• DOJ and SEC Release Updated Guidance On The FCPA

    By Emlyn Mandel.

    The Foreign Corrupt Practices Act doesn’t ensnare just those involved in foreign corruption. It also can cover conduct in the United States that has nothing to do with either foreign officials or bribery schemes. So the recent release of the government’s new edition of the FCPA Resource Guide is worth noting even for those staying close to home.

    The FCPA has two main components: an anti-bribery provision, which prohibits bribery of foreign officials, and accounting provisions, which require certain reporting companies to keep accurate books and records and maintain a system of internal accounting controls. The FCPA can be prosecuted both criminally by the U.S. Department of Justice and civilly by the Securities and Exchange Commission. In July 2020, the DOJ and SEC released the Second Edition to the FCPA Resource Guide, a manual relied upon heavily by practitioners and businesses in navigating the FCPA.[1] The release marks the first substantive update to the Resource Guide since the First Edition was published in 2012. The Resource Guide is particularly valuable given the dearth of case law interpreting the FCPA.

    The Second Edition reflects updates in the law over the past eight years in a number of different areas, including the definition of the term “foreign official;” the jurisdictional reach of the FCPA; the FCPA’s “foreign written laws” affirmative defense; the mens rea requirement and statute of limitations for criminal violations of the accounting provisions; updated data, statistics, and case examples; and new policies applicable to the FCPA that have been announced over the past several years by the DOJ and SEC.

    A number of these changes are particularly noteworthy.

    Insight on Who Can Be Prosecuted Under the FCPA

    The jurisdictional reach of the FCPA has long been subject to debate. The anti-bribery provision of the FCPA lays out several categories of persons over whom the government may exercise jurisdiction, including “domestic concerns” (any individual who is a citizen, national, or resident of the United States or a business organized under United States law or with its principal place of business in the United States), no matter where in the world they act; companies issuing securities regulated by federal law (“issuers”), no matter where in the world they act; any officer, director, employee, or agent of a domestic concern or issuer, no matter where in the world they act; and foreign persons (including foreign nationals and companies) acting in the territory of the United States.[2] The Resource Guide now mentions a recent Second Circuit case that had the effect of limiting jurisdiction, United States v. Hoskins.[3] Hoskins held that a nonresident foreign national who was not an agent of a United States company and who acted outside American territory to allegedly participate in a foreign bribery scheme could not be liable for conspiracy to violate the FCPA, since such an individual was not in the class of individuals capable of committing a substantive FCPA violation. However, the government’s willingness to be guided by Hoskins in bringing future conspiracy prosecutions or enforcement actions is unclear, as the Resource Guide acknowledges conflicting authority from another jurisdiction.

    Nevertheless, the Resource Guide does make some edits that align with the Hoskins holding. While the Resource Guide still asserts that a foreign national who engages in activity in American territory, such as by attending a meeting in the United States that furthers a foreign bribery scheme, may be subject to prosecution, it conspicuously removes language from the prior version that previously indicated “any co-conspirators, even if they did not themselves attend the meeting” may be subject to prosecution. It also removes the statement that a foreign national or company may be liable if she or it assists an issuer, regardless of whether the foreign national or company itself takes any action in the United States. In doing so it acknowledges that there is a limit to those whom the FCPA can reach.

    Contrary to the specific delineations in the anti-bribery provision, the accounting provisions apply to “any person.”[4] In that vein, the Resource Guide points out that the Hoskins holding does not extend to violations of the FCPA’s accounting provisions – an indication that the DOJ and SEC are likely to continue prosecuting violations of the accounting provisions even without an accompanying bribery charge. This is not new – a number of the options backdating cases of the 2000s were based in part on the FCPA.  The DOJ’s willingness to continue to bring charges based on the FCPA’s accounting provision is evident in, for example, the deferred prosecution agreement (“DPA”) between the DOJ and Novartis AG announced at the end of June 2020.  While one Novartis subsidiary was charged with violations of both the anti-bribery and the accounting provisions, former Novartis AG subsidiary Alcon Pte. Ltd. was charged only with conspiracy to violate the accounting provision.[5]

    Definition of “Instrumentality” Within The Definition of “Foreign Official”

    The FCPA’s anti-bribery provision prohibits corrupt payments to “any foreign official.” The FCPA defines “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof,”[6] a standard that can be difficult to evaluate given the sometimes murky intersection of government and business in countries such as China. The Resource Guide now incorporates important case law from the Eleventh Circuit that defines “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”[7] Esquenazi provided a list of five non-exhaustive factors that courts should consider in a fact-based analysis of whether the government “controls” an entity: the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fiscal accounts, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed. Esquenazi also provided a list of four non-exhaustive factors regarding whether the entity performs a function the government “treats as its own”: whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.

    The Resource Guide notes that companies should consider these factors when evaluating the risk of FCPA violations and designing compliance programs.

    Clarification of the Statute of Limitations and Mental State Requirement for Criminal Violations of Accounting Provisions

    While criminal violations of the anti-bribery provisions carry a five-year statute of limitations,[8] the Resource Guide clarifies that criminal violations of the accounting provisions carry a six-year statute of limitations.[9] In contrast, the statute of limitations is five years in civil cases brought by the SEC.[10]

    In addition, the Resource Guide explains that, for criminal violations of the accounting provisions, prosecutors must show the violation was done “knowingly and willfully” rather than only “knowingly” as provided in the First Edition. This difference matters, as it provides a higher mens rea bar for prosecutors to meet. The Resource Guide acknowledges that “willfully” is not defined in the FCPA but remarks that it has generally been construed by courts to connote an act committed voluntarily and purposefully and with a bad purpose, i.e., with “knowledge that [a defendant] was doing a ‘bad’ act under the general rules of law.” However, the government need not prove that the defendant was specifically aware of the FCPA or knew that his conduct violated the FCPA.

    More Detail On What Makes An Effective Compliance Program

    Even if it doesn’t prevent an FCPA violation, a company’s compliance program can have a major impact on the government’s charging and sentencing decisions.[11] The Resource Guide now clarifies that “a company’s internal accounting controls are not synonymous with a company’s compliance program,” although the components may overlap. It states that, “[t]he truest measure of an effective compliance program is how it responds to misconduct.” According to the Resource Guide, an effective compliance program should have a well-functioning and appropriately funded mechanism to investigate wrongdoing, including analyzing root causes of the misconduct and integrating lessons learned.

    In addressing successor liability, the Resource Guide explicitly acknowledges the potential benefits of corporate mergers and acquisitions in stemming corporate corruption, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as possible. It goes on to state that in certain instances robust pre-acquisition due diligence may not be possible and, in those cases, timely discovery and remediation by an acquiring entity can help avoid successor liability. On the other hand, the potential pitfalls of successor liability are evident in a recent SEC settlement with Novartis AG, where the company’s failure to stop improper post-merger payments contributed to the SEC’s decision to prosecute the company.[12] 

    Incorporation of Recent DOJ and SEC Policies

    Over the past several years the DOJ and SEC have rolled out several new policies, which the Resource Guide now expressly incorporates.

    FCPA Corporate Enforcement Policy. This policy provides that, where a company voluntarily self-discloses misconduct, fully cooperates, and timely and appropriately remediates, there will be a presumption that DOJ will decline prosecution of the company absent aggravating circumstances. The Resource Guide adds three examples of declinations from the past few years, including instances where high-level corporate officers were involved, reinforcing how important self-disclosure, cooperation, and remediation can be.

    Selection of Monitors in Criminal Division Matters. The Resource Guide now incorporates the DOJ’s guidance in determining whether to impose an independent corporate monitor as part of a company’s resolution. It notes that appointment of a monitor is not appropriate in all circumstances and should never be imposed for punitive purposes. A monitor may be appropriate, for example, where a company does not already have an effective internal compliance program or needs to establish necessary internal controls. DOJ’s guidance provides that, in determining whether to impose a monitor as part of a corporate resolution, prosecutors should assess (1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.

    Anti-Piling On Policy. The DOJ and SEC can coordinate responses with other authorities to avoid “piling on” with those who are prosecuting the same company for misconduct, which policy includes giving credit for penalties paid to other authorities both foreign and domestic.

    Criminal Division’s Evaluation of Corporate Compliance Programs. This policy guides prosecutors in deciding whether the corporation’s compliance program was effective at the time of the offense and is effective at the time of a charging decision or resolution. These determinations can have a significant impact on  the appropriate form of any resolution or prosecution, monetary penalty, and compliance obligations contained in any corporate criminal resolution. The three overarching questions that prosecutors ask to evaluate a company’s compliance program are: (1) Is the program well designed? (2) Is the program adequately resourced and empowered to function effectively? and (3) Does the program work in practice?[13]

    Conclusion

    The Resource Guide remains non-binding, but DOJ prosecutors and SEC enforcement attorneys will give significant weight to this guidance in determining whether to bring charges (and against whom) and how to resolve them. So this update provides valuable information for practitioners and enterprises in both proactively creating effective compliance policies and defending prosecutions or enforcement actions brought under the FCPA. It’s always a good idea to conduct periodic assessments of your company’s compliance program to ensure that it is appropriate to the company’s risk and that it is functioning effectively. With this enhanced guidance from the DOJ and SEC, now is an opportune time to check in.

    For further information on the topic covered in this alert or for general FCPA or compliance guidance, contact Coblentz White Collar Defense & Investigations attorneys Timothy P. Crudo at tcrudo@coblentzlaw.com or Emlyn Mandel at emandel@coblentzlaw.com.

    [1] https://www.justice.gov/criminal-fraud/fcpa-resource-guide

    [2] 15 U.S.C. §§ 78dd-1(a); 78dd-2(a); 78dd-2(h)(1)(A); 78dd-2(h)(1)(B).

    [3] 902 F.3d 69, 76-97 (2d Cir. 2018).

    [4] 15 U.S.C. § 78ff(a).

    [5] https://www.justice.gov/opa/pr/novartis-hellas-saci-and-alcon-pte-ltd-agree-pay-over-233-million-combined-resolve-criminal

    [6] 15 U.S.C. § 78dd-1(f)(1)(A).

    [7] United States v. Esquenazi, 752 F.3d 912, 920-32 (11th Cir. 2014).

    [8] 18 U.S.C. § 3282(a).

    [9] 18 U.S.C. § 3301(b).

    [10] 28 U.S.C. § 2462.

    [11] See U.S. Sentencing Commission Guidelines Manual (2018), §8B2.1 (discussing effective compliance and ethics program) available at https://www.ussc.gov/guidelines/2018-guidelines-manual-annotated; U.S. DOJ Justice Manual, 9-47.120 FCPA Corporate Enforcement Policy available at https://www.justice.gov/jm/justice-manual.

    [12] https://www.sec.gov/litigation/admin/2020/34-89149.pdf at para. 24.

    [13] https://www.justice.gov/criminal-fraud/page/file/937501/download

  • California Housing Approval Law Is A Strong Tool For Developers

    By Miles Imwalle, Katharine Van Dusen, and Charmaine Yu. Originally published in Law360, July 24, 2020.

    Click here to download a PDF of this article.

    When the California Legislature enacted S.B. 35 in 2017, the goal of the law was clear: to increase the state’s housing production by requiring swift approval of housing in communities often opposed to new development.

    The law was designed to bypass community opposition from vocal neighbors or anti-development groups, as well as from local elected officials, who often feel beholden to the interests of local neighbors rather than the needs of the greater regional community.

    Recent research highlights the problem with the existing entitlement process for housing. In a series of papers[1] coming out of the University of California, Berkeley, and Columbia University, researchers studied the entitlement process and timelines for housing in several Bay Area and Southern California cities.

    For those in the industry, the results were not surprising: Housing entitlements are generally discretionary, and the type of approval, the timing, the number of hearings, the approval body and compliance with California Environmental Quality Act all vary considerably between jurisdictions.

    In some jurisdictions, getting through the process is relatively straightforward. In others, it is a slog. The number of units approved also varies significantly, but jurisdictions with efficient, shorter timeframes produce more units.

    S.B. 35 only applies to communities that have failed to meet their regional housing needs; as a practical matter, almost all communities in California are subject to S.B. 35. It offers a creative cure for the traditional, lengthy and discretionary approval process that delays, or blocks, so many housing and mixed use developments. It allows for streamlined approval of projects that meet specific objective standards — a mix of statewide and local laws.

    Projects are eligible if they dedicate at least two-thirds of their space to residences or residential uses, if they include an appropriate mix of affordable and market rate units, and if they are built in urban areas, among other objective standards.

    A city has either 90 or 180 days (depending on project size) to complete its determination whether the proposed S.B. 35 project complies with these objective standards. In order to reject an S.B. 35 application, the city must timely issue a written determination identifying the objective standard(s) with which the project conflicts.

    If the city does not issue this written determination, then the project is deemed to satisfy S.B. 35’s standards. Neither elected officials nor project opponents can otherwise “inhibit, chill, or preclude” a project application. A city cannot withhold approval of a project that complies with the objective standards.

    But, in California, approval of a project is often just the beginning of protracted litigation with project opponents. And local governments may not always apply S.B. 35 as strictly as they should. Because S.B. 35 had not been tested in court until recently, lingering questions remained. Could local opposition groups use S.B. 35 to seek judicial review of a city’s approval of an S.B. 35 project? Could a local government deny S.B. 35 approval even if it could not identify an objective standard with which the project application conflicted?

    Two recent cases from the Superior Court of California, County of Santa Clara, have confirmed S.B. 35 as the powerful a tool that many housing advocates and developers had hoped it would be: Local opposition groups cannot use S.B. 35 to require a city to withdraw an approval, and a local government is deemed to have approved a project if it fails to follow S.B. 35’s strict structure and timelines.

    In Friends of Better Cupertino v. City of Cupertino, a case involving redevelopment of the Vallco Fashion Mall in Cupertino, a proposed S.B. 35 mixed-use project would add 2,402 units of housing to Cupertino, including 1,201 affordable units. Cupertino city staff reviewed the project application and determined that it met S.B. 35’s objective standards. But a local opposition group, which had opposed redevelopment at the Vallco mall for years, filed a writ petition, arguing that the city should not have approved it.

    On May 6, the superior court rejected each of petitioner’s arguments in a detailed, carefully reasoned decision. As a factual matter, the court determined that the Vallco project actually complied with S.B. 35’s objective standards. But the court’s most significant holding involved the question whether a city could ever be required to reverse an approval. The court determined that a city is never required to reject an S.B. 35 project.

    Indeed, by deeming a project compliant with S.B. 35’s standards in the event a city fails to process an application, S.B. 35 specifically contemplates that some projects will receive S.B. 35 streamlined approval even if they do not meet the objective standards as a matter of fact. For that same reason, a court cannot issue an order compelling a city to reverse its decision to approve an S.B. 35 project. The law never requires an application to be rejected, and the court cannot compel what the law does not require.

    The Vallco decision will substantially restrict, if not eliminate, challenges to S.B. 35 projects by project opponents. The holding means that project opponents have no right to ask a court to reconsider whether a project actually meets S.B. 35’s objective standards. If a project is approved under S.B. 35, a developer can be reasonably certain the approval will withstand legal challenges.

    The other recent S.B. 35 case involved a 15-unit development in Los Altos. The city of Los Altos attempted to deny a 15-unit project submitted under S.B. 35. But the city’s denial letter did not follow S.B. 35’s strict requirement to identify specific objective standards with which the project conflicted.

    Instead, the denial letter referenced vague, unmeasurable standards like whether parking access was adequate. In the decision, issued on April 27, the same court ruled that Los Altos’ denial letter was inconsistent with S.B. 35 and therefore ineffective. Because the city failed to issue a valid inconsistency determination within the statutory deadline, the project was deemed to comply with objective standards as a matter of law. The court directed the city to approve the project.

    The Los Altos decision, if upheld on appeal, will ensure that cities cannot shirk their responsibilities under S.B. 35. Only if a project conflicts with objective standards can it be denied. And if a city fails to timely and properly determine whether the project is consistent with objective standards, then the project will be permitted to proceed.

    In tandem, these two decisions illustrate that S.B. 35 is a powerful tool — not just to obtain swift approval of a development, but also to avoid lengthy litigation challenges. Cities have limited authority to deny project applications, and local opposition groups cannot ask courts to second-guess whether a project should have received approval under S.B. 35.

    The law is beginning to work as intended — the path is now clear to develop much-needed housing in two South Bay communities. Moreover, the decisions should help shape S.B. 35 as a force to ensure needed housing development both in the Bay Area and throughout California.

    Miles Imwalle, Katharine Van Dusen and Charmaine Yu are partners at Coblentz Patch Duffy & Bass LLP.

    Disclosure: Coblentz Patch Duffy & Bass LLP attorneys assisted Vallco Property Owner LLC and its affiliate, Sand Hill Property Company, during all stages of entitlements and in the litigation relating to the Vallco project, Friends of Better Cupertino, et al. vs. City of Cupertino, et al.

    The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

    [1] https://www.law.berkeley.edu/research/clee/research/land-use/getting-it-right

     

  • Four Coblentz Family Wealth Partners Recognized in 2020 Chambers High Net Worth Guide

    Coblentz Family Wealth partners James Mitchell, Philip Feldman, and Jaime Mannon are again listed as Leading Lawyers in the Private Wealth Law category of the 2020 Chambers HNW (High Net Worth) guide for Northern California. They are joined in Chambers’ rankings this year by partner Mitchell Edwards, listed among only four Up & Coming attorneys in the category. Chambers High Net Worth, published by Chambers & Partners, ranks the top lawyers and law firms for international private wealth.

    Jim Mitchell is again ranked as a Leading Lawyer in Band 2. Jim advises high net worth clients on tax planning and trust and estate administration. Chambers noted his “wealth of experience,” and one source says, “He is good at complicated trust administration.” Another reports, “He is someone who is very good at explaining concepts in a simple manner. He puts people at ease and has a good demeanor.”

    Phil Feldman is again ranked as a Leading Lawyer in Band 2. Phil assists wealthy individuals and families with income, gift and estate tax planning, as well as philanthropic planning. One source enthused that “his competency is off the charts – if he’s not the most experienced in San Francisco, he is damn near it.” A referral source describes him as “very responsive, which I appreciate, as do my clients. I enjoy working with him.”

    Jaime Mannon is again ranked as a Leading Lawyer in Band 3. Jaime offers affluent individuals and families assistance with estate and gift tax planning and cross-border tax planning. One source says, “She is extremely knowledgeable in her field of expertise, very professional, and appears to me to stay on top of new developments.” Another commented, “She is very smart. I think she has high emotional intelligence, she reads the room well and understands her audience.”

    Mitch Edwards is listed in the Chambers HNW Up & Coming category. Mitch assists high net worth clients with estate planning, administration matters, and litigation. A source notes that he “is always responsive and always invested in the client. He can crank through work quickly and efficiently. I enjoy working with him.” Another adds that he “is good for younger tech-related clients, he has a really strong practice for this. He is very approachable and knowledgeable about tech issues.”

    The Coblentz Family Wealth practice is also listed by Chambers HNW in Band 2 for Private Wealth Law, Northern California. One source commented, “Besides knowing their subject matter well, they all have tremendous people skills from the litigation attorneys down to the legal secretaries and paralegals. Another strength is that they try and resolve an issue in a fair and sensible fashion. They seem to have respect for the other side, which in my opinion has helped solve matters sooner rather than later. As a whole, I find that everyone I have worked with has had very good mediation skills.”

    Independent and objective, Chambers USA and Chambers HNW are carefully researched and widely considered to be one of the most reputable law firm directories in the world. Ranking criteria include technical legal ability, professional conduct, client service, commercial astuteness, diligence, commitment, and other qualities most valued by legal clients.

    Posted on: July 9, 2020 Tags: Categories: News

  • Thoughts on Racial Justice

    Recent events have reminded us once again that the ideals of our country have yet to be achieved, and that the impacts of our failures continue to fall most harshly on Black Americans. In this time of personal isolation and anxiety, problems so deeply rooted in our country’s history can seem ineradicable.

    But we cannot be indifferent to the fact that the benefits and protections of our society are more available to some of us than to others, and that this unfairness permeates so many aspects of people’s lives — undermining community safety, distorting the justice system, placing barriers in the paths of our fellow citizens (and our fellow non-citizens), and leaving far too many people with the bitter conviction that nothing will ever change. We must, at the very least, strive to ensure that our firm is a place where all individuals are valued and included equally, and we will continue to work with our community partners in the collective fight for fundamental rights.

    You can read more about our ongoing commitment to diversity and racial justice initiatives here.

    Posted on: July 8, 2020 Tags: Categories: News