Archive for the ‘Bangladesh’ Category

Stung By The Sting – Smith & Wesson Resolves FCPA Scrutiny That Originated With The Africa Sting

Tuesday, July 29th, 2014

In January 2010 when highlighting the manufactured Africa Sting enforcement action, I predicted that the public company employing one of the defendants was likely going to be the subject of Foreign Corrupt Practices Act scrutiny not only based on the alleged conduct in the Africa Sting case, but also other conduct as well because the indicted individual was the “Vice President−Sales, International & U.S. Law Enforcement” for the company.  That company, it soon was learned, was Smith & Wesson and indeed in July 2010 Smith & Wesson disclosed its FCPA scrutiny (see here).

In an instructive example of a dynamic I highlight in my recent article “Foreign Corrupt Practices Act Ripples” (that is every instance of FCPA scrutiny has a point of entry – in other words, a set of facts that give rise to the scrutiny in the first place – and this point of entry is often the beginning of a long and expensive journey for the company under scrutiny as the company – to answer the frequently asked “where else” question and to demonstrate its cooperation – will conduct a world-wide review of its operations), yesterday the SEC announced this administrative FCPA enforcement action against Smith & Wesson.

The conduct has nothing to do with the manufactured (and failed) Africa Sting case, but does involve Smith & Wesson’s former Vice President of International Sales and another individual referred to as the Regional Director of International Sales.  The SEC states in summary fashion as follows.

“This matter concerns violations of the anti-bribery,books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Smith & Wesson. The violations took place from 2007 through early 2010, when a senior employee and other employees and representatives of Smith & Wesson made, authorized, and offered to make improper payments  and/or to provide gifts to foreign officials in an attempt to win contracts to sell firearm products to foreign military and law enforcement departments. During this period, Smith & Wesson’s international business was in its developing stages and accounted for approximately 10% of the company’s revenues. Smith & Wesson’s employees and representatives engaged in a systemic pattern of making, authorizing and offering bribes while seeking to expand the company’s overseas business.

The bribe payments were inaccurately recorded in Smith & Wesson’s books and records as legitimate sales commissions or other business expenses. Despite its push to make sales in new and high risk markets overseas, Smith & Wesson failed to establish an appropriate compliance program or devise and maintain an adequate system of internal accounting controls, which allowed the repeated improper offers and payments to continue undetected for years.”

According to the SEC:

“Smith & Wesson does not have any international subsidiaries and conducts its international business directly and through brokering agents. Much of Smith & Wesson’s international business involves the sale of firearms to foreign law enforcement and  military departments.  [...] From 2007 through early 2010, as Smith & Wesson sought to break into international markets and increase sales, certain of the company’s employees and representatives engaged in a pervasive practice of making, authorizing and offering improper payments to foreign government officials as a means of obtaining or retaining international business. Although only one of the contracts was fulfilled before the unlawful activity was identified, company employees made or authorized the making of improper payments in connection with multiple ongoing or contemplated international sales.”

The SEC’s order contains factual allegations regarding the following countries: Pakistan, Indonesia, Turkey, Nepal and Bangladesh.

As to Pakistan, the SEC order states:

“In 2008, for example, Smith & Wesson retained a third-party agent in Pakistan to assist the company in obtaining a deal to sell firearms to a Pakistani police department. Even after the agent notified the company that he would be providing guns valued in excess of $11,000 to Pakistani police officials in order to obtain the deal, and that he would be making additional cash payments to the officials, the company authorized the agent to proceed with the deal. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized the sale of the guns to the agent to be used as improper gifts and authorized payment of the commissions to the agent, while knowing or consciously disregarding the fact that the agent would be providing the guns and part of his commissions to Pakistani officials as an inducement for them to award the tender to the company. Smith & Wesson ultimately sold 548 pistols to the Pakistani police for $210,980 and profited from the corrupt deal in the amount of $107,852.”

As to Indonesia, the SEC order states:

“In 2009, Smith & Wesson attempted to win a contract to sell firearms to a Indonesian police department by making improper payments to its third party agent in Indonesia, who indicated that part of the payment would be provided to the Indonesian police officials under the guise of legitimate firearm lab testing costs. On several occasions, Smith & Wesson’s third-party agent indicated that the Indonesian police expected Smith & Wesson to pay them additional amounts above the actual cost of testing the guns as an inducement to enter the contract. The agent later notified Smith & Wesson’s Regional Director of International Sales that the price of “testing” the guns had risen further. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized and made the inflated payment, but a deal was never consummated.”

As to Turkey, Nepal and Bangladesh, the SEC order states:

Similarly, Smith &Wesson made improper payments in 2009 to its third party agent in Turkey, who indicated that part of the payments would be provided to Turkish officials in an attempt to secure two deals in Turkey for sale of handcuffs to Turkish police and firearms to the Turkish military. Neither of these interactions resulted in the shipment of products, as Smith & Wesson was unsuccessful bidding for the first deal, while the latter deal was ultimately canceled. Similarly, Smith & Wesson authorized improper payments to third party agents who indicated that parts of these payments would be provided to foreign officials in Nepal and Bangladesh in unsuccessful attempts to secure sales contracts in those countries. Although these contemplated deals in Nepal and Bangladesh were never consummated in each case, the company had obtained or attempted to obtain the contract by using third party agents as a conduit for improper payments to government officials.”

The SEC’s order then states:

“Despite making it a high priority to grow sales in new and high risk markets overseas, the company failed to design and implement a system of internal controls or an appropriate FCPA compliance program reasonably designed to address the increased risks of its new business model. The company did not perform any anti-corruption risk assessment and conducted virtually no due diligence of its third-party agents regardless of the perceived level of corruption in the country in which Smith & Wesson was seeking to do business. Smith & Wesson  failed to devise adequate policies and procedures for commission payments, the use of samples for test and evaluation, gifts, and commission advances. The Vice President of International Sales had almost complete authority to conduct the company’s international business, including the sole ability to approve most commissions. Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision also were inadequate. As a result of these compliance and internal controls failures, Smith & Wesson’s Vice President of International Sales and the Regional Director of International Sales were able to cause the company to pay and/or authorize improper payments in numerous countries around the globe for a period of several years.”

Under the headline “Remedial Measures,” the SEC order states:

“Smith & Wesson took prompt action to remediate its immediate FCPA issues, including: conducting an internal investigation, terminating its entire international sales staff; terminating pending international sales transactions; and re-evaluating the markets in which it sought international sales. In addition, Smith & Wesson implemented a series of significant measures to improve its internal controls and compliance processes, including: implementing new internal audit procedures to identify FCPA issues; creating more robust controls on payments, gifts, and other transactions in connection with international business activity; enhancing its FCPA compliance policies and procedures; and creating a Business Ethics and Compliance Committee.”

Based on the above findings, the SEC found that Smith & Wesson violated the FCPA’s anti-bribery provisions, books and records provisions and internal controls provisions.  As to the later, the SEC order states:

“Smith & Wesson failed to devise and maintain sufficient internal controls with respect to its international sales operations. While the company had a basic corporate policy prohibiting the payment of bribes, it failed to implement a reasonable system of controls to effectuate that policy. For example, Smith & Wesson failed to devise adequate policies and procedures with regard to commission payments, the use of samples for test and evaluation, gifts, and commission advances. Further, Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision were inadequate.”

As highlighted in the SEC’s order, Smith & Wesson agreed to “report to the Commission staff on the status of [its] remediation and implementation of compliance measures at six-month to twelve-month intervals during a two-year term.” In addition, Smith & Wesson agreed to conduct an initial review – and two follow-up reviews – “setting forth a complete description of its remediation efforts to date, its proposals reasonably designed to improve the policies and procedures of Respondent for ensuring compliance with the FCPA and other applicable anticorruption laws, and the parameters of the subsequent reviews.”

In the SEC order, Smith & Wesson was ordered to cease and desist from future FCPA violations and agreed to pay $2,034,892 …  including $107,852 in disgorgement, $21,040 in prejudgment interest, and a civil monetary penalty of $1,906,000.”  In resolving its FCPA scrutiny, Smith & Wesson did not admit nor deny the SEC’s findings.

In this SEC release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

In this release, Smith & Wesson President and CEO James Debney stated:

“We are pleased to have concluded this matter with the SECand believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders.  Today’s announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us.”

John Pappalardo (Greenberg Traurig) represented Smith & Wesson.

Smith & Wesson’s stock price was down approximately .7% on the day of the SEC’s announcement of the enforcement action.

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).