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More prosecutions against individuals for violations of the Foreign Corrupt Practices Act

Screen Shot 2015-01-06 at 21.26.38The issue before the Court is whether Shell’s internal FCPA investigation is absolutely privileged from a defamation claim by persons named in the report as having violated the FCPA. The former employee claimed defamation from Shell’s report of its internal investigation provided to the Justice Department.

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Tom Fox | February 10, 2015

Extracts

The Justice Department has been continually criticized, from blog commentators to U.S. senators, for not having more prosecutions against individuals for violations of the Foreign Corrupt Practices Act.

Perhaps forgetting the Mitt Romney-ism that corporations are people too, one school of thought says that by only fining companies, the message is sent that getting caught for violations of the FCPA will simply be seen as a cost of doing business. Of course the more cynical might simply say corporations are tired of paying increasing FCPA fines.

In the category of, “be careful what you wish for,” however, that might be changing in a very dramatic way.

“For a company to receive full cooperation credit following a self-report, it must root out the misconduct and identify the individuals responsible, even if they are senior executives.”

So there it is for all to see. The Justice Department wants companies now to tee up their employees for prosecution. What are some of the implications of this new policy going forward?

We saw a preview of this in the PetroTiger prosecution against its former co-chief executive officer, Joe Sigelman, when the company’s former general counsel, Gregory Weisman, wore a video tape furnished by the FBI when he met with Sigelman. Sigelman filed a motion to quash this evidence claiming all these conversations were protected by the attorney-client privilege, but the federal district court denied the motion. The reason was that no legal issues were discussed during the meeting in Sigelman’s home, only the alleged payment(s) that served as the basis for the prosecution.

Most corporate executives think of a GC as their personal counsel as well as the counsel for the company. Indeed, Weisman was reported to have done personal legal work for Sigelman. This leads to a rather poor understanding of the nuances of the attorney-client privilege but the basics are that the client must seek legal advice from the lawyer, who then provides it. It all becomes more and more murky.

Let’s keep on skipping down the lane and see where we go. What if the company gets its investigation wrong and wrongfully identifies an employee? At least in a few states, such as Texas, a wronged employee can sue for defamation. That may not last longer, since a case is in front of the Texas Supreme Court where a wronged employee sued his former employer Shell Oil Co., who identified him in its internal FCPA investigation.

The issue before the Court is whether Shell’s internal FCPA investigation is absolutely privileged from a defamation claim by persons named in the report as having violated the FCPA. The former employee claimed defamation from Shell’s report of its internal investigation provided to the Justice Department. He lost at the trial court when it found that Shell had an absolute privilege because the report was turned over to a government agency investigating the matter.

The court of appeals reversed that decision, holding that because the internal investigation was voluntary rather than mandatory, only a conditional privilege existed. The case went back to the trial court for further proceedings. Shell appealed this court of appeals decision to the Texas Supreme Court. The smart money is on Shell to prevail in this case.

I do not pretend to know how some or all of these issues will play out. I do know when you set up systems designed to pit companies against their employees and vice versa, it does not make for a positive work place. So for all those who have complained about the lack of individual prosecutions, be careful what you ask for. You’re starting to get it.

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