Recent 2014 Current US SEC FCPA Cases and Violations

It is important to keep up with recent US FCPA cases so that you do not find yourself in a similar situation.  In 2014 alone, the Securities and Exchange Commission (“SEC”) has charged major companies, such as Smith & Wesson and Hewlett-Packard, with violating the Foreign Corrupt Practices Act (“FCPA”). 

The Department of Justice notes that the FCPA makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to aid in obtaining or retaining business.

Recent SEC FCPA Cases

Smith & Wesson: agreed to pay $2 million when it was found that their employees and representatives authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas.  Hewlett-Packard has to pay over $108 million to settle the charges because its subsidiaries, in three different countries, made improper payments to government officials to obtain or retain lucrative public contracts.

Layne Christensen Company: a Texas based global water management, construction, and drilling company, self-reported its misconduct and cooperated fully with the SEC FCPA investigation.  The SEC noted that it took the self-reporting and investigation cooperation into consideration when determining the proper remedy.  After determining Layne received roughly $3.9 million in unlawful benefits, Layne agreed to pay just over $5 million to settle the charges.

United States v. Esquenazi: Defining Instrumentality

On May 16, 2014, the first appellate opinion was issued, in foreign corrupt practices act cases about who a “foreign official” is under the FCPA in United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014).  The FCPA defines foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for on or behalf of any such government or department, agency, or instrumentality, or for on behalf of any such public organization.”  More specifically, in Esquenazi, the court focused on the definition of “instrumentality.”

Joel Esquenazi and Carlos Rodriguez were charged by a grand jury in 2009 on 21 counts, which included seven counts of substantive SEC FCPA violations.  Eqsuenazi and Rodriguez co-owned Terra Telecommunications Corporation and one of Terra’s main vendors was Telecommunications D’Haiti, S.A.M. (Teleco).  The central question the court had to consider was what ‘instrumentality’ means and if Teleco qualified as an instrumentality of the Haitian government.

In this Foreign Corrupt Practices Act case, the court rejected a limited definition, noting that Congress intended the FCPA to be a wide net over foreign bribery.  The court instead defined instrumentality as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”

US FCPA Factors that might be relevant to decide if the government controls an entity:

• Foreign government’s formal designation of the entity
• If the government has a majority interest in the entity
• Government’s ability to hire and fire the entity’s principals
• Extent to which the entity’s profits go directly into the government
• Extent to which the government funds the entity
• How long the factors have existed

SEC FCPA Violations Factors to help decide if the entity performs a function the government treats as its own:

• Whether the entity has a monopoly over the function it exists to carry out
• Whether the government subsidizes the costs associated with the entity providing services
• Whether the entity provides services to the public in the foreign country
• Whether the public and government in the foreign country perceive the entity to perform a government function

Ultimately, Teleco was found to be controlled by the Haitian government and performed a function that Haiti treated as its own and the SEC FCPA violation convictions were affirmed.

The number are Foreign Corrupt Practices Act cases are increasing; FCPA violations are costly and daunting.  If you are involved in pending US FCPA violations cases, or believe you will be, ask your FCPA attorney to explain the above issues to see how it impacts your case.

Please call Watson & Associates, LLC to speak with any of our SEC FCPA Defense Attorneys at 1-866-601-5518 for a free consultation.