there is adequate disclosure of any operations in those states. This mandate
was premised on the concept that any such operations, even if lawful under U.S. law,
might be material to U.S. investors. The Global Security Office looks to the State
Department list of state sponsors of terrorism as a guide for countries possibly triggering
disclosure by a public company. The Global Security Office has not issued any general
public guidance regarding the scope of its intended operations. However, it would
appear that any significant commercial transactions with listed countries could result in
SEC scrutiny and insistence on disclosure of these transactions in public filings.
Moreover, the SEC has proposed to take steps to increase public awareness of those
public companies that do report such activities.
5
Penalties
Penalties for violations include both criminal and civil fines and possible
incarceration for individuals. Other sanctions include placing restrictions on individuals
and companies so that they may not engage in any trade involving U.S. origin items or
U.S. persons. It is important to note that a recent amendment to the statute under
which the EAR and most OFAC regulations are promulgated authorizes an increase in
civil penalties from $50,000 per violation to the greater of $250,000 per violation or twice
the value of the transaction forming the basis of the violation. For criminal penalties, the
amended statute authorizes fines of $1 million for committing, attempting, aiding or
abetting a violation, or conspiracy to commit a violation. Increases in civil penalties
apply to pending enforcement actions as well as newly commenced enforcement
actions. 18 U.S.C. 3571.
Implications for Transactions
The agencies enforcing the export control laws generally take the position that
companies acquiring other companies through merger, stock acquisition, or asset
acquisition remain fully liable for past violations by the acquired company.
Consequently, due diligence on target companies should always include examination of
export control law compliance, and acquisition agreements should include protective
representations and warranties in this area. We include at Appendix A examples of due
diligence questions and at Appendix B a sample representation.
6
Overview of U.S. Export Regulations
Appendix A
Due Diligences Questions
1. Please identify any direct or indirect business transactions within the last 5 years with entities
located in the following countries: Cuba, Iran, Libya, Sudan, North Korea, Syria, Burma,
Zimbabwe, or Liberia (collectively Sanctioned Countries ).
2. With respect to any such transactions, identify the specific entities involved in the transaction
and the nature of services performed, including any materials transferred to the Sanctioned
Countries. In each case, please specify whether there are any ongoing business relationships
and their nature as well as the existence of any contingent or other unfulfilled obligations such
as outstanding amounts owed.
3. With respect to any such transactions, please identify any involvement whatsoever by: (i)
natural persons who are United States citizens or residents; or (ii) entities that are organized in
the United States and, in the case of Cuba transactions, subsidiaries of United States entities
located in other countries.
4. With respect to each such transaction, please identify any materials or equipment, including
software, which was of United States origin that was transferred to any of the Sanctioned
Countries, whether for temporary or permanent use therein.
5. With respect to each such transaction involving Cuba, Iran, Libya, or Sudan, please identify
whether any service or repair was performed on any materials or equipment of United States
origin found in these countries.
6. Please describe any contact within the last 5 years with any United States government
authority regarding compliance with the export control laws and regulations of these countries.
Include descriptions of any formal or informal communications regarding compliance with
these authorities as well as any applications for export licenses or interpretations from these
authorities.
7. Please identify any instances in the last five years in which the Company has exported or
arranged for the export from any other country of materials or equipment of United States
origin to any destination, including materials or equipment containing substantial United States
origin content. Describe any steps taken in the case of such exports to assure compliance
with applicable United States export control laws or regulations.
8. Please identify the persons responsible within the Company for determining compliance with
export control laws and regulations including those of the United States and any procedures or
policies implemented or considered to assure such compliance.
9. Please describe any known violation by the Company of any United States export control law
or regulation or any investigation or inquiry by the Company into circumstances that were
deemed of possible concern in this area.
Appendix B
Sample Representation
Since [five year period], the Company, the Subsidiaries, and their shareholders,
directors, officers, employees and agents have not violated any provisions of the Export
Administration Regulations administered by the U.S. Department of Commerce, the
International Traffic in Arms Regulations administered by the U.S. Department of State,
and the various regulations administered by the Office of Foreign Assets Control of the
U.S. Treasury Department. In addition, since that date, the Company and the
Subsidiaries have not engaged in any commercial activities in or related to the following
countries: (i) Cuba; (ii) Iran; (iii) Libya; (iv) North Korea; (v) Sudan; or (vi) Syria,
including without limitation facilitating trade or financial transactions with entities located
in such countries, providing services to entities located in such countries, selling or
delivering products to such countries, or entering into any contract or other obligation to
provide services or products to such countries or to purchase goods or services from
such countries.
Handling an OFAC/Anti-Terrorism Case
Dick Thornburgh
Michael D. Ricciuti
December 7, 2007
Outline of Presentation
Overview
OFAC and Anti-Terrorism Law
Relevant Corporate Legal Principles/DOJ Policies
Corporate Responses and Attendant Issues
Cooperation and The McNulty Memo
Attorney Client/Work Product and Other Issues
Examples of Recent Cases
Overview
OFAC/anti-terrorism a potential, growing risk
Jurisdictional reach is broad
Statutes impose severe penalties
Recent Cases:
Chiquita Brands: IEEPA criminal violation, $25
million fine
Chevron Corporation: IEEPA civil violation, SEC and
related actions, $30 million in fines and penalties
1
OFAC/Anti-Terrorism Law
Basic Premise
It is unlawful to support:
Foreign Terrorist Organizations (FTOs)
Designated by State Dept in consultation with AG and Treasury Dept
FTOs are foreign organizations engaged in terrorist activity which threatens
the security of the US or US nationals
Specially Designated Global Terrorists (SDGTs)
Designated by President and Treasury Dept in consultation with State Dept
and AG
Includes all FTOs and individuals and groups owned or controlled by, or
who assist, sponsor, support or are otherwise associated with, SDGTs
Not just foreign entities or persons
OFAC/Anti-Terrorism Law
Prohibition on material support to FTOs
18 U.S.C. §2339B(a)(1): Whoever, within the United
States or subject to the jurisdiction of the United States,
knowingly provides material support or resources to a
foreign terrorist organization, or attempts or conspires to
do so, shall be fined under this title or imprisoned not
more than 15 years, or both, and, if the death of any
person results, shall be imprisoned for any term of years
or for life.
OFAC/Anti-Terrorism Law
Knowledge necessary to violate §2339B
Defendant must know:
Organization at issue is an FTO;
Organization has engaged or engages in terrorist activity; or
Organization has engaged or engages in terrorism.
Terrorist activity means essentially, illegal acts involving violence
or property damage to force another to act
Terrorism means premeditated, politically motivated violence
perpetrated against noncombatant targets by subnational groups
or clandestine agents
2
OFAC/Anti-Terrorism Law
SDGTs
Criminal violation to willfully support under
International Emergency Economic Powers Act
(IEEPA), 50 U.S.C. §1701-1706
October 2007 amendment to 50 USC §1705:
Criminal fine of up to $1,000,000 or, if natural person, both
fine and up to 20 years imprisonment
Civil penalty of greater of $250,000 or twice the amount of
the transaction
OFAC/Anti-Terrorism Law
Enforcement:
SDGTs: The Department of Treasury, through the
Office of Foreign Assets Control (OFAC) and DOJ
FTOs: Department of Justice, through the
Counterterrorism Section, National Security Division,
and the U.S. Attorney s Offices
Support of FTOs prohibited under both §2339B and
IEEPA
Thus, statutes and jurisdiction of OFAC and DOJ
significantly overlap
Relevant Corporate Legal Principles
Must understand extraterritorial jurisdiction
principles
Familiar principles of corporate criminal liability
apply
DOJ s Principles of Prosecution of Business
Organizations (now called the McNulty Memo,
formerly known as the Thompson Memo) apply to
DOJ prosecutors
3
Legal Principles
Extraterritorial Jurisdiction
Five generally-recognized principles:
Offense has effect in US
Offender is a US citizen
Offense undermines a vital US interest
Victim is a US citizen
Universality principle offense is universally condemned
See United States v. Yousef, 327 F.3d 56, 91-92 (2d Cir. 2003)
DOJ s website offers comprehensive review
Article in March, 2007 edition of United States Attorney s
Bulletin discusses issue in detail
Legal Principles
Corporate criminal liability: respondeat superior
The general rule is that a corporation is criminally
liable if (1) its agent commits a criminal act, (2) within
the scope of his employment, (3) with the intent to
benefit the corporation. New York Cent. & H.R.R.
Co. v. United States, 212 U.S. 481 (1909)
To avoid liability, the corporation must show that the
agent acted exclusively for his own benefit or to
harm the corporation; if agent acted primarily (but not
exclusively) for personal gain, the corporation will
ordinarily not have a defense.
Legal Principles
In DOJ s view, it is very difficult to show that an employee s
actions did not benefit the company in some way
See, e.g., United States v. Sun-Diamond Growers of California,
138 F.3d 961, 970-71 (D.C. Cir. 1998):
Agent hid his fraud scheme from the corporation, used company
funds to further his scheme, and harmed the corporation
These facts do not preclude a valid finding that he undertook the
scheme to benefit Sun-Diamond -- jury could still find that the
agent acted with an intent to benefit his employer, however
befuddled the method.
Even if an agent s actions harm the company, the agent s belief
that his actions might benefit the corporation may result in imputing
his acts to the company.
See also United States v. Automated Med. Labs., Inc., 770
F.2d 399, 406-07 (4th Cir. 1985).
4
Legal Principles
Thus, corporation needs to understand employee acts
through internal investigations
Upjohn warnings to employees on privilege issues:
Attorney represents company, not the employee
Interview is covered by attorney-client privilege,
which belongs to company, not employee
Company may, in its sole discretion, decide to waive
privilege and disclose substance to third parties,
including government
DOJ Policies
McNulty Memo Principles of Federal Prosecution
of Business Organization
USAM 9-27.000
Principles of Federal Prosecution
McNulty Memo encourages both corporate and
individual prosecution
Only rarely should provable individual culpability not
be pursued, even in the face of a corporate guilty
plea or some other [corporate] disposition
Potential conflict between employee s interests and
company s
Corporate Responses
and Attendant Issues
The McNulty Memo strongly encourages business
organizations to conduct internal investigations and
fully disclose the results to the government if
wrongdoing is found
On the other hand, the attorney-client privilege and
work-product doctrine are designed to protect
against disclosures
These are in conflict
5
Cooperation and the McNulty Memo
Disclosure to the government is generally a waiver of applicable privileges
United States v. Massachusetts Institute of Technology, 129 F.3d 681,
686 (1st Cir. 1997): Anyone who chooses to disclose a privileged
document to a third party
had an incentive to do so, whether for gain
or to avoid disadvantage. It would be perfectly possible to carve out
some of those disclosures and say that, although the disclosure itself is
not necessary to foster attorney-client communications, neither does it
forfeit the privilege. With rare exceptions, courts have been unwilling to
start down this path which has no logical terminus and we join in
this reluctance.
In re Subpoena Duces Tecum, 738 F.2d 1367, 1370 (D.C. Cir. 1984)
(any voluntary disclosure by the holder of the attorney-client privilege
waives the privilege)
But see Diversified Industries v. Meredith, 572 F.2d 596, 607 (8th Cir.
1978).
Attorney-Client/Work Product Issues
Elements of the attorney-client privilege:
(1) Where legal advice of any kind is sought
(2) from a professional legal adviser in his capacity as such
(3) the communications relating to that purpose
(4) made in confidence
(5) by the client
(6) are at his instance permanently protected
(7) from disclosure by himself or by the legal adviser
(8) except the protection can be waived.
United States v. Massachusetts Institute of Technology, 129 F.3d 681,
684 (1st Cir. 1997)
Attorney-Client/Work Product Issues
Work Product: Defined by Rule 23(b)(3) of the Federal Rules
of Civil Procedure governing discovery:
With limitations, protects from disclosure otherwise discoverable
documents and tangible things if prepared in anticipation of
litigation or for trial by or for a party or that party's attorney.
An opponent can only get disclosure upon a showing that [it]
has substantial need of the materials in the preparation of [its]
case and that the party is unable without undue hardship to
obtain the substantial equivalent of the materials by other
means.
Even if disclosure is ordered, the court shall protect against
disclosure of the mental impressions, conclusions, opinions, or
legal theories of an attorney.
6
Attorney-Client/Work Product Issues
Scope or Work Product: [D]ocuments should be deemed prepared
for litigation and within the scope of the Rule if, 'in light of the nature
of the document and the factual situation in the particular case, the
document can be fairly said to have been prepared or obtained
because of the prospect of litigation.' " Maine v. U.S. Department of
the Interior, 298 F.3d 60, 68 (1st Cir. 2002).
"[L]itigation need not be imminent...as long as the primary motivating
purpose behind the creation of the document was to aid in possible
future litigation." In Re Grand Jury Subpoena, 220 F.R.D. 130, 148 (D.
Mass. 2004).
Opinion work product protected to greater extent than ordinary work
product.
Principle applies in criminal cases. See Federal Rule Criminal
Procedure 16(a)(2), (b)(2),
Attorney-Client/Work Product Issues
Two sources of federal criminal authority support
conducting an internal investigation and disclosing
to the government as part of cooperation
McNulty Memoranda
United States Sentencing Guidelines
Common theme: Government demands authentic,
meaningful cooperation by business organizations
The McNulty Memo History: Thompson
Outlines factors which must be considered by federal
prosecutors in deciding whether to charge a business
organization
Revision of 1999 Holder Memorandum and 2003
Thompson Memorandum
2003 Thompson Memo was controversial
7
The McNulty Memo History: Thompson
DOJ encourages corporations, as part of their compliance
programs, to conduct internal investigations and to disclose
their findings to the appropriate authorities.
Noted some agencies (SEC and EPA) have voluntary
disclosure programs
Self-reporting and remediation may qualify the corporation for
amnesty/reduced sanctions
Even without a formal program, DOJ may consider timely
and voluntary disclosure in evaluating compliance
program.
The McNulty Memo History: Thompson
Main focus of Thompson: Increased emphasis on
and scrutiny of the authenticity of a corporation s
cooperation.
If Corporation actually takes steps to impede the
quick and effective exposure of the complete
scope of wrongdoing under investigation, weighs
in favor of prosecution.
The McNulty Memo History: Thompson
Factors to be considered in charging a corporation:
1. Nature and seriousness of offense;
2. Pervasiveness of wrongdoing;
3. Corporation s history of similar conduct;
4. Corporation s timely and voluntary disclosure of wrongdoing and
willingness to cooperate;
5. Existence and adequacy of corporation s compliance program;
6. Corporation s remedial actions;
7. Collateral consequences of prosecution;
8. Adequacy of prosecution of individuals;
9. Adequacy of other remedies.
8
The McNulty Memo History: Thompson
Factor 4: Corporation s cooperation includ[es], if
necessary, the waiver of corporate attorney-client
and work product protection
One factor the prosecutor may weigh in assessing the
adequacy of a corporation's cooperation is the completeness of
its disclosure including, if necessary, a waiver of the attorneyclient and work product protections, both with respect to its
internal investigation and with respect to communications
between specific officers, directors and employees and
counsel.
Waivers let government get statements of employees without
negotiating individual cooperation or immunity agreements.
Waivers help government evaluate completeness of a
corporation's voluntary disclosure and cooperation.
The McNulty Memo History: Thompson
Factor 4:
Waiver ordinarily
limited to the factual internal investigation
and any contemporaneous advice given [e]xcept in unusual
circumstances, prosecutors should not seek a waiver with
respect to communications and work product related to advice
concerning the government's criminal investigation.
Waiver of a corporation's attorney-client and work product
protection not an absolute requirement, but prosecutors
should consider the willingness of a corporation to waive such
protection when necessary to provide timely and complete
information as one factor in evaluating the corporation's
cooperation.
McNulty Memo History: Thompson
Furor over requests for waiver of attorney-client
privilege and work product doctrine
Produced protests from ABA, former DOJ officials
and others that waivers undermined the privilege and
role of counsel in corporate decision-making
Discouraged full, candid communications with
lawyers
Exposed information to third parties in civil actions
9
McNulty Memo: Attorney-Client/Work Product
Issued December 12, 2006
Completely re-writes the section on waiver of the attorneyclient and work product protections
Recognizes their value and provides greater protection.
Waiver of the attorney-client and work product protections is
not a prerequisite to a finding that a company has cooperated
in the government s investigation, although such disclosure
may expedite the investigation and may be critical in
enabling the government to evaluate the accuracy and
completeness of the company s voluntary disclosure.
McNulty Memo: Attorney-Client/Work Product
Legitimate Need: Prosecutors can only request
a waiver of the attorney-client privilege or work
product protection if there is a legitimate need
for the information to fulfill their law enforcement
obligations.
Legitimate need is not established where obtaining
information is merely desirable or convenient.
McNulty Memo: Attorney-Client/Work Product
To determine legitimate need, prosecutors must
balance company s privileges against government s
investigatory need:
Likelihood and degree to which privileged information will
benefit investigation;
Whether information can be obtained timely and completely
by alternative means;
Completeness of voluntary disclosure already provided;
Collateral consequences of waiver.
Prosecutors should seek least intrusive waiver
necessary to conduct a complete and thorough
investigation, following a step-by-step approach.
10
McNulty Memo: Attorney-Client/Work Product
McNulty adds a new distinction between factual data
(called Category I data) and core attorney-client
and work product material (called Category II data)
as part of the step-by-step analysis
Category I data is factual data.
E.g., copies of key documents, witness statements,
purely factual interview memoranda regarding the
underlying conduct, factual summaries, reports
containing investigative facts documented by counsel
Lower standard for government to meet to request
this information than for Category II data.
McNulty Memo: Attorney-Client/Work Product
Before requesting waiver of attorney-client or work
product protections for Category I data, prosecutor
must get written authorization from the US Attorney,
who must consult with AAG for criminal before
granting or denying the request.
If authorized, US Attorney communicates request to
corporation in writing.
Corporation s response to government s
requested waiver for Category I information may
be considered in determining whether the
corporation has cooperated.
McNulty Memo: Attorney-Client/Work Product
Category II data constitutes attorney-client
communications and non-factual work product such as
legal advice given to the corporation before, during or
after the underlying misconduct occurred
E.g., attorney notes, memoranda or reports containing
counsel s mental impressions and conclusions, legal
determinations reached as a result of an internal
investigation, and legal advice given to a corporation.
11
McNulty Memo: Attorney-Client/Work Product
Category II data can be sought by prosecutors only rarely, when
factual data does not provide a complete basis upon which to
conduct a through investigation.
Before requesting waiver of attorney-client or work product
protections for Category II data, US Attorney must have written
authorization from the Deputy Attorney General.
Request for Category II waivers do not include:
legal advice contemporaneous to the underlying misconduct if the
corporation or one of its employees relies upon an advice of
counsel defense; or
legal advice or communications in furtherance of a crime or fraud
coming with the crime-fraud exception.
McNulty Memo: Attorney-Client/Work Product
If authorized, US Attorney communicates request to
corporation in writing
If corporation declines to produce Category II after a
written request from the United States Attorney,
prosecutors must not consider this declination
against the corporation in making a charging
decision. Prosecutors may always favorably
consider a corporation s acquiescence to the
government s waiver request in determining
whether a corporation has cooperated in the
government s investigation.
McNulty Memo: Attorney-Client/Work Product
Prosecutors do not need DOJ authorization if the
corporation voluntarily offers privileged documents
without a request from the government.
Cooperation plea agreements also can include
broad waivers. DOJ may request the corporation
waive the attorney-client and work product protections,
disclose the results of its internal investigation, and take
whether steps are necessary to ensure the full scope of
corporate wrongdoing is disclosed and the responsible
culprits are identified and, if appropriate, prosecuted.
12
Potential Issues
Where individual employee has criminal
exposure, may need separate counsel
Caution before recommending
Reimbursing fees
Thompson Memo approach/US v. Stein (KPMG)
McNulty Memo approach
Prosecutors should generally not take into account
whether corporation advances attorney s fees to
employees under investigation and indictment
In rare cases, an issue if totality of facts show it was
designed to impede a criminal investigation
Potential Issues
Joint Defense/Common Interest Agreements
Agreements among parties to share information without waiving
privileges
Corporation can enter into agreements with employees
But caution before reflexively doing so
Providing information to employees about government s
investigation pursuant to joint defense/common interest
agreement may undermine cooperation claim
Obstruction of justice
Old and new statutes, such as 18 U.S.C. §1505 on destruction
of evidence
Arthur Andersen in Enron
Potential Issues
Self-Disclosure
Whether to disclose
What to disclose
To whom
Under what conditions
Proffer?
Waive attorney-client/work product?
Proactive cooperation to be offered?
Remedial Actions
Terminate employees?
Caution with respect to cooperation
13
Recent Cases
Chiquita Brands International
First corporate prosecution for criminal violation of
IEEPA for providing material support to an FTO
Background: Colombian civil war
FARC and AUC are combatants
Both designated as FTOs
Support was extortion
Self-disclosed to DOJ
Prosecuted for IEEPA violation; $25 million fine
DOJ considered charging individuals but did not
Recent Cases
Chevron Corporation
Oil-for-Food case
Oil obtained from third parties in exchange for payments to
former government in Iraq
In part, an OFAC case
$30 million in fines and penalties, including $2 million OFAC civil
penalty
Non-criminal disposition
SDNY: Criminal prosecution not in the public interest under
McNulty Memo in part because of cooperation and confirmation
culpable employees no longer employed
Questions?
14
The Long Arm of U.S. Law:
Foreign Criminal Antitrust Enforcement by the U.S. DOJ
December 7, 2007
Douglas Broder
Jeffrey Bornstein
Antitrust Criminal Enforcement Handled by
Department of Justice Antitrust Division
Grand Jury Investigations
Indictment / Pleas / Trial
Leniency Programs (Corporate & Individual)
Compliance Guidelines
What is a criminal violation
Amnesty
Prosecution of Purported International Cartels
U.S. DOJ Antitrust Division s growth industry.
- From 1997-2006, obtained criminal fines totaling $3.5 billion,
90% from international cartels.
Vitamins (including $500 million fine for F.
Hoffman La Roche;
Air Transportation ($300 million) each for
Korean Airlines and British Airways;
DRAM (Samsung $300 million; Hynix $185
million; Infineon $160 million);
Food Additives (lysine, citric acid, sorbates);
(continued)
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Prosecution of Purported International Cartels
Graphite electrodes;
Auction houses.
During same period over 300 individuals convicted and
sentenced to over 175 years of jail time.
Over the past several years, approximately 30 foreign
individuals have been incarcerated for antitrust violations
Average sentence in FY 2006 was approximately 9 months
In DRAM, one Korean executive sentenced to 14 months
(continued)
Prosecution of Purported International Cartels
Antitrust violation a deportable offense (crime of
moral turpitude under INS rules)
But INS won t use if individual pleads and
cooperates
DOJ says about 35 sitting grand juries are
investigating alleged international cartels.
What Is A Criminal Antitrust Violation:
Sherman Act § 1 and § 2 (15 U.S.C. §§ 1-2) have
broad language. But, as matter of prosecutorial
discretion, policy
and perhaps due process
criminal prosecutions have been limited to
hard-core agreements/conspiracies among
competitors fixing prices, rigging bids,
allocating customers, or dividing markets.
2
Price-fixing Is Broad
Includes, for example
List prices
Discounts
Credit terms, etc.
Cutting or buying up supply
May Be Inferred From Conduct
Meeting with competitors
Information sharing
Criminal Penalties
Corporations
up to $100 million (15 U.S.C. § 1)
or twice the gain or loss (18 U.S.C. § 3571)
complicated Sentencing Guidelines analysis
Individuals
up to 10 years in jail, fines greater of
$1 million (15 U.S.C. § 1) or twice the gain or loss
(again subject to Sentencing Guidelines).
Information sharing
DOJ has also prosecuted attempts, which fall short
of agreement, as violation of mail and wire fraud
statutes (18 U.S.C. §§ 1341, 1343). DOJ has
pursued other charges, including aiding and
abetting (18 U.S.C. § 2), and where federal funds,
conspiring to defraud the U.S. (18 U.S.C. § 371).
3
Criminal Jurisdiction
DOJ will prosecute criminally where alleged victims
are U.S. consumers, or U.S. government is the
victim. U.S. jurisdiction may extend even if
purchase was made outside the U.S.
Even If The Conduct Occurs Oveseas There Can Be
Liability In The U.S.
(continued)
DOJ has expansive view of jurisdiction
Issue = effect on prices/commerce in the US
Cooperation between DOJ and European and
Japanese authorities is common now
Amnesty or Corporate Leniency Policy
Automatic. If company informs before
investigation has begun, and
first in.
took prompt and effective action to end.
full reporting and continued cooperation.
corporate confession.
where possible, restitution.
(continued)
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didn t coerce; clearly not the leader or originator.
Even if can t meet all of the above,
amnesty granted even after investigation
has begun if:
first to qualify for leniency.
Division lacks evidence sufficient to convict.
took prompt and effective action.
full reporting and continued cooperation which advances
the investigation.
corporate confession.
(continued)
restitution where possible.
leniency not . . . unfair to others, considering
nature of the activity, confessor s role, and
when the corporation comes forward (the
earlier, the more likely amnesty is deemed to
be fair).
Amnesty Not a Panacea
Isn t really automatic . . . . DOJ decides who is
candid, who is the ringleader, etc. Can lead to
cat and mouse inquiries and responses.
Restitution.
Doesn t cover all potential crimes (e.g., tax)
but
DOJ policy interest in avoiding other prosecutions.
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No protection against almost inevitable civil treble
damage actions after others are prosecuted. Civil
liability often is several times larger than criminal
fine. Christie s/Sotheby.
Sotheby s paid $45 million fine and civil damages of
approximately $250 million.
Christie s criminal amnesty. Civil damages approx.
$250 million.
Both face class actions from foreign buyers.
Doesn t protect against non-U.S. (or U.S. state)
prosecutions. Once cartel becomes public
knowledge in U.S., potential or likely
prosecution/civil liability elsewhere.
Avoiding the Risk of DOJ Criminal Enforcement
Establish effective controls and procedures
Regular training
Compliance guidelines
Audits
Oversight and reports by Senior Management
Early warning systems
employee hotline
Creating a culture of compliance and ethical
behavior
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If You Receive A Complaint
Quickly conduct an internal investigation with an eye to
whether to make a leniency application
Review key emails
Interview key people
Consider whether a more thorough investigation is
warranted
If you decide to do nothing, make sure you document your
reasons
Try to look at the facts as if you were a DOJ Attorney
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