A Surprise in Progressive Rock – FCPA Internal Investigations

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Prog RockThis past weekend I saw some great bands and heard some great music. On Friday night I finally got to see Yes perform two fabulous albums, Close to the Edge and Fragile complete uncut and straight through. To say I was blown away would be putting it mildly. But there was one great revelation that I received from the show and that was the opening band, Syd Arthur. They are an English band, from Canterbury, and very much the inheritors of the prog rock mantle from bands such as Yes. Their sound was simply amazing and if you are into progressive rock at all, I would suggest you check them out.

I thought about my surprise on finding a more current and certainly younger band so proudly carrying the prog rock mantle when I returned back to Houston and was contacted by a reporter asking for my comments about the appeal of Shell v. Writt to the Texas Supreme Court. For those compliance practitioners amongst you who may have placed this state court libel action to the recesses of your mind or never even heard about it; it is something you should pay attention to as the case has some clear implications about the manner in which companies conduct and use internal investigations.

The case has a long involved Foreign Corrupt Practices Act (FCPA) history. It involves Panalpina and its customer Shell. David Smyth, in his great blog Cady Bar the Door, reported, in a post entitled “Texas Court of Appeals Has Put Some FCPA Internal Investigations in an Awkward Spot”, the Department of Justice (DOJ) contacted Shell about its dealings with Panalpina. Sometime later, “Shell agreed to conduct an internal investigation into its dealings with Panalpina. As Shell’s “managing counsel” later testified, “Shell agreed to conduct the internal investigation with the understanding that it would ultimately report its finding to the DOJ . . . .” A DOJ Fraud Section attorney wrote a follow-up letter noting, “[I]t is our understanding that Shell intends to voluntarily investigate its business dealings with Panalpina Inc. and all other Panalpina subsidiaries and affiliates.”” Unfortunately for all involved, “Shell submitted an investigative report that pointed the finger at Writt.  Specifically, Shell said Writt had been involved in illegal conduct in a Shell Nigerian project by recommending that Shell reimburse contractor payments he knew to be bribes and failing to report illegal contractor conduct he was aware of.”

Writt sued Shell for libel and Shell defeated Writt at the trial court on the basis that it had an “absolute privilege to say what it did in its investigative report to the DOJ.” In Texas absolute privilege applies because the unfettered flow of information to the judicial system and administrative proceedings is favored over the worry that someone might be wrongly named in such information.

However, a Texas Court of Appeals reversed the trial court ruling holding that absolute privilege does not apply where a party voluntarily turns over information to a prosecutor before a judicial proceeding is initiated or contemplated.

As Smyth explained, “In the court’s view, DOJ was acting purely in a prosecutorial and non-judicial capacity.  Shell submitted its investigative report on February 5, 2009, and DOJ did not file a criminal complaint against the company until November 2010, 20 months later.  As the court said, “Just because the DOJ ultimately filed a judicial proceeding against Shell does not establish that it was proposing that one be filed when it contacted Shell on July 3, 2007 or received Shell’s report on February 5, 2009.””

Shell has appealed this matter to the Texas Supreme Court. Under Texas law, an appeal to the Texas Supreme Court is discretionary and at this point, the Texas Supreme Court has not indicated whether it will accept the case. Interestingly the US Chamber of Commerce submitted a letter brief, on behalf of its members, urging the Texas Supreme Court to accept the case for review. In its penultimate paragraph it states, “At the end of the day, it is an unavoidable truth that any business that wishes to be a good corporate citizen by reporting its FCPA violations to regulators will necessarily implicate its own employees of wrongdoing. Thus, any rule that imposes costs on a company implicating its employees in wrongdoing will necessarily chill voluntary reporting of FCPA violations and impose unfair burdens on those companies who nonetheless choose to self-report.”

One of the more interesting arguments made by the Chamber was that there is currently enough incentive for companies to get investigations right. While noting that the Court of Appeals had worried about the “concern that absolute immunity from suit might motivate parties to “deflect blame” for FCPA violations onto its employees “without fear of consequence””; the Chamber said, “But there are more effective ways to prevent false reports. For example, false statements to government officials are already a crime punishable under 18 U.S.C. § 1001. Moreover, a false report against an employee would also implicate the business itself. After all, corporations act through their employees. Far from deflecting blame, then, a false accusation of an FCPA violation against an employee would incriminate the company as well.”

The real problem with this argument is that it leaves no remedy for any employee who is wrongly accused (libeled in legal parlance) in an internal FCPA investigation report. It has always been against the law to give false reports to government officials so nothing is new in that argument. One might argue that the civil justice system is better to evaluate such wrongful claims. But Smyth points to another reality when he ended his piece with the following, “FCPA investigations these days are a different animal, and probably deserving of different treatment by the courts.  As of now, a company conducting an internal FCPA investigation in Texas has to ask, what do we do if one of an investigation reveals one of our employees as a bad actor?  Do we say as much in the report we turn over to the government, as the government surely expects? If we do, are we signing on for libel litigation by the employee?”

Whatever the Texas Supreme Court decides, this case points to the need to do your best to get it right. That means having an investigation protocol that you can follow. It may mean having outside counsel handle an investigation when it is appropriate. If you conclude that one or more of your employees has violated the FCPA, you need to be able to back up that assertion with facts, evidence and reasonable inferences therefrom.

Topics:  Compliance, DOJ, FCPA, Internal Investigations, Investigations

Published In: General Business Updates, Criminal Law Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox | Attorney Advertising

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