Robert Appleton: It’s FCPA Compliance or Vegas
Today is the first of a two part interview with Robert “Bob” Appleton and is an edited version of the entire interview which will be available for download when part II is published next week.
Hi Bob, and thank you for sharing your experience and perspective with today’s readers. I remember sometime in early 2007 sitting in England when someone put a fax on my desk from the United Nations Office of Internal Oversight Services, asking a lot of questions about a UN contract, and it was signed “Robert Appleton, Deputy Chairman, Procurement Task Force.” I remember after reading it, thinking, “who the heck is Robert Appleton (PG Version).” So, how about sharing your background leading up to and including your work on that Task Force, and we can save the particulars of your specific investigation of me, for a later discussion. However, by way of background, I ultimately pleaded guilty to the charges which in part spurred from your investigation and which were shared with the Justice Department.
RA: After law school, I clerked for a very prominent federal judge in Hartford, Connecticut- Senior U.S. District Judge T. Emmet Clarie, who was on the federal bench for 30 years.. At the end of my clerkship in 1992, Judge Clarie convinced me to go to the U.S. Attorneys Office. It didn’t take a lot of convincing. He knew my father, a prominent prosecutor in Hartford, Connecticut and thought it was the logical progression for me. I spent an incredible thirteen years there- prosecuting hundreds and hundreds of high profile cases, from racketeering to international money launderers, to terrorist financiers, to 9/11 issues, weapons and technology diversions to Iran, China and Syria, drug gang leaders, and the list goes on.
In 2005, after I had been appointed as Chief of the Bridgeport, CT branch of the U.S. Attorneys Office, I had a once in a lifetime offer from Paul Volcker (the former Federal Reserve Chairman), to join his Independent Inquiry Committee investigation into the Iraqi Oil for Food Programme bribery scandal (IIC as it was called) as his Special Counsel. I immediately inherited the investigation of the UN Secretary General and his son (Kojo), and all of the cases involving the companies that paid bribes to Saddam Hussein, as well as leading the procurement investigation team that was investigating the Swiss banks that held the proceeds from the bribed contracts and the oil sales
Our cases launched the DOJ on a number of FCPA cases, and were some of the first major cases DOJ Fraud made in this area. I worked closely with Southern District prosecutors, whom I knew from my days at DOJ. In the end, the Commission was also able to recover more than $50 million for the Iraqi people, and supported many prosecutions in New York and elsewhere, including Italy, Switzerland, France and Australia. The Commission finally concluded its work in 2006. It was a very politically charged time in the UN, and the issues were very public. The report, while not finding that Kofi Annan participated in the scheme, identified probably the largest bribery and corruption scheme in the history of any organization or country.
So, after the scandal, the U.N. was still under a lot of pressure from Member States, particularly the United States, to keep digging for corruption. It created the Procurement Task Force, or PTF, a special anti- corruption task force comprised of experienced investigators from around the world, and I joined the PTF as its Deputy Chairman, the number 2. We had more than 300 investigations within weeks of opening operations, taking many cases from the UN’s investigations division within the Office of Internal Oversight Services. One of our jobs was to review old cases to see if they were properly handled.
We had a huge caseload. We were supposed to complete our work by the end of 2007. We had so many cases that we continued until 2009, when the Russians and the Singaporeans finally succeeded in shutting us down and killed our funding.
During our efforts, we identified a number of further fraud and corruption cases involving companies from around the world doing business with the U.N. as well as UN personnel, including Alexander Yakovlev, Sanjaya Bahel, Vladimir Kuzentsov, along with suppliers, including IHC Services, Supreme Foods, ESS and, of course, your name popped up. In some cases, including yours, information was shared with the Department of Justice. The case of Sanjaya Bahel was our most significant case. Bahel was the Chief of Procurement for the Organization, who steered more than $100 million in contracts over more than 8 years, without anyone knowing it. He went to trial and got 8 ½ years in jail.
What was your next challenge given that extensive experience?
RA: I did something I always wanted to do – move abroad and travel extensively in the developing world. In 2010, I was appointed the Head of Investigations and the Legal Counsel for the Global Fund to Fight AIDS, Tuberculosis and Malaria, in the Office of the Inspector General, in Geneva, Switzerland. The Global Fund is the world’s largest health financier, funding more than $28 billion in health grants in more than 150 countries. It is one of the Gates Foundations cherished projects as well. The U.S. contributes close to $2 billion per year to the Organization, which is 1/3 of its funding. While I was based in Switzerland, I traveled all over the world, frequently, especially Africa, Asia and the Middle East, managing six teams of eight or so investigators, forensic experts, accountants and auditors.
For the next four years I pursued corruption and bribery throughout these regions, and had the unique experience of being able to investigate government ministers and officials in many countries, first hand and face to face. Our grants went directly to the countries, and their ministries, or to Principal Recipients who ran the grant programs. The only oversight was my team and our auditors. I spent months and months on the front-line of corruption in Africa and Asia.
Thank you and that is quite a career trajectory. So, when it comes to anti-bribery enforcement and investigations, what were your biggest take aways from your DOJ, UN and Global Fund roles which you see is remaining relevant to today’s anti-bribery challenges.
RA: Having completed more than 600 corruption related investigations in my career, spanning dozens of different countries and regions, the one thing I have learned is that corruption is endemic in many parts of the world, and law enforcement and other investigators are only scratching the surface.
Also, governments in different places in the world treat corruption and bribery differently. For example, in the U.N., the Russia government took no action against its own citizens or companies. Not only that, the government actually defended their citizens and companies. The issues became very political, something we are seeing start to play out right now in the FIFA case. It is a duplicate of what I faced in the U.N. It is the politicization of corruption.
In #FIFA, will corruption become politicized when it gets “close to the top?”
Recently, I read two of your pieces, one in the Corporate Crime Reporter (March 9, 2015), and the other where you reviewed the recent OECD Bribery Report (“Incidents of Foreign Bribery Remain Largely The Same: A Circumstance Unlikely to Change” in the White-Collar Crime Committee Newsletter Winter 2014 Edition). In the CCR, you state, “The FCPA has had an impact, but it’s not a huge impact,” then continue “and without a doubt, companies are still rolling the dice. In many cases, you either roll the dice or you give up business in these locations.’ Ok, Bob, so is it FCPA Compliance or Vegas?
RA: First, there is no question that investigations have increased and results have multiplied over the last ten years. The U.S. government is prosecuting about 20 to 25 FCPA cases per year (a marked increase from the 1990s) and we see that is on the rise, as exemplified by the expansion of the FBI’s International Corruption Unit. But for other countries the success is far less and for many, none at all. But instances of bribery and corruption are in the tens of thousands on an annual basis, globally. Quite interestingly, they have not declined, despite the stepped up enforcement. Thus, from the demand side, the temptations and opportunities remain strong.
Is it #FCPA #Compliance or “the dice” when it comes to international business?
Many Asian countries, for example, have not prosecuted a significant bribery or corruption case. However, based on my own investigation work, in one of my prior roles, I have seen that at least one large Asian country’s multinationals as responsible for numerous acts of corruption in Africa and Asia. My investigations and investigators identified several of this nation’s companies engaging in substantial corruption in Niger, Cambodia, Singapore, Indonesia and elsewhere. In interviewing the officials of the company as well as their agents, they admitted the bribe activity. They were never charged, either in their home country or in any other jurisdiction.
I think companies understand that the government prosecutes a stark minority of the incidents of bribery and corruption. Also, voluntarily disclosing wrongdoing is counter-intuitive to many corporate executives. They just cannot do it – it goes against their principles. If an agent is not knocking on their door – why invite them in. However, companies should not be complacent; even though the risks of detection are low, they have risen substantially. And, as we are seeing with respect to recent enforcement, and charging the penalties are severe.
In addition, multinationals based overseas with no US presence may still be within the jurisdiction of the United States under the FCPA if just one of the small jurisdictional hooks are present. The nexus can be very slight. I have seen this many times, and in fact succeeded myself in prosecuting such cases. In one case that I pursued as a prosecutor, the only connection to the U.S. was the hosting of a computer server in a state.This was held by the Court to be sufficient to establish jurisdiction over the person, who had never previously set foot in the U.S. Your readers overseas should think carefully about the misnomer that “its not my law” when contemplating corrupt activity abroad with the belief that they are beyond the reach of the FCPA.
The #FCPA: It’s “not my law.” Or, is it?
So, I think there is still a widely, if not dangerously held view that the risks of detection are low, based on much of what I have described, and that when conduct is discovered, it is addressed on an ad-hoc basis without looking at the systemic organizational hazards. So, based on all of the above, I think there is a combination of tick-the-box compliance for the regulators, which is not going bring any credit if there is an investigation, and a “roll the dice on business practices.” As I know first hand, the demands for bribes are not subsiding, but if corporations don’t change their business, compliance and organizational practices, there could be some expensive lessons ahead, as you well know from your experience.
You state in CCR that “companies are still reluctant to institute sound compliance programs if they haven’t yet been hit with an offense.” I realize this is such a general question, but from your practice and experience, where do you think multinationals are at in terms of the compliance continuum? Do you think it remains a case where compliance personnel get what you call “tunnel vision,” as remaining too far away from the ground where we have the crossroads of compliance and commerce?
RA: Richard, I hate to generalize. But I would say that by and large multinationals are not there yet. There is still too much focus on ‘home office’ operations, computer software programs, reporting lines, and the fact that the commercial lines trump compliance. If it comes down to a business versus compliance decision, business is still going to win, almost every time. The Commerzbank case shows how this phenomenon can cause real problems for a company or financial institution, and how fines can begin to multiply substantially. Nothing aggravates law enforcement more than such preferences and decisions within companies.
Bob, I speak often about incentives, where the social goals of corporate anti-bribery compliance are not aligned with the “win above all else” strategies of forecasts, quotas and bonus plans. Do you think that companies embrace such an attitude of “compliance for the regulators” and “incentivize to win” at the field level, where those two might actually be in conflict in many of the regions where you have worked and referenced?
RA: Without question Richard. Business is still business, and sales still gets the most emphasis in terms of relative importance. There is an attitude that if I don’t pay, someone else will, and they will get the contract. Then, what happens to me? There is still that tunnel vision.
Well, thank you Bob, and I look forward to drilling down more into some of these issues next week. If someone would like to get in contact with you, what should they do?
RA: Day Pitney LLP, 7 Times Square, floor 20, New York, NY 10036 Rappleton@daypitney.com 212-297-2404
* Photograph courtesy, Robert Appleton. Robert Appleton, Procurement Task Force Chairman, with Inga Britt Ahlenius, Under Secretary General for the Office of Internal Oversight Services, UN, April, 2008, disclosing results of Appleton’s Task Force’s corruption investigations to the UN Press Corps at a Press Conference at UN Headquarters in New York.
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