Na-Nu Na-Nu – Final Report to Ork From Mork – Information from FCPA Inquiries

by Thomas Fox
Contact

Mork from OrkEd. Note: Na-Nu Na-Nu. We interrupt our daily blog post to provide this final report to the Planet Ork. Na-Nu Na-Nu 

To say that the American culture lost two prime cultural champions this week would be an understatement. The effect that Robin Williams and Lauren Bacall had on a variety of areas in this country probably cannot be measured. Over the next two blogs I will honor each of these larger than life personas and try to examine how they may impact your Foreign Corrupt Practices Act (FCPA), UK Bribery Act or other anti-corruption program. Today Robin Williams; tomorrow Lauren Bacall.

Where does one begin or even end with Robin Williams? His early work in standup comedy; his sitcom television performances; to his many guest appearances on TV variety shows; his incredible movie career – both live and animated; or even his well-known and very public struggles with substance abuse and depression. He was one incredible body of work. For almost any American who grew up in the 70s, we were introduced to Williams in the sitcom Mork and Mindy. His role as an alien allowed him to rift and comment on many human foibles. This was most thoroughly on display at the end of every episode when, in character as Mork, he would report back to his home planet of Ork on some aspect of terran culture. (Na-Nu Na-Nu)

This weekly communication informed both his home planet and us here on Planet Earth about ‘social norms’. I considered this form of communication when I read a recent article in the Wall Street Journal (WSJ), entitled “Venezuelan Firm Is Probed In U.S.”, by José De Córdoba and Christopher M. Matthews. They reported on a Venezuelan company, Derwick Associates (Derwick), who are under investigation by the Department of Justice (DOJ) and Manhattan District Attorney’s office. Derwick was reported to have been “awarded hundreds of millions of dollars in contracts in little more than a year to build power plants in Venezuela, shortly before the country’s power grid began to sputter in 2009”. Also under investigation is a Missouri based engineering, procurement and construction company, ProEnergy Services (ProEnergy), “that sold dozens of turbines to Derwick and helped build the plants”. The article reported that the DOJ’s “criminal fraud section are reviewing actions of Derwick and ProEnergy for possible violations of the Foreign Corrupt Practices Act”.

The article noted that this issue might have come to the attention of the DOJ and Manhattan DA through a lawyer at Derwick who voluntarily contacted federal prosecutors last year. Although it was not clear from the WSJ article if it was related to or even played a part in instigating the FCPA investigation, was information that Otto Reich, “the top State Department official for Latin America during the Administration of President George W. Bush, had filed a federal court lawsuit in 2013, alleging among other things that “Derwick and the company’s owners, among others, obtained contracts to build power stations in return for paying multimillion dollar bribes to senior Venezuelan officials.””

At least one of the basis of regulatory scrutiny was funding of a bribery scheme through overcharging for goods and services. The article reported “Federal prosecutors are scrutinizing the difference been prices ProEnergy charged Derwick for its equipment and the prices Derwick charged the Venezuelan government, a person familiar with the matter said. The person said that in some past FCPA cases, excessive margins were used to conceal bribes to pay foreign officials.”

Derwick, in a statement from its President Alejandro Betancourt, which was provided by its lawyer Adam Kaufmann, said, “Neither Derwick nor its principals have been contacted by any U.S. law enforcement agency.” Clearly this begs the question of whether the company has been contacted by any representatives of the US government who are not from a “law enforcement agency”. In a statement from ProEnergy, it declined to comment on any investigation.

Consider some of the information from this WSJ article. First is how did this case come to the attention of the DOJ? About all that can be said from the article is that Derwick did not self-disclose to the DOJ. However, given the relationship between the government of Venezuela and the US, is it really a surprise that large commercial transactions by US entities into Venezuela are scrutinized by the US government? Did the investigation come about from a whistleblower, i.e. the lawyer for Derwick? If yes, what is the legal obligation of lawyer to his or her client? What if the lawyer sees, observes or even inadvertently stumbles upon criminal activity? What if the lawyer removes documentation, which the lawyer believes demonstrates evidence of a crime?

I was also very intrigued by the information about investigators looking into pricing margins as indicia of corruption. One of the more increasing areas of FCPA scrutiny has been that of commission rates. This is because under circumstances, a high or unusual commission rate can be indicia of monies which are available by a third party, paid via commission, to use as a pot of money to pay bribes to foreign officials. If your typical commission is 5% or you have a range of 5% to 10%, but provide one third party a commission rate of 15%, this may be evidence that the unusual amount is being used as a mechanism to fund bribes.

However, simply focusing on the commission rate alone is too facile an inquiry. Even a commission rate below 5% can create quite an amount of money if the sales price is sufficiently high. In the energy industry, large service contracts or construction contracts can be huge, i.e. in excess of $1bn, and five percent of such an amount is a very large sum of money. It is, therefore, not unusual that in some contracts, the percentage commission will decrease with an increased contract price. The point is there is no one right or wrong commission rate. It will be a fact intensive inquiry.

Borrowing from a noted compliance practitioner, William Athanas, who has suggested an appropriate inquiry along the lines of the following: Where the third party requests a commission above the standard range, the policy should require a legitimate justification. Evaluating and endorsing such a justification requires three steps: (1) relevant information about the contemplated increased commission must be captured and memorialized; (2) requests for increased commissions should be evaluated in a streamlined fashion, with tiered levels of approval (higher commissions require higher ranking official approval); and (3) increased commissions are then tracked, along with the requests and authorizations, in order to facilitate auditing, testing and benchmarking. The point is there needs to be a well thought-out protocol, which is followed and well documented through the entire process.

Another insight that I gleaned from the WSJ article comes from the seller/customer relationship between Derwick and ProEnergy. ProEnergy is reported to have sold turbines to Derwick and have assisted in constructing the power plants. When your company sells a product to a customer, a compliance practitioner typically does not become involved in the negotiations over final pricing between your company’s customer and the end-user. ProEnergy may not have been concerned with the final pricing that Derwick charged their customer, the Venezuelan government. Indeed, the compliance function may not be involved with the commercial pricing between your company and its direct purchaser. This article may require you to change this posture. Was ProEnergy asked to reduce its price to Derwick so that Derwick could mark the price up enough to the Venezuelan government to create a pool of money that could be used to pay bribes? What if ProEnergy received its full listed price book rate but then Derwick charged a premium to the Venezuelan government?

Finally, what about risk? The WSJ article reported that Derwick’s President said “the company’s margins [with the Venezuelan government] were consistent with general industry practice and reflected the high financial risk taken on during a difficult time to do business in Venezuela.” If your company has a business opportunity that presents a high financial reward, is it necessarily because there is some high risk involved? That risk can be risk of getting paid, bringing the project in on time and within budget, political risk, weather-related risk or almost any other type of risk, but that risk might also be a corruption risk. While the WSJ article does not report on the size of the US Company involved in the inquiry, ProEnergy, it would seem that its commercial relationship with Derwick generated a large amount of income for the company. If your company has one of its largest contracts for work overseas, should there be compliance function review and scrutiny of the risks involved?

Are these inquiries that a compliance practitioner now needs to make? If so, how does a Chief Compliance Officer (CCO) make such an inquiries? I think Donna Boehme would say that it all begins with the compliance function ‘having a seat at the senior management table’ so that the CCO or compliance practitioner can be aware when some unusual business opportunity arises. Questions, questions, and more questions.

Na-Nu Na-Nu – this is the final report to Ork from Planet Earth. Na-Nu Na-Nu 

For a viewing of one of Mork’s reports to his home planet Ork, click here.

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, Compliance Evangelist | Attorney Advertising

Written by:

Thomas Fox
Contact
more
less

Compliance Evangelist on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!