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Sun Cleared Of Wrongdoing?

Sun shareholders convening today to approve the company's acquisition by Oracle can breathe a sigh of relief. The company seems to be in the clear today, although as recently as April 30 (ten days after Oracle announced its bid), Sun was concerned that it might have breached the Foreign Corrupt Practices Act (FCPA), potentially derailing the deal.

The FCPA prohibits U.S.-based companies from kicking back to foreign officials in exchange for government contracts. Old habits die hard, and bribery is part of the cost of doing business in certain parts of the world, making it difficult for multinationals to police that kind of activity. Sun must have had an inkling that something was amiss because, in the quarterly report it issued April 30, it noted under Item 1A-Risk Factors, that it had

identified activities in a certain foreign country that may have violated the [FCPA]. We initiated an independent investigation with the assistance of outside counsel and took remedial action.
Sun said it had also informed the Department of Justice (DoJ) and Securities and Exchange Commission (SEC) of its suspicions.

But in the last set of definitive merger documents filed with the SEC, in Section 4.13 -- Compliance with Applicable Law, Sun affirmed that it is "in compliance in all material respects with all Applicable Laws and Orders," and that it is not under civil or criminal investigation or audit by either the Department of Justice, the SEC, or any other government agency.

Two things of note:

  • the fact that it isn't being investigated by the DoJ or the SEC means that both the government and Sun are satisfied that the matter has been resolved; and
  • Sun used outside counsel, which means it needed help from a local entity to investigate someone working at one of its foreign subsidiaries whom it suspected of having violated the FCPA.
One of the difficulties with complying with the FCPA is that many countries consider email and other communications as private correspondence that employers don't have a right to seize, in contrast to U.S. courts, which consider that those communications belong to the employer. This conflict can make it difficult for companies to comply with U.S. laws without violating local legislation. Dean Gonsowski, an attorney with litigation software vendor Clearwell, told me that U.S. courts have generally rejected the interests of foreign jurisdictions in protecting their data from U.S.-based discovery.

The solution, according to Gonsowski, is for multinationals to define policies and then conduct internal investigations to determine compliance. The idea is for companies to get ahead of the problem so they don't end up caught between two differing legal systems. "It's not straightforward, but you start down the path and bridge these hurdles when you get to them," he told me.

The role of Sun's "outside counsel" was likely to investigate a possible violation of the FCPA without breaking privacy or other regulations of foreign jurisdictions, which may have been accomplished simply by ensuring that details of that investigation remained informal and outside the reach of the U.S. legal system. Whatever the outcome of that particular investigation, it looks like Sun is now in the clear.