In this episode of the FCPA Compliance Report, I am joined by Stewart Bishop, reporter at Law360. We discuss his coverage of the Roger Ng trial currently ongoing in New York. Highlights in include:
· Roger Ng relationship to 1 MDB scandal.
· Pre-trial issues.
· Timothy Leissner, direct and cross.
· Assessing the judge and jury.
· The discovery dispute.
· Covering such a lengthy trial.
Resources
The Compliance Podcast Network is thrilled to announce its latest podcast, All Things Investigations, a podcast from the law firm Hughes Hubbard & Reed LLP’s Anti-Corruption & Internal Investigations practice group. The group represents many of the premier companies around the world, providing advice on issues spanning the full anti-corruption and compliance spectrum. In this podcast host Tom Fox and members of the Hughes Hubbard Anti-Corruption & Internal Investigations practice group will highlight some of the key legal issues involved in white collar and other investigations, both domestically and internationally. We will tackle topical issues involved in investigations as well as explore how companies can help prevent and detect issues that arise in conducting business on a worldwide basis.
The inaugural episode features partner Mike Huneke, who has spent his career in both Washington, DC and Paris, France. For his entire 17-year career Huneke has been practicing in the anti-corruption space, on everything from investigations and government resolutions, acting as “buffer counsel” to companies subject to compliance monitors, third party and M&A due diligence, and proactive risk assessments and second-level compliance reviews. Most recently, Huneke and his colleagues were recognized for their role on the Airbus case by Global Investigations Review.
The subject of the podcast is the recent US District Court decision by Judge Kevin McNulty in the criminal case of US v. Coburn. McNulty is overseeing the criminal charges against former Cognizant Technology Solutions Corporation (Cognizant) executives Gordon J. Coburn and Steven Schwartz (Coburn; Schwartz or defendants) alleging violations of the Foreign Corrupt Practices Act (FCPA). Defendants had sought discovery from the Department of Justice (DOJ) consisting of materials turned over by counsel for Cognizant (outsourced investigation firm) to the DOJ in the company’s FCPA investigation. The defendants argued that Cognizant waived privilege over a broad category of documents when it disclosed a summary of its investigation findings to DOJ. The waiver, they argued, included “any communications regarding conduct alleged in the indictment and any materials related to Cognizant’s internal investigation.” Cognizant maintained that it did not waive the privilege over the entire internal investigation as the result of simply cooperating with DOJ or disclosing portions of investigative documents.
According to Huneke, Judge McNulty’s decision went back to “first principles. Why are we here? What are we doing? If you are sharing with the United States government privileged information, you have waived privilege by doing so.” That is not particularly controversial or new, but, as Huneke noted, “Judge McNulty then further granted a very broad waiver, a subject matter waiver of the privilege. Not only were interview memorandum from which external counsel read summaries to the government considered to have lost the protection of attorney-client privilege, but all documents supporting those memoranda, cited in those memoranda, drafts, notes or anything else based on which those memorandum were prepared were all ordered by Judge McNulty to be produced.”
It was this second step which Judge McNulty took that garnered much attention in the white-collar defense and FCPA defense bar. While Judge McNulty did not criticize making an oral presentation, he did say that if counsel makes an oral presentation to the DOJ, the underlying basis of that presentation is also not privileged and subject to discovery. Huneke noted, “it underscored there’s no kind of magic secret or magic protection that you get by doing something orally rather than in writing. I think there is a natural preference to maybe have an initial conversation orally with the government. This underscores the importance of reducing it to writing very soon afterwards. I assume that some of the thought behind giving an oral presentation and maybe not reducing it to a writing later is an idea that maybe you have some flexibility afterwards or there’s room to argue. If you are going to waive privilege anyway, it is probably a good practice to document what you think you said. Not only so that you and your client can anticipate what the potential waiver might be, but also to help you later, if you do have to make arguments against individuals who are pleading not guilty and fighting the prosecution about where the waiver line might have been drawn.”
Employees who are individually charged are really the “wild cards” in all of this. Huneke said, “they have nothing to lose at this point. Companies are ongoing concerns for them, the important thing is to resolve the matter and move on and get out.” It could involve the risk of debarment, and the potential impact on their stock price for example. Indicted individuals are often no longer employed. If they were executives there may be a legal or contractual right to advancement of their legal fees. They could well be facing jail time. Huneke concluded, “it is not surprising to see them really throwing the kitchen sink at it in furtherance of their defense. Moreover, they are none too pleased with the perceived infiltration of their legal team by the government or the way, probably in their view, the company turned on them.”
The bottom line is for investigative counsel, whether outsourced or in-house, to understand that their entire investigation, notes, memoranda, ideas and investigations may all be turned over to counsel for defendants if individuals are charged. Huneke emphasized that this ruling does not prevent outside or outsourced counsel from effectively investigating potential FCPA claims or negotiating with the government. If there is a settlement reached, it is “based on full information and everyone having the same information. We would rather the government have more, rather than less information, to make sure we are not accused later, of having not provided something to the DOJ that we should have. It does mean it will create additional burdens on the government to track what information it receives. If the government wishes to take a strict view of its disclosure obligations to then individual defendants, and there will be more documents it needs to carefully track and monitor and make sure it is complying with of those obligations.”
Huneke concluded, “if the DOJ is going to reinstitute the full force of the Yates Memo regarding its prosecution of individuals, it may well create additional cost and a longer tail to the consequence of these things. It could also require, going forward, defense counsel to take a very disciplined and well documented approach with the DOJ.” It certainly does not mean you cannot have informal discussions with the DOJ, but it does mean any document response must be “meticulously detailed, documented, cataloged, including the reasons for any redactions or things held back for privilege otherwise.”
You can check out the full podcast with Mike Huneke on All Things Investigations. To find out more about the Hughes Hubbard Anti-Corruption & Internal Investigations practice group click here. All Things Investigationswill post every other Monday on the Compliance Podcast Network.
On this April Fool’s Day for 2022, Tom and Jay are back to look at some of the week’s top compliance and ethics stories in the Slap Seen ‘Round the World edition.
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One of the most interesting Foreign Corrupt Practices Act (FCPA) criminal trials in sometime is ongoing in New York, that of Roger Ng. The lead up to the trial and in trial reporting efforts have been led by Law360and its lead reporter Stewart Bishop and most of information in this post comes from that site. Unfortunately, it is behind a paywall so if you want to follow it going forward you will have to subscribe. According to Bishop, Ng was charged with conspiring to violate the FCPA and money laundering conspiracy along with his employer Goldman Sachs Group, Inc., its former Southeast Asia chairman Tim Leissner and financier Jho Low. The charges were bribery of “Malaysian and Emirati officials and to circumvent the internal accounting controls of Goldman, which underwrote more than $6 billion in bonds issued by 1MDB in three offerings in 2012 and 2013. Leissner pled guilty over his role in the alleged scheme, while Low has remained abroad, out of reach of U.S. authorities for now.”
The prosecution’s case turns almost exclusively on the testimony of Leissner, one of the most pathological liars ever to grace the witness stand. Indeed, Matthew Goldstein, writing in the New York Times, reported this question by Ng’s defense counsel to Leissner, “Do you think you are good at lying?” Leissner demurred on this question but did admit he had “lied a lot”. Goldstein cited to Rebecca Roiphe, a former prosecutor and a professor at New York Law School who specializes in legal ethics, who related “it could be tricky to rely on such a witness, but “it isn’t a fatal blow.”” She said a prosecutor can argue that a witness is “a horrible person” and “a serial liar” who has had “a come-to-Jesus moment. That can work when you have really bad people who have lied a lot,” she said.””
What do Leissner’s admitted lies consist of? Leissner admitted under cross-examination that he had presented “a bogus divorce decree to his now-estranged wife, the model and fashion designer Kimora Lee Simmons, so that she would marry him eight years ago.” Defense counsel also got Leissner to “recount the many ways he deceived his wives, particularly Ms. Simmons. Mr. Leissner admitted that he had used an email account in the name of his second wife, Judy Chan, to communicate with Ms. Simmons while dating her, and that he was still married to Ms. Chan when he and Ms. Simmons were wed. (Mr. Leissner was also legally married to another woman when he married Ms. Chan.)” Leissner also admitted that some $10MM of his ill-gotten gain from 1MDB was used to “buy a $10 million house for one of his girlfriends (while married) so she would not go to the authorities.”
Of course, Leissner now maintains he is “telling the truth about Mr. Ng, who prosecutors say helped line the pockets of officials in Abu Dhabi and powerful Malaysians close to then Prime Minister Najib Razak.” Leissner testified “Mr. Ng was his primary contact at Goldman, which earned roughly $600 million in fees to arrange the $6.5 billion in bond deals for the fund. “Roger made him one of his clients,” Mr. Leissner said. He testified that Mr. Ng had set up many of the meetings to plan the scheme, including one at Mr. Low’s London apartment during which Mr. Low drew boxes on a piece of paper with the names of all the officials that would get bribes and gifts. For helping arrange the payments, Mr. Leissner said, he raked in more than $80 million. Prosecutors contend that Mr. Ng’s share was $35 million.” Leissner tried to paint Ng as someone very close to Low, even placing Ng “at a star-studded 31st birthday party that Mr. Low arranged for himself in Las Vegas in 2012, although Mr. Ng was not on the guest list.”
But here’s problem No. 1 with this testimony, Ng always worked for and under Leissner during the 1MDB scandal and not the other way round. Leissner admitted under cross that “he — not Mr. Ng — oversaw the payment of most of the bribe money.” As Roiphe later told Goldman, “In a case like this, you hope to avoid a situation where you have a cooperator testifying against someone who is a subordinate.”
Then there is problem No. 2 for the prosecution, which is the government’s claim that Ng received some $35 million in ill-gotten gains from the 1MDB scandal. Ng’s lawyers have responded that any money Ng received, was repayment of a debt one of Leissner’s wives owed Ng’s wife. The prosecution has to show Ng received this money.
As further reported by Bishop, the prosecution concluded its direct case with “An FBI agent on Tuesday outlined how kickbacks allegedly flowed from Malaysian sovereign wealth fund 1MDB to former Goldman Sachs managing director Roger Ng and others.” Bishop wrote the monies allegedly from Chan Leissner’s account, “to another shell company in the name of Ng’s mother-in-law, initially called Silken Waters but later changed to Victoria Square.” Then came another web of shell company transfers into entities controlled by some combination of Ng, his wife, Lim Hwee Bin, and Lim’s mother. Around $300,000 was spent on diamond jewelry, another $20,000 for an hourglass and over $200,000 for the purchase of Bristol Myers Squibb shares, according to the government.” Finally, there was another $3.15 million which went into yet another “account the government couldn’t identify.” Nothing in this adds up to $35 million.
Got all that. Does that money transfer convince you that Ng was the mastermind that Leissner and the government is trying to make him out to be? By putting one of the great liars of all time on the stand as their key witness with only this as the ‘documented’ evidence, the government is risking everything on Leissner’s testimony; that it will be believable and credible and will not taint the government’s case in one juror’s eyes so the government can garner a guilty verdict. Remember, it doesn’t take 12 to acquit, only one.
There is lots of other unbelievable things going on in the Ng trial, but I will save them for another day.
What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. In Part 2, we turn to the question of what is transfer pricing and what does this have to do with compliance?
We began at the beginning – what is transfer pricing and what methodologies are used to determine or estimate price transactions? Howell began with the rather astute obligation that if you are “a compliance officer and you can say anything more than just the words “transfer pricing”, you are indeed an FOT (Friend of Tax).” He went onto explain, “Transfer pricing encompasses the methodologies required by tax code and regulations around the world to price transactions between affiliated companies. It is the provision of and sale of goods between affiliates, sale of services, provision of services, including the licensing of intangibles. Finally, transfer pricing requires you to press the transactions at an arm’s length rate.”
Transfer pricing is a critical issue when you have transactions between related parties, which in a large multi-national organization is almost always. To help illustrate the issues involved, Howell compared two transactions. First if you are selling goods, “such as Ford Motor Company selling an automobile, it is easily comparable if manufactured in Canada and sold to the US, because you could compare that transaction to something that was manufactured by Chevrolet.” However, Howell noted, “when it gets really complicated is if you’re manufacturing proprietary products. In oilfield services for instance, your organization might manufacture a very unique valve. What would the arms-length rate be if it’s manufactured in the US and sold to Mexico?” Here the tax professional must have a process to prove the arms-length rate of value for sale between related parties. The methodology to do so would be to get some comparables for those kinds of transactions. But this may be hard to do if you are selling proprietary top specialized manufactured equipment.
As Howell related, “it becomes an art, and that art is developing and applying an arms-length rate for comparable transactions between comparable entities. Even trickier is if a one-off piece of equipment does not have a comparable, so then you have to broaden the scope of finding manufactured goods, for instance, or something comparable. It is an art and its normally tax issues of an exact nature and transfer pricing is not but the key is to have a defined methodology.”
We then turned to the several entities involved in the government side of transfer pricing and how they may at times be at odds, complicating the job of the tax professional as well as the compliance practitioner. Initially Howell noted that governments are involved with their different regimes for the selling and buying side of tax jurisdictions. This means in every case you have a seller of goods or services and a buyer. The objective of governments and their taxing jurisdictions is to get their fair share. In reality, this means that every government is trying to expand its tax base. They do that by trying to grab as much of multi-jurisdictional transactions profit as possible.
Then there are third party organizations that are involved, such as the Organization of Economic Cooperation and Development (OECD). The OECD is pushing standard transfer pricing laws and regulations throughout the world. They provide model laws, treaties and transfer pricing strategies. As Howell noted, their objective is to “try to standardize the government’s laws and regulations, so that you do not have a mismatch between very aggressive and very liberal transfer pricing laws. The OECD is trying to provide some guidance on what is a fair share.” But as Howell further related, “at the end of the day, what is fair? And that’s just somebody’s opinion; what is fair.”
We concluded with a look at the transfer pricing negotiation process. Most interestingly, the process Howell described mirrored the process when negotiating with the Department of Justice (DOJ) in a Foreign Corrupt Practices Act (FCPA) investigation or enforcement action. It all starts with your credibility. You must demonstrate credibility to the taxing authority and then back up that credibility with documentation (Document, Document, and Document). From there it is demonstrating your consistent process and methodology to demonstrate how you came up with a rate for transfer pricing of a good or service, similar to how a CCO would demonstrate compliance program effectiveness to the DOJ. But here the tax professional will face an added wrinkle from a that of a CCO. Howell explained that if you are in a country like Kazakhstan, your submission must in the format required by Kazakh law. If you are required to use local language in your submission, you are partway there. Howell ended with “you have not gone all the way. You must follow the laws, even if they are a little bit different. That includes language and formatting in all your jurisdictions.”
Join us tomorrow when we explain why tax needs a seat at the table. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.
What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. We begin with why compliance should talk to tax and why tax needs to have a seat at the table when it comes to a best practices compliance program.
All publicly traded companies and all organizations have an Enterprise Risk Management (ERM) system. Companies, especially compliance professionals, work diligently to assess and then monitored the identified risks. Moreover, significant efforts are put in place to mitigate and manage these risks. A key risk that every multinational company’s faces is corporate tax. Unfortunately, as Howell noted, “many times corporate tax risk remains under the radar from what is characterized as your normal risk. An entity normally will identify the risk, a legal risk, environmental risk, transactional risk, supply chain risk, and others. But one of the risks that frequently doesn’t get much attention in a formalized ERM program is tax risk.”
These tax risks can be substantial, especially for multinational companies operating in many jurisdictions. Across the globe, jurisdictions are in different stages of development economically and Rule of Law sophistication, which includes tax jurisprudence. This means there are different levels of risk associated with where a company is performing its work, what type of work it is it doing, how it is delivering goods and services and the overall development of the jurisdiction.
Howell asserted that experienced international tax professionals and multinational entities are usually very good at identifying and mitigating tax risk. Unfortunately, such specialized risk management talent does not usually get outside the visibility of a tax department. Howell provided an example of a transactional risk where a company manufactured in one country and then sold the goods through a foreign affiliate in another country to a customer in a third country. “An Indian affiliate contracted with a customer in outside India. The Indian entity needed for the sale of a manufactured good in the US, but it was a drop shipment. The sale was between the Indian entity and a third-party for the delivery in a third country. Legally, the contract went from US to India to the third party in the third country. However, the flow of goods went in a different way; going directly from the US directly to the third country. Internally, the India subsidiary reported the third-party sale as income and then India was trying to deny the deduction for those goods because the goods never entered the territory of India. In other words, India is saying, okay, we’re going to tax the revenue, but we’re not going to let you deduct the cost of goods. And that’s because the goods never entered and left, were exported for the country. It was a tax risk, and it was huge.”
Typically, such a series of events would have no visibility to the corporate compliance function. Now imagine that same series of events where a tax dispute arises and goes on for literally years. Would compliance ever have visibility into it? What would happen if a bribe was paid, or other type of illegal conduct was involved to resolve it? Now you can perhaps begin to see the issue, more particularly if you consider the Lisa Monaco October 2021 speech about the Department of Justice (DOJ) reviewing all disputes and corporate culture.
This type of problem is amplified globally because of the differences in maturity of governmental tax functions across the globe. I asked Howell about this key difference. He said, “it’s the difference between night and day. I lived and worked in Canada, a very mature, sophisticated and developed tax regime, great environment for jurisprudence. And one of the things you learn once you go outside of the US to get rid of the idea of asking the question, well, this is different, why does it work that way? You focus on the rules, laws, and regulations.”
Howell then compared the maturity and sophistication of the tax regime in Canada with that in Russia. He said, “You compare it to some of the other jurisdictions that I’ve lived and worked in, most jurisdictions will all have a tax code, but the street rules or the rules of the jungle play, those are in play. You go into the remote parts of a country that’s five time zones away where it’s very cold and you’re summoned by a tax official in a very remote place, they want to audit you, you’re a multinational. You’re thinking in a traditional sense, this is very organized, there’s a tax law which is your taxable on profits, but the conversation goes something like the following, “Okay, how much tax are you going to pay me?” That’s the question that was asked by a tax official. And I said, “Well, it’s all calculated based on profits, you have the tax returns.” He said, “No, I want to know, how much are you going to pay me now to resolve this?” And he says, “I have a budget and I have to have some contributions.””
This means the tax function must establish the fact that you do not pay bribes, you do not make facilitating payments regarding tax issues, or any other types of payments and, as Howell noted, “you make it real clear. The reality is if you are doing business outside the US more than likely your organization will have complicated tax issues and while it may seem more expensive to deal with them above board, the bottom is you have to follow the Foreign Corrupt Practices Act (FCPA) so you do not put the company at risk, but you have to be strong and you have to be firm.”
Join us tomorrow when we discuss transfer pricing. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What are some of the skills a CCO needs to navigate the compliance waters in any company successfully? What are some of the top challenges CCOs have faced, and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, my guest is Audrey Harris, who handled FCPA cases before the explosion of FCPA enforcement actions in the early 2000s, sat in the CCO Chair, led compliance program work back in private practice, and now as Managing Director for Global Anti-corruption, Compliance, Ethics & Non-Financial Risk at Affiliated Monitors Inc.
Audrey graduated from Central Florida with a BA, got a MA at the University of Miami, and her law degree from Georgetown. A question about whether she wanted to go to South Beach when she was a summer clerk at Kirkland & Ellis led to FCPA work and eventual partnership at Kirkland. When she began, it was a different time in FCPA enforcement, pre-2004, and the explosion in FCPA growth. In this role, she loved problem-solving and seeing patterns, and asking why (and why and why).
Resources
Audrey Harris on LinkedIn
Audrey Harris on Affiliated Monitors, Inc.
As Russia invades Ukraine, Tom and Jay settle in and are back looking at some of the week’s top compliance and ethics stories this week in the Russia Invades edition.
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Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
