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Julie DiMauro
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Thomas Fox
Contributing Editor

Marc Alain Bohn
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Bill Waite
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Shruti J. Shah
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Russell A. Stamets
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Richard Bistrong
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Eric Carlson
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Fox’s Top Ten Enforcement Actions for 2012

As we near the end of 2012, it is appropriate to reflect back on some of the things which have occurred over the past 12 months.

In the FCPA enforcement world, it has been quite a significant year. The Department of Justice (DOJ) has used enforcement actions to educate compliance professionals on several different aspects of the FCPA. This is my list of what I believe to be the most significant enforcement actions over the past year and the lessons which can be drawn from them.

1.  Morgan Stanley-without a doubt the most significant enforcement action of 2012 was the Declination given to Morgan Stanley, when one of its Managing Directors, Garth Peterson, pled guilty to a FCPA violation.

Key Takeaway-if anyone ever doubted that the DOJ provides credit for a robust compliance program, this Declination made clear that the DOJ does so.

2.  Smith and Nephew-answered once and for all the issue of whether distributors in the sales chain are covered by the FCPA.

Key Takeaway-they are.

For extra credit-do not use any foreign sales representatives, who are domiciled in the Isle of Mann for work outside that country.

3.  BizJet-a company which literally sent ‘bags of money’ across the border to pay bribes received a penalty ⅓ below the Sentencing Guidelines suggest minimum fine.

Key Takeaway-no matter how bad the facts appear to be if a company engages in ‘extraordinary cooperation’ with the DOJ, it will obtain much credibility in the settlement negotiations and can potentially lead to a significant fine reduction.

4.  BioMet-for reported bribes paid of somewhere over $1.5MM, the company had documented fines, penalties and losses of over $29MM, which did not include any of the investigative costs. The company’s internal auditors had completed failed to follow up on clear red flags.

Key Takeaway-the DPA outlined some of the DOJ’s most current thinking of the role of Internal Audit in a FCPA compliance program.

5.  DS&S-similar to BizJet in that the facts were very bad, coupled with no self-disclosure but the company regained credibility and received a 30% reduction off the minimum suggested fine. Not only did the company provide ‘extraordinary cooperation’ to the DOJ but it self-remediation during the investigation process was deemed extraordinary as well.

Key Takeaway-today’s ‘Enhanced Compliance Obligation’ will become tomorrow’s best practices.

6.  Orthofix-when Mexico passed a law that hospital administrators could no longer approve contract, in a bid to end corruption in the health care system, Orthofix simply began to bribe the regional government official charged with taking over the contract letting process.

Key Takeaway-if your foreign employees to do not speak English, you really need to translate your Code of Conduct and FCPA compliance policy into their native tongue. For extra credit-do not call your bribe payments ‘giving chocolates’. It insults Forest Gump.

7.  Pfizer-a massive and multi-year internal investigation turned up a plethora of FCPA violations, yet the company received only a $15 fine. But it did join the Top Ten list of profit disgorgements for its $45.2 million in disgorgement and pre-judgment interest to the Securities and Exchange Commission (SEC).

Key Takeaway-the Enhanced Compliance Obligations which Pfizer agreed lay out the gold-plated standard for a compliance program.

8.  Tyco-a company which was under a prior Deferred Prosecution Agreement for past FCPA violations, discovered a wide-ranging and systemic bribery program in some overseas affiliates. However due to extraordinary cooperation of Tyco, it only received a Non-Prosecution Agreement (NPA).

Key Takeaway-the NPA details the evidence which Internal Audit should review regarding agent commission payments.

9.  Oracle-the company got into hot FCPA water because its Indian subsidiary directed its distributor to set up a separate slush fund of monies which could be and were used to pay monies to persons unknown.

Key Takeaway-if your company uses distributors to handle or supplement its sales channels, you should immediately review the entire process, from business purpose, to due diligence, to contract terms and post-contract management, to make sure that your company is following minimum best practices with regards to this sales mechanism.

10.  Allianz- a German company had shares and bonds registered with the SEC. It invested in an Indonesian joint venture, which made without the company’s apparent knowledge or approval improper payments to employees of state-owned entities in Indonesia between seven to eleven years ago.

Key Takeaway-a company does not have to listed on a US stock exchange to be an ‘issuer’ for FCPA purposes. Jurisdiction can also lie if shares and/or bonds are registered with the SEC.

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Thomas Fox is a contributing editor of the FCPA Blog.

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