Introduction
By the numbers
Executives on chopping block
SEC cracks down on travel and entertainment expenses
Big oil, mining and couture: broadening cross-border enforcement
Other cases
Proposed Foreign Corrupt Practices Act reform and changes
What's to come in 2014?
The Foreign Corrupt Practices Act remained a key issue in 2013. The number of cases commenced under the act by the Department of Justice and the Securities and Exchange Commission (SEC) was slightly above pace from the previous year, providing evidence of the agencies' continued commitment to aggressive pursuit of Foreign Corrupt Practices Act cases.
The year started with a major change in leadership at the Department of Justice: Lanny Breuer, the assistant attorney general for the Criminal Division and a stalwart of Foreign Corrupt Practices Act prosecutions, stepped down on March 1 and was replaced by Acting Assistant Attorney General Mythili Raman,(1) who from the outset indicated that prosecution of corporate executives would be more robust than ever: "The message to be drawn from these prosecutions over the last few months is clear: we are now – more than ever – holding individual wrongdoers to account."(2) The first half of 2013 evidenced Raman's assurance: over a dozen individuals were prosecuted for engaging in foreign bribery schemes.
At the SEC, Mary Jo White was sworn in as the new chair, placing a former prosecutor at the helm of the regulatory and enforcement agency. The SEC also made its first use of a non-prosecution agreement in a Foreign Corrupt Practices Act action, highlighting the benefits of self-reporting, cooperation and proper remediation. Such tools and best practices will continue to be permanent fixtures in any expedited resolution of purported Foreign Corrupt Practices Act violations.
In 2012 case initiations by the Department of Justice and the SEC dropped as the large-scale oil-for-food investigations and prosecutions wrapped up. This did not reflect a decrease in enforcement zeal; rather, it was simply a conclusion to a mass investigation that netted many easy targets. In 2013 the enforcement effort continued unabated, albeit against more significant targets. The Department of Justice initiated 15 prosecutions and the SEC opened 12 enforcement actions, and the pace of enforcement actions was on a slight uptick from 2012. This increase in activity may reflect the government's efforts to enforce the statute by devoting to the mission 60 prosecutors and enforcement attorneys whose efforts are supported by the US attorneys and regional enforcement offices across the country. Raman has said: "In concrete terms... we are not going away – indeed, our efforts to fight foreign bribery are more robust than ever"(3) – an indication that enforcement will continue to heat up in coming years.
Among the new cases in 2013 were two yielding more than $500 million in fines. These actions highlight a surge in Foreign Corrupt Practices Act activity by federal regulators with a focus on individual prosecutions, cross-border investigations and large settlement agreements. However, the news is not all bad for companies. In the wake of this aggressive enforcement, the SEC offered its first-ever non-prosecution agreement to resolve bribery allegations. Both agencies have acknowledged publicly that a company's remediation efforts play a significant role in how US authorities will respond to evidence of misconduct. Nonetheless, this increase in activity has left companies and individuals alike at heightened risk of Foreign Corrupt Practices Act investigations and prosecutions and increasingly looking for guidance on bribery and corruption issues.
On November 15 2012 the Department of Justice and the SEC jointly issued the much-anticipated Foreign Corrupt Practices Act Resource Guide. On February 19 2013 a coalition of 31 business organisations, headlined by the US Chamber of Commerce, submitted a letter expressing appreciation for the agencies' "tremendous effort" to provide a "single central source of information".(4) However, the letter also identified "several areas of continuing concern for businesses seeking in good faith to comply with the [act]". These include:
- adding an affirmative corporate compliance defence;
- clarifying the definitions of 'foreign official' and 'instrumentality';
- limiting the liability of US multinational companies for the acts of foreign subsidiaries;
- limiting successor liability for the prior acts of an acquired company;
- requiring corporate knowledge as a prerequisite for establishing corporate criminal liability; and
- increasing visibility into declination decisions.
Despite what appears to be an increase in the number of reported declinations in the months following publication of the resource guide, publicly available information concerning these declinations remains spotty. Nevertheless, public filings suggest that in each of the eight declinations announced in 2013, the company in question voluntarily disclosed the matter to government agencies. These declinations are an encouraging sign that the Department of Justice and the SEC are making good on their longstanding pledge to provide meaningful credit to companies which self-report suspected violations and take prompt remedial actions.
The following trends can be seen in the Foreign Corrupt Practices Act cases announced or initiated in 2013:
- Prosecutions of and enforcement actions against individuals are a top priority for US enforcement authorities. The United States has dramatically increased the pace at which it goes after individual executives and employees in cases where it suspects bribery.
- Both the Department of Justice and the SEC have continued to examine travel and entertainment expense claims closely and to look sceptically at claims that payments to foreign officials are legitimate business expenses.
- Recent enforcement actions against companies in collaboration with foreign enforcement counterparts demonstrate the increasing prevalence of 'carbon-copy' prosecutions. The United States is using the upsurge in foreign government interest in anti-corruption investigations to fuel its own enforcement docket.
- Risk management is more than simply risk assessment – in most cases the government uses bargaining tools (eg, non-prosecution agreements), demonstrating its willingness to reward companies and individuals alike for self-reporting, cooperating and undertaking proper remedial actions. This continues to be a clear theme in both case resolution and public statements by Department of Justice and SEC officials.
This update discusses the major US enforcement actions from 2013, as well analysing the increasingly vigorous anti-corruption enforcement, legislative activities from the past year and predictions for the future.
It seems that in 2013 more than ever, the Department of Justice made prosecuting individuals a deliberate enforcement priority. It has made clear that:
"Our recent string of successful prosecutions of corporate executives is worth highlighting. Those actions show, in concrete terms, that we are not going away – indeed, our efforts to fight foreign bribery are more robust than ever. By redoubling our commitment to bring to justice those individuals who bribe for business, we are sending an unmistakable message to corporate executives around the world – if you engage in corrupt conduct, you should be prepared to face very real consequences, including jail time."(5)
The Department of Justice's pursuit of criminal charges against executives demonstrates the agency's continued commitment to an enforcement model that favours incentivising self-disclosure by corporations while aggressively prosecuting individual violators.
Executives of BizJet International Sales and Support Inc (April 5 2013)
Charges were unsealed in April 2013 against four former executives of BizJet International Sales and Support Inc, the US-based subsidiary of Lufthansa Technik AG, which provides aircraft maintenance, repair and overhaul services. The BizJet executives were charged with Foreign Corrupt Practices Act violations for their alleged participation in a scheme to pay bribes to government officials in Latin America. According to the charging documents, Bernd Kowalewski, former president and chief executive officer, Peter DuBois, former vice president of sales and marketing, Neal Uhl, former vice president of finance, and Jald Jensen, former sales manager, paid bribes to Mexican, Brazilian and Panamanian officials in exchange for their assistance in securing contracts for BizJet to perform maintenance, repair and overhaul services.
Kowalewski and Jensen were charged by indictment filed in the US District Court for the Northern District of Oklahoma in 2012 with violating the Foreign Corrupt Practices Act, money laundering and related conspiracy charges. The two defendants remain at large abroad. DuBois and Uhl pleaded guilty in 2012 and their pleas were unsealed in 2013. Both defendants were sentenced by US District Judge Gregory K Frizzell in the Northern District of Oklahoma. DuBois's sentence was reduced from a sentencing guideline range of 108 to 120 months in prison to probation and eight months' home detention based on his cooperation in the government's investigation. Uhl's sentence was similarly reduced for cooperation from a guideline range of 60 months in prison to probation and eight months' home detention. BizJet entered into a deferred prosecution agreement in 2012 to settle charges related to its corrupt conduct and the actions of its employees.
Executives of Alstom SA (April 16 2013)
Charges were brought against one current and three former executives of the US subsidiary of Alstom SA, a French power and transportation company, for their alleged participation in a scheme to pay bribes to foreign government officials. Company executive Frederic Pierucci was arrested and indicted for Foreign Corrupt Practices Act and money-laundering violations and related conspiracy charges. David Rothschild, former vice president of sales, pleaded guilty in 2012 to one count of conspiracy to violate the Foreign Corrupt Practices Act. Another Alstom executive, William Pomponi, was charged as a co-defendant in a superseding indictment filed by the Department of Justice in 2013. Pomponi was vice president of regional sales at Alstom Connecticut.
Subsequently, Lawrence Hoskins, former senior vice president for the Asia region, was charged in a second superseding indictment for his alleged participation in the scheme. Pierucci, Rothschild, Pomponi and Hoskins, together with others, allegedly used two outside consultants to bribe high-ranking foreign officials in Indonesia in exchange for lucrative contracts to provide power-related services for Indonesian citizens (the Tarahan Project). The defendants and their co-conspirators were successful in securing the Tarahan Project in May 2005 and subsequently made payments to the consultants for the alleged purpose of bribing the Indonesian officials.
Employees of Direct Access Partners LLC (May 7 2013)
Ernesto Lujan, a managing partner of New York broker-dealer Direct Access Partners (DAP), was arrested on Foreign Corrupt Practices Act charges arising from a conspiracy to pay bribes to Maria De Los Angeles Gonzalez De Hernandez, a senior official in Venezuela's state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES). Lujan, among others, allegedly arranged the bribe payments at BANDES in exchange for Hernandez directing BANDES's financial trading business to DAP. In 2013 Hernandez, along with DAP employees Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado, was arrested for substantive and conspiracy Foreign Corrupt Practices Act bribery, Travel Act and money-laundering charges relating to this bribery scheme.
According to the charging documents, the DAP employees paid Hernandez at least $5 million in kickbacks between 2008 and 2010 in return for her directing more than $60 million of business to DAP. The Department of Justice alleges that much of this trading activity, including round-trip trades of bank bonds that DAP bought from BANDES and then sold back on the same day, was conducted solely to generate business for DAP and provided no discernible benefit to BANDES. The DAP employees allegedly pocketed millions of dollars in commissions from these trades, and the money was allegedly funnelled through a complex web of Swiss and Panamanian bank accounts. The Department of Justice has additionally filed a civil forfeiture complaint against a number of these accounts and real estate properties allegedly purchased with the corrupt proceeds. The SEC also filed non-Foreign Corrupt Practices Act fraud charges against the DAP employees listed above, along with two others, including Hurtado's wife, Haydee Leticia Pabon.
Former chief finance officer of Digi International, Inc (July 2 2013)
The SEC agreed to settle civil Foreign Corrupt Practices Act claims filed in federal court in Minnesota against Subramanian Krishnan, the former chief financial officer of Digi International, Inc, a Minnesota-based wireless solutions company. The complaint had alleged that Krishnan violated books and records requirements and evaded internal controls to pay for unauthorised travel and entertainment expenses. Specifically, the SEC alleged that Krishnan allowed Digi employees in its Hong Kong office to be reimbursed for expenses, including hotel and entertainment expenses, without approval by the chief executive officer and in violation of company policy. Krishnan allegedly approved cash payments in the Hong Kong office that were not documented or explained.
The complaint did not specify how employees used the funds and the SEC later acknowledged that there was no underlying bribery violation, which highlights the agency's use of the Foreign Corrupt Practices Act to pursue even pure recordkeeping cases. In the face of the announcement by White that the SEC might require factual admissions even in a civil settlement, Krishnan settled without admitting or denying the allegations. He also consented to a judgment prohibiting him from serving as an officer or director of any issuer and from practising as an accountant for five years. The judgment included a $60,000 civil penalty.
Former executive at Maxwell Technologies, Inc (October 15 2013)
Alan Riedo, a Swiss citizen and former vice president and general manager of Maxwell Technologies, Inc, was indicted for Foreign Corrupt Practices Act violations for his role in an alleged scheme to bribe Chinese officials in exchange for lucrative contracts. Maxwell manufactures energy storage and power-delivery products in several countries, including China. Maxwell SA is a wholly owned subsidiary of Maxwell that manufactured and sold high-voltage/high-tension capacitors.
Riedo, together with others identified in the indictment as co-conspirators, allegedly conspired to bribe Chinese officials at Pinggao Group Co Ltd, Xi-an XD High Voltage Apparatus Co Ltd and New Northeast Electric Shenyang HV Switchgear Co Ltd, which are state-owned and state-controlled electric-utility infrastructure agencies of the Chinese government. The alleged bribes were paid in exchange for the officials' assistance in securing contracts for the sale of Maxwell's high-voltage capacitor products to state-owned manufacturers of electrical-utility infrastructure and in obtaining and retaining business, prestige and increased compensation for Riedo, Maxwell, Maxwell SA and others. Riedo's employment by Maxwell was terminated in 2009. He is currently considered a fugitive and a warrant for his arrest has been issued.
Maxwell previously resolved parallel Department of Justice and SEC Foreign Corrupt Practices Act enforcement actions concerning its business conduct in China by agreeing to pay approximately $14 million in 2011.
SEC cracks down on travel and entertainment expenses
At the American Conference Institute's 30th International Conference on the Foreign Corrupt Practices Act,(6) Department of Justice Foreign Corrupt Practices Act Unit Deputy Chief Charles E Duross and SEC Foreign Corrupt Practices Act Unit Chief Kara N Brockmeyer discussed their agencies' respective pipelines of cases. Duross said that the Department of Justice has approximately 150 open Foreign Corrupt Practices Act investigations, a figure that has remained roughly constant for the past several years. Brockmeyer stated that two-thirds or more of her team's cases involve allegations that potential improper payments have been routed to foreign officials through intermediaries. She also noted that travel and entertainment issues continue to be the subject of enforcement actions, citing both the Diebold and Stryker settlements discussed below.
Koninklijke Philips Electronics NV (April 5 2013)
Koninklijke Philips Electronics NV is a Netherlands-based healthcare and lighting company. Since at least 1999 Philips has participated in public tenders to sell medical equipment to Polish healthcare facilities. From 1999 to 2007, in at least 30 transactions, employees of Philips' Polish subsidiary Philips Polska sp zoo, allegedly made improper payments to public officials of Polish healthcare facilities, including hospital directors, in order to increase the likelihood that Philips would be awarded these contracts. Under the Foreign Corrupt Practices Act, healthcare professionals such as hospital directors in state-run systems such as Poland's are considered to be foreign officials. The alleged improper payments generally amounted to 3% to 8% of the contracts' net value. These improper payments were falsely characterised and accounted for in Philips' books and records as legitimate expenses, and were at times supported by false documentation created by Philips Polska employees and/or third parties.
In finding that Philips violated Section 13(b)(2)(B) of the Securities Exchange Act, the SEC emphasised Philips' failure to implement a Foreign Corrupt Practices Act compliance and training programme that was "commensurate with the extent of its international operations". However, no civil penalty was imposed by the SEC, based on Philips' cooperation in the SEC investigation and related enforcement action. Philips was ordered to cease and desist, disgorge $3.12 million and pay $1.39 million in pre-judgment interest. The Polish authorities have brought a case against former Philips employees and 16 hospital directors accused of paying or receiving bribes. A trial in Polish court is ongoing.
Diebold Inc (October 22 2013)
Diebold Inc, an Ohio-based manufacturer of automated teller machines (ATMs) and bank security systems, agreed to pay a $25.2 million penalty to the Department of Justice and $48 million to the SEC to resolve allegations that it violated the Foreign Corrupt Practices Act by bribing government officials in China and Indonesia and falsifying records in Russia in order to obtain and retain contracts to provide ATMs to state-owned and private banks in those countries. In its settlement with the SEC, Diebold also agreed to pay approximately $22.97 million in disgorgement and pre-judgment interest.
Diebold entered into a deferred prosecution agreement with the Department of Justice and, in addition to the monetary penalty, agreed to implement rigorous internal controls, cooperate fully with the department and retain a compliance monitor for at least 18 months. According to court documents, Diebold provided cash, gifts and non-business travel to employees of state-owned Chinese banks. Diebold executives and employees attempted to disguise the payments and benefits through various means, including by making payments through third parties designated by the banks and by inaccurately recording leisure trips for bank employees as training. In Russia, Diebold allegedly entered into false contracts for services that the distributor was not performing. The distributor then used the money from Diebold to pay bribes to employees of Diebold's privately owned bank customers in Russia to obtain and retain contracts with those customers. The criminal information alleges that in doing so, Diebold knowingly falsified its books and records.
Stryker Corporation (October 25 2013)
The SEC charged a Michigan-based medical technology company with violating the Foreign Corrupt Practices Act when subsidiaries in five different countries bribed doctors, healthcare professionals and other government-employed officials in order to obtain or retain business. According to the SEC's order, between August 2003 and February 2008 Stryker subsidiaries in Argentina, Greece, Mexico, Poland and Romania made illicit payments to public healthcare officials, including doctors and heath administrators, at various state-owned hospitals, universities and health agencies. Descriptions varied from a charitable donation to consulting and service contracts, travel expenses and commissions. Stryker made approximately $7.5 million in illicit profits as a result of the improper payments. Over the course of these years, Stryker is said to have routinely mischaracterised the payments on its corporate books and records as legitimate consulting services and contracts, travel expenses, charitable donations or commissions. Stryker agreed to pay more than $13.2 million to settle the SEC's charges.
Big oil, mining and couture: broadening cross-border enforcement
In addition to the stepped-up prosecutions of individuals, recent enforcement actions against oil and gas, mining and fashion companies highlight further important shifts in the anti-corruption realm:
- the development of stronger anti-bribery enforcement programmes in foreign countries;
- the continuing and encouraging rise in cross-border cooperation; and
- the increasing efforts of foreign law enforcement authorities to hold perpetrators accountable.
The Total case (discussed below) represents the first coordinated action by US and French law enforcement in a foreign bribery case. As a result of the cross-border collaboration, Total faces criminal consequences across two continents. This unprecedented joint action by US and French authorities reflects the United States' renewed commitment to work closely with its foreign counterparts to enforce bribery laws across the globe.
The Parker Drilling and Ralph Lauren cases also highlight the Department of Justice and SEC's offers of resolutions short of a guilty plea (eg, deferred prosecution and non-prosecution agreements) and reduced monetary penalties in certain cases. SEC Co-director of Enforcement Andrew J Ceresney has noted: "The answer is simple – if we find the violations on our own, the consequences will surely be worse than if you had self-reported the conduct."
Frederic Cilins (April 15 2013)
French citizen Frederic Cilins was arrested and indicted on five counts of obstruction of justice for allegedly impeding an investigation into whether an unnamed mining company(7) paid bribes to win lucrative mining rights in the Republic of Guinea. A criminal complaint was filed in the Southern District of New York charging Cilins with obstructing an ongoing federal grand jury investigation concerning potential violations of the Foreign Corrupt Practices Act and laws proscribing money laundering.
In March 2013 investigators began working with the former wife of a now-deceased Guinean government official suspected of receiving bribes in exchange for the award of the relevant mining concessions. The official's wife revealed that while her husband was in office, both were visited by several individuals from the unnamed company, including Cilins. During the meetings, these individuals offered bribes to the wife and various other government officials to secure valuable mining rights in Guinea. Through a series of recorded conversations, investigators learned that Cilins contacted the official's wife and allegedly offered to pay her approximately $1 million in exchange for documents demonstrating the corruption, which he intended to destroy. Cilins pleaded not guilty to all charges and is being held without bail. His trial is set for March 2014.
Parker Drilling Company (April 16 2013)
Parker Drilling Company (Parker) is a publicly listed drilling services company headquartered in Houston, Texas. Parker agreed to pay a penalty of $11.76 million to resolve Foreign Corrupt Practices Act charges alleging that it paid a Nigerian agent to corruptly influence decisions of the Nigerian government about Parker's adherence to Nigerian customs and tax laws. According to the criminal information, in 2001 and 2002 Panalpina World Transport Limited (Panalpina Nigeria) helped Parker to avoid certain costs associated with the Nigerian Customs and Excise Management Act of 1958. In late 2002 Nigeria formed a government commission (the TI Panel) to examine whether Nigeria's Customs Service had collected certain duties and tariffs that Nigeria was due.
The TI Panel found that Parker had violated Nigeria's customs laws and assessed a fine of $3.8 million against the company in May 2004. During these proceedings, Parker allegedly retained a Nigerian agent to act as a consultant and meet with, or plan meetings with, various Nigerian officials. Parker paid $1.25 million to this Nigerian agent, who reported spending a portion of the money on various things, including entertaining government officials. According to court documents, two senior executives at the time reviewed and approved the agent's invoices, knowing that the invoices arbitrarily attributed portions of the money that Parker transferred to the agent to various fees and expenses. The funds were mostly funnelled through Parker's outside counsel. Following the Nigerian agent's work, the company received an unexplained $3.05 million reduction of a previously assessed customs fine and the company was permitted to nationalise and sell its Nigerian rigs.
In settling the allegations, the Department of Justice agreed to defer prosecution of Parker for three years. Parker agreed, among other things, to:
- implement an enhanced compliance programme and internal controls capable of preventing and detecting Foreign Corrupt Practices Act violations;
- report periodically to the Department of Justice concerning its compliance efforts; and
- cooperate with ongoing investigations.
It also reached a settlement with the SEC in a parallel civil action and agreed to pay $4.09 million in disgorgement and pre-judgment interest.
Ralph Lauren Corporation (April 22 2013)
Ralph Lauren Corporation (RLC), headquartered in New York, designs, markets and distributes apparel, accessories and other products around the world. RLC agreed to pay the Department of Justice a penalty of $882,000 to resolve allegations that it violated the Foreign Corrupt Practices Act. As part of the Department of Justice's non-prosecution agreement, RLC admitted that its Argentine subsidiary (RLC Argentina) paid bribes and gifts, through an agent, to Argentine customs officials from 2005 to 2009 to assist in improperly obtaining paperwork necessary for its products to clear customs, permit clearance of items without the necessary paperwork, permit clearance of prohibited goods and avoid inspection of products by Argentine customs officials.
In addition, the general manager of RLC Argentina directly provided or authorised provision of several gifts to three Argentine government officials to secure improperly the importation of the corporation's products into Argentina. During this time, RLC did not have an anti-corruption programme in place and did not provide anti-corruption training or oversight to its Argentine subsidiary. On discovery of the bribes, RLC ceased all operations in Argentina. In the parallel civil action, RLC entered into an non-prosecution agreement with the SEC and agreed to pay $734,845 in disgorgement and pre-judgment interest. The non-prosecution agreement is the first that the SEC has entered into involving Foreign Corrupt Practices Act misconduct.(8)
Total SA (May 29 2013)
Oil giant Total SA paid $398 million to the Department of Justice and SEC to resolve Foreign Corrupt Practices Act charges. In a deferred prosecution agreement, the company admitted paying bribes to gain access to oil and gas fields in Iran. The settlement was the fourth-biggest in Foreign Corrupt Practices Act history, and the investigation was the first coordinated action by French and US law enforcement in a major foreign bribery case.
According to the settlement agreements, between 1995 and 2004 Total utilised intermediaries to make approximately $60 million in improper payments to the chairman of a wholly owned subsidiary of the National Iranian Oil Company to obtain the rights to develop two significant oil and gas fields in Iran. Total allegedly mischaracterised the unlawful payments as business development expenses paid through what purported to be legitimate consulting agreements with the intermediaries.
The Department of Justice resolution took the form of a three-count criminal information charging conspiracy to violate the Foreign Corrupt Practices Act's anti-bribery provision, as well as substantive books-and-records and internal controls violations. The information will be stayed during the three-year term of the deferred prosecution agreement. The SEC settlement consists of an administrative cease-and-desist order alleging violations of the Foreign Corrupt Practices Act's anti-bribery, books-and-records and internal controls provisions. Total is required by both settlements to retain, for a three-year period, an independent compliance monitor. This case represents a cooperative effort by both French and US law enforcement to hold a company liable for its corrupt foreign activities.
In an unrelated matter, a French court in July 2013 acquitted Total and its chief executive officer of corruption and embezzlement in a case arising from the United Nations-sponsored Oil-for-Food Programme in Iraq. The Paris court also dismissed corruption charges against the 18 other defendants in the case, including a former minister and a former French ambassador.
Weatherford International Limited (November 26 2013)
Three subsidiaries of Weatherford International Limited, a Swiss oil services company, have agreed to plead guilty to anti-bribery provisions of the Foreign Corrupt Practices Act and other violations. The total amount of fines and penalties for the Foreign Corrupt Practices Act violations was $152.6 million. The company was also hit with another $100 million in fines and penalties for trade sanctions, bringing its total amount paid to $252.6 million. Weatherford admitted to failing to establish an effective system of internal accounting controls designed to detect and prevent corruption, including Foreign Corrupt Practices Act violations. As a result, employees of certain of Weatherford's wholly owned subsidiaries in Africa and the Middle East were able to engage in corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations' Oil-for-Food Programme.
In a related matter, the SEC filed a settlement in which Weatherford International consented to the entry of a permanent injunction against Foreign Corrupt Practices Act violations and agreed to pay $65.61 million in disgorgement, pre-judgment interest and civil penalties. Weatherford also agreed to comply with certain undertakings regarding its Foreign Corrupt Practices Act compliance programme, including the retention of an independent corporate compliance monitor. The settlements concluded one of the longest-running open Foreign Corrupt Practices Act investigations, and Weatherford is now at number nine on the list of top 10 Foreign Corrupt Practices Act penalties of all time.
Bilfinger SE (December 9 2013)
Germany-based Bilfinger SE, an engineering and services company in the energy sector, agreed to pay a $32 million penalty to resolve charges that it violated the Foreign Corrupt Practices Act by bribing government officials in Nigeria. The Department of Justice filed a three-count criminal information in the US District Court for the Southern District of Texas charging Bilfinger with bribing government officials of Nigeria to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project, which was valued at approximately $387 million. According to court documents, from late 2003 to June 2005 Bilfinger conspired with Willbros Group Inc(9) and others to make corrupt payments totalling more than $6 million to Nigerian government officials to assist in obtaining and retaining contracts related to the EGGS project. Bilfinger and Willbros formed a joint venture to bid on the EGGS project and inflated the price of the joint venture's bid by 3% to cover the cost of paying bribes to Nigerian officials. As part of the conspiracy, Bilfinger employees bribed Nigerian officials with cash that Bilfinger employees sent from Germany to Nigeria. When Willbros employees encountered difficulty obtaining enough money to make their share of the bribe payments, Bilfinger loaned them $1 million with the express purpose of paying bribes to the Nigerian officials.
Bilfinger entered into a deferred prosecution agreement with the Department of Justice for three years. In addition to the monetary penalty, Bilfinger agreed to implement rigorous internal controls, continue cooperating fully with the department and retain an independent corporate compliance monitor for at least 18 months. The agreement acknowledges Bilfinger's cooperation with the department and its remediation efforts.
Archer-Daniels-Midlands Company (December 20 2013)
Alfred C Toepfer International Ukraine Ltd (ACTI), the Ukraine subsidiary of global food processor Archer-Daniels-Midland Company (ADM), pleaded guilty to violating the Foreign Corrupt Practices Act by bribing Ukrainian government officials through vendors in exchange for value added tax (VAT) refunds. ACTI paid a criminal fine of $17.8 million to the Department of Justice. Parent company ADM signed a non-prosecution agreement with the Department of Justice, admitting that it failed to have adequate internal controls needed to prevent bribery in Ukraine and through a joint venture in Venezuela.
The charging documents alleged that from 2002 to 2008, ACTI and another ADM subsidiary in Europe paid third-party vendors $22 million to pass as bribes to Ukrainian government officials for VAT refunds. In return, the ADM companies received $100 million in VAT refunds. ADM also paid $36.5 million in disgorgement and pre-judgment interest to resolve civil charges brought by the SEC. The Department of Justice and SEC said that they took into account ADM's cooperation and "significant remedial measures, including self-reporting, implementing a comprehensive new compliance program, and terminating employees involved in the misconduct".
Proposed Foreign Corrupt Practices Act reform and changes
The House of Representatives and the Senatehave both been working on a bill to appropriate Fiscal Year 2014 funding for certain Department of Defence military construction projects. On June 4 2013 Representative Alan Grayson offered an amendment (House Amendment 89) to the House of Representatives' version of the bill (HR 2216) that would prevent funds allocated under the bill from being used for contracts with companies that, within the preceding three years, have been "convicted or had a civil judgment rendered against them" for, among other things, bribery. The amendment also applies to companies whose principals have had a conviction or civil judgment rendered against them within the preceding three years. The bill, including Grayson's amendment, has passed the house and is now before the Senate.
In the wake of cases where federal judges are increasingly questioning the merits of proposed settlements submitted by the SEC and defendants for approval, on June 18 2013 White announced(10) that the SEC intends to scale back its use of the 'neither admit nor deny' policy in "certain cases". This announcement expands on changes made to the SEC's 'neither admit nor deny' policy in early 2012, which limited the policy's use in certain cases involving criminal wrongdoing. Before the 2012 SEC policy changes, a "defendant could be found guilty of criminal conduct and, at the same time, settle parallel SEC charges while neither admitting nor denying civil liability". In early 2012 Robert Khuzami, then-director of the SEC Division of Enforcement, announced that when settling cases in which the defendant has admitted to violations of criminal law in related criminal proceedings, the SEC will no longer allow the defendant neither to admit nor deny wrongdoing. As judicial review continues to inject uncertainty into the once perfunctory settlement approval process, the use of administrative proceedings to resolve Foreign Corrupt Practices Act violations may become a preferred forum for SEC settlements.
In light of the clear commitment to robust Foreign Corrupt Practices Act enforcement by the Department of Justice and the SEC, enforcement activity by both US and foreign authorities is expected to be on the rise in the coming months. The entry of the Chinese government and other emerging foreign enforcement authorities to the international fight against corruption and bribery is truly a game changer. The GlaxoSmithKline PLC bribery and corruption investigation will be the number one development this year in anti-corruption compliance because it is likely to demonstrate that international companies operating in China have an important risk to consider: being investigated by foreign authorities likely could lead to prosecution by US regulators and vice versa. Similarly, the Total case stands as a stark reminder of two basic truths for multinational corporations:
- Unaddressed Foreign Corrupt Practices Act violations can prove extremely costly; and
- Legal regimes in different countries can result in duplicative or overlapping exposures for those accused of violating anti-corruption laws.
It is clear that foreign companies are now on notice: doing business the old-fashioned way will no longer be tolerated.
Also of note is the continued effort to increase the scope of the Foreign Corrupt Practices Act to foreign nationals with few, if any, ties to the United States. Two recent decisions of the Southern District of New York, Steffen and Straub, interpreting the jurisdictional reach of the Foreign Corrupt Practices Act leave a murky explanation of how far the Department of Justice and SEC can stretch to reach foreign nationals. In addition, the Straub opinion has broad implications regarding statute of limitations defences for individuals located outside the United States, essentially giving prosecutors unlimited time in charging individuals residing overseas.
Both Department of Justice and SEC officials emphasised throughout 2013 that self-reporting is particularly relevant to the government's determination of the kind of disposition it will seek in settlement. Thus, the most effective way to avoid aggressive prosecution is to undertake robust compliance measures well before issues arise and, when violations do occur, to gather quickly the information necessary to make an informed decision about whether to self-report and remediate any compliance deficiencies.
For further information on this topic please contact Stuart Altman or Natalie Sinicrope at Hogan Lovells US LLP by telephone (+1 202 637 5600), fax (+1 202 637 5910) or email ([email protected] or [email protected]).The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
Endnotes
(1) Leslie R Caldwell was nominated to be assistant attorney general for the Criminal Division on September 18 2013 and is awaiting confirmation.
(4) US Chamber of Commerce, US Chamber Institute for Legal Reform, Letter to Assistant Attorney General Lanny A Breuer and Acting Director of Enforcement George S Canellos Regarding the Foreign Corrupt Practices Act Resource Guide (February 19 2013), www. instituteforlegalreform.com/uploads/sites/1/Coalition_Letter_to_DOJ_and_SEC_re_ Guidance_ 2-19 -13.pdf.
(6) Charles E Duross, deputy chief, Criminal Division, US Department of Justice, and Kara N Brockmeyer, Foreign Corrupt Practices Act Unit Chief, US Securities and Exchange Commission, Remarks at the American Conference Institute's Foreign Corrupt Practices Act Conference (November 19 2013), www.fcpablog.com/blog/2013/11/20/duross-brockmeyer-talk-about-fcpa-investigations-remediation.html.
(7) The Financial Times reported on April 19 2013 that the "unnamed company" involved in the US corruption probe into obtaining mining rights in Guinea is a subsidiary of the Beny Steinmetz Group (BSG). BSG is a privately owned company managed by Israeli diamond tycoon Beny Steinmetz and operates in several different industries worldwide, including natural resources, real estate, capital markets and the diamond business. Available at www.ft.com/cms/s/0/198b9ea6 -a8e8 -11e2-a096 - 00144feabdc0. html#axzz2n6q3Vl4b.
(8) Non-prosecution agreements are part of the SEC Enforcement Division's Cooperation Initiative, which rewards cooperation in SEC investigations. "When they found a problem, Ralph Lauren Corporation did the right thing by immediately reporting it to the SEC and providing exceptional assistance in our investigation," said George S Canellos, acting director of the SEC Division of Enforcement. "The [non-prosecution agreement] in this matter makes clear that we will confer substantial and tangible benefits on companies that respond appropriately to violations and cooperate fully with the SEC," Press release, US Securities and Exchange Commission, "SEC Announces Non-Prosecution Agreement With Ralph Lauren Corporation Involving FCPA Misconduct" (April 22 2013).
(9) On May 3 2013 Paul G Novak, a former consultant for Willbros International Inc, was sentenced for his role in the scheme to bribe government and political party officials in Nigeria. Novak was sentenced to 15 months in prison, $1 million in fines and two years of supervised release after pleading guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act and one count of a substantive Foreign Corrupt Practices Act violation. In 2008 Willbros Group Inc and Willbros International Inc paid $22 million in a Foreign Corrupt Practices Act settlement with the Department of Justice to resolve similar allegations. Kenneth Tillery was also charged with Novak but allegedly remains a fugitive. Two former Willbros employees have already been imprisoned for their roles in the scheme. In 2006 Jim Brown, former executive, pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act and was sentenced in 2010 to 12 months in prison. Jason Steph, former executive, also pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act.
(10) White announced that the SEC will cease its blanket policy allowing defendants to settle SEC cases without admitting to wrongdoing. Mary Jo White, Chair, SEC, "Remarks at Council of Institutional Investors" (September 26 2013), www. sec.gov/News/Speech/Detail/Speech/1370539841202. Acknowledging that the no admit/deny language is an effective tool at encouraging defendants to settle, she identified situations where the SEC will require an admission in the interest of public accountability –specifically, where:
- the misconduct harmed large numbers of investors or placed them at risk of serious harm;
- an admission might safeguard against risks posed by the defendant;
- the defendant engaged in egregious intentional misconduct; or
- the defendant engaged in unlawful obstruction of the investigation.
The SEC Enforcement Division will continue to discuss with the commissioners cases where admission could be in the public interest. The change in policy only adds to the SEC's leverage over defendants; the SEC may now be unwilling to negotiate over an admission of wrongdoing and could force defendants to go to trial. Only time will tell whether the SEC is willing to take a hard line where admissions become an inevitable cost of resolving a case.
