Miller Chevalier Member Lamia Matta on the FCPA and Corruption in the Middle East

Lamia Matta is a member at Miller & Chevalier in Washington.

milchev Her practice is corporate criminal defense law – with a focus on the Foreign Corrupt Practices Act (FCPA).

Much of her practice focuses on companies doing business in the Middle East — where corruption — and the perception of corruption — drives cases her way.

“I do quite a lot of work in the Middle East. I work primarily with American and international clients,” Matta told Corporate Crime Reporter in an interview last week. “I certainly become involved when they have issues that come up in the Middle East because I have quite a lot of expertise there. But I work all over the globe. I speak a number of languages. I’m fluent in French, so I do quite a lot of work in Africa. I speak some Spanish, so I do work in Latin America.”

“But yes, because I spent a lot of time working in the Middle East and because I have a network of contacts there, it ends up that I do a lot of work there.”

You hear a lot about corruption in the Middle East. But when you look at the output of FCPA cases from the Justice Department, there are not a lot of cases coming from the Middle East.

“You would be surprised by the corruption perception index ratings of countries in the Middle East,” Matta says. “It’s true that in the bottom ten ranked countries, four of them — Iraq, Syria, Yemen and Libya — are in the Middle East. And those four countries are seized in violent conflicts. But in those countries where the political situation is calmer, the numbers are in the middle.”

“I was surprised by it. Transparency International ranks countries from 1 to 175 with 175 being the most corrupt. The Gulf States tend to be in the 50s, 60s and 70s. In North Africa, you have Algeria at 100, but Tunisia at 79, I believe Morocco is at 80. It’s not off the charts.”

From your own experience, how would you rank the countries in the Middle East?

“Syria, Libya, Yemen and Iraq — those four countries in the bottom ten are clearly extremely difficult countries in which to do business. I know this because our clients do business in Iraq and in Libya. And it’s always a challenge. To begin with, the rule of law is very tenuous.”

“The rankings in the Gulf are actually pretty accurate. The Gulf is about attracting international business. Even in Saudi Arabia, where there is the perception that it’s extremely corrupt and the business is driven by the royals, there actually is an internal discussion about corruption, there are efforts at the very top to address the problem. I wouldn’t say that corruption is at zero.”

“Those middle rankings are probably accurate. In North Africa, the numbers aren’t great and it’s a reflection on what a challenge it is to do business in North Africa. It’s difficult to do business in Egypt. It’s very difficult in Algeria.”

“But there was an effort to change it in Algeria. There was a clean up in Algeria — from top to bottom in their nationalized oil industry. The numbers are shifting a bit.”

What about Lebanon?

“Lebanon comes in at 136 in the Transparency International index. It doesn’t rank well.”

Is that fairly accurate?

“Yes,” Matta says. “It’s the result of political instability. The neighboring wars create real instability in the political culture of the country. You have elements invested in what is happening in neighboring countries and that creates instability in the political climate.”

“In Lebanon, the financial industry has been strong. That was true before the current crisis and it’s true now. And their tourism industry has been strong. The financial industry is not very highly regulated. And there are a large number of ex pats who do business with banks in the Middle East and it creates all kinds of risk.”

Why are there so few FCPA cases coming out of the Middle East?

“It’s interesting you ask this now, because there are quite a few coming out this year. Four FCPA resolutions have been disclosed in the past nine months that involve transactions in the Middle East. They are not purely Middle East focused. You have Alstom — that involved business in Egypt. Flir Systems involved officials from Saudi Arabia. There was an engineering company giving kickbacks to Qatari officials.”

“Those are all coming out of transactions in mid range corruption countries. There are quite a few cases coming out of Iraq. But there were so many cases that came out of the Food for Oil program — and that skews the numbers. There are a lot of internal investigations. But not a lot of prosecutions or government driven investigations.”

Could it be that people doing business in the Middle East are most familiar with how to best do it and not get caught doing it?

“Couldn’t you say that about any place?” she asks. “Africa? Latin America?”

“I don’t know if I agree. Here’s why. American and European companies going into the Middle East are not the ones you would traditionally think of. Traditionally, you would think of oil and gas companies and large infrastructure companies. And they have made a lot of money there. But now you have hospitality companies, healthcare companies, architecture, engineering companies. Different companies are going in now. And some of them are quite sophisticated in dealing with these compliance issues.”

“It could be that the companies that have been around for a long time know how to do it without being caught. But in the Middle East, especially in the Gulf, you have a raised sensitivity to this perception that it’s very corrupt. There is a real interest in bringing in foreign companies. They are not these closed economies that they used to be.”

“That changes the way American companies approach it. And there is a real change in the way countries in the Gulf approach doing business. I’ve been in many conferences with Saudi Aramco. They are very sophisticated in this regard. But it is interesting that you don’t see a lot of enforcement in other countries where American companies are doing business.”

“You see it in Turkey. A little bit in the Gulf. But the risky areas are in the Levant — Lebanon, Jordan and North Africa. Part of it is just that the political situation is unstable. It’s difficult to conduct meaningful investigations there.”
Part of the perception problem arises from the FIFA corruption scandal and the fact that the World Cup is going to be held in Qatar in 2022. If you talk with young people, they don’t get FCPA, but they get the FIFA corruption scandal.

“The FIFA scandal is a challenge,” Matta says. “The government of Qatar has made very few statements on this FIFA scandal. I don’t have a clear sense of what the strategy of the Qatari government is going to be to handle the FIFA scandal.”

“In the region it’s a joke. People say — why are you having the World Cup in the desert, where the temperatures are impossible? There was this perception regionally that there was something askew.”

The Swiss are investigating whether payments were made to influence the decision. There is also a brewing ongoing scandal about how workers are treated there in building World Cup facilities.

“The issue of the treatment of workers is not something new,” she says. “The Emiratis have come under attack for the treatment of workers. There has been huge infrastructure development over the last 15 to 20 years. It was done entirely by foreign workers. You see Western companies taking greater care with how they house the workers. But this is a mistake that has been made in the region over and over again. The lesson — appropriate working environments and appropriate laws to protect workers — it’s a lesson that hasn’t been learned. Part of the reason for that is that the workers are not nationals. There isn’t an incentive — unless there is international pressure to address these issues.”

“On the issue of Qatar, it has been an interesting player, in part because it has pushed so hard to promote itself as a player in the region — economically, culturally and politically.”

“There is a huge U.S. presence in Qatar. But Qatar has taken strong political positions not in alignment with U.S. strategies. All of these things play into how Qatar is going to handle this crisis. One thing about Qatar that is different from Saudi Arabia and the Emirates is that Qatar is not diversifying its economy the way others in the Gulf are. The result is — I don’t know that there is as much anxiety about perception there.”

Are there cases that you handle that get resolved with non prosecution agreements or declinations that never see the light of day?

“If there is a non prosecution agreement, it would see the light of day. I have not handled cases that arise from activity in the Middle East that result in declinations. But I have had clients under federal scrutiny that have issues arise in the Middle East and the clients investigate them aggressively. Sometimes, following the investigation, the finding is that there was a rogue employee, or a third party was driving the action in a way that didn’t implicate the client.”

“Under those circumstances, you would not need to go and report to the authorities. It never sees the light of day in that sense because they are resolved as not violations of the FCPA or not sufficiently material to require reporting.”

“But no — I have not had a scenario where something egregious happens and the government has agreed to let it go because of the cooperation of the company.”

When we interviewed the former head of the FCPA unit a couple of years ago, he said that a big percentage of all FCPA cases were based on self-reporting by companies. Since then, we’ve spoken with many defense lawyers who say that companies are increasingly reluctant to self-report. Are you finding that to be the case?

“Yes,” she says. “Companies are less aggressive in reporting. Companies are finding that they don’t save a whole lot by going in and self-reporting as soon as they find a problem. They are still subject to extensive investigation. The cost is the same if they self-report and then cooperate as it would be if they just cooperate. The agencies say that is not the case. But if you look at the trends, that does seem to be the case.”

“The other thing is that the decision to self-report is taking a lot longer than it once used to. Companies might think — it may make sense to self-report, but we are going to wait it out a bit before we do so. The process is now much more considered than it once used to be.”

“And companies are not as inclined to buy into the agencies’ aggressive theories of jurisdiction as they might have once been. For all of these reasons, you are seeing companies being less quick to self report. I don’t know if the self-reporting numbers are down or not. They are difficult to track.”

We did a story about the overall FCPA numbers down this year and declinations are up. Why is that?

“It’s definitely going down. For one thing, the number of resolved enforcement actions have gone down. That doesn’t mean there are fewer investigations. In 2010, you had 72 resolved FCPA enforcement actions. Now, we are almost in the fourth quarter, and you only have eight. That’s significant. That’s an important trend. Also, there are more known declinations this year.”

“Putting aside the resolved enforcement actions and the declinations, it’s difficult to track investigations. But we do track it based on SEC disclosures. And our sense is that the numbers are very low for this year. We have this chart that looks at how many known investigations were initiated. For this year, there are four that we know of. Last year, there were 18. But last year, a large number of them came in the fourth quarter.”

“There has been a lot of turnover at the agencies. Attorneys are leaving. There is an emphasis now on pursuing individuals. That has resulted in more time consuming pre-trial and trial and post-trial activity. That has taken some resources away.”

“Some of it is that they are backing off some of their more aggressive statutory interpretations. Companies are slower to disclose an investigation, especially in light of recent proclamations from the Department of Justice that we are going to see more declinations and more individuals being pursued.”

“It could be that the agencies are just initiating fewer cases because they are being more selective in what they want to pursue.”

[For the complete Interview with Lamia Matta, see page 29 Corporate Crime Reporter 29(12), August 10, 2015, print edition only.]

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