This previous post discussed the Wal-Mart effect, how Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico, and that it is likely that Wal-Mart’s potential FCPA exposure has caused sleepless nights for many company executives doing business in Mexico and the general region.

Sure enough.

Aruna Viswanatha reports in this Reuters story that “retailers have been reviewing their international operations in light of a bribery scandal at Wal-Mart’s operations in Mexico that is the subject of investigations by the Justice Department and the Securities and Exchange Commission.”  According to the story, “other retail companies have also since reported to U.S. agencies suspicions of their own potential violations, which in turn has the Justice Department and SEC considering a sweep of the entire industry.”  For more on industry sweeps, see this previous post.

Barclays Dealings With Sovereign-Wealth Funds Scrutinized

The Wall Street Journal reported on Friday (here) that Barclays PLC’s “chief financial officer is under investigation by British authorities related to the bank’s 2008 fundraising activities with Middle Eastern investors.”  According to the story, the “probe is focused at least in part on how Barclays wooed Qatar’s sovereign-wealth fund to pump billions of pounds into the bank as the financial crisis intensified.”  According to this Wall Street Journal article, Barclays previously disclosed “£240 million of payments made to Qatar Holding and Abu Dhabi’s Sheik Mansour Bin Zayed Al Nahyan related to its £7.3 billion capital raise in 2008.”

Barclays has ADRs traded on the New York Stock Exchange and, according to the article, the SEC “is aware of the probe” and will be updated on its progress.  As the article notes, the SEC is currently conducting an expansive investigation of various financial institutions concerning relationships with sovereign-wealth funds.

Halliburton’s Latest Disclosure

Halliburton previously disclosed potential FCPA issues concerning the use of an Angolan vendor.  Last week in this quarterly report, the company provided an update on that investigation as well as new investigations concerning additional conduct in Angola as well as Iraq.  The disclosure states as follows.

On Friday, April 13th, Cobalt’s shares closed at $28.38.

On Sunday, April 15th, the Financial Times (“FT”) published two articles: “Spotlight Falls on Cobalt’s Angola Partner” and “Angola Officials Held Hidden Oil Stakes” that spooked investors the following day.  Never mind that, as in Wal-Mart’s case, Cobalt disclosed FCPA scrutiny weeks earlier – see here for the prior post.  (Point taken that market reaction to Wal-Mart – the stock was down an additional 3% yesterday, down approximately 8% this week – is likely not just based on Wal-Mart’s potential FCPA scrutiny, but Wal-Mart’s response (or lack thereof) to the payments since 2005 and the impact this could have for senior leadership at the company).

The FT articles document how in 2008 Cobalt was looking to obtain rights to drill for oil in Angolan waters.  According to the FT, an Angolan government stipulation was that Cobalt would have partner with Nazaki Oil & Gaz, described by the FT as “an obscure local company.”  According to the articles, FT confirmed that “three of the most powerful figures in the Angolan regime have held interests in Nazaki.”  The FT stated that these individuals “interests in Cobalt’s local partner could raise questions about compliance with U.S. anti-corruption laws, which make it a crime to pay or offer anything of value to foreign officials to win business.”  For its part, Cobalt stated in the articles that its extensive and ongoing due diligence “has not found any credible support for the central allegation that Angolan government officials, and specifically the officials identified … have any ownership in Nazaki” and that the company “has at all times complied fully with both U.S. and Angolan laws.”

Nevertheless, in mid-day trading on Monday, April 16th, the company’s stock plunged approximately 11% and closed at $26.35, down approximately 7% from its previous close.

After watching its stock dive based on the FT article, Cobalt issued a release (here) strongly refuting “any allegations of wrong doing and once again stood behind its principles of full compliance with all laws in all jurisdictions in which it operates.”  According to Cobalt’s release, “prior to publication of [the FT] articles, Cobalt went on the record asking for any documentation that the Financial Times could offer which was at  odds with its position. The Financial Times declined Cobalt’s repeated requests for supporting documentation. In fact, in the course of these communications, Cobalt informed the Financial Times of certain egregious, demonstrably false allegations that it provided to Cobalt.”  As noted in the release, “Cobalt began its investigation into its Angola business relationships in 2007. Cobalt has based its decisions and actions on the results of these  extensive investigations and will continue to maintain rigorous due diligence in all of its worldwide activities. Cobalt remains confident that it has not violated any US or Angolan Law and will vigorously defend its reputation and legal rights in this matter.”

On Tuesday April 17th, as if on cue, a plaintiff shareholder firm announced (here) that it is investigating “potential claims on behalf of purchasers of the securities of Cobalt International Energy Inc. concerning whether the company and certain of its officers and directors have violated federal securities laws.”  Other shareholder firms have joined in as well – see here.

Also on Tuesday April 17th, Morgan Stanley, in a morning equity summary, said that the “market is overreacting to worries of alleged” Cobalt violations and that Cobalt “has no risk of losing” its interest in the Angola blocks.  The company’s shares climbed approximately 4% and closed at $27.44.  Since then the company’s stock has generally trended downward, yesterday it closed at $26.41.

What to make of Cobalt’s potential FCPA exposure?

Time will tell of course, but the DOJ has previously brought FCPA enforcement actions where the thing of value given to the “foreign official” was provided in the context of a business relationship with a company owned or controlled by a “foreign official” or family members.

For instance, in both the Charles Jumet and John Warwick (these individuals were employed by Ports Engineering Consultants Corporation) charging documents (here and here) the DOJ generally alleged as follows.

“Government Official A was the Administrator of Panama’s National Maritime Ports Authority (APN), the Panamanian governmental entity responsible for operating and maintaining the lighthouses and buoys in the waterways near the Panama Canal.” ”Government Official B” was at various times the Deputy Administrator or Administrator of APN.  “Government Official C was a very high-ranking executive official of the Republic of Panama.”

According to the charging documents, Government Official A owned a shell corporation, Soderville Corporation, which become a majority shareholder of Ports Engineering Consultants Corporation (PECC).  Government Official B’s relatives were corporate officers of Warmspell Holding Corporation, which became a shareholder of PECC.

The DOJ alleged a conspiracy “to pay money secretly to Panamanian government officials in return for awarding PECC contracts to maintain lighthouses and buoys along Panama’s waterways.”  According to the DOJ, part of the conspiracy was that Government Official A and Government Official B received “corrupt payments” in the form of purported ‘dividends’ and that Government Official C received “bearer” shares from PECC as part of the conspiracy.

Doing business with a “foreign official” of course is not per se illegal under the FCPA and several FCPA Opinion Procedure Releases discuss the issue – see here, here and here for instance.

Yet one of the red flags when engaging foreign partners is when a company is told by the foreign government who to do business with.  In such a situation, a company needs to ask itself – why are we being told to do business with this company?  A company needs to do sufficient pre-engagement due diligence, as Cobalt claims it did in Angola, to understand who the owners are to be satisfied that it is not being told to do business with the particular entity simply as an indirect way of enriching foreign officials.

Guidance

The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill.  The current conversation thus seems to be focused on DOJ’s promised guidance.

This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.

Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”

The letter begins as follows.  “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”

Topics addressed in the letter include:  “definitions of ‘foreign official’ and ‘instrumentality’”; “consideration of compliance programs in enforcement decisions”; “parent-subsidiary liability”; “successor liability”; “de minimis gifts and hospitality”; “mens rea standard for corporate criminal liability”; and “declination issues.”

In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement.  Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public  domain for those who know where to look.  The Chamber letter similarly states as follows concerning compliance programs.  “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”

Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance.  What the FCPA needs is not guidance, but limited structural reforms  (such as a compliance defense) as well as a change in DOJ policy (such as  elimination of non-prosecution and deferred prosecution agreements).

A Re-Run Worth Watching

If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides.  At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.”  Many thanks to Bruce Carton at Securities Docket for hosting.

Cinergy Telecommunications

In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post).  In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering.  In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy).  As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.

Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy.  The motion states as follows.  “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita.  For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.”  The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.”  The motion concludes as follows.  “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”

Joel Hirschhorn (here - Hirschhorn & Bieber P.A.) represents Cinergy as well as certain individual defendants in the case.

This Week’s FCPA Disclosure

In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny.  So far so good.  This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.

“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”

World Bank Debarment

Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s  acknowledgment of misconduct in relation to a Bank-financed hydropower  project.”  According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a  former senior government official for consultancy services in relation to the  World Bank-financed Zambia Power Rehabilitation Project.”  The release further states as follows. ”The  debarment is part of a Negotiated Resolution Agreement between Alstom and the  World Bank which also includes a restitution payment by the two companies  totaling approximately $9.5 million. The debarment can be reduced to 21 months -  with enhanced oversight – if the companies comply with all conditions of the  agreement.”

What to make of the debarment based on conduct 10 years ago is a bit difficult.  This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows.  “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.”  Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”

Reflecting On The New Era of FCPA Enforcement

As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows.  “We are in a new era of FCPA enforcement’ and we are here to stay.”  Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here.  In this post, titled “The New Era of FCPA Enforcement:  A Time For Reflection” Gorman hit the ball out of the park when he states as follows.

“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”

For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.

*****

A good weekend to all.

*****

Senators Klobuchar and Coons Write to Attorney General Holder On FCPA Guidance

As noted in this previous post, in November 2011, Senator Charles Grassley (R-IA) asked Attorney General Holder for detailed information about the DOJ’s promised upcoming FCPA guidance.

Earlier this week, Senators Amy Klobuchar (D-MN) and Chris Coons (D-DE) sent Attorney General Holder this letter regarding the DOJ’s forthcoming FCPA guidance.  From my perspective, the most notable paragraph of the letter was as follows.  “[I]t has become apparent that too many companies are devoting a disproportionate amount of resources to FCPA compliance and internal investigations.  To be clear, it is both necessary and desirable that companies pay adequate attention to compliance efforts, and in certain cases, adequate anti-corruption initiatives may require a significant corporate committment.  Over-compliance, however, can have a negative effect on product development, export promotion, and workforce expansion.”

I agree and devoted an entire section of “The Facade of FCPA Enforcement” (see here pages 997-1009) to why the facade of FCPA enforcement matters including the breeding of overcompliance and time-consuming internal investigations.  See also here pages 8-9 of my Senate FCPA testimony.

In addition, Senator Klobuchar and Coons encouraged the DOJ “to seek out the participation of U.S. corporate stakeholders when formulating its guidance.”  The Senators stated as follows.  “Engagement with the stakeholder community ought to occur prior to the release of guidance.  In the alternative, guidance should be issued in draft form and finalized after a comment period of sufficient length.”

U.K. Developments

Some recent U.K. developments that do not involve News Corp.

In this release, the U.K. Serious Fraud Office announced that Bruce Hall was charged with corruption offenses based on his alleged receipt of bribes while an employee of Aluminium Bahrain B.S.C. (“Alba”).  The charges against Hall relate to previous SFO charges against Victor Dahdaleh, an agent for Alcoa, who allegedly made bribe payments to Alba – see here for the prior post.  In recent years, the DOJ has likewise brought non-FCPA charges against bribe recipients.  See here for instance.

In this release, the U.K. Serious Fraud Office announced charges against a fourth person in connection with the Innospec enforcement action.  (See here for more on the corporate enforcement action).  Miltos Papachristos, a former Regional Sales Director for the Asia Pacific Region for Innospec, was charged with ”conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec Ltd products including Tetraethyl Lead.”  For more on the other three individuals charged – see here.

Halliburton Updates Disclosure

Yesterday’s post (here) touched upon FCPA disclosures and how it seems like every week there is new disclosure to report.

Halliburton’s disclosure yesterday was not new, but it stated as follows.  “We are conducting an internal investigation of certain areas of our operations in Angola, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation with the assistance of outside counsel and independent forensic accountants. During the third quarter of 2011, we met with the DOJ and the SEC to brief them on the status of our investigation and provided them documents. We are currently responding to a subpoena from the SEC regarding this matter and are producing all relevant documents. We understand that one of our employees has also received a subpoena from the SEC regarding this matter. We expect to continue to have discussions with the DOJ and the SEC, and we intend to continue to cooperate with their inquiries and requests as they investigate this matter. Because these investigations are at an early stage, we cannot predict their outcome or the consequences thereof.”

In 2009, Halliburton (and related entities) resolved a $579 million DOJ/SEC FCPA enforcement action concerning conduct at Bonny Island, Nigeria.  (See here).

*****

A good weekend to all.

In its Feb. 14th 10-K filing, Goodyear Tire and Rubber Company disclosed as follows.

“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in
Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar
improper payments may have been made in Angola. Outside counsel and forensic accountants were retained to investigate the
alleged improper payments in Kenya and Angola, including our compliance in those countries with the U.S. Foreign Corrupt
Practices Act. We do not believe that the amount of the payments in question in Kenya and Angola, or any revenue or operating
income related to those payments, are material to our business, results of operations, financial condition or liquidity.
Following our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures
and have voluntarily disclosed the results of our investigation to the U.S. Department of Justice (“DOJ”) and the Securities and
Exchange Commission (“SEC”), and are cooperating with those agencies in their review of these matters. We are unable to predict the outcome of any review that may be undertaken by the DOJ and SEC.”

In this prior post, I asked why in this era of increased FCPA compliance there seems to be more, not less, FCPA inquiries?  Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more potential FCPA issues?  Based on Goodyear’s disclosure, it seems that in its case, the later is true, its compliance policies and procedures worked!  If so, does this not argue in favor of an FCPA compliance defense?  See here for a webcast next Tuesday on this topic.

If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the enforcement agencies theories of interpretation - 50% of companies find technical FCPA violations?  75%? 95%?  If the answer is any one of these numbers, is that evidence of how corrupt business has become or is that evidence of how unhinged FCPA enforcement theories have become?

In other words, what does it say about enforcement of a law if, at any given time, the majority of corporations are on the wrong end of how that law is enforced?  After all, according to the FCPA Blog’s most recent corporate disclosure list (here) approximately 80 companies are currently under investigation for FCPA violations.  As the FCPA Blog rightly notes “nearly all entries are based on disclosures in SEC filings. That means non-issuers (non-public companies) aren’t included. And perhaps not all issuers have made a disclosure about a pending FCPA investigation, in which case the company may not appear on this list.”

Indeed, today’s Wall Street Journal editorial is titled “Justice’s Bribery Racket.”  It begins as follows.  “The Justice Department’s creative prosecutions under the Foreign Corrupt Practices Act (FCPA) continue to disintegrate [...]  The 1977 FCPA was intended to prevent American companies from joining the Third World’s payoff habits. Over the last five years, however, Justice has begun to stretch the law into a far more blunt instrument. Instead of going after clear violations, the vague statute has become a tool to prosecute or threaten legions of companies.”  I agree and the issues discussed in the WSJ editorial have been the focus of my writing for years.  See here for the “Facade of FCPA Enforcement,” here for ”Revisiting A Foreign Corrupt Practices Act Compliance Defense,” here for my Senate FCPA testimony and here for my “foreign official” declaration.  [As to the WSJ's reference to News Corp. "if Justice tries to portray payments made as part of traditional news-gathering as criminal acts, the list of felons won't stop at the tabloids," I've stated before (here) that News Corp.'s FCPA exposure - and the intense media coverage it has generated - does shine a much needed light on the current era of FCPA enforcement and raises two distinct questions.  The first question is whether – given the DOJ and SEC’s current enforcement theories – the News Corp. payments at issue can expose it to FCPA liability and the answer is yes.  The second question is whether Congress intended the FCPA to apply to the numerous enforcement actions in this new era that have nothing to do with obtaining or retaining foreign government contracts.  This is a valid and legitimate question and the same question could also be asked as to many other current FCPA enforcement theories.]

Goodyear states in its disclosure that it does not believe that the amount of the payments in question or any revenue or operating income related to those payments, are material to its business, results of operations, financial condition or liquidity.  Then why disclose?  It is perfectly acceptable in a situation like this to promptly implement remedial measures, revise and enhance compliance policies and procedures – all internally without disclosure to the enforcement agencies.

Yet the steady stream of disclosures feed a growing and vibrant FCPA industry where FCPA issues, no matter how limited in scope, often turn into a boondoggle for many involved.  Corporate voluntary disclosures are like a rainbow and waiting on the other side is often the pot of gold “where else” question.  For more on this dynamic, see this prior post.

See here for the prior post on the Pride International enforcement action, here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Panalpina enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $81.9 million ($70.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $11.3 million in disgorgement via a SEC settled complaint).

This is a long post, but the enforcement action takes up 230 pages.

What you will find in these pages is that Panalpina paid millions of dollars of alleged bribes on behalf of certain of its customers (and in some instances for its own benefit as well), that a majority of the improper payments relate to Nigeria, and that a majority of Nigerian payments relate to temporary importation permits in connection with importing rigs and other vessels into Nigerian waters.

As to a U.S. nexus of these payments (a nexus necessary to find Panalpina, a foreign based non-issuer company, liable under the FCPA) you will find that the information alleges one e-mail and one conference call in which a certain Nigerian payment was discussed.

You will find that Panalpina also engaged in alleged improper conduct in numerous other countries besides Nigeria, but because of how the deferred prosecution agreement is structured, Panalpina ended up paying $0 for this non-Nigeria improper conduct.

You will find how Panalpina, despite an alleged corporate culture of bribery, including at the most senior levels of the company, was offered a deferred prosecution agreement even though it did not disclose the conduct at issue, even though it did not cooperate at all times in the DOJ’s investigation, and even though certain improper payments continued while the company was engaged in discussions with the DOJ.

You will also find how the SEC asserted a rather unique jurisdictional basis against Panalpina. That is Panalpina acted as an agent for certain of its issuer-customers and violated the FCPA by masking the true nature of bribe payments in invoices submitted to its issuer customers that allowed the customers to then violate the FCPA.

DOJ

The DOJ enforcement action involved a criminal information against Panalpina World Transport (Holdings) Ltd. (“PWT”) resolved through a deferred prosecution agreement and a criminal information against Panalpina Inc. resolved through a plea agreement.

PWT Criminal Information

Basel, Switzerland based PWT (here) “is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions.” It operates “a close-knit network with some 500 branches in over 80 countries,” does business in a further 80 countries with partner companies, and employs approximately 15,000 individuals.

The criminal information (here) focuses on a “network of local subsidiaries … each of which was responsible for providing the freight forwarding and logistics services to customers and for coordinating with other Panalpina-affiliated companies with respect to the transportation and shipment of cargo from abroad.” In addition, PWT and its subsidiaries “provided customers with importation, customs clearance and ground shipment services once the shipped goods reached their destination jurisdiction.”

The subsidiaries are:

Panalpina Inc. (“Panalpina U.S”), a wholly-owned subsidiary and agent of PWT located in New Jersey with 38 branches in the U.S. ,including Houston – the office that had the “primary relationship for [Panalpina's] oil and gas industry customers”;

Panalpina World Transports (Nigeria) Limited (“Panalpina Nigeria), a majority-owned subsidiary and agent of PWT until 2008 located in Lagos, Nigeria that was an “affiliate of Panalpina U.S. and provided a wide variety of services for Panalpina U.S.’s customers”;

Panalpina Transportes Mundiasis, Navegacao e Transitos, SARL (“Panalpina Angola”), a wholly-owned subsidiary and agent of PWT located in Luanda, Angola;

Panalpina Limitada (“Panalpina Brazil”), a wholly-owned subsidiary and agent of PWT located in Sao Paulo, Brazil;

Panalpina Azerbaijan LLC (“Panalpina Azerbaijan”), a wholly-owned subsidiary and agent of PWT located in Baku, Azerbaijan;

Panalpina Kazakhstan LLP (“Panalpina Kazakhstan”), a wholly-owned subsidiary and agent of PWT located in Almaty, Kazakhstan;

Panalpina World Transport Limited (Russia) (“Panalpina Russia”), a wholly-owned subsidiary and agent of PWT located in Moscow, Russia; and

Panalpina World Transport Limited (Turkmenistan) (“Panalpina Turkmenistan”), a wholly-owned subsidiary and agent of PWT located in Turkmenbashi, Turkmenistan.

The information refers to PWT and the above subsidiaries collectively as “Panalpina.”

The criminal information begins with a heading titled “Panalpina’s Culture of Corruption.” This section states as follows.

“Prior to 2007, dozens of employees throughout the Panalpina organization were involved in paying bribes to foreign offcials. Panalpina generally made payments on behalf of customers in order to circumvent the customs process for imports and exports of goods and items. Panalpina paid these bribes for various reasons, such as to cause officials to overlook insufficient, incorrect, or false documentation and to circumvent the local laws and inspections so as to allow the shipment of contraband (mainly unauthorized food and clothing). Panalpina also on occasion paid bribes to secure foreign government contracts for itself or to obtain favorable tax treatment by foreign governments.”

According to the information, “the highest levels of PWT’s leadership, including a former member of PWT’s Board of Directors (“Board Member A”), knew of and tolerated Panalpina’s payments of bribes.”

The information states as follows:

“Panalpina’s longstanding practice of making bribe payments in violation of the FCPA resulted from a variety of factors, including: (1) pressure from Panalpina’s customers to have services performed as quickly as possible, or to receive preferential treatment in obtaining services; (2) an inadequate compliance structure; (3) a corporate culture that tolerated and/or encouraged bribery prior to 2007 as customary and necessary in various markets; (4) the involvement of management in PWT’s Swiss headquarters that tolerated the improper payments prior to 2007; and (5) the involvement of Panalpina management in the U.S. and in other countries that encouraged the improper payments prior to 2007.”

According to the information, between 2002 and 2007 “Panalpina paid bribes to foreign officials valued at approximately $49 million” and “payments paid on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for approximately $27 million of these bribes payments.”

The criminal information (here) alleges bribery schemes in Nigeria, Angola, Brazil, Azerbaijan, Russia, Kazakhstan, and Turkenistan.

Nigeria

According to the information:

“Panalpina had a substantial number of oil and gas customers that shipped items into Nigeria, including customers in the United States. The goods shipped by Panalpina into Nigeria could only be imported into the jurisdiction if they satisfied the local statutory and regulatory requirements, which required product inspection, submission of satisfactory paperwork, and payment of customs duties and other taxes. Furthermore, once the items had been imported, they remained subject to local laws or regulations. Some of Panalpina’s customers, including its U.S. customers, sought to avoid local customs and import laws and processes by seeking to import goods without sufficient documentation, without being inspected, or without paying the required taxes, duties or fees. Panalpina used a portion of the revenue earned from its customers to make bribe payments to local customs officials in exchange for their cooperation in assisting Panalpina in circumventing these local legal or regulatory requirements on behalf of Panalpina’s customers. Panalpina sought reimbursement for these bribe payments through invoices that used false terms to characterize the bribe payments.”

According to the information, Panalpina used “approximately 160 different terms [internally and externally to invoice customers] to falsely describe the bribes it paid in Nigeria relating to the customs process.”

The information alleges that “the bribes paid by Panalpina relating to the customs process were paid to officials in the Nigerian Customer Service (“NCS”), a Nigerian government agency” responsible for “assessing and collecting duties and tariffs on goods imported into Nigeria.”

According to the information, between 2002 and 2007, “Panalpina paid over $30 million in bribes to Nigerian government officials” and “payments made on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for at least $19 million of these bribe payments.”

The information describes four types of “bribery payments” in Nigeria – (1) Pancourier; (2) Temporary Import Permits payments; (3) “special” and other bribe payments; and (4) “recurring payments to government officials.” According to the DPA statement of facts “the overall largest category of payments, accounting for the largest amount of bribes, related to securing Temporary Importation Permits on behalf of its customers” and “those bribes ranged in value from $5,000 to over $75,000 per transaction.”

Pancourier

“Pancourier” was Panalpina’s “express courier service” that certain Panalpina customers used instead of “the normal shipping process” to “import goods or contraband into Nigeria without complying with Nigerian customs law.” According to the information, “Panalpina charged its customers a premium for this service and explained that no government receipt or paperwork would be available from NCS for the goods that were imported.” The information alleges that “Panalpina typically billed its customers for two separate charges” (1) a charge based on the weight of the shipment; and (2) a “special fee” that was a “bribe paid to the NCS officials for the purpose of securing an improper advantage for the customer.”

According to the information, between 2002 and 2007 “Panalpina, through Panalpina Nigeria, paid hundreds of bribes to NCS officials in relation to the Pancourier service.”

Special and Other Improper Payments

The information states as follows:

“In addition to the Pancourier service, Panalpina also offered standard freight forwarding and shipping services. For standard Panalpina freight forwarding and shipping, once the goods arrived at their destination, a Panalpina Nigeria employee would ensure that the goods cleared customs. The clearance process typically required the submission of documents, an inspection of the product being shipped, and the payment of any customs and other fees associated with the importation of that product. The goods shipped by Panalpina frequently encountered delays in clearng customs for various reasons, including insufficient or missing documentation or delays due to the legally-required inspection process. Panalpina customers often sought to avoid local customs and import laws and processes to expedite their shipments into Nigeria. Panalpina made cash bribe payments, through Panalpina Nigeria, to local government officials, including NCS employees, to expedite customs clearance, avoid the required cargo inspections, avoid fines, duty payments, and tax payments, and to circumvent permit requirements and other legal requirements.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina, Nigeria, paid thousands of bribes on behalf of its customers to Nigerian government officials to resolve these types of customs and immigration matters.”

Temporary Import Permits Payments

The information states as follows:

“Another service offered by Panalpina involved obtaining Temporary Import Permits (“TIPs”) required under Nigerian law to import high-value special equipment, such as rigs and other large vessels, into Nigerian water. A TIP could be extended through two six-month extensions (known as “TIP extensions”). Vessels imported under a TIP (and TIP extensions) could not remain in Nigeria longer than the period allowed for by the TIP and/or TIP extensions. Upon expiration, the vessel was required to be exported from Nigeria and, if appropriate, the customer could re-apply for a new TIP. Panalpina, through Panalpina Nigeria, made improper payments to Nigerian government officials to assist some of its customers to circumvent TIP regulations. Specifically, Panalpina Nigeria made payments to NCS officials, on behalf of customers, to extend TIPs without complying with Nigerian TIP regulations. As a result, the customers avoided the time and cost of removing vessels upon the expiration of the TIP, as was otherwise required by Nigerian law.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina Nigeria, paid over a hundred bribes to Nigerian government officials on behalf of Panalpina’s customers to improperly secure TIPs and TIP extensions.”

Payment of Bribes to Secure a Contract

The information alleges that between November 2003 and August 2005, “Panalpina promised to pay $50,000 to a National Petroleum Investment Management Services official (the “NAPIMS Official) in exchange for the official’s assistance in securing the award by NAPIMS of a logistics contract to Panalpina.” According to the information, “Panalpina was awarded a global framework logistics contract in or around November 2003″ and “in or around November 2005, PWT directed the $50,000 bribe payment to be made to the NAPIMS Official in cash.”

The information states that NAPIMS supervised and managed Nigeria’s investment in the oil and gas industry and NAPIMS officials had the authority to approve or disapprove logistics contracts awarded for certain projects.

Recurring Payments to Government Officials

Although referenced in the information, the information does not contain any detail about such payments.

However, the DPA’s statement of facts states as follows.

“Panalpina Nigeria made improper payments to a wide variety of Nigerian officials, including, but not limited to, NCS offcials, Port Authority offcials, Maritime Authority officials, Police officials, Deparment of Petroleum officials, Immigration Authority officials, and National Authority for Food and Drug Control officials. Most of these improper payments were tied to specific transactions, however, Panalpina Nigeria also provided certain officials weekly or monthly allowances to ensure the officials would provide preferential treatment to Panalpina and its customers. Between in or around 2002 and in or around 2007, Panalpina made hundreds of improper weekly and monthly payments to Nigerian government officials.”

Angola

The information charges that between 2002 and 2008 “Panalpina Angola paid approximately $4.5 million in bribes to Angolan government officials.” Two types of payments are described: “Customs and Immigration Payments” and “Payments to Secure Contracts.”

Customs and Immigration Payments

According to the information, the payments were made to “Angolan government officials responsible for customs and immigration matters” and the purpose of the payments was to “cause such officials to: overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina Angola, or its customer, to comply with legal requirements.” According to the information, Panalpina Angola paid “hundreds of bribes” ranging from “de minimus amounts to $25,000 per transaction.”

Payments to Secure Contracts

The information charges that between December 2006 and March 2008, “Panalpina Angola paid over $300,000 to two Angolan government officials responsible for Angolan oil and gas operations to secure two separate logistics contracts.” According to the information, the officials “had the authority to approve or disapprove the retention of logistics companies to provide services for projects that Panalpina sought to secure.” According to the information, in connection with certain of these payments, Panalpina Angola “invoiced an Angolan government-controlled entity for a non-existent employee (referred to as the ‘ghost employee’) who was allegedly dedicated to the Angolan entity to work on the logistics for the particular project.”

Azerbaijan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Azerbaijan paid approximately $900,000 in bribes to Azeri government officials responsible for assessing and collecting duties and tariffs on imported goods. [...] The purpose of many of the bribes paid to the Azeri government officials was to cause these officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements. In addition, Panalpina also made bribe payments to Azeri tax officials to secure preferential treatment for Panalpina Azerbaijan.”

Brazil

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Brazil paid over $1 millon in bribes to Brazilian govermnent officials responsible for assessing and collecting duties and tariffs on imported goods on behalf of its customers. [...] The purpose of many of these bribes was to expedite the customs clearance process; to avoid the imposition of fines and penalties; to circumvent Brazilian law requirements for customs declaration of courier shipments; to permit shipments to be imported in Brazil without an import license; and to allow exports from Brazil of goods originally imported without accurate and complete documentation. Many of the bribe payments made by Panalpina Brazil on behalf of its customers were in connection with shipments to Brazil originating with Panalpina U.S. from the United States.”

Kazakhstan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Kazakhstan paid over $4 milion in bribes to Kazakh governent officials, including, for example, payments to Kazakh government officials responsible for assessing and collecting duties and tariffs on imported goods and officials responsible for administering and enforcing Kazakhstan tax policy. [...] The purpose of many of the bribes paid to the Kazakh government officials was to cause officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; and avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements.”

According to the information, the payments “ranged from several hundred dollars to $50,000 per transaction.”

The information further states that “Panalpina Kazakhstan paid bribes to Kazakhstan officials responsible for administering Kazkhstan tax policy in conjunction with its annual tax audits to minimize the duration and depth of the audits as well as to reduce proposed fines.”

Russia

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Russia paid over $7 milion in bribes to Russian government officials responsible for assessing and collecting duties on imported goods. [...] The purpose of many of the bribes paid to the Russian government officials was to avoid delays, administrative fines, and other legal action as a result of missing, incomplete or erroneous documentation; to avoid problems arising out of the improper use of a TIP; and to bypass the customs process in total.”

Turkmenistan

The information states as follows.

“Between in or around 2002 and in or around 2009, Panalpina Turkmenistan paid over $500,000 in cash bribes to: (i) Turkmen government officials responsible for assessing and collecting duties and tariffs on imported goods in order to expedite the release of shipments and undocumented shipments and to circumvent the official Turkmen customs and immigration regulations; (ii) Turkmen government officials responsible for auditing, assessing, and collecting taxes on economic activity in Turkmenistan to minimize the duration of audits and investigations and to reduce proposed fines; and (iii) Turkmen govermnent officials responsible for enforcing Turkmenistan labor, health, and safcty laws, including through the use of audits and inspections, to minimize the duration of audits and investigations and to reduce the proposed fines.”

Based on all of the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions. In addition, as to the Nigeria conduct, the information charges FCPA anti-bribery violations.

As to a U.S. nexus (a requirement for an entity such as PWT to be in violation of the FCPA’s anti-bribery provisions under 78dd-3), the information merely alleges that in November 2003 “a Panalpina U.S. employee located in Houston, Texas, sent an e-mail to a Panalpina employee based in Switzerland advising that the NAPIMS Official would award a logistics contract with the Nigerian government to Panalpina in exchange for a bribe of $50,000″ and that in November 2003 “Panalpina employees based in Switzerland, Panalpina U.S. employees located in Houston, Texas, and others participated in a conference call to discuss the $50,000 payment to the NAPIMS Official.”

PWT DPA

The DOJ’s charges against PWT were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, PWT admitted, accepted and acknowledged that it was responsible for the acts of its directors, officers, employees, subsidiaries, agents and consultants as set forth above.

The DPA’s statement of facts contains a separate section titled “Panalpina U.S.’s Assistance to its Issuer-Customers in Circumventing Books and Records Controls.” This section states that between 2002 and 2007 “Panalpina U.S. provided services to over 40 customers that were issuers” and that “in total, Panalpina paid approximately $27 million in bribes to foreign officials on behalf of these issuer-customers.”

In pertinent part, the statement of facts state as follows.

“Many of Panalpina U.S.’s issuer-customers knew, or were aware of facts indicating a high probability, that Panalpina was paying bribes on their behalf. Further, those issuer-customers with knowledge of the bribe payments failed to properly record the payments in their books and records.”

“Many of Panalpina’s issuer-customers were aware of the bribes paid by Panalpina. Importantly, those issuer-customers with strong compliance programs or rigorous audit standards were either not offered services such as Pancourier, which included improper payments to governent officials, or Panalpina paid bribes on the issuer-customer’s behalf but would not invoice the issuer-customer for the payment.”

“Panalpina US., through the local Panalpina affiiates, knowingly and substantially assisted the issuer-customers in violating the FCPA’s books and records provisions by masking the true nature of the bribe payments in the invoices submitted to the issuer-customers. By providing an invoice to the issuer-customer for what appeared to be a legitimate payment, the customer could use that invoice as support for recording a particular charge as a legitimate service in its corporate books and records when, in fact, the invoice was for a bribe.”

The statement of facts then describe how Panalpina Nigeria specifically assisted Customer A (Shell) and Customer B (Tidwater) in making bribe payments for Pancourier services and TIP payments.

The DPA’s statement of facts provides further information about “Panalpina’s Corporate Culture and Senior Management Knowledge.” According to the statement of facts: “Prior to 2007 a culture of corruption within Panalpina emanated from senior level management in Switzerland who tolerated bribery as business as usual in various markets. This trickled down to other Panalpina employees who accepted bribery as a part of Panalpina’s standard business practice.” According to the statement of facts: “Many employees openly used the terms ‘apples,’ ‘interventions,’ ‘special handling,’ and ‘evacuations’ on a daily basis in conversations, written correspondence, and e-mail exchanges” even though “most employees understood that these terms referred to cash payments provided to government officials in exchange for preferential treatment.”

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and PWT. Among the factors stated are the following.

(a) PWT conducted comprehensive anti-bribery compliance investigations of operations of PWT’s subsidiaries in seven countries, as well as separate investigations related to U.S. and Swiss operations;

(b) PWT conducted a review of certain transactions and operations conducted by its subsidiaries or agents in another 36 countries;

(c) PWT promptly and voluntarily reported its findings from all investigations to the Department, including arranging to provide information from foreign jurisdictions which significantly facilitated the Department’s access to such information;

(d) PWT mandated employee cooperation from the top down and ensured the availabilty of more than 300 employees and former employees for interviews during and following the investigations;

(e) PWT instituted a limited employee amnesty program to encourage employee cooperation with the investigations;

(f) PWT expanded the scope of the investigations where necessary to ensure thorough and effective review of potentially improper practices, and promptly and voluntarily reported any improper payments identified after internal and Department investigations had begun;

(g) After initially not cooperating with the investigation for several months, PWT fully cooperated with the Department’s investigation of this matter, as well as the SEC’s investigation, and on the whole exhibited exemplary
cooperation with the Departent’s investigation;

(h) PWT provided substantial assistance to the Department and the SEC in its investigation of its directors, officers, employees, agents, lawyers, consultants, contractors, subcontractors, subsidiaries and customers relating to violations of the FCPA;

(i) PWT undertook substantial remedial measures [the DPA then lists 10 such measures including "of its own initiative and at a substantial cost, PWT closed down its operations and withdrew from Nigeria to avoid potential ongoing improper conduct"]; and

(j) PWT agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of PWT and its directors, officers, employees, agents, lawyers, consultants, subcontractors, subsidiaries, and customers relating to violations of the FCPA.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the DPA, PWT agreed to pay a monetary penalty of $70.56 million. However, the DOJ and PWT agreed “that any criminal penalty that is imposed by the Court and paid by Panalpina U.S., in connection with its guilty plea and plea agreement entered into simultaneously herewith will be deducted from the $70,560,000 criminal penalty required by this Agreement.” Because the Panalpina Inc. plea agreement (which relates only to Nigeria conduct) contemplates a payment of $70,560,000, the effect of the above clause is that PWT will end up paying $0 for the non-Nigeria conduct described in the DPA.

Also of note, even though the DPA states that PWT did not initially cooperate with the DOJ’s investigation for several months, PWT nevertheless received sentencing credit for “fully cooperating” in the DOJ’s investigation.

Pursuant to the DPA, PWT agreed to a host of compliance undertakings and to report to the DOJ (during the term of the DPA) “on its progress and experience in implementing and, as appropriate, enhancing its compliance policies and procedures.”

The DPA references three tolling agreements agreed to between January 2008 and October 2010.

As is standard in FCPA DPAs, PWT agreed not to make any public statement “contradicting the acceptance of responsibility by PWT as set forth” in the DPA and PWT further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

Panalpina U.S. Criminal Information

The criminal information (here) describes “Panalpina U.S.’s Actions to Conceal Bribes on Behalf of Its Issuer-Customers in Nigeria.” Separate sections concern “Pancourier Express Courier Payments” and “Temporary Importation Payments.”

Count One of the information charges Panalpina U.S., a non-issuer, with conspiring and agreeing with Customer A [Shell] and Customer B [Tidewater] “to knowingly falsify and cause to be falsified books, records, and accounts which were required, in reasonable detail, to accurately and fairly reflect the transactions and dispositions of the assets of Customer A, Customer B, and other issuers” in violation of the FCPA’s books and records provisions.

Count Two of the information charges Panalpina U.S. with aiding and abetting FCPA books and records violations by aiding, abetting, and assisting Customer A [Shell] “in mischaracterizing payments for freight forwarding costs as ‘administration/transport charges’ in Customer A’s books and records when, in truth and in fact, Customer A knew that these payments were bribes, paid through Panalpina Nigeria, intended to be transferred to NCS officials.”

Panalpina U.S. Plea Agreement

The above criminal charges against Panalpina U.S. were resolved via a plea agreement (see here).

As stated in the plea agreement, the fine range for Panalpina U.S.’s conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the plea agreement, Panalpina U.S. agreed to pay a monetary penalty of $70.56 million.

In an “Agreed Motion to Waive the Presentence Report” (here) the DOJ states as follows.

“…Panalpina’s cooperation and remediation in this matter has been exemplary. Panalpina provided substantial assistance to the Deparment in its investigations relating to these matters. In addition, where Panalpina encountered evidence of new violations in the course of its internal investigation, it expanded the scope of the investigation accordingly and reported the new findings to the Department. Panalpina acknowledged and accepted responsibility for misconduct, investigated and identified the nature and extent of the misconduct, and undertook comprehensive global remediation and training during the course of the investigation. Panalpina’s remediation was global and included a dramatic change in its busincss model, paricularly in higher risk countries.”

As to how the DOJ’s investigation of PWT and its related entities began, the Report states as follows. “In approximately 2006, the Department opened an investigation into Panalpina’s business practices based on evidence obtained through several Panalpina customers indicating Panalpina had paid bribes to foreign government officials on behalf of its customers.”

The Report continues as follows. “In total, between in or around 2002 and in or around 2007, Panalpina paid bribes to offcials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan. Approximately $27,000,000 of that total related directly to, and was paid on behalf of, customers that were US. issuers or “domestic concerns” within the meaning of the FCPA.

The Report contains a footnote that states “a small number of improper payments continued into 2008 and 2009.” As to these payments, the Report notes elsewhere as follows. “Despite PWT’s and Panalpina U.S.’s extensive efforts to transform its compliance program, during the course of the investigation, PWT uncovered a few instances in which employees were continuing to pay bribes to foreign officials. This improper conduct, although limited, continued to occur into 2008 and early 2009. Upon discovery, PWT took swift action to stop the payments, to disclose the conduct to the Department, to terminate and/or reprimand the employees implicated in the conduct, and to retrain employees in the relevant countries regarding the importance of adhering to PWT’s compliance rules and regulations.”

As to Panalpina’s “Cooperation and Assistance” the Report states as follows.

“The Department initiated its investigation of Panalpina in or around mid-2006 based on conduct disclosed by Panalpina customers. Panalpina learned of the
investigation in or around late-2006 from its customers. Despite knowledge of the investigation, Panalpina did not voluntarily disclose the conduct to the Department and did not stop the illegal payment of bribes that was occurring on multiple continents. In or about early-2007, the Department requested documents and information from Panalpina; however, at that time, Panalpina exhibited a reluctance to cooperate with the investigation. Thereafter, Panalpina engaged and instructed its legal counsel (“Counsel”) to conduct a comprehensive internal investigation, and ultimately authorized Counsel to report the findings to the Department and SEC. Thereafter, Panalpina exhibited exemplary cooperation with the Department and SEC, and conducted a comprehensive internal investigation that fully supported and paralleled the Department’s investigation. Specifically, Panalpina engaged Counsel to lead investigations encompassing 46 jurisdictions and hired an outside audit firm to perform forensic analysis and other support tasks. Panalpina’s internal investigation included a comprehensive review of operations in nine countries – the United States, Switzerland, Nigeria, Brazil, Angola, Russia, Kazakhstan, Turkmenistan, and Azerbaijan – and a detailed review of 102 additional issues in another 36 countries. Panalpina expanded the scope of its internal investigation where necessary, and promptly and voluntarly reported its findings from all investigations to the Department and SEC in over 60 meetings and calls. When potential issues were identified in countries not subject to a full investigation, Panalpina thoroughly investigated and remediated those issues. Panalpina voluntarily supplied to the Department and the SEC information from interviews and documentary evidence regarding potential violations by Panalpina customers and third parties used as conduits for improper payments and for facilitating improper transactions. Panalpina provided substantial assistance to the Department and SEC in the investigation of its own directors, officers, and employees, mandated employee cooperation from the top down, and made over 300 current and former employees available for interviews to Counsel, the Department, and the SEC during and after the internal investigation. Panalpina also adopted a limited employee amnesty program to encourage employee cooperation with the internal investigation.”

The Report further notes as follows. “On September 30, 2010, in an unelated matter, PWT was charged in a three-count criminal information with fixing prices on surcharges added to air cargo shipments in certain trade lanes, in violation of Title 15, United States Code, Section 1. See United States v. Panalpina World Transport (Holding) Ltd., 10270-RJ (D.D.C.). The Company has agreed to plead guilty and to pay a fine of $11,947,845. No date has yet been set for entry of
the plea or sentencing.”

SEC

The SEC’s civil complaint (here) alleges, in summary, as follows.

“Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.’ s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some
members of Panalpina, Inc.’s management. Although the reasons for the bribes, and the payment schemes themselves, differed from jurisdiction to jurisdiction and transaction by transaction, most shared several similarities. The issuer customers often used Panalpina, Inc. or other Panalpina Group companies to ship goods from the United States, or elsewhere, to another jurisdiction or sought Panalpina, Inc.’s assistance in obtaining customs or logistics services in the country to which the goods were shipped. However, for various reasons including delayed departures, insufficient or incorrect documentation, the nature of the goods being shipped and imported, or the refusal of local government officials to provide services without unofficial payments, Panalpina, Inc.’ s issuer customers sometimes faced delays in importing the goods. In other cases, Panalpina, Inc.’s issuer customers sought to avoid local customs duties or inspection requirements or otherwise sought to import goods in circumvention of local law. In order to secure the importation of goods under these circumstances, Panalpina, Inc.’ s issuer customers often authorized Panalpina, Inc. and the local affiliated Panalpina Group companies (e.g., Panalpina Nigeria) to bribe local government offcials. These cash payments to government officials were typically made by employees of the local affiliated Panalpina Group companies. The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity (“Affiliated Billing Entity”). These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as ‘local processing,’ ‘special intervention,’ ‘special handling,’ and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers.”

By engaging in this conduct, the SEC alleged that Panalpina, “while acting as an agent of its issuer customers” violated the FCPA’s anti-bribery provisions and aided and abetted its issuer customers’ violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions. The SEC complaint specifically states that “neither Panalpina, Inc. nor PWT is an issuer for purposes of the FCPA.”

As to Pancourier payments, the complaint alleges that in order to assist its issuer customers avoid certain Nigerian legal requirements, “Panalpina Inc. would ship the product to Nigeria wrapped in a distinctive manner so that customs officials would recognize it as a Pancourier shipment and not inspect it, require a Form M, or otherwise subject it to normal customs procedures. In order to secure its preferential treatement, Panalpina Nigeria made regular improper cash payments to Nigerian customs officials.”

The SEC complaint also describes “additional bribes paid on behalf of issuer customers in Nigeria, Angola, and Brazil” including temporary importation payments described as “the largest category of customs-related payments made by Panalpina Nigeria on behalf of the issuer customers.” The complaint also describes “pre-release, intervention, evacuation, and special payments” made by Panalpina Nigeria to “Nigerian government officials on behalf of the issuer customers to secure the release of goods from customs prior to the completion of the inspection process” and to “secure improper benefits for the issuer customers.”

The Angola payments related to immigration matters “in order to obtain visas for the issuer customers on an emergency basis, often requesting that the visa be issued same-day, in contravention of Angolan law;” and customs matters “in order to assist the issuer customers to import goods into Angola without complying with Angolan law.” The complaint also describes “other payments” in Angola including “unofficial payments to Angolan military officials on behalf of the issuer customers in order to permit them to use military cargo aircraft to transport their commercial goods.”

The Brazil payments related to “improper payments to Brazilian government officials on behalf of its issuer customers in order to expedite the customs clearance process, and where necessary, to resolve customs and import-related issues.”

The complaint also alleges that between 2002 and 2007 “Panalpina Kazakhstan and Panalpina Russia made or authorized the making of several types of improper payments on behalf of issuer customers to government officials in Russia, Kazakhstan, and other parts of Central Asia, in order to assist the issuer customers improperly import goods into these jurisdictions or to obtain other types of improper benefits.”

According to the SEC, “Panalpina Inc. obtained improper benefits totatling at least $11,329,369 from the illegal conduct” described in the complaint.

Without admitting or denying the SEC’s allegations, Panalpina agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $11,329,369.

In a press release (here), Panalpina CEO, Monika Ribar stated as follows. “The settlement of these claims marks the closing of an extremely burdensome chapter in Panalpina’s history and the end of a very demanding three-year effort to address and eliminate serious concerns. Now it is time for us to look to the future and to build on the strong and sustainable compliance culture we have put in place. We are also looking forward to strengthened relationships with our customers who have ceased or reduced business activities with Panalpina due to the investigation. Based on new leadership and significant enhancements of our compliance systems we are a much stronger company today.”

Richard Dean (here) and Douglas Tween (here) both of Baker & McKenzie represented the Panalpina entities.

Today’s post, and those that will follow in the near future, will focus on the separate enforcement actions (see here) announced by the DOJ/SEC on November 4th, in what I’ll call “CustomsGate.”

First up, GlobalSantaFe Corp. (“GSF”), the only enforcement action without a DOJ component.

GSF provided offshore oil and gas drilling services for oil and gas exploration companies. (GSF is a former issuer that completed a merger with a subsidiary of Transocean Inc. and became known as Transocean Worldwide, Inc. which is a subsidary of Transocean Ltd., an issuer).

In order to import equipment necessary to do such work in Nigeria, GSF needed to obtain a temporary importation permit (“TIP”) from the Nigerian government through the Nigerian Customs Service (“NCS”). Obtaining a TIP required mounds of paperwork. TIPS were initially issued for one year and were allowed to be extended twice for a period of six months each. Rarely, and only in the discretion of NCS officials, could a third six-month extension be granted.

Prior to or after a TIP expired, GSF was required to move its rigs out of Nigerian waters and to begin again the paper heavy TIP application process. Failure to export a rig after the expiration of a TIP, and all permissible extensions, would render a rig subject to potential forfeiture or seizure.

Moving a rig is no small task, it requires tug boats and money.

So begins the SEC’s complaint (here) against GSF.

According to the SEC, “instead of moving its oil drilling rigs out of Nigerian waters when GSF’s permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all.”

According to the SEC, there were four such instances.

The Adriatic VIII should have left Nigerian waters on or before October 15, 2004. However, in September 2004, the SEC alleges that “GSF, through its customs broker, took steps to obtain false documentation from NCS reflecting that the Adriatic VIII left Nigeria on September 29, 2004.” According to the SEC, “GSF paid its customs broker $87,500 (wired through a bank account in the name of GSF located in the U.S.) to obtain the new TIP, including a payment of $3,500 identified on the customs broker’s invoice as ‘additional charges for export.” According to the SEC, GSF managers in Nigeria “knew that the Adriatic VIII had never actually left Nigerian waters and knew, or knew that there was a high probability, that the explanation on the invoice as ‘additional charges for export’ was for purposes of disguising a bribe.” According to the SEC, a fews years later, GSF, through its customs-broker, again obtained false documentation from NCS reflecting that the Adriatic VIII had left Nigerian waters when, in fact, it had not.”

The Adriatic I should have left Nigerian waters on or before January 31, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, obtained documentation from NCS, reflecting that the Adriatic I left Nigeria on January 31, 2004 when, in fact, it had not.”

The Baltic I should have left Nigerian waters on or before June 3, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, took steps to obtain documentation from NCS, reflecting that the Baltic I left Nigeria on June 25, 2004. According to the SEC, the GSF managers “authorized and submitted for payment invoices containing charges described as ‘additional charges for export’ when the same GSF managers knew that the GSF rig had not been exported from Nigeria.” Thus, the SEC alleges, the “GSF managers either knew that the ‘additional charges for export’ were bribes, or knew that there was a high probability that they were bribes.

By engaging in the above referenced conduct, the SEC alleged that GSF: (1) avoided costs of approximately $1.5 million from not physicially moving the rigs; and (2) gained revenues of approximately $619,000 from not interrupting operations to move the rigs.”

The SEC charged GSF, on the above facts, with violating the FCPA’s anti-bribery provisions.

Because none of the above-described payments were “accurately reflected in GSF’s books and records,” the SEC also charged GSF with violating the FCPA’s books and records and internal control provisions in connection with the above payments.

There is more to the SEC’s complaint.

It is common for an enforcement agency (whether DOJ or SEC) to ask the “where else question.” In other words, if the company was making the above-described payments in country x, where else was the company also making similar payments?

This frequent question causes the company to do a worldwide review of its operations and report back the results to the enforcement agency.

This is why an SEC complaint or DOJ resolution vehicle often contains a laundry list of related allegations towards the end of the resolution vehicle.

Case in point, the SEC’s complaint against GSF.

The SEC alleges that “GSF, through its customs brokers, made a number of additional payments to government officials in Nigeria totaling approximately $82,000.” The complaint gives sparse detail as to these alleged “other suspicious payments.”

Further, the SEC alleges that “GSF, through its customs brokers, also made a number of other payments [...] totaling approximately $300,000 to government officials in Gabon, Angola, and Equatorial Guinea.”

These “other suspicious payments” in Nigeria and the Gabon, Angola, and Equatorial Guinea payments were not accurately reflected in GSF’s books and records and GSF failed to devise and maintain an effective system of internal controls to prevent or detect them, thus giving rise to FCPA books and records and internal charges. (These other payments were not included in the FCPA anti-bribery charges).

Based on the entire above-described conduct, and without admitting or denying the SEC’s allegations, GSF agreed to pay $5.85 million (approximately 3.75 million in disgorgement and a 2.1 million penalty).

As discussed in a July post (see here), the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.”

The company – Mabey & Johnson Ltd. (“M&J”) – a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.

Last week, the SFO issued a press release announcing the details of M&J’s £6.6 million sentence (see here).

The SFO also released two “prosecution opening statements” relating to (a) the company’s conduct in Jamaica and Ghana; and (b) the company’s breach of United Nations Oil for Food Regulations (see here and here).

To state the obvious, one enforcement action does not constitute a practice.

Subject to that qualification, I offer some comments about the SFO’s released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).

Naming Names

Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous “public officials” in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.

The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).

Is there value to “naming names,” does it “punish” the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?

All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that “sunshine is the best disinfectant.”

Back to the SFO documents.

As referenced above, the applicable term used in the SFO documents is “public official” not “foreign official” as used in the FCPA. Do these terms means the same thing? All of the “public officials” identified in the SFO documents are government Ministers or Ambassadors (what I’ll call core government officials).

There is no exception though, an exception relevant to the current debate over the FCPA’s “foreign official” term and whether it should include employees of state-owned or state-controlled companies.

The Angolan “public officials” appear to be Directors of Empresa Nacional des Pontes, an “Angolan State owned entity.”

Joint Venture Partners

Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture’s board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).

Not so in the M&J matter.

The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. (“Kier”) in order to facilitate both the construction and engineering aspects of “Jamaica 1″ (the contract allegedly secured through the bribe payments).

According to the SFO documents, M&J and Kier agreed that “overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively.” The documents further state that under the terms of the JV “a sponsor would have primary responsibility for representing the JV” and that “Kier was nominated to act as the sponsor.” Further the documents indicate that “the supervisory board” of the JV comprised both M&J and Kier executives.

However, the documents evidence that the “SFO has investigated the relationship between Kier and M&J in respect of this contract” and “all the evidence currently available to the SFO” indicates that “there is no evidence that Kier [was] privy to these corrupt practices.”

Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO’s decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.

Cooperation

Despite these apparent differences between the M&J enforcement action and a “typical” FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ’s lead when it comes to “rewarding” voluntary disclosure (see pages 40-41 “the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.”).

The SFO’s stance in the M&J matter, in which it noted that M&J’s internal investigation and subsequent voluntary disclosure were “meriting specific commendation” (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption” (see here).

Individuals

Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that “a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J” (see pg. 5) and it explained that it did not “name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts.”

Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start “somewhere” and that “somewhere” now exists with release of the specific facts of the U.K.’s first prosecution against a company for overseas corruption.”

Both companies should be familiar to FCPA followers and there are many FCPA issues present in this announced merger.

For starters, a bit of background.

In 2007, Baker Hughes settled parallel DOJ and SEC FCPA enforcement actions concerning business conduct in Kazakhstan, Nigeria, Angola, Indonesia, Russia, and Uzbekistan. (See here for the DOJ release and related materials, see here for the SEC release and related materials). Combined fines and penalties were a then FCPA-record $44 million.

In 2004, BJ Services consented to entry of an SEC cease-and-desist order finding that it violated the FCPA’s anti-bribery, books and records, and internal control provisions in connection with the business conduct of its wholly-owned Argentinean subsidiary. (See here for the SEC order).

In addition, in its 2008 Annual Report (filed in November 2008 see here) BJ Services indicated (at pgs. 69-70) that it voluntarily disclosed to the DOJ/SEC the results of an internal investigation concerning problematic business conduct in the Asia-Pacific region that could implicate the FCPA. To my knowledge, no enforcement action has yet resulted from this disclosure.

At a minimum, the following FCPA issues are present in the Baker Hughes / BJ Services announced merger.

Baker Hughes settled the 2007 FCPA enforcement action by agreeing to a deferred prosecution agreement (see here). Pursuant to Paragraph 8 of the DPA, Baker Hughes agreed to engage an independent monitor to review the company’s compliance with the FCPA for a period of three years. Thus, per the DPA, Baker Hughes is still under an FCPA monitor – an individual who no doubt has been busy or soon will be busy in ensuring that Baker Hughes properly integrates BJ Services into Baker Hughes’ existing FCPA compliance policies and procedures.

What about the issue of Baker Hughes purchasing a company with disclosed, yet apparently unresolved, FCPA issues? This is one area where the DOJ has offered up substantive guidance to acquiring companies and the following DOJ Opinion Procedure Releases are relevant (in whole or in part): 08-02 (see here), 08-01 (see here), 04-02 (see here), and 03-01 (see here). For additional reading (see here).

I like to tell my students that the business law issues we cover in class are not merely historical, but rather are issues that companies deal with on a daily basis. For all you FCPA students out there, the Baker Hughes – BJ Services merger announcement provides a good real-world “issue-spotting” exam.