Archive for the ‘Bangladesh’ Category

Friday Roundup

Friday, June 29th, 2012

Credit when credit is due, no fear despite fear based marketing, a further Section 1504 development, and individual prosecutions in Canada, it’s all here in the Friday roundup.

Credit When Credit is Due

In this previous February 2012 post, I called out the DOJ for its deficient and misleading FCPA website in that the website did not inform the public of the DOJ’s setbacks in the Africa Sting cases, the O’Shea case, the Wooh case and the Lindsey Manufacturing cases.  I ended the post by saying that the DOJ’s FCPA website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.

I am happy to dole out credit when credit is due and can now report that Wooh’s entry (here), O’Shea’s entry (here), the Lindsey related entry (here) and the numerous Africa Sting related entries have all been updated to reflect the final disposition of those cases.

Few Companies Concerned About the U.K. Bribery Act

Despite marketing campaigns that were often based on fear and overblown rhetoric, one year into the U.K. Bribery Act few companies have changed their compliance programs as a result and even fewer are concerned about an enforcement action being brought against their organization, according to this recent poll by Deloitte Financial Advisory Services.  Specifically 24% of respondents answered “yes” to the following question - ”in July 2012, one year after the UK Bribery Act enforcement began, will your company have changed its anti-corruption program to comply” and 9% answered “yes” to the following question – “one year after UK Bribery Act enforcement began, is your company concerned about a UK action being brought against your organization.”

That is pretty much what I predicted in this January 3, 2011 post that states as follows – “I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act …”.

Even so, the silly marketing continues as evidenced by this post “Don’t Be Lulled by a Dearth of UK Bribery Act Convictions” which begins as follows.  “Be warned that the UK Bribery Act is considered to be the world’s most restrictive and far-reaching anti-corruption law to date. This measure differs in many key aspects from the US Foreign Corrupt Practices Act.”

A Further Section 1504 Development

This recent post provided an update on Section 1504 of Dodd-Frank, the so-called Resource Extraction Issuer Disclosure Provisions, an ill-conceived “miscellaneous provision” tucked into Dodd-Frank at the last minute that will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments.

In a further update, last week several House members wrote to SEC Chairman Mary Schapiro “regarding the status of the long-delayed final rule making.”  In the letter, the House members state that the Commission “has had more than enough time to consider and respond to all of the substantive comments from industry, civil society, investors and others” and that the “issue is too serious to allow further delay.”

Canada Prosecutions

Recent media articles (see here from the Globe and Mail and here from the Canadian Press) report that “two former executives of SNC-Lavalin Group Inc. have been charged with corrupting foreign officials” under Canada’s FCPA-like law, the Corruption of Foreign Public Officials Act.  Ramesh Shah (a former Vice President) and Mohammad Ismail (a former Director of  International Projects) allegedly ”offered payment to secure contracts for supervision and construction of the Padma Bridge and an elevated expressway in Dhaka, Bangladesh.”

*****

A good weekend to all.

The FCPA Meets Insurance – Aon Resolves Enforcement Action

Wednesday, December 21st, 2011

This post analyzes the DOJ and SEC enforcement actions against Aon Corporation (one of the largest insurance brokerage firms in the world) announced yesterday.  Total fines and penalties are approximately $16.3 million ($1.8 million via a DOJ non-prosecution agreement and $14.5 million via a settled SEC civil complaint).

DOJ

The NPA (here) begins as follows.  The DOJ will not criminally prosecute Aon Corporation or its subsidiaries for any crimes “related to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions of the FCPA .. arising from and related to the making of improper payments to government officials in Consta Rica in order to assist Aon in obtaining and retaining business” or “for the conduct related to improper payments and associated recordkeeping [...] relating to Aon’s improper payments in Bangladesh, Bulgaria, Egypt, Indonesia, Myanmar, Panama, the United Arab Emirates, and Vietnam that it discovered during its thorough investigation of its global operations.”

The NPA has a term of two years.  As is typical in FCPA NPAs or DPAs, Aon agreed “not to make any public statement” contradicting the below facts.

According to the NPA, the DOJ agreed to resolve the action via an NPA based, in part, on the following factors:

(a) Aon’s extraordinary cooperation with the DOJ and SEC;

(b) Aon’s timely and complete disclosure of facts relating to the above payments; [unlike many corporate FCPA enforcement actions, the Aon action does not appear to be the result of a voluntary disclosure; as stated in Aon's most recent quarterly SEC filing, "following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act."]

(c) the early and extensive remedial efforts undertaken by Aon, including the substantial improvements the company has made to its anti-corruption compliance procedures;

(d) the prior financial penalty of 5.25 million paid to the U.K. Financial Services Authority (“FSA”) [see here] by Aon Limited, a U.K. subsidiary of Aon, in 2009 concerning certain of the conduct at issue; and

(e) the FSA’s close and continuous supervisory oversight over Aon Limited.

The NPA’s Statement of Facts begin by detailing the business of reinsurance – that is insurance for insurance companies.  Specifically, the NPA states as follows.  “Reinsurance involves the transfer of all or part of the risk of paying claims under a policy from the insurance company that issued the policy to a reinsurance company.  A reinsurance broker arranges this transfer of risk, which takes place under a contract of reinsurance.  The insurance company is the reinsurance broker’s client and the broker acts on behalf of the insurance company.  The broker collects the premium due from the insurance company under the contract of reinsurance, and is typically paid for its services by retaining a portion of the premium for its own account.  The portion of premium retained by the broker is known as ‘brokerage.’”

The conduct at issue focuses on the Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company” (here) that “had a monopoly over the Costa Rican insurance industry.”  The NPA states as follows.  “INS was created by Act No. 12 of October 30, 1924, with the aim of meeting the protection needs of Costa Rican society.  All insurance agreements in Costa Rica, including the reinsurance contracts that Aon Limited [a subsidiary of Aon Corporation based in and organized under U.K. law that "reported financially through a series of intermediary entities into its U.S.-based issuer parent] assisted in obtaining to insure Costa Rican entities, were required to be issued through INS.  The head of INS was appointed by the President of Costa Rica.”

According to the NPA, a company Aon Limited acquired established a “Training and Education Fund” or “Brokerage Fund” for the benefit of INS “to sponsor training and education trips for INS officials.”  The NPA states that the “Brokerage Fund eventually became used for a wide variety of purported ‘training’ purposes, as well as to pay for client renewal trips to European insurers.”  The NPA also states that a second training account (the so-called 3% Fund) was funded by premiums to reinsurers and that “INS required that Aon Limited manage the fund, handle the paperwork, and provide reimbursement for the expenses incurred by INS officials.”

According to the NPA, “the supposed purpose of both the Brokerage Fund and the 3% Fund was to provide education and training for INS officials.”  However, the NPA states, “Aon Limited used a significant portion of the funds to reimburse for non-training related activity or for uses that could not be determined from Aon’s books and records.”

The NPA cites an e-mail from a former Aon Limited executive which stated as follows.  “INS started telling [another brokerage company] how [various reinsurers] were inviting their managers to seminars and were contributing positively to INS’s technological improvement with all expenses paid by the reinsurers.  The message was clear to both [the other brokerage company] and ourselves that unless we did the same we would see the gradual process of disintermediation and a continued erosion of our orders.”

The NPA then states as follows.  “Aon Limited disbursed nearly all of the $215,000 in the Brokerage Fund from 1997 until 2002, approximately $650,000 of the money in the 3% Fund from 1999 until 2002, and made a small number of additional disbursements from these funds between 2003 and 2005 to pay for the third-party services used by INS officials. These services often included travel related expenses, such as airfare and hotel accommodations, as well as conference fees, meals,  and other related expenses for INS officials and their relatives. It was common for INS to hire a
travel agency or tourism company to arrange for the particulars of the travel and educational conferences attended by its officials.  The majority of the money paid from the two funds was disbursed to a tourism company in Costa Rica. The director of INS’ reinsurance department, who played an active role in setting up the training funds, served on the board of directors of tourism company.  The director of INS’ reinsurance department himself took fourteen trips from 1996 to 2001 with expenses totaling approximately $44,000 that Aon Limited paid from the two funds. The funds also covered the official’s wife’s attendance on at least five of the trips.  On several occasions, Aon Limited reimbursed the official directly for expenses that were invoiced for his various trips, sometimes with cash payments.  The director of INS took six trips from 1998-2001 with expenses totaling approximately $20,000 that Aon Limited paid from the two funds. The director’s spouse accompanied him on four of these trips. The director of INS, the director of reinsurance at INS, their wives, and another INS official and her husband traveled to Europe in 1998 and charged their expenses of approximately $15,160 to the Brokerage Fund. While these trips had a small business-related component, a significant portion of the funds expended on the trips were used for the personal benefit of the officials and their wives.  A  substantial number of the trips taken by INS offcials were in connection with conferences and seminars in tourist destinations, including London, Paris, Monte Carlo, Zurich, Munich, Cologne, and Cairo. Many of the invoices and other records for these trips do not provide the business purpose of the expenditures, if any, or showed that the expenses were clearly not related to a legitimate business purpose. In addition, the subject matters of some of the better documented conferences and trainings, such as a literary conference and a Mexican information technology conference, had no logical connection to the insurance industry.  INS officials traveled to the United States for approximately twenty-five training events.  Aon Limited paid approximately $115,000 out of the funds in connection with these events in the United States.  In some instances, Aon Limited paid third parties at INS’s direction where the business purpose of the travel or expenses could not be discerned from the documentation, or where the purpose of the travel and expenses appeared to be improper, such as those pertaining to literary conferences, holiday expenses, and pure entertainment. Aon Limited paid large expenses for hotels, without any indication that the stays were business related. Aon Limited’s employees did not question the requests for payment or reimbursement from the funds.  While virtually all payments made in connection with the funds originated in London, Aon Limited made at least forty payments via, or that terminated in, the United States.  From 1995 to 2002, Aon Limited [and the company it acquired] earned profits of approximately $1.840,200 in connection with reinsurance brokerage business with INS.”

As to statute of limitation issues, Aon’s recent quarterly filing states as follows.  Aon “has agreed with the U.S. agencies to toll any applicable statute of limitations pending completion of the investigations.”

Under the heading “Books and Records/Internal Controls,” the NPA states as follows.  “The books and records of Aon Limited were consolidated into those of Aon Corporation. With respect to the Costa Rican training funds, although Aon Limited maintained accounting records for the payments that it made from both the Brokerage Fund and the 3% Fund, these records did not accurately and fairly reflect, in reasonable detail, the purpose for which the expenses were incurred. A significant portion of the records associated with payments made through tourist agencies gave the name of the tourist agency with only generic descriptions such as “various airfares and hotel.”  Additionally, to the extent that the accounting records did provide the location or purported educational seminar associated with travel expenses, in many instances they did not disclose or itemize the disproportionate amount of leisure and non-business related activities that were also included in the costs.  As a result, during the relevant time period, Aon failed to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its assets and failed to devise and maintain an adequate system of internal accounting controls with respect to foreign sales activities sufficient to ensure compliance with the FCPA.”

Pursuant to the NPA, “Aon admits, and accepts and acknowledges responsibility” for the above conduct; however, there is no suggestion or implication in the NPA that anyone at Aon Corporation  knew of, participated in, or authorized the conduct at issue.

See here for the DOJ’s release.

Pursuant to the NPA, Aon agreed to pay a monetary penalty in the amount of $1.76 million.  The NPA states as follows.  “This substantially reduced monetary penalty reflects the Department’s determination to credit meaningfully Aon for its extraordinary cooperation with the Department, including its thorough investigation of its global operations and complete disclosure of facts to the Department, and its early and extensive remediation.  In agreeing to this monetary penalty, the Department also took into account the penalty paid to the FSA relating to Aon Limited’s systems and controls in countries other than Costa Rica.”  Pursuant to the NPA, Aon also agreed to “continue to strengthen its compliance, bookkeeping, and internal controls standards and procedures” as set forth in “Corporate Compliance Program” appendix to the NPA.

SEC

The SEC’s settled civil complaint (here) begins as follows.  “From as early as 1983 until as recent as 2007, subsidiaries of Aon Corporation in numerous countries made improper payments to various parties as a means of obtaining or retaining insurance business in those countries.  During this period, over $3.6 million in such payments were made, including some directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the Company’s interest.  These payments were not accurately reflected in Aon’s books and records.  During this period, Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent these payments.”

According to the SEC complaint, “the improper payments made by Aon’s subsidiaries fall into two general categories:  (i) training, travel and entertainment provided to employees of foreign-government owned clients and third parties and (ii) payments made to third-party facilitators.”

As to the first category of payments, the SEC complaint is largely focused on the same Costa Rica / INS payments described in the DOJ’s NPA.  Additional payments concern Egypt and the complaint alleges that from 1983 to 2009 Aon (or its predecessor) “served as insurance broker for an Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”).  According to the complaint, delegation trips for EAA and EPO officials to various U.S. destinations “had some business component” but also “included a disproportionate amount of leisure activities and lasted longer than the business component would justify.”  According to the SEC, the company’s “books and records did not fairly and accurately reflect the true nature of the payments made in connection with the delegation trips.”

As to the second category of payments, under the heading “Payments to Third-Party Facilitators” the complaint alleges as follows.  “Aon’s subsidiaries also made payments to third parties that were retained to assist in obtaining accounts in several countries.  In some instances, the subsidiaries made payments to the third parties without taking steps to assure that they would not be passed to foreign government officials.  The subsidiaries made some payments under circumstances in which the third parties appeared to have performed no legitimate services relating to the prospective accounts, thereby suggesting that they were simply conduits for improper payments to government officials in order to obtain or retain business for Aon.”

In Vietnam, the complaint alleges that “Aon Limited served as a co-broker on an insurance policy for Vietnam Airlines, a Vietnamese government-owned entity, since 2003.”   According to the complaint, a third-party facilitator assisted in securing the account and “company record indicate that the third-party facilitator did not provide legitimate services, but instead transferred some of the money that Aon Limited paid under its consultancy agreement to unidentified individuals referred to as ‘related people.’”

In Indonesia, the complaint alleges that “Aon Limited served as a broker on reinsurance contracts with BP Migas and Pertamina, two Indonesian state-owned entities in the oil and gas industry.”    The complaint alleges that “several former Aon Limited employees authorized improper payments to government officials in Indonesia to secure the Pertamina and BP Migas accounts for Aon Limited.”

In the United Arab Emirates, the complaint alleges that “Aon Limited provided brokerage services to a privately-held insurance company” and that payments were made “to the general manager of the insurance company as inducements to secure and retain the account for Aon Limited.”

In Myanmar, the complaint alleges that “Aon Limited retained an introducer in Myanmar to assist Aon Limited in connection with its account with Myanmar Airways and Myanmar Insurance, two government-owned entities.”  According to the complaint, “company records indicate that the introducer likely used a portion of his commission to improperly influence a government official on Aon Limited’s behalf in connection with the Myanmar account.”

In Bangladesh, the complaint alleges that “Aon Limited made approximately $1.07 million in payments to secure its account with Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities.”

Based on the above allegations, the SEC complaint alleges FCPA books and records and internal controls violations – but not FCPA anti-bribery violations – notwithstanding the fact that the DOJ’s NPA refers to “Aon’s knowing violation of the anti-bribery, books and records, and internal controls.”

As stated in the SEC’s release (here), without admitting or denying the allegations in the SEC’s complaint, Aon consented to entry of a final judgment permanently enjoining it from future FCPA books and records and internal controls violations and ordering the company to pay “disgorgement of $11,416,814 in profits together with prejudgement interest thereon of $3,128,206 for a total of $14,545,020.”

In a release (here) Aon stated as follows.  “Since beginning an internal review of these issues in 2007, Aon has put in place a comprehensive, global and robust anti-corruption program designed to prevent and detect improper conduct.”  Greg Case, Aon’s President and Chief Executive Officer stated as follows.  “Acting with integrity is Aon’s core value and we embody this in our commitment to the highest professional standards for our clients, markets and colleagues.  Aon has invested a significant amount of time and resources in anti-corruption compliance and transparency to greatly enhance our controls and processes.”

Kirkland & Ellis attorneys Laurence Urgenson (here) and Craig Primis (here) represented Aon.

The FCPA And South Asia

Friday, October 21st, 2011

[If FCPA Professor is a valuable part of your day, please consider taking a moment to register your support in the LexisNexis Top 25 Business Law Blog contest.  The link to submit comments is here and the comment period ends on October 25th]

Yesterday, I had the pleasure to participate in the South Asia Legal Studies conference at the University of Wisconsin Law School.  I participated in a panel moderated by Andy Spalding (here – Visiting Assistant Professor at Chicago-Kent College of Law) titled “Corruption in South Asia:  The Role of Law and Legal Institutions.”

The focus of my remarks addressed the following question:  are U.S. companies (or other multinational companies subject to the FCPA) doing business in South Asia intent on engaging in bribery or are such companies doing business in South Asia confronted by conditions not of their own making (the later comment inspired by Joseph Covington’s recent observation regarding a potential FCPA compliance defense – see here).

I noted, as evidenced by recent FCPA enforcement activity in India, Bangladesh, and Pakistan, that the latter seems to be true.  South Asia is plagued by harassment bribes.  For instance, according to the 2010 Transparency International Global Corruption Barometer -  here – 54% of Indian households paid a bribe in a 12 month period to receive basic services.  As noted in this previous post, Kaushik Basu (India’s Chief Economic Advisor) recently stated that “harassment bribery is widespread in India and it plays a large role in breeding inefficiency and has a corrosive effect on civil society.”  This 2010 National Public Radio piece noted that “getting things done without hassles [in India] requires a bribe.”  The piece observed as follows.  India is “famous for paperwork, tangled bureaucracy and the courts are slow.  So, often it just makes economic sense to shrug and pay the money.  Because when you bribe someone, they can become like your own personal Ganesh, the god who is the remover of obstacles.”

FCPA enforcement in South Asia has almost exclusively focused on harassment bribes, payments made by companies, nearly always with the assistance of local agents, consultants, and brokers, simply to get things done and remove obstacles.  For instance, the Diageo enforcement action concerned, in part, payments in India in connection with product label registration and securing favorable product placement and promotion.  The Wabtec enforcement action concerned payments in India in connection with the scheduling of pre-shipping product inspections, issuance of product delivery certificates and tax audits.  The Dow enforcement action concerned payments in India in connection with registering products.  The Avery Dennison enforcement action concerned, in part, payments in Pakistan in connection with obtaining bonded zone licenses and to overlook bonded zone regulatory violations.  The Baker Hughes enforcement action concerned, in part, payments in India in connection with shipping permits.

Are the above FCPA enforcement actions the best way to address harassment bribes in South Asia and other parts of the world?

Foreign Enforcement Action Roundup

Thursday, August 4th, 2011

The U.S., of course, is not the only country with an FCPA-like law. Canada’s version is the Corruption of Foreign Public Officials Act (“CFPOA”).  Australia’s version is part of its general Criminal Code.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI's] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.

Canada

Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA - in 2005 against Hydro Kleen - resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”

Australia

Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”

U.K.

Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  ”to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the “ procedure based on the guidance contained within [the SFO's] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

Analyzing Alcatel-Lucent

Thursday, January 6th, 2011

In 2006, Alcatel-Lucent, S.A. (“Alcatel”) was formed when an Alcatel S.A. subsidiary merged with Lucent Technologies, Inc. Prior to the merger, Alcatel was a worldwide provider of a wide variety of telecommunications equipment and services and other technology products. The company operated in more than 130 countries directly and through certain wholly owned and indirect subsidiaries including in Costa Rica, Honduras, Malaysia and Taiwan. From 1998 until late 2006, ADR shares of Alcatel were traded on the New York Stock Exchange.

In 2007, the right side of the hyphen – Lucent Technologies – settled an FCPA enforcement action (see here and here).

In 2010, in what was the last FCPA enforcement action of the year, the left side of the hyphen – Alcatel and certain of its subsidiaries – settled an FCPA enforcement.

This post analyzes the Alcatel-Lucent enforcement action. The enforcement action (all 360 pages) is a FCPA feast. Principally based on the lack of due diligence of third-party agents, the enforcement action serves up the following: lots of alleged state-owned or state-controlled telecommunication entities; consultants hired after contracts were secured; a purported telecommunications consultant with only perfume experience; payments to legislators and political parties; things of value including excessive travel and entertainment expenses and crystal for the secretary; joint ventures; and payments from New York and Miami bank accounts.

The Alcatel-Lucent enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $137.4 million ($92 million criminal fine via DOJ plea agreements and a deferred prosecution agreement; $45.4 million in disgorgement via a SEC settled complaint).

DOJ

The DOJ enforcement action involved a criminal information against Alcatel-Lucent, S.A. (“Alcatel”) resolved through a deferred prosecution agreement and a criminal information against Alcatel-Lucent France S.A. (“Alcatel CIT”), Alcatel-Lucent Trade International A.G. (“Alcatel Standard”), and Alcatel CentroAmerica, S.A. (“ACR”) resolved through plea agreements. See here for the DOJ release.

Alcatel-Lucent S.A. Criminal Information

The information (here) begins with a heading “Background Regarding Alcatel’s Business Practices and the State of Its Internal Controls.”

It states as follows. “Starting in the 1990s and continuing through at least last 2006, Alcatel pursued many of its business opportunities around the world through the use of third-party agents and consultants. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits for bribe payments to foreign officials (and business executives of private customers) to obtain or retain business in many countries.”

The information also highlights Alcatel’s “de-centralized business structure” which permitted different Alcatel employees around the world “to initially vet the the third-party consultants, and then rely on Executive 1 [a French citizen who served as Chief Executive Officer of Alcatel Standard in Basel, Switzerland] at Alcatel to perform due diligence on them.” According to the information, “this de-centralized structure and approval process permitted corruption to occur, as the local employees were more interested in obtaining business than ensuring that business was won ethically and legally.”

Further, the information alleges that “Executive 1 performed no due diligence of substance and remained, at best, deliberately ignorant of the true purpose behind the retention of and payment to many of the third-party consultants.” Specifically, the information alleges that “Executive 1 made no effort, or virtually no effort, to verify the information provided by the consultant in the Consultant Profile [a form the consultant was supposed to complete with information concerning its ownership, business activities, capabilities, banking arrangements, and professional references], apart from using Dun & Bradstreet reports to confirm the consultant’s existence and physical address.” According to the information, “if the paperwork was completed, regardless of any obvious issues (such as close relationships with foreign officials or a clear lack of skill, experience or telecommunications expertise), Executive 1 authorized hiring and paying the third-party consultant.”

As to payments to the consultants, the information alleges that “Alcatel Standard [a wholly-owned subsidiary of Alcatel located and incorporated in Switzerland and an entity "responsible for entering into most agreements with consultants worldwide on behalf of Alcatel and certain other entities] would contract with the third-party consultant and then Alcatel CIT [a wholly owned subsidiary of Alcatel located and incorporated in France] would pay the consultant” including through a bank account at ABN Amro Bank in New York.

The information alleges as follows. “Often senior executives at Alcatel CIT, Alcatel Standard, and ACR [a wholly owned subsidiary of Alcatel located and incorporated in Costa Rica], among others, knew bribes were being paid, or were aware of the high probability that many of these third-party consultants were paying bribes, to foreign officials to obtain or retain business. For example, in a significant number of instances, the consultant contracts were executed after Alcatel had already obtained the customer business, the consultant commissions were excessive, and lump sum payments were made to the consultants that did not appear to correspond to any one one contract.”

According to the information, “Alcatel CIT, Alcatel Standard, ACR, and certain employees of Alcatel CIT, Alcatel Standard, and ACR knew, or purposefully ignored” that much of the consultant documentation “did not accurately reflect the true nature and purpose of the agreements” and that “many of the invoices submitted by various third-party consultants falsely claimed that legitimate work had been completed, while the true purpose of the monies sought by the invoices was to funnel all or some of the money to foreign officials, directly and indirectly.”

The information alleges that “these transactions were designed to circumvent Alcatel’s internal controls system and were further undertaken knowing that they would not be accurately and fairly reflected in Alcatel CIT, Alcatel Standard, and ACR’s books and records, which were included in the consolidated financial statements that Alcatel filed with the SEC.”

The information then contains ten separate sections: conduct in Costa Rica; conduct in Honduras; conduct in Malaysia; conduct in Taiwan; conduct in Kenya; conduct in Nigeria; conduct in Bangladesh; conduct in Ecuador; conduct in Nicaragua; and other consultancy agreements entered into without proper due diligence.

Costa Rica

The alleged conduct focuses on the actions of Christian Sapsizian and Edgar Valverde Acosta and consultancy agreements on behalf of Alcatel CIT with two Costa Rican consultants which were intended to make improper payments to Costa Rican government officials for telecommunications contracts. According to the indictment, Sapsizian (a French citizen) was a long-term employee of Alcatel and Alcatel CIT responsible for developing business in Latin America. Valverde (a Costa Rica citizen) served as the President of ACR and the Country Senior Officer of Costa Rica. See here for the prior enforcement actions against Sapsizian and Valverde.

According to the information, “both consultants had many personal contacts at ICE [Instituto Costarricense de Electricidad S.A. - a "wholly state-owned telecommunications authority in Costa Rica responsible for awarding and administering public tenders for telecommunications contracts].

According to the information, Sapsizian’s supervisor, the President of Area 1 who worked in Miami, approved more than $18 million in payments to the consultants notwithstanding that the President of Area 1, according to Sapsizian, “told him on several occasions that he knew he was ‘risking jail time’ as a result of his approval of these payments, which he understood would, at least in part, ultimately wind up in the hands of public officials.”

The information alleges that various Alcatel entities “conducted insufficient due diligence” on the consultants and that “neither Alcatel nor any of its subsidiaries took sufficient steps to ensure that the consultants were complying with the FCPA or other relevant anti-corruption laws.”

According to the information, the above described payments were ultimately used to provide money to various ICE officials, a Costa Rica executive branch official, and a Costa Rica legislator, that ultimately assisted Alcatel CIT obtain a $44 million contract, a $149.5 million contract, a $109.5 million contract.

The information also alleges that Sapsizian “approved the payment of approximately $25,000 in travel, hotel, and other expenses incurred by ICE officials during a primarily pleasure trip to Paris” – a trip that “was partially intended to reward these government officials for providing Alcatel with lucrative contracts …”.

Based on this conduct, the information alleges that “employees of Alcatel CIT, Alcatel Standard, and ACR knowingly circumvented Alcatel’s internal controls system and made inaccurate and false entries in the books and records of Alcatel CIT, Alcatel Standard, and ACR, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC. As a result of the contracts won by Alcatel CIT in Costa Rica as a result of bribe payments, Alcatel earned approximately $23,661,000 in profits.”

Honduras

The information charges that “employees of ACR, along with Sapsizian, pursued business opportunities on behalf of Alcatel in Honduras with Hondutel [Empresa Hondurena de Telecomunicaciones - an alleged wholly state-owned telecommunications authority in Honduras responsible for providing telecommunications services in Honduras including evaluating and awarding telecommunications contracts on behalf of the government of Honduras] and Conatel [Comision Nacional de Telecouniciaciones - an alleged Honduran government agency that regulated the telecommunications sector in Honduras that issued licenses and concessions for fixed-line and wireless telephony, data transmission and internet services].”

According to the information, Alcatel CIT and Alcatel Mexico made large commission payments to at least one consultant, knowing that all or some of the money paid to that consultant would be paid to a close relative of a Honduran government official, with the high probability that some or all of the money would be passed on to the Honduran government official, in exchange for favorable treatment of Alcatel, Alcatel CIT, and Alcatel Mexico.”

According to the information, the consultant was retained at the request of a high-ranking government official in the Honduran executive branch; however, the consultant was an exclusive distributor of “brand name perfumes” and had no contacts in, or prior experience with, the telecommunications industry in Honduras or anywhere else.

The information alleges that in retaining the consultant, “Alcatel Standard knowingly failed to conduct appropriate due dligence” and “did not follow up on numerous, obvious red flags.”

The information alleges that by utilizing the services of the consultant, Hondutel awarded Alcatel a $1 million contract and four additional contracts for a combined value of approximately $47 million.

The information also alleges that “Alcatel CIT and ACR employees arranged for several other Honduran government officials to take primarily pleasure trips to France, which were paid by Alcatel CIT or ACR directly.” In addition, the information charges that a “high-ranking executive at Hondutel” also “received gifts and improper payments from Alcatel CIT and ACR employees” including $2,000 for an educational trip for the official’s daughter and a trip to Paris (along with the official’s spouse) that mostly consisted of “touring activities via a chauffeur-driven vehicle.” Further, the information alleges that “Alcatel CIT also made payments to a Hondutel attorney who worked” on a contract secured by Alcatel including paying for a trip by the attorney and the attorney’s daughter to Paris.

Based on this conduct, the information alleges that “employees of Alcatel CIT, Alcatel Standard, and ACR knowingly circumvented Alcatel’s internal controls system and caused inaccurate and false entries in the books and records of Alcatel CIT, Alcatel Standard, and ACR, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC.” According to the information, “as a result of the bribe payments, Alcatel earned approximately $870,000 in profits.”

Malaysia

The information alleges that “in at least 17 instances in or around 2004 to in or around 2006, Alcatel Malaysia [a joint venture in which Alcatel owned a majority share of and exercised control of] employees, with the consent and approval of Alcatel Malaysia’s management, such as Executive 2 [Alcatel Malaysia's Country Senior Officer] and Executive 3 [Alcatel Malaysia's Chief Financial Officer], made improper payments to Telekcom Malaysia [an alleged state-owned and controlled telecommunications provider in Malaysia responsible for awarding telecommunications contracts 43% owned by the Malaysian Ministry of Finance] employees in exchange for nonpublic information relating to ongoing public tenders.” According to the information, “the documents purchased generally consisted of internal assessments by Celcom’s [Telekom Malaysia's wholly owned subsidiary] tender committee of non-public pricing information.” According to the information, “eight of the 17 improper payments to Telekom Malaysia employees were made in connection with a single public tender that Alcatel Malaysia ultimately won …”. The information alleges that the payments were falsely characterized as “document fees” or accurately as “purchase of tender documents.”

The information further alleges that Alcatel Standard entered into a consulting agreement for more than $500,000 with a Malaysian consultant even though “Alcatel typically paid its agents and consultants commission rates based on the total value of a contract rather than pay a fixed fee for services.” According to the information, “at the time the payments were made to Malaysian Consultant 1, Alcatel Malaysia and Alcatel Standard were aware of a significant risk that Malaysian Consultant 1 would pass on all or a part of these payments to foreign officials.”

The information further alleges that Alcatel Standard entered into another consulting agreement with another consultant by which Alcatel Standard agreed to pay the consultant $500,000 for a “strategic intelligence report on Celcom’s positioning in the celluar industry in relation to its competitors.” According to the information, despite paying the consultant “half a million dollars for this report … there is no evidence that Malaysian Consultant 2 did any actual work for Alcatel Malaysia or ever produced the report.” The information states that “Alcatel Standard and Alcatel Malaysia were aware of a significant risk that Malaysian Consultant 2 was serving merely as a conduit for bribe payments to foreign officials.”

The information further alleges, in summary fashion, as follows. “Alcatel Malaysia lacked internal controls, such as formal policies covering expenditure for gifts, travel, and entertainment for customers, leading to Alcatel Malaysia employees giving lavish gifts to Telekom Malaysia officials.”

Based on this conduct, the information alleges that “Alcatel Standard and Alcatel Malaysia knowingly circumvented Alcatel’s internal controls system and caused inaccurate and false entries in the books and records of Alcatel Standard and Alcatel Malaysia, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC.” The information states that “although Alcatel won the $85 million Celcom contract, Alcatel did not generate any profits from it.”

Taiwan

According to the information, Alcatel pursued business in Taiwan through its indirect subsidiary Alcatel SEL, a company located and incorporated in Germany. The information states that Executive 4 [a German citizen who served on Alcatel SEL's director of international business ans sales] hired two third-party consultants to assist Alcatel SEL and Taisel, a joint venture 60% owned by an Alcatel subsidiary in obtaiing an axle counting contracts from the TRA [the Taiwan Railway Administration - an alleged wholly state-owned authority in Taiwan responsible for managing, maintaining, and running passenger freight services on Taiwan's railroad lines].” According to the information, “both consultants claimed to have close ties to certain legislators in the Taiwanese government who were understood to have influence in awarding the contract due to their particular responsibilities in the legislature.”

The information alleges that the “purpose behind Alcatel’s hiring of Taiwanese Consultant 1 was so that Alcatel SEL could make improper payments to three Taiwanese legislators who had influence in the award of the TRA axle counting contract.” According to the information, after Taisel has been awarded the contract, “Alcatel SEL paid Taiwanese Consultant 1 a commission of approximately $921,413 by wire transfer from Alcatel SEL’s ABN Amro bank account in New York” and that Taiwanese Consultant 1, in turn, “made improper payments to two Taiwanese legislators: Legislator 2 and Legislator 3 – both members of the Legislative Yuan, the unicameral legislative assembly of the Republic of China. Among other things, the information alleges: that the the consultant promised approximately $180,000 in campaign funds for Legislator 3′s 2004 election campaign and then paid Legislator 3 approximately $90,000 after Alcatel SEL won the bid; that Executive 4 and the consultant “spent approximately $8,000 on trips to Germany” that were “primarly for personal, entertainment purposes, with only nominal business justification;” that Alcatel SEL paid the consultant “approximately $3,000 to reimburse it for a set of crystal given to the secretary of the Taiwan Transportation and Communications Minister.”

The information also alleges that Executive 4 also hired another consultant because “Taiwanese Consultant 2′s owner was the brother of Legislator 4, who had influence with respect to TRA matters.” The information alleges that “to bribe Legislator 4, Alcatel SEL arranged for a bogus consulting agreement between Taisel and Taiwanese Consultant 2.”

The information alleges as follows. “Neither Taiwanese Consultant 1 nor Taiwanese Consultant 2 provided legitimate services to Alcatel or Alcatel SEL. Their only function was to pass on improper payments to three Taiwanese legislators on behalf of Alcatel SEL and Taisel. On or about December 30, 2003 Taisel’s bid was accepted by the TRA, which granted Taisel a supply contract worth approximately $19.2 million …”.

According to the information, “Alcatel SEL’s financial results were included in the consolidated financial statements of Alcatel submitted to the SEC” and “as a result of contracts won by Alcatel in Taiwan as a result of bribe payments, Alcatel earned approximately $4,342,600 in profits.”

Kenya

The information describes a Kenyan joint venture (“Kenyan JV”) formed by a French telecommunications company (“French Telecom”) and a Kenyan company (“Kenyan Company”) to apply for a mobile telecommunications license that the Kenyan JV was awarded for approximately $55 million. Several companies, including Alcatel CIT, bid to provide approximately $87 million in infrastructure and services to the Kenyan JV. The information alleges that Alcatel CIT was informed by French Telecom that Alcatel CIT “would win the bid under one condition: an Alcatel entity had to make improper payments to an intermediary in the approximate amount of $20 million.”

The information then describes the intermediary and payments made to it and concludes with the following paragraph. “After entering into the various contracts, the intermediary provided monthly reports and economic intelligence on the telecommunications market in Africa, but never provided any information related to the 2nd GSM license or the Kenyan telecommunications market. In light of the huge amounts of the payments, the fact that the intermediary performed little legitimate work in connection with the 2nd GSM license, and the fact that Company Z [another company suggested by the intermediary] was an offshore holding of Kenyan Company, there is a high probability that all or a portion of the approximately $20 million in payments made by Alcatel CIT to the intermediary and the related entities was passed on to Kenyan Company, which in turn passed on the funds to Kenyan government officials who had played a role in awarding the original contract to French Telecom.”

Nigeria

The information states that between 1999 and 2007, Alcatel pursued business with various Nigerian customers and alleges as follows.

“Certain Alcatel subsidiaries made improper payments to government officials in Nigeria in the following contexts: (a) payments made to government officials for the purpose of reducing tax or other liabilities; (b) payments made to government officials to obtain security services from the Nigerian police; (c) a payment of approximately $75,000 to a former Nigerian Ambassador to the United Nations for the purpose of arranging meetings between Alcatel representatives and Nigerian Senior Government Official 1, a high-ranking official in the Nigerian executive branch; (d) payments made to government officials for the purpose of securing recovery of a debt totaling approximately $36.5 million owed by the government of Nigeria to ITT Nigeria [an Alcatel entity]; and (e) a payment to a People’s Democractic Party official. These payments were not described accurately and fairly on Alcatel’s books and records.”

The information also alleges as follows. “Alcatel personnel also made improper payments via a consultant to a Senior Executive at Nigerian Telecommunications Company 1″ and “Alcatel also made large improper payments to two other consultants which were owned at least in part by a relative of the Senior Executive at Nigerian Telecommunications Company 1.” “These payments were not described accurately and fairly on Alcatel’s books and records.” There is nothing in the information to suggest that Nigerian Telecommunications Company 1 was a state-owned or controlled enterprise and the information refers to payments to the Senior Executive as “commercial bribe payments.”

Bangladesh

The information generally alleges that “Alcatel generated a significant portion of its revenue in Bangladesh from Bangladesh Telegraph and Telephone Board, the state-controlled telecommunications services provider” and that Alcatel used an agent in Bangladesh but “Alcatel Standard did not conduct adequate due diligence” on the consultant. In addition, the information alleges that Alcatel Standard retained the agent in connection with a submarine cable project connecting fourteen countries – Alcatel’s portion of the contract was approximately $258 million. According to the information, Alcatel CIT paid the consultant approximately $626,492 in compensation for services provided in connection with the project and approximately $2,524,939 in connection with various upgrades to a predecessor of the project “aware of a significant risk that Bangladsh Consultant would pass on all or a part of these payments to foreign officials.”

Ecuador

According to the information, “Alcatel conducted business in Ecuador with three major telecommunicatios customers, all of which were state-owned: Andinatel, Pacifictel, and Empresa Municipl de Telecomunicaciones, Aqua Potable, Alcantarillados y Saneamiento. The information alleges that Alcatel retained a consultant in Ecuador (“a wealthy businessman”), but that the consultant and the entities he controlled “did little legitimate work for Alcatel.” The information alleges as follows. “Instead, it was anticipated that Ecuadorian Consultant would funnel a portion of the funds Alcatel paid him to officials of the Ecuadorian state-owned telecommunications companies in order to secure business and other benefits for Alcatel. Improper payments were anticipated to be made or offered in connection with at least nine contracts with government-owned telecommunication companies.”

According to the information, at least some of Alcatel’s payments to the consultant wre made to bank accounts in Miami.

In addition, the information alleges as follows. “Alcatel also paid for trips taken by officials of the three telecommunications companies that were principally for pleasure. For example, both the Vice-President and the Chairman of the Board of Pacifictel received improper all-expenses paid trips to France.”

Nicaragua

According to the information, “Alcatel’s only customer in Nicaragua was Empresa Nicaraguense de Telecomunicaciones S.A. (“Enitel”) which was state-owned during the relevant time period.” The Ecuadorian consultant referenced above, also served as Alcatel’s consultant in Nicaragua. According to the information, “with the assistance of Ecuadorian Consultant, Alcatel CIT secured two contracts with Enitel” valued at approximately $1.6 million and $370,000. The information alleges that Alcatel CIT made payments totaling approximately $229,3822 to the Miami bank account of the consultant and that the consultant “likely used a portion of these payments to bribe certain key Enitel officials in order to influence Enitel to award the two contracts to Alcatel, to obtain confidential information about competing bids, and to secure favorable financial terms.” The information alleges that payments to the consultant were “identified in Alcatel’s books and records as consulting fees, and thus the description of those payments did not accurately and fairly reflect those transactions.”

The information further alleges that “Alcatel CIT also provided a trip to Paris and Madrid to two Enitel officials in late 2001 in order to encourage the execution of one of the two contracts” and that the “purpose of the trip was largley for pleasure, and it appears that Alcatel CIT covered all travel costs and a large portion of the expenses.”

The substantive portion of the information ends with a section titled “Other Consultancy Agreements Entered Into Without Proper Due Diligence.” The allegations concern consultants in Angola, the Ivory Coast, Burkina Faso, Uganda, and Mali. The customers associated with the consultants were either allegedly state-owned or private companies.

Based on all of the above conduct, the information charges Alcatel with violations of the FCPA’s internal control provisions. The information alleges that Alcatel “knowingly: (a) failed to implement sufficient anti-bribery compliance policies and procedures; (b) failed to maintain a sufficient system for the selection and approval of consultants, which, in turn, permitted corrupt conduct to occur at certain subsidiaries; (c) entered into purported business consulting agreements with no apparent basis, and without performing any due diligence, sometimes after the cmpany had already won the relevant project; (d) failed to verify information provided by consultants, including failing to follow up in circumstances in which managers knew or were substantially certain illicit activity was taking place; (e) failed to prevent consultants from using multiple shell companies to receive commissions in excess of 10% knowing there was a substantial likelihood those consultants were acting as conduits for corrupt payments; (f) failed to conduct appropriate audits of payments to purported business consultants; (g) failed to prohibit lump sum payments being made to consultants that did not correspond to any contract; (h) failed to prohibit payments to consultants and public officials pursuant to an oral ‘gentlemen’s agreement’; (i) failed to appropriately investigate and respond to allegations of corrupt payments and discipline employees involved in making corrupt payments; (j) failed to establish a sufficiently empowered and competent Corporate Compliance Officer; (k) failed to exercise due diligence to prevent and detect criminal conduct; (l) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed, including monitoring and internal audits to detect criminal conduct; (m) failed to evaluate regularly the effectiveness of the company’s compliance and ethics program; and (n) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program.”

Based on the above conduct, the information also charges Alcatel with FCPA books and records violations for (a) drafting sham business consulting agreements to justify third party payments; (b) mis-characterizing bribes in the corporate books and records as consulting fees and other seemingly legitimate expenses; (c) justifying payments to purported business consultants based on false invoices; and (d) entering into purported business consulting agreements with no basis, sometimes after Alcatel had won the relevant project.

Alcatel-Lucent DPA

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

Pursuant to the DPA, Alcatel admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and those of Alcatel’s subsidiaries as described above.

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

(a) following press reports concerning bribery by Alcatel, S.A., in Costa Rica, the company investigated and disclosed over the course of several years to the Department and the United States Securities and Exchange Commission the misconduct described above;

(b) Alcatel-Lucent conducted a global internal investigation concerning bribery and related misconduct;

(c) Alcatel-Lucent reported its findings to the Department and the SEC;

(d) after limited and inadequate cooperation for a substantial period of time, Alcatel-Lucent substantially improved its cooperation with the Department’s investigation of this matter, as well as the SEC’s investigation;

(e) Alcatel-Lucent undertook remedial measures, including the implementation of an enhanced compliance program, and agreed to undertake further remedial measures as contemplated by the DPA;

(f) on its own initiative and at a substantial financial cost, Alcatel-Lucent determined as matter of company policy to no longer use third party sales and marketing agents in conducting its worldwide business; and

(g) Alcatel-Lucent agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Alcatel-Lucent and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.

As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $86.58 – $173.16 million. Pursuant to the DPA, Alcatel-Lucent agreed to pay a monetary penalty of $92 million – a rather rare instance of an FCPA criminal fine actually being within the Guidelines range and not below even the minimum range suggested by the Guidelines. Also relevant is that Alcatel’s culpability score was reduced only by -1, reflecting that Alcatel did not receive cooperation credit as many FCPA corporate defendants do receive.

The DPA states that above fine is appropriate given, among other things, “penalties related to the same conduct in Costa Rica [see here], and the extraordinary remedial step of terminating use of third-party sales and marketing agents.”

Pursuant to the DPA, Alcatel agreed to a host of compliance undertakings including the retention of an independent compliance monitor “who is a French national” for a three year term. Corporate Monitors used to be common in FCPA enforcement actions (circa 2005-2008), but required use of corporate monitors has become less common over the past few years.

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

As to potential debarment issues, the DPA states as follows. “The Department agrees to bring to the attention of governmental and other debarment authorities the facts and circumstances relating to the nature of the conduct underlying this Agreement, including the nature and quality of Alcatel-Lucent’s cooperation and remediation. By agreeing to provide this information to debarment authorities, the Department is not agreeing to advocate on behalf of Alcatel-Lucent, but rather is providing facts to be evaluated independently by the debarment authorities.”

Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G. and Alcatel CentroAmerica, S.A. Criminal Information

The criminal information against the above Alcatel subsidiaries is virtually identical to the above-described criminal information against Alcatel, albeit it is limited to Costa Rica, Honduras, Malaysia, and Taiwan conduct. Based on this conduct, the information charges the entities with conspiracy to violate the FCPA’s anti-bribery and books and records and internal control provisions. According to the information, the purpose of the conspiracy was to “secure the assistance of officials of various governments, including those in Costa Rica, Honduras, Malaysia, and Taiwan, in obtaining and retaining lucrative telecommunications business through the offer, promise, and payment of bribes.”

Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G. and Alcatel CentroAmerica, S.A. Plea Agreements

The above described charges were resolved via separate plea agreements with Alcatel-Lucent France (here), Alcatel-Lucent Trade International (here) and Alcatel CentroAmercia (here). Each plea agreement states that in light of the overall dispositions with the other Alcatel-Lucent entities and “the interrelationship among the charges and conduct underlying those dispositions” the agreed upon fine is $500,000.

SEC

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

“From December 2001 through June 2006, Alcatel, S.A., now called Alcatel-Lucent, S.A. (“Alcatel” or the “company”), through its subsidiaries and agents, violated the Foreign Corrupt Practices Act by paying more than $8 million in bribes to foreign government officials. Alcatel made these payments to influence acts and decisions by these foreign government officials to obtain or retain business, with the knowledge and approval of certain management level personnel of the relevant Alcatel subsidiaries. Alcatel lacked sufficient internal controls to prevent or detect such improper payments, and improperly recorded the payments in its books and records.”

“During this period, Alcatel’s agents and/or subsidiaries paid bribes to foreign government officials in several countries to obtain or retain business:

• From December 2001 to October 2004, Alcatel’s agents and/or subsidiaries paid at least $7 million in bribes to government officials of Costa Rica to obtain or retain three contracts to provide telephone services in Costa Rica totaling approximately $303 million.

• From December 2002 to June 2006, Alcatel’s agents and/or subsidiaries paid bribes to government officials of Honduras to obtain or retain five telecommunications contracts totaling approximately $48 million.

• From October 2003 to May 2004, Alcatel’s agents and/or subsidiaries paid bribes to government officials of Taiwan to obtain or retain a railway axle counting contract valued at approximately $27 million.

• From October 2004 to February 2006, Alcatel’s agents and/or subsidiaries paid bribes to government officials of Malaysia to obtain or retain a telecommunications contract valued at approximately $85 million.”

“All of these payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries, and then consolidated into Alcatel’s financial statements. A lax corporate control environment aided Alcatel’s improper conduct. Alcatel failed to detect or investigate numerous red flags suggesting that its business consultants were likely making illicit payments and gifts to government officials in these countries at the direction of certain Alcatel employees. The respective heads of several Alcatel subsidiaries and geographical regions, some of whom reported directly to Alcatel’s executive committee, authorized extremely high commission payments under circumstances in which they failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA. These high-level employees therefore knew, or were severely reckless in
not knowing, that Alcatel paid bribes to foreign government officials.”

The SEC complaint contains allegations about the same “Costa Rica Bribery Scheme,” “The Honduras Bribery Scheme,” “The Taiwan Bribery Scheme,” and “The Malaysia Bribery Scheme” referenced above. Typically, SEC complaints in FCPA matters are more broad than DOJ resolution documents, yet in this case the SEC complaint is more narrow than the DOJ resolution documents in that the SEC complaint does not contain any allegations as to conduct in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, the Ivory Coast, Burkina Faso, Uganda, and Mali – as does the DOJ information.

Based on the above conduct, the SEC charged Alcatel with FCPA anti-bribery and books and records and internal control violations and knowingly failing to implement a system of internal controls and knowingly falsifying books and records.

As to books and records the complaint alleges as follows.

“Specifically, A1catel failed to keep accurate books and records by (1) entering into consulting agreements retroactively; (2) establishing and using a system of intermediaries to obscure the source and destination of funds; (3) making payments pursuant to business consulting agreements that inaccurately described the services provided; (4) generating false invoices and other false documents to justify payments; (5) disbursing funds in cash with inaccurate documentation authorizing or supporting the withdrawals; (6) recording illicit payments as legitimate consulting fees; and (7) recording bribes as payment for legitimate services.”

As to internal controls, the complaint alleges as follows.

“Alcatel failed to implement adequate internal controls to comply with the
company’s NYSE listing, including the detection and prevention of violations of the FCPA. First, Alcatel and/or its subsidiaries falsified books and records, entered into agreements retroactively, and obscured the purpose for, and ultimate recipient of, illicit payments. Alcatel used business consultants and intermediaries to funnel bribes in at least four countries. Alcatel created and used false invoices and payment documentation under business consulting agreements that described services that were never intended to be rendered. Illicit payments were falsely recorded as expenses for consulting fees.”

“Second, Alcatel also routinely circumvented the internal controls the company had in place. Although the company in theory had a policy of “checks and balances” to authorize the retention of business consultants, which required several signatures to approve the retention of, and payment to, business consultants, Alcatel employees often violated that policy. In numerous instances, Alcatel officials responsible for reviewing due diligence reports on consultants failed to conduct any review of the documents or could not read the language in which the documents were written. Alcatel employees also entered into agreements retroactively and obscured the amounts paid to business consultants by splitting the payments among separate
agreements (to conceal the high commissions Alcatel paid). Finally, Alcatel Standard’s due diligence on business consultants was inadequate, and Alcatel CIT often paid business consultants without adequate proof of services rendered. Alcatel CIT failed to establish robust controls over cash disbursements, allowed manual payments without documentation, and Alcatel’s FCPA compliance function was understaffed and lacked independence. Alcatel also failed to conduct thorough anti-bribery and corruption training.”

Without admitting or denying the SEC’s allegations, Alcatel agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $45.372 million.

In a relese (here), Robert Khuzami (Director of the SEC’s enforcement division) stated as follows. ““Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business. Alcatel’s bribery scheme was the product of a lax corporate control environment at the company.” Glenn Gordon (Associate Director of Enforcement in the SEC’s Miami office) added, “the serious sanctions Alcatel has agreed to, including paying back all net profits made on the contracts Alcatel illegally obtained, should serve as a reminder that we are committed to enforcing the FCPA and a level playing field for companies seeking to obtain or retain business in other countries.”

In a company press release (here), Steve Reynolds, Alcatel-Lucent General Counsel, stated as follow. “We take responsibility for and regret what happened and have implemented policies and procedures to prevent these violations from happening again. The violations largely occurred prior to the merger of Alcatel and Lucent Technologies and involved improper activities in several countries. These settlements resolve the company’s FCPA liability with the DOJ and SEC. We are pleased to have reached these settlements and look forward to putting these matters behind us. Alcatel-Lucent, created as a result of the merger of Alcatel and Lucent Technologies at the end of 2006, is a radically different company today: It has different management, including a new CEO, a new executive committee and a different Board of Directors; It has a zero-tolerance policy regarding bribery and corruption and has a system in place with strong processes and Internet-based and live training designed to prevent these types of situations in all aspects of our business; and as the first in its industry to do so, Alcatel-Lucent announced in 2008 that it would terminate the use of sales agents and consultants — the primary means by which certain former employees made the improper payments involved in the violations described in the DOJ and SEC settlement papers.”

Martin Weinstein (here) of Willkie Farr & Gallagher represented the Alcatel entities.