Northwestern Journal of International Law & Business Volume 18 Issue 2 Winter Winter 1997 Defending SEC and DOJ FCPA Investigations and Conducting Related Corporate Internal Investigations: The rT iton Energy/Indonesia SEC Consent Decree Settlements Arthur F. Mathews Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the Constitutional Law Commons, Criminal Law Commons, International Law Commons, and the Securities Law Commons Recommended Citation Arthur F. Mathews, Defending SEC and DOJ FCPA Investigations and Conducting Related Corporate Internal Investigations: The Triton Energy/Indonesia SEC Consent Decree Settlements, 18 Nw. J. Int'l L. & Bus. 303 (1997-1998) This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. Defending SEC and DOJ FCPA Investigations and Conducting Related Corporate Internal Investigations: The Triton Energy/Indonesia SEC Consent Decree Settlements Arthur F. Mathews* I. INTRODUCTION ................................................................................ 305 II. SCOPE OF THE FCPA ....................................................................... 312 III. FCPA BRIBERY PROVISIONS ........................................................... 312 IV. "GREASE," "FACILITATING," OR "EXPEDITING" PAYMENT EXCEPTION: "ROUTINE GOVERNMENT ACTION" ...................313 V. STATUTORY AFFIRMATIVE DEFENSES ............................................ 316 A. Legal Under Local Law ............................................................ 316 B. Reasonable and Bona Fide Expenditures .................................. 317 VI. STATUTE OF LIMITATIONS ............................................................... 318 VII. DEFENDING ON THE MERITS: REFUTING THE NECESSARY ELEMENTS OF AN FCPA CIVIL OR CRIMINAL VIOLATION .............. 322 A. Any U.S. Person or Entity, "Issuers" and "Domestic Concerns" and Their Officers, Directors, Employees, Agents or Stockholders Even if Foreigners ................................................. 322 1. Repeal of Eckhardt Amendment Defense .......................... 322 Mr. Mathews was a senior partner at Wilmer, Cutler & Pickering, Washington, D.C., and an Adjunct Professor at Georgetown Law Center. Sadly, Mr. Mathews passed away on May 24, 1998. At that time, the editorial work on this article was not yet completed. With assistance from Wilmer, Cutler & Pickering, the Editorial Board of the Northwestern Journal of InternationalLaw & Business has endeav- ored to make final editing and fact-checking changes in Mr. Mathews' absence. Readers should note, however, that we were unable to locate certain sources, in particular, the press releases issued by the Southern District of New York U.S. Attorney's office, but have in- cluded these sources as originally cited by Mr. Mathews. Northwestern Journal of International Law & Business 18:303 (1998) B. Use of Jurisdictional Facilities "In Furtherance of"................. 323 C . C orruptly ...................................................................................325 D. Payment of Anything of Value .................................................327 E. Authorization of Payment to a Third Party Agent or Consultant While Knowing that All or a Portion Will be Offered or Given to a Foreign Government Official ............328 1. Knowing Authorization of Corrupt Payments by Agents ..328 2. Foreign Government Official .............................................330 F. For the Purpose of Influencing Any Official Act or Decision.. 333 G. Obtaining or Retaining Business ...............................................333 VIII. OTHER DEFENSE CONSIDERATIONS ................................................338 A. "Due Diligence": Not a Defense, But a Strong Mitigation E lem ent .....................................................................................338 B. The "Act of State Doctrine" .....................................................341 C. National Security Exemption ....................................................346 D. The Possibility of "Cultural Defenses" When A Foreign Agent or Consultant Is Involved in an FCPA Case ...................347 IX. FCPA BOOKS AND RECORDS AND INTERNAL ACCOUNTING CONTROLS PROVISIONS ...................................................................349 A. New Section 10A of the 1934 Act and SEC Rule 10A-1 .........355 X. THE TRITON ENERGY/INDONESIA CASE ..........................................357 A. The "Questionable" Payments ..................................................360 1. M ay 1989 TaxAudit ..........................................................360 2. March 1988 Annual Fiscal 1988 Audit ..............................361 3. March 1989 Annual Fiscal 1989 Audit ..............................362 4. 1989 Corporate Tax Refund ...............................................362 5. Refund of Value Added Tax ...............................................363 6. Pipeline Tariff Payment ......................................................364 7. "Grease," "Facilitating," Or "Expediting" Payments .........365 B. SEC Civil Injunctive and Civil Penalty Enforcement Action... 365 C. Companion SEC Administrative Cease-And-Desist Proceedings ...............................................................................367 XI. WHAT DEFENSES MAY HAVE BEEN EXPLORED IF TRITON ENERGY HAD LITIGATED THE SEC CIVIL ENFORCEMENT ACTION? OR WHAT DEFENSES MIGHT BE WORTHY OF CONSIDERATION IF A COMPARABLE FCPA CORRUPT FOREIGN PAYMENTS CASE W ERE FULLY LITIGATED? ...............................................................372 A. Statute of Limitations/Laches ...................................................374 B . Lack of Equity ...........................................................................376 C. Lack of Use of United States "Jurisdictional Means" "inFurtherance of' the Allegedly Improper Payments .............378 D. Lack of "Corrupt" Intent ...........................................................379 E. Lawful Grease or Facilitating Payments ...................................381 F. Not for the Purpose of "Obtaining or Retaining Business". .....383 XII. REQUIRED PUBLIC DISCLOSURE ......................................................387 A. "Materiality" Under the Federal Securities Laws .....................387 Defending SEC & DOJ FCPA Investigations 18:303 (1998) B. The Crop Growers Case ......................................... 389 C. Other Related Governmental Disclosure Obligations ............... 393 XIII. DEFENDING AN SEC INVESTIGATION OR A DOJ/GRAND JURY INQUIRY AND CONDUCTING A RELATED CORPORATE INTERNAL INVESTIGATION ................................................................................ 395 A. Defense of the SEC Investigation ............................................. 395 1. Strategies in Defending an SEC Investigation May Differ From Defending a DOJ/Grand Jury Inquiry Into the Sam e Activities ..................................................... 395 2. AFM Rules of Thumb in Defending SEC Investigations... 398 3. When, If Ever, Must a Private Formal SEC Investigation Be Publicly Disclosed? ....................................................... 410 4. "Wells Submission" Considerations ................................... 412 5. International Aspects of SEC Investigations ...................... 414 B. Defending A DOJ/Grand Jury Inquiry ...................................... 416 1. Informal and Formal Stages of the Inquiry ........................ 416 2. The Changing Climate: "Cooperating" rather than "Defending" the Company ................................................. 417 3. Defending the Corporation Before the Grand Jury ............ 443 C. Conducting An Internal Corporate Investigation ...................... 445 X IV . Conclusion ....................................................................................... 455 I. INTRODUCTION After a prolonged lull in the Reagan and Bush Administrations, the Se- curities and Exchange Commission (SEC or Commission) and the Depart- ment of Justice (DOJ) renewed prosecutorial interest in civil and criminal enforcement of the foreign bribery/corrupt foreign payments provisions of the Foreign Corrupt Practices Act (FCPA).1 In the February 1997 case SEC v. Triton Energy Corp.,2 the SEC brought its first FCPA corrupt foreign payments civil enforcement action in over a decade.3 SEC v. Triton Energy 'Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494, as amended by Title V of the Omnibus Trade & Competitiveness Act of 1988, Pub. L. No. 100-418, §§ 5001-03, 102 Stat. 1415, 1415-25 (codified as amended at 15. U.S.C. §§ 78m(b)(2), 78m(b)(3), 78dd-l, 78dd-2, 78ff (1994)) [hereinafter FCPA]. 2See SEC v. Triton Energy Corp., [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) 74,405 (D.D.C. Feb. 27, 1997); see also In re David Gore, [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) 74,404 (D.D.C. Feb. 27, 1997); SEC v. Triton Energy Corp., (Richard L. McAdoo), [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) 74,446 (D.D.C.3 June 26, 1997). Prior to the Triton Energy civil enforcement action, the last FCPA bribery civil en- forcement action brought by the SEC had been filed against Ashland Oil, Inc. in 1986 in a case involving allegedly corrupt foreign payments to a government official in the Emirate of Oman. See SEC