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FCPA Year-In-Review: Developments Of 2012 And Predictions For 2013

Fraud Alert:

The year 2012 witnessed several notable developments in the
enforcement of the Foreign Corrupt Practices Act (FCPA). This alert
discusses these developments, which collectively illuminate the
priorities of the U.S. Department of Justice (DOJ) and the U.S.
Securities and Exchange Commission (SEC), provide insight into
likely future trends in settlements and judicial decisions, and
serves as a road map for the government’s expectations
regarding compliance programs and their implementation. Finally, we
look ahead to possible developments in 2013.

1. Enforcement Trends

2012 saw a decline in the number of new cases publicly initiated
by DOJ and the SEC; they together brought only 27 total cases in
2012.1 Enforcement, however, remains a stated priority:
DOJ announced in 2012 that it had more than 150 open FCPA
investigations and both DOJ and the SEC have signaled they will
continue their aggressive prosecution of FCPA cases. It appears
that the decline in new cases in 2012 can be attributed to factors
such as the government’s focus on resolving previously
initiated investigations and continuing high-profile
investigations, such as inquiries into Wal-Mart Stores, Inc.’s
foreign subsidiary’s business practices in Mexico and
elsewhere,2 Alcoa Inc.’s dealings with a majority
state-owned company in Bahrain,3 efforts related to the
dismissal of the so-called “Africa Sting Case”
4 and other unsuccessful prosecutions of
2012,5 and Avon Products, Inc.’s compliance with the
FCPA and foreign laws in China and elsewhere.6 Moreover,
government representatives have noted that some DOJ/SEC resources
were also diverted away from cases and instead focused on the
production of the long-awaited FCPA “guidance,” discussed

2. DOJ/SEC Guidance

On November 14, 2012, the DOJ Criminal Division and SEC
Enforcement Division published A Resource Guide to the Foreign
Corrupt Practices Act
(the Guide).8 The Guide is
organized into 10 chapters and offers a plain-language explanation
of the FCPA and its relevance to international business and
corporate compliance programs. While the non-binding, 120-page
Guide is not an FCPA watershed that announces revamped enforcement
priorities or alters the government’s previously stated
positions on controversial issues related to the statute, it offers
unprecedented insight into DOJ’s and the SEC’s joint FCPA
enforcement approach and priorities. For a more detailed analysis
of the Guide, see
WilmerHale Foreign Corrupt Practices Act Alert,
DOJ and SEC Issue Much Anticipated FCPA
, Nov. 19, 2012.

3. Morgan Stanley and Compliance

In April 2012, DOJ announced that Garth Peterson, a former
managing director for Morgan Stanley’s Real Estate Group in
Shanghai, China, had pleaded guilty to a one-count criminal
information charging him with conspiracy to circumvent internal
controls in a scheme he orchestrated to provide a $2.88 million
benefit to a Chinese government official.9 In announcing
the settlement with Peterson, DOJ went to great lengths to detail
the comprehensiveness of Morgan Stanley’s compliance program
and internal controls and Morgan Stanley’s due diligence
processes, including:

  • Between 2002 and 2008, Morgan Stanley employed over 500
    “dedicated compliance officers”;
  • Morgan Stanley’s compliance department had “direct
    lines” to Morgan Stanley’s Board of Directors and
    “regularly” reported through the Chief Legal Officer to
    the Chief Executive Officer;
  • Morgan Stanley employed “dedicated anti-corruption
    specialists” who drafted and maintained policies and
  • Morgan Stanley provided its employees with a toll-free
    compliance hotline;
  • Morgan Stanley’s Code of Conduct specifically addressed
    corruption risks and conduct that would violate the FCPA;
  • Between 2002 and 2008, Morgan Stanley held at least 54
    trainings on anti-corruption for groups of Asia-based
  • Between 2002 and 2008, Morgan Stanley trained Peterson on the
    FCPA at least seven times and provided Peterson at least 35 FCPA
    compliance reminders; and
  • Morgan Stanley required Peterson to certify his compliance with
    the FCPA on multiple occasions.10

In determining that “Morgan Stanley continually evaluated
and improved its compliance program and internal
controls,”11 DOJ seemingly reviewed Morgan
Stanley’s conduct regarding the business dealings exploited by
Peterson and found that Morgan Stanley acted appropriately. Indeed,
the DOJ charged Peterson with circumventing internal controls,
which itself is a concession that Morgan Stanley maintained an
appropriate compliance program. The DOJ press release announcing
Peterson’s guilty plea explained that, after examining all of
the facts and circumstances, DOJ “declined to bring any
enforcement action against Morgan Stanley.”12 The
DOJ’s determination to decline to prosecute Morgan Stanley was
no doubt influenced by its conclusion that Peterson “actively
sought to evade Morgan Stanley’s internal controls” and
“used a web of deceit to thwart Morgan Stanley’s
efforts.”13 Another reading of the case is that,
rather than declining to prosecute a viable case as a reward for
Morgan Stanley’s robust internal controls, the government did
not prosecute Morgan Stanley because it had engaged in no illegal
conduct and was itself a victim of Peterson’s
misconduct.14 The SEC, which also entered into a
settlement with Peterson, similarly acknowledged Morgan
Stanley’s internal controls regime and declined to charge
Morgan Stanley.15 In any event, the Morgan Stanley case
provides useful insight into what kind of compliance measures will
be considered robust by DOJ and the SEC, particularly in the
financial services industry.

4. Pfizer Settlement and Alternative

The largest settlement announced in 2012 was Pfizer Inc.’s
settlement of a trio of FCPA cases with DOJ and the SEC for $60
million, including a $15 million criminal fine and $45 million in
disgorgement.16 The charges against Pfizer stemmed from
approximately $2 million in bribes allegedly paid in high-risk
countries (including Russia, Kazakhstan, and China) to healthcare
practitioners at government-owned hospitals responsible for
prescribing medications and to officials of government healthcare
committees responsible for drug-related approvals.

Notably, the Pfizer settlement marks the first time DOJ
explicitly relied on the FCPA’s alternative jurisdiction
provision to charge a U.S. company. The alternative jurisdiction
provision, 15 U.S.C. § 78dd- 2(i), provides: “It shall be
unlawful for any United States person to corruptly do any act
outside the United States in furtherance of a [bribe to a foreign
official].” While the provision was invoked against an
individual in United States v. Salam, No. 06-CR-157
(D.D.C. June 7, 2006), it had not previously been used to charge a
U.S. company with an FCPA violation where there was no territorial
nexus to the United States. Previously, DOJ cited the alternative
jurisdiction provision when charging Willbros Group Inc. and its
subsidiary with violating the FCPA, but then proceeded to allege
that Willbros committed the violative acts in the United
States.17 In the Pfizer case, none of the corrupt
conduct was alleged to have occurred in the United States or to
have involved the use of the mails or any means or instrumentality
of interstate commerce.18 As a result, the Pfizer
settlement illustrates the FCPA’s potential breadth for a U.S.
company, which may be subject to the FCPA even if improper conduct
occurs wholly outside the United States.

5. Eli Lilly Settlement and the Importance of Due

In December 2012, the SEC announced that it had charged
Indianapolis-based pharmaceutical company Eli Lilly with FCPA
violations for improper payments its subsidiaries allegedly made to
foreign government officials to win millions of dollars of business
in Russia, Brazil, China, and Poland. Without admitting or denying
the SEC’s allegations, Eli Lilly agreed to pay more than $29
million in disgorgement, prejudgment interest, and civil penalties,
and to comply with certain undertakings, including the retention of
an independent consultant to review and make recommendations about
the company’s anti-corruption policies and procedures.

In announcing the settlement, the SEC cautioned that the case
demonstrates why company officials may not avert their eyes
“from what they do not wish to see” and should eschew a
“check the box” approach to compliance, and in particular
to third-party due diligence.19 While the settlement
papers did not specifically note the link, among the improper
payments made by Eli Lilly were charitable contributions made from
2000 to 2003 to the same Polish charity headed by the Polish
government official that led to Schering-Plough’s FCPA
settlement in 2004.20 That aspect of the Eli Lilly
settlement is a salient reminder that companies should be alert to
industry developments, and to potential repercussions of
settlements and prosecutions that relate to countries where they do
business, customers to whom they sell, and third parties with whom
they work.

6. Mergers Acquisitions Lead to Significant
Settlements and at Least One Non-Public Declination

In the mergers and acquisitions context, two public settlements
and at least one non-public declination from 2012 reflect
situations in which acquirers were charged with bribes paid by
newly acquired entities. These settlements underscore the
importance of conducting thorough FCPA due diligence to the extent
feasible before closing a deal and, equally, of rolling out with
alacrity a strong compliance program once a deal has closed.

  • Pfizer: The Pfizer settlement discussed above reflects
    the inheritance by Pfizer of liability for both pre- and
    post-closing improper payments by Pharmacia Corporation, acquired
    by Pfizer in 2003. Although Pfizer’s Croatian subsidiary ended
    the majority of the improper payments upon acquisition in 2003,
    Pfizer HCP Croatia permitted the problematic program to continue
    for one Pharmacia product until 2005.21 The charging
    papers indicate that DOJ and the SEC found fault with the nature
    and depth of Pfizer’s FCPA due diligence for the Pharmacia
    acquisition, and that DOJ and the SEC concluded that Pfizer may not
    have implemented an effective anti-corruption compliance program at
    the newly acquired Pharmacia entities quickly enough. By contrast,
    substantial post-closing due diligence and compliance program
    integration by Pfizer following its acquisition of Wyeth
    (maintained as a wholly owned subsidiary) in 2009 appears to have
    largely insulated Pfizer from liability for improper payments by
  • Orthofix: Orthofix International N.V., a Texas-based
    orthopedic products-maker, agreed to pay $7.4 million to resolve
    DOJ and SEC FCPA enforcement actions. Orthofix settled books and
    records and internal controls violations charges with the SEC and
    paid $5.2 million in disgorgement and prejudgment interest.
    Orthofix also entered into a three-year deferred prosecution
    agreement with DOJ and agreed to pay a $2.2 million criminal fine.
    The settlement related to improper payments made by Orthofix’s
    wholly owned Mexican subsidiary, Promeca S.A. de C.V. The DOJ
    alleged that “Orthofix N.V., which grew its direct
    distribution footprint in part by purchasing existing companies,
    often in high-risk markets, failed to engage in any serious form of
    corruption-related diligence before it purchased
    Promeca.”22 When the improper payments were made,
    “Promeca was subject to Orthofix’s control, including the
    implementation of internal controls at
  • Non-Public Declination: A U.S.-based issuer acquired a
    non-issuer U.S. company with a large international footprint.
    During the course of substantial pre-closing due diligence into the
    acquired company, the acquiring issuer uncovered several instances
    where potentially improper payments and travel and entertainment
    had been provided to government officials by the acquired company.
    Immediately upon closing, the acquiring issuer made a voluntary
    disclosure to DOJ and the SEC, conducted additional post-closing
    investigative work, fully remediated the potentially improper
    payment issues at the acquired company, and integrated the acquired
    company into the acquiring issuer’s robust compliance and
    training program. Neither the SEC nor DOJ brought charges and the
    latter issued a formal declination letter to the acquiring

7. Allianz and Issuer Status

In December 2012, the SEC announced that it had charged
German-based insurance and asset management company Allianz SE with
violating the books and records and internal controls provisions of
the FCPA in connection with improper payments by an Allianz
Indonesian subsidiary to government officials in Indonesia from
2001 to 2008.25 Without admitting or denying the
SEC’s findings, Allianz agreed to pay more than $12.3 million
in disgorgement, prejudgment interest, and civil penalties.

This settlement is noteworthy because Allianz voluntarily
delisted its stock from U.S. securities exchanges (and therefore
had ceased to be an issuer) some six months before the SEC
initiated its investigation and some three years before the
settlement with the SEC. The SEC premised jurisdiction on the
allegation that the misrecordings in Allianz’s books and
records and the internal controls deficiencies arose when Allianz
was an issuer. It is worth noting that, according to the SEC’s
Cease-and-Desist Order, allegations of improper conduct had been
raised with the company in 2005, but the company did not fully
remediate the problems.26 This alleged failure, while
the company was an issuer, may have been relevant to the SEC’s
decision to pursue the matter after Allianz had delisted. The
settlement underscores that, as has been seen in other FCPA
matters, the SEC will not flinch from exercising jurisdiction to
enforce the FCPA whenever the SEC may have some jurisdictional
ground to stand upon.

8. Noble Executives – Ruling on Motion to

On December 11, 2012, U.S. District Court Judge Keith Ellison
ruled on motions to dismiss filed by two former Noble Corp.
executives, Mark Jackson and James Ruehlen.27 He granted
the motion to dismiss the SEC’s claims seeking monetary damages
on statute-of-limitations grounds while denying the motion to
dismiss the agency’s claims seeking injunctive relief. The
monetary damages dismissal was without prejudice, giving the SEC an
opportunity to file an amended complaint, which the agency filed on
January 25, 2013.28 Like the original complaint filed in
February 2012, the SEC’s amended complaint against Jackson and
Ruehlen alleges that they violated the FCPA by “participating
in a bribery scheme to obtain illicit permits for oil rigs in
Nigeria in order to retain business under lucrative drilling
contracts.”29 The claim was principally based on
the same core set of facts as the November 2010 DOJ/SEC enforcement
action against their former employer, Noble Corp. Of particular

  • Statute of Limitations: Judge Ellison rejected the
    SEC’s argument that the statute of limitations should be tolled
    because of tolling agreements between the parties, the fraudulent
    concealment doctrine, and the continuing violations doctrine. The
    court granted the SEC leave to amend its complaint to cure pleading
    failures regarding the statute of limitations.
  • Facilitating Payments: After concluding that the
    legislative history of the FCPA “strongly supports” the
    conclusion that the SEC bears the burden of negating the
    facilitation payments exception, Judge Ellison granted leave to the
    SEC to amend its complaint in order to adequately plead that the
    behavior sought in exchange for the payments at issue were
    “discretionary functions” that would render them outside
    the facilitation payments exception.
  • Which Foreign Official?: Judge Ellison’s decision
    concluded that the identity of the foreign official receiving
    alleged bribes, or his day-to-day duties, need not be pleaded with
    specificity. In so concluding, Judge Ellison acknowledged his
    disagreement with U.S. District Court Judge Lynn Hughes, who came
    to the opposite conclusion in DOJ’s unsuccessful prosecution of
    John O’Shea, a former general manager and vice president of a
    unit of ABB Ltd., in Texas.30

9. SEC Policy Developments

Neither Admit Nor Deny: 2012 marked the end of the
SEC’s use of the “neither admit nor deny” approach to
settlements “where a defendant has admitted violations of the
criminal law.”31 A neither admit nor deny
settlement allowed a defendant to settle SEC charges while neither
admitting nor denying civil liability. This change affects SEC
settlements that involve parallel DOJ criminal convictions or
settlement agreements that include admissions or acknowledgments of
criminal conduct.32

Whistleblower Provisions: 2012 was the first full year
of the whistleblower provisions of the Dodd-Frank Act,33
and the impact of the SEC’s whistleblower program on FCPA
enforcement thus far remains unclear. The SEC’s 2012
whistleblower program report, released in November 2012, announced
that from October 1, 2011, through September 30, 2012, the SEC had
received 3,001 whistleblower tips, including 115 that were
FCPA-related.34 To date, it remains unclear whether any
of the FCPA complaints may qualify for an award. It is nevertheless
evident that the existence of the program has generated interest
among attorneys who specialize in representing whistleblowers and
has created new considerations for companies evaluating whether and
when to make proactive voluntary disclosures of potential FCPA
issues to enforcement authorities.

10. Trend Away from Imposition of Compliance

Starting at the end of 2009, both DOJ and the SEC appeared to
begin moving away from their regular imposition of external
compliance monitors, and that trend continued through 2012. Indeed,
there were no FCPA settlements in 2011 and only four settlements in
2012 (two of which involved medical device companies, discussed
below) in which either a compliance consultant or a compliance
monitor was imposed as a term of settlement.35

The waning use of compliance monitors in the past few years
suggests that both agencies are moving in certain cases toward
alternatives in FCPA settlements, including allowing companies to
“self-report” to the government on their implementation
of enhanced FCPA controls. The decline in the use of monitors may,
at least in part, be the result of judicial and other criticisms
leveled against DOJ regarding the selection of some monitors, which
resulted in DOJ adopting guidelines in 2008 for selecting
monitors.36 The government has also noted that, over
time, the quality of compliance programs overall has improved,
suggesting that there may be fewer cases in which monitors are

It appears that DOJ and the SEC were willing to allow companies
to self-report on their compliance and remediation efforts largely
in cases in which the companies had voluntarily disclosed the
conduct at issue, had cooperated with the government’s
investigation, and had made significant improvements to their FCPA
compliance regimes prior to and during the course of the
investigation. In a number of these cases, the voluntary disclosure
was described as “timely” and
“complete,”38 the cooperation provided to the
government as extraordinary, and remedial measures undertaken as
“extensive.”39 The extensive remediation and
improvements to the compliance systems and internal controls were
explicitly cited in a 2012 settlement as one of the reasons why the
company was not required to retain a compliance
monitor.40 The company that did not voluntarily disclose
the conduct under investigation was nonetheless not required to
retain a compliance monitor as part of its settlement in 2012; DOJ
praised the company for initiating an internal investigation and
providing real-time reports following the receipt of subpoenas in
connection with the government’s investigation, as well as its
“extraordinary” cooperation, “extensive, thorough,
and swift internal investigation,” and “extensive

The Guide reaffirmed that when determining whether to impose a
compliance monitor or compliance consultant requirement, DOJ and
the SEC take into account the quality of the company’s
compliance program at the time of the misconduct and subsequent
remediation efforts.42 According to the Guide, other
relevant factors include the seriousness of the offense, the
duration of the misconduct, the pervasiveness of the misconduct,
including whether the conduct cuts across geographic and/or product
lines, and the nature and size of the company.43
“[C]ompanies are sometimes allowed to engage in
selfmonitoring, typically in cases when the company has made a
voluntary disclosure, has been fully cooperative, and has
demonstrated a genuine commitment to reform.”44

11. Medical Device Industry Settlements

The medical device industry has been among the industries
targeted by FCPA enforcement officials since 2007 when a number of
companies settled domestic bribery cases. Joint DOJ and SEC
investigations of the industry yielded FCPA settlements with three
medical device companies in the past year.

  • Smith Nephew: In February 2012, Smith
    Nephew Inc., the Tennessee-based subsidiary of British medical
    device manufacturer Smith Nephew plc, admitted to bribing
    publicly employed Greek healthcare providers to induce them to
    purchase Smith Nephew products.45 As part of a
    deferred prosecution agreement with DOJ, Smith Nephew agreed
    to pay a $16.8 million criminal penalty and to retain a compliance
    monitor for 18 months. The company also disgorged $4 million in
    profits and paid $1.4 million in prejudgment interest to resolve
    related charges brought by the SEC.46
  • Biomet: In March 2012, medical device manufacturer
    Biomet Inc. entered into a deferred prosecution agreement with DOJ
    under which Biomet agreed to pay $17.28 million to resolve charges
    that its agents and employees bribed publicly employed healthcare
    providers in Argentina, Brazil, and China.47 Like Smith
    Nephew, Biomet agreed to engage a compliance monitor for 18
    months and also agreed to disgorge $5.4 million in profits and
    prejudgment interest to resolve related SEC
  • Orthofix: As noted above, in September 2012,
    Texas-based medical device company Orthofix International, N.V.
    agreed to pay $7.4 million to settle SEC and DOJ charges that its
    Mexican subsidiary bribed Mexican officials to secure lucrative
    sales contracts with Mexico’s healthcare and social services
    institution and falsely recorded the bribes as cash advances and
    promotional and training costs. 49

Looking ahead to 2013, we may see several of the following

  • The continuation and outcome of SEC “sweeps” related
    to financial institutions’ dealings with sovereign wealth
    funds, movie studios’ operations in China, and oil and gas
    companies’ business in Libya;
  • Developments in one or more of the more notable FCPA
    investigations involving companies such as Alcoa, Avon, News Corp.
    and Wal-Mart;
  • Judicial developments, including:
  • A decision from the 11th Circuit in the Haiti
    Teleco/Esquenazi appeal on whether personnel of a
    government-owned and -controlled company are covered by the
    FCPA’s definition of “foreign official.”
  • A decision from a district court in New York in the
    Straub/Magyar Telekom cases on the question of whether
    sending and receiving emails routed through or stored on U.S.
    computer servers is sufficient to establish a “territorial
    act” giving rise to territorial jurisdiction, even where the
    sender of the email did not foresee that the email would transit
    the U.S. server. The court will also likely address pending statute
    of limitations issues. The defendants in this case have raised
    statute of limitations defenses, arguing that the SEC’s claims
    are time barred. The SEC has responded that because the defendants
    have remained outside of the United States since their
    participation in the scheme, the limitations period has not yet
    begun to run.
  • Possibly increased scrutiny of SEC settlements, including Judge
    Richard Leon’s pending approvals of the SEC’s proposed
    settlements with IBM and Tyco. Judge Leon stated during a December
    2012 hearing that he was one of “a growing number of district
    judges who are increasingly concerned” that the SEC’s
    settlement practices are too lenient.50
  • Probable rise in the number of publicly known
  • Possible expansion of the Magnitsky Act, which bans certain
    Russian officials accused of corruption from entering the United
    States and streamlines the legal process to freeze their U.S.
    assets. In a December 2012 statement on the Senate floor, Senator
    John McCain called for expansion of the law to a global scale;
  • Compliance challenges related to planning for hospitality
    packages at the 2014 Olympics in Sochi, Russia and the 2014 World
    Cup in Brazil;
  • Criminal enforcement actions, including deferred prosecution
    agreements, by U.K. authorities under the U.K. Bribery Act;
  • Possible focus by enforcement officials on the technology
    industry, as evidenced by the number of investigations initiated
    against technology companies in 2012;
  • New leadership at DOJ and the SEC. On January 30, 2013, DOJ
    announced that Lanny A. Breuer, Assistant Attorney General for the
    Criminal Division, would leave the Department on March 1,
    2013.51 Robert Khuzami stepped down from his role as
    Director of the SEC’s Division of Enforcement in early January
    2013. As evidenced over their tenure and reiterated by their
    foreword to the 2012 Guide, both Breuer and Khuzami took an
    expansive view of FCPA interpretation and enforcement. A successor
    has not been named for either Breuer or Khuzami. In further change
    at the SEC, former chairwoman Mary Schapiro stepped down on
    December 14, 2012, and, on January 24, 2013, President Obama
    nominated Mary Jo White, a former United States Attorney for the
    Southern District of New York, to succeed her as


1. Initiated cases reflected in the chart below include
indictments, criminal informations, complaints or other charges
(including those that are simultaneously settled) filed by DOJ and
the SEC. Where charges are asserted against multiple entities
(e.g., both a parent and subsidiary) or multiple individuals, each
is counted as a separate initiated action. Although 2010 was
undeniably a banner year for the initiation of FCPA enforcement
actions, it bears mention that 22 of the enforcement actions
commenced in 2010 were individuals indicted in connection with the
Africa Sting Case.

2. In May and November 2012 filings with the SEC,
Wal-Mart noted that the Audit Committee of its Board of Directors
was “conducting an internal investigation into, among other
things, alleged violations of the [FCPA] and other alleged crimes
or misconduct in connection with foreign subsidiaries including
Wal-Mart de Mexico, S.A.B. de C.V. . . . and whether prior
allegations of such violations and/or misconduct were appropriately
handled by the Company” and that it had “been informed by
the DOJ and the SEC that it is also the subject of their respective
investigations into possible violations of the FCPA.”
See Wal-Mart Stores, Inc., Current Report (Form 8-K), at
2-3 (May 17, 2012); Wal-Mart Stores, Inc., Current Report (Form
8-K), at 1-2 (Nov. 15, 2012).

3. In February 2008, Alcoa Inc. (Alcoa) said it had
received notice on February 27, 2008 that Aluminium Bahrain B.S.C.
(Alba), a majority state-owned smelter in Bahrain, filed suit
against Alcoa, Alcoa World Alumina LLC (AWA), William Rice, and
Victor Phillip Dahdaleh, alleging that certain Alcoa entities and
their agents, including Dahdaleh, engaged in a 15-year conspiracy
to defraud Alba. After a four-year stay, concurrent government
investigation, Alba’s filing of an amended complaint, and a
series of filings and hearings throughout 2012, Alcoa and Alba
settled the civil lawsuit and, without admitting any liability,
Alcoa agreed to make a cash payment to Alba of $85 million payable
in two installments. The settlement only resolved Alba’s claims
against Alcoa, AWA and Rice; Alba’s lawsuit against Dahdaleh
remained. However, in November 2012, the federal judge presiding
over the matter administratively closed the case while discovery
was stayed pending Dahdaleh’s criminal trial in the United
Kingdom, as well as his petition for an interlocutory appeal. Alcoa
said in its most recent regulatory filing that investigations by
DOJ and the SEC into the matter were ongoing. See Alcoa
Inc., Quarterly Report (Form 10-Q), at 12 (Oct. 25, 2012). As of
this writing, the government’s investigations are

4. In February 2012, Judge Richard J. Leon granted
DOJ’s motion to dismiss the Superseding Indictment, and all
underlying indictments, against the remaining 16 defendants pending
trial in the FCPA Africa Sting Case. The motion noted that
“the government has carefully considered (1) the outcomes of
the first two trials in which, after extensive deliberations, the
juries remained hung as to seven defendants and acquitted two
defendants, and one defendant was acquitted on the sole charge
against him . . . ; (2) the impact of certain evidentiary and other
legal rulings in the first two trials and the implications of those
rulings for future trials, including with respect to Rule 404(b)
and other knowledge and intent evidence the government proposed to
introduce; and (3) the substantial government resources, as well as
judicial, defense, and jury resources, that would be necessary to
proceed with another four or more trials, given that the first two
trials combined lasted approximately six months. In light of all of
the foregoing, the government respectfully submits that continued
prosecution of this case is not warranted under the
circumstances.” In granting the motion, Judge Leon stated:
“This appears to be the end of a long and sad journey in the
annals of white collar prosecutions,” and “I, for one,
hope that this very long and, I suspect, very expensive ordeal will
be a true learning experience for the department and the FBI as
they regroup to prosecute FCPA cases against individuals.”
See Christopher M. Matthews, Government Drops
High-Profile FCPA Sting Case
, WALL ST. J., Feb. 21, 2012,
available at

5. In November 2009, former ABB Inc. general manager John
J. O’Shea was indicted on 18 counts of substantive FCPA,
conspiracy, money laundering, and obstruction-related offenses
arising out of the government’s investigation of his former
employer, ABB, and its corrupt dealings with a state-owned electric
utility company’s employees in Mexico. O’Shea’s trial
began in Texas in January 2012, and ended swiftly after four days
of government evidence presentation, at which time U.S. District
Court Judge Lynn Hughes granted O’Shea’s motion for a
judgment of acquittal as to the 12 substantive FCPA counts. Judge
Hughes expressed skepticism of the government’s evidence that
the payments at issue allegedly went to a government official,
noting that DOJ’s principal witness “knew almost
nothing” and that his testimony “was abstract and vague,
generally relating to gossip.” Judge Hughes also commented on
the difficulty of attributing particular payments to particular
government officials beyond a reasonable doubt. O’Shea’s
prosecution ended unsuccessfully for the government in February,
when Judge Hughes granted DOJ’s motion to dismiss the remaining
counts against him with prejudice. United States v.
, No. 09-CR-00629 (S.D. Tex. Jan. 16, 2012) (Trial
Transcript at 248).

6. In a February 2011 filing with the SEC, Avon Products,
Inc. (Avon) disclosed its three-year internal probe into possible
FCPA violations in China and other countries, as well as its
voluntary disclosure of the issues uncovered to DOJ and the SEC.
See Avon Products, Inc., Annual Report (Form 10-K), at 14
(Feb. 24, 2011). The probe reportedly stemmed from a 2005 internal
audit report that said Avon employees in China may have been
bribing officials in violation of the FCPA. See Samuel
Rubenfeld, Avon Bribery Case Presented to Grand Jury, WALL
ST. J., Feb. 13, 2012, available at
. In a regulatory filing in October 2011, Avon said that it had
received a subpoena from the SEC requesting certain documents and
information in connection with the FCPA matters previously
See Avon Products, Inc., Quarterly Report (Form
10-Q), at 11 (Oct. 27, 2011). One of the latest developments in the
long-running probe came in August 2012, when Avon said that it was
in talks with DOJ and the SEC to settle their respective
investigations. See Avon Products, Inc., Quarterly Report
(Form 10-Q), at 11-12 (Aug. 1, 2012). Two months later, Avon
announced that its Executive Chairman and member of the Board of
Directors, Andrea Jung, would step down from her role at the end of
2012. See Avon Products, Inc., Current Report (Form 8-K),
at 2 (Oct. 5, 2012). As of this writing, the government’s
investigation remained unresolved.

7. Indeed, Matthew S. Queler, Assistant Chief of
DOJ’s FCPA Unit, made this point in remarks given on January
29, 2013, at the C-5 Sixth Advanced European Forum on
Anti-Corruption in Frankfurt, Germany.

8. U.S. Department of Justice U.S. Securities and
Exchange Commission, A Resource Guide to the U.S. Foreign
Corrupt Practices Act

9. U.S. Department of Justice Press Release No. 12-534:
Former Morgan Stanley Managing Director Pleads Guilty for Role in
Evading Internal Controls Required by FCPA (Apr. 25, 2012);
United States v. Peterson, No. 12-CR-224 (Apr. 25, 2012)

10. United States v. Peterson, No. 12-CR-224
(E.D.N.Y. Apr. 25, 2012) (Information at ¶¶

11. United States v. Peterson, No. 12-CR-224
(E.D.N.Y. Apr. 25, 2012) (Information at ¶ 23).

12. U.S. Department of Justice Press Release No. 12-534:
Former Morgan Stanley Managing Director Pleads Guilty for Role in
Evading Internal Controls Required by FCPA (Apr. 25, 2012); see
Lanny A. Breuer, Assistant Attorney General, U.S.
Department of Justice, Prepared Address to IBC Legal’s World
Bribery Corruption Compliance Forum (Oct. 23, 2012) (“A
former managing director of Morgan Stanley, Peterson pleaded guilty
to conspiring to evade the bank’s internal FCPA controls and
was sentenced to prison in August. Because Morgan Stanley
voluntarily disclosed Peterson’s misconduct, fully cooperated
with our investigation and showed us that it maintained a rigorous
compliance program, including extensive training of bank employees
on the FCPA and other anti-corruption measures, we declined to
bring any enforcement action against the institution in connection
with Peterson’s conduct.”).

13. U.S. Department of Justice Press Release No. 12-534:
Former Morgan Stanley Managing Director Pleads Guilty for Role in
Evading Internal Controls Required by FCPA (Apr. 25,

14. It is worth noting that Peterson has challenged the
government’s conclusions regarding the sufficiency of Morgan
Stanley’s internal controls. Peterson criticized the government
in an interview with CNBC the day before his sentencing. Responding
to a question regarding whether Morgan Stanley threw him overboard,
Peterson said, “Morgan Stanley got off scot-free. And I think,
you know, I have no — you know, desire for them to be harmed in
any way, or you know. So — it’s not that. But what I feel bad
about is — the government lying to the — to the public. And —
saying that — they had this wonderful compliance — program, when
in fact the government knows that it wasn’t getting into
people’s heads. Which is what really matters.” CNBC Press
Release, CNBC Exclusive: CNBC Senior Correspondent Scott Cohn
Speaks with Former Managing Director Garth Peterson (Aug. 17,
2012), available at .

15. SEC v. Peterson, No. 12-CV-02033 (E.D.N.Y.
Apr. 25, 2012) (Complaint at ¶¶ 23-26); U.S. Securities
and Exchange Commission Press Release No. 2012-78: SEC Charges
Former Morgan Stanley Executive with FCPA Violations and Investment
Adviser Fraud (Apr. 25, 2012).

16. U.S. Department of Justice Press Release No. 12-980:
Pfizer H.C.P. Corp. Agrees to Pay $15 Million Penalty to Resolve
Foreign Bribery Investigation (Aug. 7, 2012); U.S. Securities and
Exchange Commission Press Release No. 2012-152: SEC Charges Pfizer
with FCPA Violations (Aug. 7, 2012).

17. See United States v. Willbros Grp., Inc.,
No. 08-CR-287 (S.D. Tex. May 14, 2008) (Information).

18. For additional discussion of the Pfizer settlements,
see R. Witten, K. Parker, J. Holtmeier, and T. Koffer,
Perspectives on Recent Anti-Corruption Developments (Sept.
18, 2012), available at

19. U.S. Securities and Exchange Commission Press Release
No. 2012-273: SEC Charges Eli Lilly and Company with FCPA
Violations (Dec. 20, 2012).

20. U.S. Securities and Exchange Commission Litig.
Release No. 18740: SEC Files Settled Enforcement Action Against
Schering-Plough Corporation for Foreign Corrupt Practices Act
Violations (June 9, 2004).

21. SEC v. Pfizer, Inc., No. 12-CV-1303 (D.D.C.
Aug. 7, 2012) (Complaint at ¶¶ 33-35).

22. United States v. Orthofix Int’l, N.V.,
No. 12-CR-150 (E.D. Tex. July 10, 2012) (Information at ¶

23. SEC v. Orthofix Int’l, N.V., No.
12-CV-419 (E.D. Tex. July 10, 2012) (Complaint at ¶ 10);
see also United States v. Orthofix Int’l, N.V., No.
12-CR-150 (E.D. Tex. July 10, 2012) (Information at ¶ 7)
(Orthofix “personnel based in the United States oversaw
Promeca’s activities, reviewed and approved Promeca’s
annual budgets, and had the authority to hire and fire
Promeca’s officers”).

24. WilmerHale is aware of this non-public declination as
a result of its representation of the buyer.

25. U.S. Securities and Exchange Commission Press Release
No. 2012-266: SEC Charges Germany-Based Allianz SE with FCPA
Violations (Dec. 17, 2012).

26. In the Matter of Allianz SE, Exchange Act Release No.
68448 (Dec. 17, 2012) (Order Instituting Cease-and-Desist

27. SEC v. Jackson, No. 12-CV-0563 (S.D. Tex.
Dec. 11, 2012) (Memorandum and Order on Motion to

28. SEC v. Jackson, No. 12-CV-0563 (S.D. Tex.
Jan. 25, 2013) (Amended Complaint).

29. U.S. Securities and Exchange Commission Press Release
No. 2012-32: SEC Charges Three Oil Services Executives with Bribing
Customs Officials in Nigeria (Feb. 24, 2012).

30. See United States v. O’Shea, No.
09-CR-629 (S.D. Tex. Jan. 16, 2012) (Trial Transcript at 227:
19-23); see also SEC v. Jackson, No. 12-CV-0563 (S.D. Tex.
Dec. 11, 2012) (Memorandum and Order on Motion to Dismiss at 25,

31. Robert Khuzami, Director of the SEC’s Enforcement
Division, Public Statement by SEC Staff; Recent Policy Change (Jan.
7, 2012), available at

32. Robert Khuzami, Director of the SEC’s Enforcement
Division, Public Statement by SEC Staff; Recent Policy Change (Jan.
7, 2012), available at
(explaining that it “seemed unnecessary for there to be a
‘neither admit’ provision in those cases where a defendant
had been criminally convicted of conduct that formed the basis of a
parallel civil enforcement proceeding”).

33. Dodd-Frank Wall Street Reform and Consumer Protection
Act, H.R. 4173, 111th Cong. (2010) § 922(a) (adding § 21F
to the Securities Exchange Act of 1934, 15 U.S.C. § 78a,
et seq.).

34. See U.S. Securities and Exchange Commission,
Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year
2012, at Appendix A, available at:

35. SEC v. Eli Lilly Co., No. 12-CV-2045
(D.D.C. Dec. 20, 2012) (Proposed Final Judgment at 6) (noting that
Eli Lilly had retained FTI Consulting “as an Independent
Review Organization”); United States v. Biomet, Inc.,
No. 12-CR-080 (D.D.C. Mar. 26, 2012) (Deferred Prosecution
Agreement at ¶ 8) (requiring Biomet to engage an independent
corporate compliance monitor for a period of not less than 18
months); SEC v. Biomet, No. 12-CV-454 (D.D.C.

27, 2012) (Final Judgment at 5) (Requiring Biomet to
retain an independent corporate compliance monitor); United
States v. Smith Nephew, Inc.
, No. 12-CR-030 (D.D.C. Feb.
6, 2012) (Deferred Prosecution Agreement at ¶ 8) (requiring
Smith Nephew to engage an independent corporate compliance
monitor for a period of not less than 18 months); SEC v. Smith
Nephew, Inc
., No. 12-CV-187 (D.D.C. Mar. 6, 2012) (Final
Judgment at 5) (requiring Smith Nephew to retain an
independent corporate compliance monitor); United States v.
Marubeni Corporation
, No. 12- CR-00022 (S.D. Tex. Jan. 17,
2012) (Deferred Prosecution Agreement at ¶ 10) (requiring
Marubeni to engage a corporate compliance consultant for a term of
two years to review the design and implementation of the
company’s compliance program).

36. See U.S. Department of Justice Memorandum of
Craig S. Morford, Selection and Use of Monitors in Deferred
Prosecution Agreements and Non-Prosecution Agreements with
Corporations (Mar. 7, 2008).

37. Speaking at the C-5 Sixth Advanced European Forum on
Anti-Corruption in Frankfurt, Germany on January 29, 2013, Charles
Cain, Deputy Chief of the SEC’s FCPA Unit, noted the improving
quality of compliance programs.

38. See, e.g., U.S. Department of Justice Press
Release No. 12-881: The Nordam Group Inc. Resolves Foreign Corrupt
Practices Act Violations and Agrees to Pay $2 Million Penalty (July
17, 2012) (noting Nordam’s “timely, voluntary and complete
disclosure of the conduct”).

39. See, e.g., U.S. Department of Justice Press
Release No. 12-1149: Subsidiary of Tyco International Ltd. Pleads
Guilty, Is Sentenced for Conspiracy to Violate the Foreign Corrupt
Practices Act (Sept. 24, 2012) (noting Tyco International
Ltd.’s extensive remediation, which included “the
implementation of an enhanced compliance program, the termination
of employees responsible for the improper payments and
falsification of books and records, the severing of contracts with
the responsible third-party agents and the closing of subsidiaries
due to compliance failures”).

40. See, e.g., U.S. Department of Justice Press
Release No. 12-980: Pfizer H.C.P. Corp. Agrees to Pay $15 Million
Penalty to Resolve Foreign Bribery Investigation (Aug. 7, 2012)
(“Due to Pfizer Inc.’s [parent company] extensive
remediation and improvement of its compliance systems and internal
controls, as well as the enhanced compliance undertakings included
in the agreement, Pfizer H.C.P. is not required to retain a
corporate monitor, but Pfizer Inc. must periodically report to the
department on implementation of its remediation and enhanced
compliance efforts for the duration of the

41. United States v. Data Systems Solutions
, No. 12-CR-262 (E.D. Va. June 18, 2012) (Deferred
Prosecution Agreement at ¶ 4).

42. U.S. Department of Justice U.S. Securities and
Exchange Commission, A Resource Guide to the U.S. Foreign
Corrupt Practices Act
(2012), at 7.

43. U.S. Department of Justice U.S. Securities and
Exchange Commission, A Resource Guide to the U.S. Foreign
Corrupt Practices Act
(2012), at 7.

44. U.S. Department of Justice U.S. Securities and
Exchange Commission, A Resource Guide to the U.S. Foreign
Corrupt Practices Act
(2012), at 7.

45. U.S. Department of Justice Press Release No. 12-166:
Medical Device Company Smith Nephew Resolves Foreign Corrupt
Practices Act Investigation (Feb. 6, 2012).

46. U.S. Securities and Exchange Commission Litig.
Release No. 22252: SEC Charges Smith Nephew PLC with Foreign
Bribery (Feb. 6, 2012).

47. United States v. Biomet, Inc., No.
12-CR-00080 (D.D.C. Mar. 26, 2012) (Deferred Prosecution Agreement
at ¶¶ 5, 15-20).

48. U.S. Department of Justice Press Release No. 12-373:
Third Medical Device Company Resolves Foreign Corrupt Practices Act
Investigation (Mar. 26, 2012); U.S. Securities and Exchange
Commission Press Release No. 2012-50: SEC Charges Medical Device
Company Biomet with Foreign Bribery (Mar. 26, 2012).

49. SEC v. Orthofix Int’l, N.V., No.
12-CV-00419 (E.D. Tex. July 10, 2012); United States v.
Orthofix Int’l, N.V
., No. 12- CR-150 (E.D. Tex. July 10,

50. On January 15, 2013, Judge Leon denied the SEC and
IBM’s January 10, 2013 joint motion for a 30-day continuance of
a status hearing set for February 4, 2013. SEC v. Int’l
Business Machs
., No. 11-CV-563 (D.D.C. Jan. 15, 2013) (Minute

51. U.S. Department of Justice Press Release No. 13-128:
Assistant Attorney General Lanny A. Breuer Announces Departure from
Department of Justice (Jan. 30, 2013).

52. Jessica Holzer, SEC Nominee Signals Shift,
WALL ST. J., Jan. 25, 2013.

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