Recent Top DOJ Official Shares Insights Into FCPA Policies, Enforcement Strategies, Public-Private Cooperation And Role Of The OECD

Monday, August 2, 2010 - 00:00

The Editor interviews Mark F. Mendelsohn, Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Editor: Your presence strengthens an already formidable FCPA team at Paul Weiss. Describe that team and its capabilities.

Mendelsohn: Paul Weiss has long been recognized as one of the leading law firms for handling high-stakes complex litigation, for conducting sensitive internal investigations and for defending all kinds of regulatory and criminal matters. The firm has done Foreign Corrupt Practices Act and global compliance work over the years, including internal investigations and advising multinational companies and financial institutions on issues arising under the FCPA and foreign anti-corruption laws. Now, we intend to have a leading practice in this area and to really grow it.

The firm's FCPA team includes two alumni of the SEC Enforcement Division, Walter Ricciardi, who was the deputy director of the SEC's Enforcement Division before he joined Paul Weiss, and Kevin Loftus. I had the pleasure of working on FCPA investigations with Kevin when I was at the DOJ and he was at the SEC. Our team also includes Jack Baughman, a litigation partner who is splitting his time between New York and London, and Richard Elliot, an international trade counsel who is an alumnus of the State Department Legal Advisor's Office. Richard adds deep expertise in sanctions, embargo and Exon-Florio issues, in addition to FCPA counseling expertise. I became part of the team when I joined the firm in June. I am based in Washington, but will also be spending time in our New York, London, Tokyo, Hong Kong and Beijing offices.

Beyond that, the firm has a long list of stellar white collar criminal defense attorneys, many of them alumni of the Justice Department and the U.S. Attorney's Office in the Southern District of New York. Just to mention a few, we have Ted Wells in New York, who has handled some significant FCPA internal investigations, Mark Pomerantz in New York, and Beth Wilkinson and Alex Oh, partners of mine here in DC, who are also alumnae of the Justice Department.

Editor: Describe the role you most recently played at the DOJ.

Mendelsohn: From the end of 2004 to April 2010, I was Deputy Chief of the Fraud Section in the Criminal Division of the Justice Department here in Washington. In that role, I was responsible for devising and overseeing the Justice Department's nationwide FCPA enforcement program. Unlike most federal criminal statutes which can be investigated and handled independently by any one of the U.S. Attorney's Offices around the country, FCPA investigations and prosecutions are run out of the Fraud Section because of the sensitive nature of the investigations, the unique skills necessary to conduct these investigations and the importance of coordinating with other U.S. government agencies when you're doing this kind of work. The Fraud Section, of course, often invites U.S. Attorney's Offices to partner with them in these cases.

During the period when I was Deputy Chief, I was involved in every FCPA investigation that was ongoing in the country, either personally conducting the investigation or, as was more common as the caseload grew, supervising the prosecutors who were conducting them. By the time I left the Department in April of this year, the Department had more then 150 FCPA cases under investigation. I had a team of about a dozen attorneys whose work I supervised. The Fraud Section, of course, also investigates other types of white collar crimes, not just FCPA violations.

In addition, I also had a wide array of policy responsibilities in connection with the Justice Department's effort to combat transnational bribery. One of those policy responsibilities was serving as the Justice Department's representative to the OECD's Working Group on Bribery. The OECD is an international organization that sponsors the OECD Anti-Bribery Convention, probably the most important international treaty in this area. I was a member of the U.S. Delegation to the OECD and the DOJ's representative there.

My other responsibilities included administering the Justice Department's FCPA opinion release procedure, a mechanism for obtaining an advisory opinion from the Department regarding whether some conduct that a person or a company wants to undertake would run afoul of the Department's enforcement efforts.

I was involved with quite a few other efforts that were underway across the U.S. government and more broadly to deal with corruption, including a Kleptocracy Working Group, work associated with the UN Convention Against Corruption, G8 and more recently G20 initiatives, World Bank initiatives, and various private sector and civil society efforts.

One particular priority of mine when I was with the Justice Department was forging relationships with foreign prosecutors and regulators who were tackling foreign bribery cases and collaborating with them. We worked to build relationships and real networks of prosecutors.

Through work on the Siemens case, DOJ developed a very close relationship with the Munich Public Prosecutors Office. Over the course of many years and many matters, the Fraud Section has developed an excellent relationship with the Serious Fraud Office in the UK, as well as with other prosecutors in many other jurisdictions. Building these international relationships was a very important part of what I did as part of the DOJ's efforts to level the playing field. Prosecutors and regulators in one jurisdiction, especially once they know each other, will notify their counterparts in other jurisdictions in which a target company does business of the opening of an investigation and arrange for exchanges of information.

One of the consequences of these networks of prosecutors, however, is that global companies find themselves confronted by multi-country investigations where it's not just DOJ and the SEC that are conducting an investigation, but there may be prosecutors and regulators from three, four or more different countries who are investigating the same company.

This may be effective from a law enforcement perspective, but it raises complications for a company that is trying to manage the situation. Even if the company wants to do the right thing and cooperate with each of the prosecutors and regulators, coping with this situation requires a special set of skills. This is a growing trend that will affect not just anticorruption enforcement but also antitrust, fraud and money laundering. One of my areas of specialization at Paul Weiss is helping companies navigate these waters.

Editor: I gather that you also teach at the University of Virginia Law School.

Mendelsohn: It is a wonderful opportunity for me to step back out of the day-to-day work at the Justice Department and now at Paul Weiss, and take a slightly more academic approach to the topic that I live and breathe every day. I teach with Professor Paul Stephan at the University of Virginia School of Law, and with a colleague and good friend Richard Dean. About three years ago they invited me to come in as a guest lecturer. I now join them and co-teach. It's just been a great experience so I am planning to continue doing that, as long as they will have me.

Editor: Tell us about the cooperation between the private sector and the DOJ.

Mendelsohn: People hear a lot about the Justice Department's landmark prosecutions, the big corporate fines and the corruption scandals, but they don't realize that the government and the private sector cooperate in a variety of ways to try to eliminate corruption on a global scale and to level the playing field so that our companies can compete. In many ways, the DOJ, the SEC and the private sector have formed a partnership to fight corruption worldwide.

The DOJ does its best, as an enforcement agency, to help companies comply with the FCPA. It offers an opinion release procedure, which is a formal mechanism for providing guidance to the private sector. Equally significant is the work that DOJ has done with the private sector in raising international compliance standards.

I think one of the interesting things that has happened over time as companies have become more effective in dealing internally with corruption risk is that compliance has improved significantly, particularly in large companies. There has been a very healthy dialogue between the DOJ, the SEC and the private sector to develop best practices for preventing and detecting corruption worldwide.

The high-water mark is a document which was agreed at the OECD just a few months before I left the DOJ. It is called the OECD Good Practice Guide for companies. It actually represents the first multi-governmentally endorsed set of standards for anticorruption compliance programs for companies to use.

Now for the first time you actually have all OECD governments endorsing a common set of principles and talking very directly to the private sector about the important role that they play in fighting corruption. It's actually one of the things I'm most proud of from my time in the Department.

Editor: You were involved in the prosecution of foreign headquartered companies. Why has this been important?

Mendelsohn: For a long time the U.S. has been out in front in prosecuting its companies and its citizens for bribing overseas. Some have argued that perhaps U.S. companies were either less ethical or more actively bribing officials overseas than companies in other countries because those companies weren't being prosecuted. That is clearly not true.

Prosecutions of such major foreign-headquartered companies as Siemens, Daimler and BAE have demonstrated that U.S. companies are no less ethical, no less compliant then foreign companies, and that in fact they generally have better compliance standards. The FCPA has been around since 1977 so our companies have been living under that law for a long time. And, Sarbanes-Oxley reinforced the need for our listed companies to have effective compliance controls.

In contrast, in many foreign countries foreign bribery was not illegal until recently. In Germany prior to 2001-2002, it was not only lawful, but government subsidized - in the sense that bribe payments were tax deductible. Change happens slowly sometimes in complex organizations like corporations.

If you talk to business people in Germany, the Siemens prosecution was an eye opener that caused German corporations to sit up and pay attention and look internally to see whether they needed to change their own business practices. As a result of the joint efforts of prosecutors in the U.S. and the UK, the BAE case became a game changer in the UK. In the wake of that prosecution, and as a result of international criticism, the UK eventually passed a tough anti-corruption law.

Editor: Have all the OECD countries implemented the Convention?

Mendelsohn: Although there are still some OECD countries where the legislation does not fully satisfy all of the requirements of the Convention, the focus today is on making sure that the OECD member countries have the investigators, prosecutors and other resources necessary for them to enforce their anticorruption laws - and that they have the political will to use them.

Recently, the OECD for the first time issued statistics on the level of enforcement in all the OECD countries. They show that while the U.S. and a small number of other countries have been actively enforcing their laws, there are many countries that have not, including a surprising number of countries that have brought no prosecutions. There is still a lot of work to be done on the enforcement side.

Editor: What is the role of reports by companies covering issues related to failures in FCPA compliance?

Mendelsohn: Such reports can play an important role. Relatively few are released publicly, but many reports and assessments are prepared internally by companies to assist in their remediation efforts.

The best reports reflect how a company has handled the investigation, disciplined wrongdoers and accomplished remediation. They analyze why the problem occurred in the first place, and then look at the lessons learned and how those can be applied to guard against future mistakes.

If those reports are made public, even in redacted or summary form, they can serve a very useful public, educational function so that other companies that have not perhaps had that type of corporate crisis can avoid problems.

Just to cite two examples, BAE commissioned Lord Woolf to conduct a compliance assessment and make recommendations for improvement. He issued a public report with his findings. By U.S. standards, the report and its recommendations didn't really break any new ground, but in the UK context they were actually relatively important in articulating some standards to guide UK companies.

Something similar happened with Aon, which was a London-based reinsurance company that came under scrutiny by the UK's Financial Services Authority. This triggered an industry-wide review by the FSA of anticorruption compliance issues in the reinsurance industry. The FSA's public report of that industry review has helped companies in that industry improve their compliance.

Here in the U.S., due to privilege concerns and litigation risks, fewer companies issue public reports beyond what they might disclose in a securities filing. However, guidance is also provided by the Justice Department. The plea agreements or deferred prosecution agreements following settlement of a case will typically include a set of minimum standards for a compliance program which the company must adopt. DOJ uses these settlements as an opportunity to communicate their compliance expectations to companies.

Editor: What is the role of a company's legal department and the general counsel?

Mendelsohn: The legal function usually plays a critical gatekeeper role and oversight role in most companies when it comes to compliance. Many companies will have a chief compliance officer, who in most cases is a lawyer, who is separate from the general counsel. This person sometimes reports directly to the general counsel and sometimes has a direct reporting chain to the audit committee. Whatever the reporting relationship, he or she works closely with the general counsel.

The general counsel plays a critical role in a number of respects. Number one is making sure that the company has in place the necessary compliance policies and procedures that are risk-based and tailored to the circumstances in that company. These give management comfort that corruption risks are addressed in a responsible way.

Well-staffed legal departments with good lines of communication to the business people are often able to head off potential compliance violations before a violation occurs. Specific compliance issues often do and should land on the desk of somebody in the legal function, not just for advice, but for review and approval. The other role that the legal department often plays is educating and training personnel within the company to make sure they understand what the rules are and where they should go if an issue arises or they see something that looks problematic.

In a large multinational company, you will often see members of the legal department not just at corporate headquarters but deployed around the world. This enables the legal department to provide real-time advice to business people, and to help keep tabs on what's going on around the world. It's often important that people in business units outside the U.S. have a local resource from whom they can seek guidance.

Editor: How important is the role of independent monitors?

Mendelsohn: They are used by the DOJ most often in cases where there are patterns of pervasive corruption within companies resulting in serious compliance breakdowns. In such cases, the DOJ usually believes it would be useful to have someone independent of the company and independent of the DOJ to come in to take a cold, hard look at what the company is doing with respect to compliance and to make recommendations for improvement. Almost every monitor thought it was important to have a dialogue with senior management at the company and with the board in order to assess whether the right tone was coming from the top of the organization.

It is true that from a company perspective, compliance monitors can be costly. Some companies have felt that there was at least the risk that monitors would be intrusive and might disrupt their businesses.

I believe that many companies that decided to embrace their compliance monitor and try to get a good return on their investment in the monitor found that they derived real value from the process. Almost always, they found that their compliance program was stronger for having had a monitor. And the work of the monitor generally gave DOJ greater confidence in the company going forward.

Editor: I understand there has been a trend on the part of the DOJ to prosecute individuals?Mendelsohn: That is correct. It was one of my top priorities when I came into the Fraud Section back in 2005 to focus our enforcement efforts not just on companies but also on individuals. I felt strongly that in order to have a significant deterrent effect the department should prosecute individuals, and that people needed to go to jail as a consequence of committing serious crimes like bribery.

The number of prosecutions of individuals for FCPA violations has gone up dramatically. Serious jail sentences are being imposed by courts on people who pled guilty or were convicted of FCPA violations. This has really changed the landscape in a positive way.

The most dramatic example of this was the major undercover sting operation which the Justice Department and the FBI conducted, resulting in the arrests of 22 individual defendants in January of this year. The fact that the FBI and DOJ were prepared to commit serious resources to an operation targeting individuals has, in my judgment, had a profound effect.

Editor: Do joint ventures, particularly in developing countries, create FCPA compliance issues?

Mendelsohn: What companies need to do in those circumstances is to pay attention to the way the JV is structured. They should look carefully at who has control to ensure that even if they don't have control, the joint venture itself adopts appropriate anticorruption policies and procedures and takes steps to mitigate corruption risk.

Companies should also make sure that they have an appropriate level of access to information and records to satisfy themselves that there are no problems or that if an issue arises that it will be properly investigated and handled. There are a lot of steps that a company can take to protect itself when it enters into a joint venture to ensure that it has the ability to either exit or force the other party to exit the arrangement if a major corruption issue arises.

Because of the many pitfalls, good outside lawyers can really play a very helpful role in advising a company how to navigate these treacherous waters.

Editor: Is advising with respect to sometimes difficult questions like those involving JVs something your group does?

Mendelsohn: Absolutely, I've already had occasion to provide advice just in my first months here to a firm client that is in a joint venture and is looking at some of those issues. Literally on a daily basis, I get questions from firm clients about, for example, hiring the relative of a government official and whether that's permissible and, if so, how it can be done in a lawful way. I also get questions about whether a certain payment does or does not meet the statutory definition of a facilitation payment. These are the kinds of FCPA compliance questions that we deal with all the time.

We also help companies and financial institutions draft and revise their anticorruption policies and procedures, train their personnel and do global compliance and risk assessments to help them make sure that their policies and procedures are sufficiently robust and in line with current standards.

Please email the interviewee at mmendelsohn@paulweiss.com with questions about this interview.