January 2009

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH ethics and government publications.

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Business Ethics

Learning from Deferred Prosecutions Agreements
A disadvantage of a deferred prosecution agreement (“DPA”) or a non prosecution agreement (“NPA”) is that evidence revealed under the agreement can lead to the discovery of further unexpected offenses, according to Professor Richard Gruner, a Professor at The John Marshall Law School in Chicago, Illinois. Gruner discussed the advantages and disadvantages of DPAs and NPAs as part of his presentation on Cutting Edge Developments in the Compliance Field at the Practicing Law Institute’s Advanced Corporate Compliance Workshop in November of 2008. Gruner noted the growth of the use of DPAs and NPA in federal prosecutions involving corporations. The number of agreements jumped from 20 in 2006 to 35 in 2007. Gruner pointed out the increased use of DPAs and NPAs in the area of the Foreign Corrupt Practices Act cases, which went from 3 in 2006 to 12 in 2007. (Federal Ethics Report, Issue 16, No. 1, January 2009)

Shaping an Ethical Corporate Culture
On the second day of the Society of Compliance and Ethics’ (“SCCE”) conference held in Chicago in September 2008, the opening session shifted the focus to the issue of shaping corporate culture. Leading the way was a panel which featured Charles M. Elson, Chair in Corporate Governance, University of Delaware, Weinberg Center for Corporate Governance; Ron James, President and CEO, Center for Ethical Business Cultures at the University of St. Thomas; and Dov Seidman, CEO of LRN, which focuses on ethics and compliance management and organization. Marjorie Doyle, Global Practice Leader, Ethics and Compliance Solutions at LRN moderated the panel. James began by stating that leaders set the tone. He emphasized that leaders also need to address disconnects between themselves and front-line employees on ethical issues, mentioning that surveys often indicate a difference between what leaders say and what front-line employees report on how ethics is part of the organization. To close this gap, he said that leaders must engage with people on the front lines, observing that leaders often move when they see actionable data. (Federal Ethics Report, Issue 16, No. 1, January 2009)

Stone Progeny Clarify Director and Officer Duties toward Compliance Programs
Developing case law will create a common law of corporate compliance, according to Richard Gruner, a professor at The John Marshall Law School in Chicago, Illinois. Gruner gave a presentation at the Practicing Law Institute’s Advanced Corporate Compliance Workshop in November of 2008. In his presentation, Cutting Edge Developments in the Compliance Field, Gruner discussed recent cases that build upon Stone v. Ritter, 911 A.2d 362 (Del. 2006) and clarify the content of Director and Officer (“D&O”) duties towards compliance programs. [FER covered Gruner’s discussion of Stone in the March 2008 issue, Vol. 15, Iss. 3.] Gruner said a number of cases have specified what Stone requires companies to do to protect D&Os. (Federal Ethics Report, Issue 16, No. 1, January 2009)

Cases

Jefferson Indictment Upheld by Fourth Circuit
A request by former Congressman William J. Jefferson (D.-La.) to reverse a federal district court’s refusal to dismiss an indictment against him alleging multiple bribery-related schemes was rejected by the U.S. Court of Appeals for the Fourth Circuit on November 12, 2008. Jefferson contended that the grand jury that indicted him was improperly presented with evidence of his legislative acts and that evidence was relevant to its decision to indict. Therefore, the former Congressman argued, the indictment contravened the legislative immunity provided him by the Speech or Debate Clause of the U.S. Constitution. The appellate court, however, was satisfied that the U.S. District Court for the Eastern District of Virginia, in conducting the pretrial proceedings, accorded the former Congressman every substantive and procedural protection to which he was entitled. The indictment against Jefferson, who represented Louisiana’s Second Congressional District, was issued June 4, 2007 and alleged that he solicited and received bribes in return for allegedly performing various official acts to facilitate multiple business deals in Africa. The facts alleged in the indictment reflect seven separate bribery schemes. (United States v. Jefferson, 562 F. Supp. 2d 719 (2008), Federal Ethics Report, Issue 16, No. 1, January 2009)

Investigations

Contractor Sentenced for Bribing Congressman and Corrupting Defense Employees
Mitchell Wade, a defense contractor implicated in the Cunningham scandal, was sentenced in the U.S. District Court for the District of Columbia for engaging in activities to influence Department of Defense (“DOD”) contracting officials and making illegal campaign contributions to two members of Congress, in addition to bribing former Congressman “Duke” Cunningham (D-Cal.). Wade, who owned MZM, Inc., a defense contracting company, pleaded guilty on February 4, 2006, to a four-count information charging him with one count of conspiring to bribe Cunningham and assist him in tax evasion; one count of using interstate facilities to promote bribery; one count of conspiring to deprive the DOD of the honest services of its employees; and one count of election fraud. (Federal Ethics Report, Issue 16, No. 1, January 2009)

Another Lobbyist Commits Honest Services Fraud
A former lobbyist, James F. Hirni, pleaded guilty on December 12, 2008, in the U.S. District Court for the District of Columbia, to a one-count information charging him with conspiring with others to commit honest services wire fraud, 18 U.S.C. §371. Hirni admitted arranging for an all expenses paid trip for two public officials to attend a 2003 World Series game. In 2003, Hirni worked as a lobbyist for a law and lobbyist firm in Washington DC. The Equipment Rental Company hired the law and lobbyist firm to persuade public officials in the House of Representatives and the U.S. Senate to take official actions favorable to the construction equipment rental company. At the behest of his employer, Hirni sought to have these amendments inserted into legislation re-authorizing a federal highway funding bill that was pending before both chambers of Congress. Hirni admitted that he pursued having the amendments inserted by providing gifts to Congressional aides who might help him. (Federal Ethics Report, Issue 16, No. 1, January 2009)

Federal Election Campaign Financing

Presidential Fundraising Breaks Previous Record
In the recently completed presidential election, the candidates for president raised in excess of $1 billion dollars combined. President Barack Obama’s total of $742 million led all candidates with Sen. John McCain coming in second with $345 million. In comparison, during the last presidential election President Bush and Sen. John Kerry combined raised $695 million. One category of increase donors has been those donors giving under $200. Theses individuals were responsible for over $500 billion of the total amount raised by the presidential candidates in this election year. In the 2004 election cycle, donors contributing under $200 to the presidential candidate contributed $168 billion and just $51 billion during the 2000 election. (CCH Federal Election Campaign Financing Guide, Report 404, December 2008)

Administrative Fines Program Extended
The Federal Election Commission issued a rule change to implement Congress’s extension of the Administrative Fines Program (AFP). Congress amended the FECA by extending the Commission’s authority to assess civil and monetary penalties under the AFP to include violations of the Act’s reporting requirements for reporting periods that began on or after January 1, 2000 and that end on or before December 31, 2013. The rule change also deleted a sentence which had provided that the AFP did not apply to reports that were due between January 1, 2004 and February 10, 2004, and that related to reporting periods that began and ended between January 1, 2004 and February 10, 2004. (CCH Federal Election Campaign Financing Guide ¶12,054)

Congressional Activity

111th Congress Convenes
On Tuesday, Jan. 6, the 111th session of the United States Congress convened in the nation’s Capitol in Washington, D.C. In the November federal elections, Democrats strengthened their majorities in both the Senate and the House of Representatives. In the Senate, though, Democrats failed to win enough seats to reach the magic 60-vote threshold, the number of votes required to push legislation past any filibuster. Based on congressional documents and public roll call votes, the new Senate is comprised of 54 Democrats and 42 Republicans. There are two Independents in the chamber, Senators Joseph Lieberman (Conn.), and Bernard Sanders (Vt.); these men usually vote alongside Democrats. If the vacancies are filled by Franken and Burris, the Democrats will gain two more votes. In the House of Representatives, there are 255 Democrats and 175 Republicans. Top congressional leaders will remain largely unchanged in the new Congress. On the first day of the 111th session, lawmakers again elected Rep. Nancy Pelosi (D-Cal.) as Speaker of the House. In this party-line vote, Rep. John A. Boehner (R-Ohio) received the second-most votes, so he will serve again as Minority Leader. Senators Harry Reid (D-Nev.) and Mitch McConnell (R-Ky.) will again serve as Majority Leader and Minority Leader, respectively.

House Passes Children’s Insurance Bill
The House of Representatives on Jan. 14 passed the Children’s Health Insurance Program Reauthorization Act of 2009 (H.R. 2), legislation to reauthorize and expand the federal program that helps states provide health coverage to uninsured children. Forty Republicans joined 249 Democrats in supporting the bill, which passed 289-139. According to the bill’s supporters, the federal program, also known as the State Children’s Health Insurance Program, or SCHIP, currently extends coverage to over 7 million children. H.R. 2 would broaden the scope of the program to cover an additional 4 million children. The expansion will be funded by more than doubling the federal excise tax on a pack of cigarettes, as well by raising taxes on other tobacco products. On cigarettes, the tax would jump from the current 39¢ a pack to $1.00 a pack. According to the Congressional Budget Office, this would raise revenues by over $31 billion over the next five years. The CBO estimates the bill would actually reduce deficits by $1.1 billion.

Senate Votes To Release More TARP Funds
The Senate voted 52-42 on Jan. 15 to grant the Obama administration access to the second $350 billion portion of Trouble Asset Relief Program (TARP) funds. The vote follows President Bush’s formal request to Congress earlier in the week to release the funds. At a press conference on Jan. 12, Bush said that Obama had “specifically asked me” to make the request. In a statement, then President-elect Obama acknowledged that the Senate did not face an easy vote due to widespread frustration with how the first half of the plan had been executed. “My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses, more transparency so that taxpayers can see where their money is spent, and more sensible regulations that will protect consumers, investors, and businesses,” Obama said.