– Protection of Security Relevant Information vs. Enhancement of Global Competition – Germany’s “No Spy Decree” for Public Tenders under Continuous Scrutiny
– RWIND Tenderer Test: Objective or Subjective?
– Recent Anti-Corruption Trends and Developments
– DOJ Kicks Off 2015 with an FCPA Enforcement Action Against a Former President of a Philadelphia Consulting Company
– Update: German and UK Governments Move Further Along the Path Towards Transposition of Overhauled EU Procurement Regime
– United States Lawmakers Pass Appropriations Bills for Fiscal Year 2015
– Those German Authorities Awarding Public Contracts Cannot Hold Tenderers from Other EU States to National Minimum Wage Requirements
– United States Lawmakers Pass an Array of Information Technology and Cybersecurity Legislation
– Excerpt from Protection of Security Relevant Information vs. Enhancement of Global Competition – Germany’s “No Spy Decree” for Public Tenders under Continuous Scrutiny:
In Spring 2014, the German Federal Ministry of the Interior (“BMI”) issued a decree directed to its awarding authority that quickly became known as the “No Spy Decree.” The Decree is intended to prevent vendors from disclosing, to the benefit of foreign security agencies or intelligence bodies, security-relevant information gathered when carrying out contracts concluded with German public authorities. Nevertheless, the Decree could impede competition because the measures required to prevent disclosure of security-relevant information will be difficult to meet for non-domestic bidders and for German bidders that are wholly owned, or controlled, by a foreign parent or that have other affiliated companies incorporated under a foreign jurisdiction.
Please see full issue below for more information.
9 MoFo Global Procurement Quarterly, Winter 2015
DOJ KICKS OFF 2015 WITH
AN FCPA ENFORCEMENT
ACTION AGAINST A
FORMER PRESIDENT OF A
By Paul T. Friedman, Stacey M. Sprenkel, and
Julie A. Nicholson
The U.S. Department of Justice (“DOJ”) wasted no time
announcing its first Foreign Corrupt Practices Act (“FCPA”)
case of 2015. On January 6, 2015, just two days into the
first full week of the new year, Dmitrij Harder, the former
owner and President of Chestnut Consulting Group Inc. and
Chestnut Consulting Group Co. (generally referred to as the
“Chestnut Group”), was indicted by a federal grand jury.1
Harder was charged with violating the FCPA and Travel Act
and participating in a scheme to launder the proceeds of
those crimes. This case continues the trend of enforcement
actions against individuals. It also involves the rarely-used
“public international organization” element of the FCPA’s
definition of “foreign official.”
Between 2007 and 2009, Harder allegedly engaged in
a scheme to pay approximately $3.5 million in bribes
to an official of the European Bank for Reconstruction
and Development (“EBRD”) in order to obtain favorable
reviews of clients’ financing applications.2
Harder and the Chestnut Group provided consulting
services to companies seeking financing from multilateral
development banks like the EBRD.3 As described in the
indictment, “[t]he EBRD was a multilateral development
bank headquartered in London, England, and was owned
by over 60 sovereign nations. Among other things, the
EBRD provided debt and equity financing for development
projects in emerging economies, primarily in Eastern
Europe. On or about June 18, 1991, the President of the
United States signed Executive Order 12766 designating
the EBRD as a ‘public international organization.’ The
EBRD was thus a ‘public international organization,’ as
that term is defined in the FCPA.”4
At issue in the indictment are the services provided
by the Chestnut Group to two corporate clients. The
clients entered into financial services agreements with
the Chestnut Group for consulting and other services,
including assistance in obtaining project financing.5
The agreements, signed by Harder, included a “success
fee” of a certain percentage of the funds obtained by the
companies from the EBRD.6
Harder allegedly knew a senior banker working in the
EBRD Natural Resources Group (“EBRD Official”)
from prior business dealings.7 The EBRD Official was
responsible for the review of applications submitted to
the EBRD for project financing. In this role, the EBRD
Official allegedly was responsible for the applications
of Harder’s two corporate clients, as well as negotiating
the terms and conditions of their financing.8 Based on
the recommendation of the EBRD Official, the EBRD
ultimately approved the companies’ applications for
project financing, including an $85 million equity
investment with a 90 million Euro senior loan for one
company and a $40 million equity investment with a
$60 million convertible loan for the other company.9
After receipt of the success fees, Harder allegedly
caused wire transfer payments to be made to a bank
account belonging to the EBRD Official’s sister.10 The
transfers to the EBRD Official’s sister were purportedly
for payment of consulting and other business services
to the Chestnut Group, but it is alleged that no such
services were provided.11 Instead, it is alleged that the
payments were bribes paid for the benefit of the EBRD
Official to corruptly influence actions taken with regard
to the clients’ financing applications and to corruptly
influence the EBRD Official to direct business to Harder
and the Chestnut Group.12 To cover up the alleged corrupt
payments, Harder and the EBRD Official’s sister created
false paperwork, including invoices for the sister’s
purported services provided to the Chestnut Group.13
In total, Harder and the Chestnut Group earned
approximately $8 million in “success fees” and paid the
EBRD Official’s sister more than $3.5 million for alleged
consulting services.14 Harder faces a maximum possible
statutory sentence of 190 years in prison and fines of up to
$1.75 million, twice the value of the property involved in
the transaction, or twice the value gained or lost.15
As an initial matter, this action reflects DOJ’s tenacity
and determination in bringing cases against individuals.
DOJ has been pursuing this matter for years, and this
indictment comes less than two months after the Supreme
Court denied certiorari in an appeal in the matter.16 That
certiorari petition challenged the Third Circuit’s decision
to apply the crime-fraud exception to the attorney-client
privilege. And after a blockbuster month in December, the
quick announcement of this matter will surely keep the
FCPA front of mind for many.
The Harder case also presents yet another opportunity to
challenge DOJ in a courtroom and generate much needed
case law concerning the FCPA and related statutes. For
example, in the Harder case, DOJ chose to charge the
identical five wire transfers as violating both the FCPA
10 MoFo Global Procurement Quarterly, Winter 2015
(Counts 2-6) and the Travel Act (Counts 7-11). DOJ was
faced with a serious challenge to its Travel Act charges
previously in the Eastern District of Pennsylvania in
United States v. Nguyen, and it will be interesting to see
how this case develops.17
Finally, the Harder case should be a reminder to
companies and businesspeople that: (1) officials at
public international organizations18 like multilateral
development banks (e.g., EBRD, World Bank) and other
international organizations like the United Nations qualify
as foreign officials under the FCPA; and (2) DOJ continues
to use the Travel Act to pursue commercial bribery as
a backstop to FCPA charges. As such, it is important to
include the concept of “public international organization”
in employee training and as part of third-party due
diligence. It is also worth remembering that, via the Travel
Act, DOJ has the ability to charge bribery under state
commercial bribery statutes.
1 Indictment, United States v. Harder, Case No. 15-cr-00001-PD (E.D. Pa. Jan. 6, 2015)
(hereinafter “Harder Indictment”), available at http://www.justice.gov/sites/default/
pdf; DOJ Press Release, Former Owner and President of Pennsylvania Consulting
Companies Charged with Foreign Bribery (Jan. 6, 2015), available at http://
2 Harder Indictment ¶ 2.
3 Id. ¶ 1.
4 Id. ¶ 3.
5 Id. ¶¶ 6-7, 13, 26.
6 Id. ¶¶ 13, 26.
7 Id. ¶ 4; U.S. Attorney’s Office, Press Release, Former Owner of Bucks County
Financial Consulting Firm Charged with Bribing Foreign Official (Jan. 6, 2015)
(hereinafter “USAO Press Release”), available at http://www.justice.gov/usao-edpa/
8 Harder Indictment ¶ 4, 10.
9 Id. ¶¶ 14, 19, 27.
10 Id. ¶¶ 18, 22-23, 28-29.
11 Id. ¶¶ 23, 29.
13 Id. ¶ 31.
14 Id. ¶¶ 21, 23, 28-29; USAO Press Release.
15 USAO Press Release.
16 In re Grand Jury Subpoena, 745 F.3d 681 (3d Cir. 2014), cert. denied sub nom.
Corp. & Client v. United States, 135 S. Ct. 510 (2014). Although the target of the
investigation was not named, the allegations in that matter as set forth in the
Third Circuit decision, which involve potential FCPA violations by a consulting firm
headquartered in Pennsylvania, and reference, for example, success fees of $8
million and improper payments of $3.5 million to a bank official’s sister, id. at 685,
seem clearly to relate to Harder.
17 United States v. Nguyen, Case No. 08-CR-522-TJS (E.D. Pa).
18 Under the FCPA, a “public international organization” is defined as, “an organization
that is designated by Executive order pursuant to Section 1 of the International
Organizations Immunities Act (22 U.S.C. § 288); or any other international
organization that is designated by the President by Executive order for the purposes
of this section, effective as of the date of publication of such order in the Federal
Register.” See 15 U.S.C. §§ 78dd-1(f)(1)(A)-(B), 78dd-2(h)(2)(A)-(B), 78dd-3(f)(2)(A).
UPDATE: GERMAN AND
UK GOVERNMENTS MOVE
FURTHER ALONG THE PATH
OF OVERHAULED EU
By Felix Helmstädter, Christoph Nüßing,
Alistair Maughan, and Sarah Wells
As outlined in our Winter 2014 edition, in early 2014
the European Union (EU) adopted a package of three
directives containing amended rules for the awarding of
public contracts and a harmonized scheme for competitive
tendering of concession contracts.
Procedurally, EU directives need to be transposed into
the national laws of each Member State. On January 7,
2015 – being halfway through the transposition period –
the German Federal Government identified the key points
for the transposition of the EU directives and published
a corresponding paper outlining the principal intentions
and aspects of the reform on a national level.
The German Federal Government is proposing not only
to transpose the advanced EU rules, but to also use this
opportunity for a general reform of the rather complex
set of German public procurement laws and regulations.
Germany’s aim is to create an easy-to-use and modern
framework, providing enhanced legal certainty and
safeguarding an efficient use of public funds.
At the same time, the German procurement regime will
be designed to serve specific additional functions related
to public procurement, such as guaranteeing compliance
with minimum wage laws and protecting the interests of
small and medium-sized enterprises (SMEs). Further, the
German government emphasizes the need to enhance the
means available for electronic tender procedures (digital
procurement), one of the key aspects of the EU framework
in the context of modernizing tender procedures.
While the German Government, in substance, intends
to transpose the standards and requirements set by
the amended EU procurement law framework, the new
German legislation (as described in the Government
paper of January 7, 2015) will modify the structures
of the current German public procurement legislation,
which consists of three levels of statutory laws and sub-
legal regulations. In particular, the role of the mid-level
regulations will be enhanced by incorporating additional
provisions related to public service contracts and by
adding a new regulation on concession contracts.
11 MoFo Global Procurement Quarterly, Winter 2015
Currently, the German Government is still on schedule
to meet the deadline for the transposition of the EU
directives on April 18, 2016. A first draft of the new
legislation is due to be finalized by Spring 2015. As far as
the amendment to the most important federal legislation
(the Act of Restraints against Competition (Gesetz gegen
Wettbewerbsbeschränkungen, GWB)) is concerned, the
new set of rules needs to be adopted by both legislative
bodies, Bundestag and Bundesrat. That is scheduled to take
place in Autumn 2015 and Winter 2015/2016, respectively.
In its January 7, 2015 paper, the German Government
stated that it will rely on the expertise of industry
organizations and contracting authorities during the
legislative process. While the main focus of the reform
and transposition seems to be clear, in this context, details
of the new German procurement regime are still open to
some degree of discussion and consultation.
UNITED STATES LAWMAKERS
PASS APPROPRIATIONS BILLS
FOR FISCAL YEAR 2015
By Bradley Wine and Steve Cave
In December 2014, Congress passed various
appropriations bills funding almost all of the United
States executive agencies for fiscal year 2015.1 The
2015 Omnibus Appropriations Bill is a consolidation
of appropriations bills that respond to agencies’ budget
requests. Although agency budgets and corresponding
appropriations are tailored to each agency’s specific needs
and governing functions, some themes are prominent
throughout the 2015 appropriations.
The 2015 Omnibus Appropriations Bill reflects the Federal
Government’s continuing focus on information technology
(IT) and cybersecurity. A number of agencies’ budgets
requested significant funding for IT and cybersecurity
measures, and Congress generally did not disappoint. For
example, the Department of Justice was given $722 million
for cybersecurity;2 $15 million goes to the development of
the National Cybersecurity Center of Excellence (within the
National Institute of Standards and Technology);3 major
investments are being made in personnel and equipment
at the U.S. Cyber Command;4 and, not surprisingly, the
Department of Defense (DoD) received significant funding
for cybersecurity and IT measures.5
The Federal Information Technology Acquisition
Reform Act of 2014 (FITARA) is a major piece of IT and
cybersecurity legislation that was passed as part of the 2015
National Defense Authorization Act. As enacted, FITARA
changes IT program acquisitions in measurable ways.
For example, FITARA greatly expands the role of chief
information officers in IT acquisitions, contains provisions
articulating minimum efficiency and effectiveness
requirements, and limits funding opportunities for IT
programs that are deemed “high risk.”6
As usual, various appropriations bills also contain
procurement policy reforms. Many of the most notable
procurement policy changes are contained in the National
Defense Authorization Act.
One of the major reforms is a requirement that
“operationally critical” contractors report “cyber
incidents” (hacking) within the contractor’s network or
information systems.7 Another announced reform is the
DoD’s policy to take necessary steps, including modifying
its acquisition guidance, to ensure that IT acquisitions
include open system approaches.8 The policy reform
reflects the overall effort to avoid establishing programs
that are tied to one IT vendor because changing vendors
would prove too costly. The policy is also intended to
increase competition for IT program acquisitions and
mandates that acquisition officials justify an acquisition
for non-open systems.
Apart from the general advancement of IT and
cybersecurity and various procurement reforms, the 2015
Omnibus Appropriations Bill addresses other issues as well.
For example, in response to Ebola issues arising in 2014,
the Bill provides a total of $5.4 billion in funding to prepare
for, and respond to, an Ebola outbreak.9 In response to
ongoing overseas threats and issues, the Bill provides
roughly $74 billion for Overseas Contingency Operations.
Congress denied some budget requests. The Internal
Revenue Service saw its budget decline by roughly
$346 million.10 Although the IRS has had its budget cut
in prior years, the FY 2015 decline is particularly hefty
and must be absorbed over the span of only nine months.
Congress also failed to agree on appropriations for one
agency – the Department of Homeland Security (DHS).
Instead, Congress agreed to fund DHS with a continuing
resolution that is effective through February 2015. The
debate regarding DHS funding beyond February 2015 is
Overall, the Bill provides $1.014 trillion in discretionary
spending. Members of both the House of Representatives
and the Senate praised the Bill’s compliance with the
bipartisan Murray-Ryan budget reduction agreement.