Bonny Island Bribery « FCPA Professor

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JGC of Japan Formally Joins the Bonny Island Bribery Club

Wednesday, April 13th, 2011

In an enforcement action anticipated for months (see here for the prior post), JGC Corporation on Japan last week became the fourth joint venture partner to resolve its FCPA exposure in connection with the Bonny Island, Nigeria project.
Other joint venture partners in the so-called TSKJ consortium to previously resolve Bonny Island bribery probes were KBR / Halliburton (see here), Technip (see here) and Snamprogetti (see here). In addition, M.W. Kellogg Ltd., the entity that originally formed the TSKJ consortium resolved a U.K. Serious Fraud Office enforcement action (see here). In terms of individual prosecutions, Albert Jack Stanley pleaded guilty and awaits sentencing (see here); Wojciech Chodan pleaded guilty and awaits sentencing (see here); and Jeffrey Tesler recently pleaded guilty and awaits sentencing (see here).

The JGC enforcement action involved only a DOJ component. Total settlement amount was $218.8 million and the criminal charges (see here for the information) were resolved via a DOJ deferred prosecution agreement (here).

Criminal Information

The substance of the criminal allegations are the same as in the prior KBR, Technip, and Snamprogetti enforcement actions. That is, the TSKJ consortium, of which JGC was a member, was formed for purposes of bidding on and performing a series of engineering, procurement, and construction (“EPC”) contracts to design and build a liquefied natural gas plant on Bonny Island, Nigeria.

Tesler was hired by TSKJ to “help it obtain business in Nigeria, including by offering to pay and paying bribes to high-level Nigerian government officials” and Tesler “was an agent of TSKJ and of each of the joint venture companies.”

According to the information, TSKJ also hired “Consulting Company B” – a “global trading company headquartered in Tokyo” to help it “obtain business in Nigeria, including by offering to pay and paying bribes to Nigerian government officials” and “Consulting Company B was an agent of TSKJ and of each of the joint venture companies.”

Most of the allegations in the information focus on the conduct of the JGC’s alleged co-conspirators such as Stanley, Tesler, and Tesler’s corporate entity, Tri-Star Investments Ltd. As to U.S. nexus, the information alleges money flowing through U.S. based accounts “to bribe Nigerian government officials” and co-conspirators faxing or e-mailing information into the U.S. in furtherance of the bribery scheme.

Based on the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

DPA

The DOJ’s charges against JGC were resolved via a deferred prosecution agreement.

Pursuant to the DPA, JGC admitted, accepted and acknowledged “that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth above. As is typical in FCPA DPAs, JGC expressly agreed not to make any statements, directly or indirectly, “contradicting” the facts alleged.

The term of the DPA is two years and it states that the DOJ entered into the agreement based on the following factors.

“(a) after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA;

(b) JGC has undertaken remedial measures, including evaluating and enhancing its compliance program, and has agreed to undertake further remedial measures as contemplated by this Agreement; and

As stated in the DPA, the fine range for the above conduct under the U.S. Sentencing Guidelines was $312.6 million to $625.2 million. Pursuant to the DPA, JGC agreed to pay a monetary penalty of $218.8 million (30% below the minimum amount suggested by the guidelines). DPAs frequently then state why such a below-guidelines fine amount is “appropriate,” however the JGC DPA is silent as to this issue. Interesting also is that the conduct at issue took place between 1995 and 2004. Yet, the 2010 sentencing guidelines were used in calculating the fine rather than the 2003 guidelines that were used in the prior KBR, Technip, and Snamprogetti enforcement actions.

Pursuant to the DPA, JGC agreed to “engage a corporate compliance consultant.”

The DOJ release (here) states as follows. “With [the JGC] resolution, each of the four companies in the TSKJ joint venture, the former chairman of the U.S. joint venture partner, and several other individuals have now been held accountable for a massive conspiracy to bribe Nigerian government officials to obtain lucrative construction contracts.” “The approximately $1.5 billion in criminal and civil penalties that have been imposed on the members of the joint venture far exceed their profits from the scheme. Foreign bribery is a serious crime, and as this case makes clear, we are investigating and prosecuting it vigorously.”

Manny Abascal (Latham & Watkins – see here – a former DOJ enforcement attorney) represented JGC.

This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.

Tesler Pleas to Bonny Island Bribery Charges

Monday, March 14th, 2011

Last Friday, the DOJ announced (here) that Jeffrey Tesler, a U.K. citizen and licensed solicitor who was recently extradited to the U.S., pleaded guilty before U.S. District Judge Keith P. Ellison (S.D. of Texas) to one count of conspiracy to violate the FCPA and one count of violating the FCPA.

In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners – Technip, Snamprogetti and JGC Corporation of Japan – in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.

According to the DOJ release announcing Tesler’s plea:

“Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials.”

As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. – an amount which “represents proceeds traceable” to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA’s history. Tesler is to be sentenced on June 22, 2011.

In December 2009, Tesler’s co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.

Both Tesler and Chodan reported to KBR’s former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley’s plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.

For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.

For additional coverage of Tesler’s plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.

Tesler Pleas to Bonny Island Bribery Charges

Monday, March 14th, 2011

According to the DOJ release announcing Tesler’s plea:

For additional coverage of Tesler’s plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.

SFO Flexing It Muscle Even Without the Bribery Act

Thursday, February 17th, 2011

In previous statements (see here for instance) U.K. officials have said that it would be wrong to assume that the U.K. was ignoring bribery issues prior to passage of the Bribery Act.

Case(s) in point – the recent enforcement actions announced by the Serious Fraud Office against MK Kellogg Ltd. and Mabey & Johnson directors.

MK Kellogg Ltd.

Yesterday, the SFO announced (here) that M.W. Kellogg Limited (“MKWL”) has been ordered to pay “just over £7 million [approximately $11.2 million] in recognition of sums it is due to receive which were generated through the criminal activity of third parties.”

This SFO enforcement action has been expected for some time, as noted in this previous post from October 2009.

MKWL was the entity that originally formed the TSKJ consortium the focus of the Bonny Island bribery scandal. See this post for current enforcement statistics as to KBR/Halliburton, Technip, and Snamprogetti / ENI.

MKWL is currently a wholly-owned subsidiary of KBR and as noted in this previous post as well as KBR’s release (here) Halliburton has indemnification obligations to KBR in connection with the SFO enforcement action of “55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”

According to the SFO release, “the SFO recognized that MKWL took no part in the criminal activity that generated the funds” but that the “funds due to MKWL are share dividends payable from profits and revenues generated by contracts obtained through bribery and corruption undertaken by MWKL’s parent company and others.” The SFO release notes that “MWKL was used by the parent company and was not a willing participant in the corruption.”

As noted in the SFO release, the court order against MKWL was pursuant to the Proceeds of Crime Act 2002. What is the Proceeds of Crime Act? See this piece from John Rupp (Covington & Burling).

Richard Alderman, the Director of the SFO, stated in the release: “our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities – this case demonstrates the range of tools we are prepared to use.”

Mabey & Johnson Directors

In July 2009, the SFO brought an enforcement action against Mabey & Johnson Ltd. (a U.K. company that designs and manufacturers steel bridges). The conduct at issue involved allegations (that the company voluntarily disclosed) that it sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001. The prosecution also involved breaches of United Nations sanctions in connection with the Iraq Oil for Food program.

It was the first ever prosecution against a U.K. company for overseas corruption. See here and here for the prior post.

On February 10th, the SFO announced (here) that “two former directors … of Mabey & Johnson Ltd. [Charles Forsyth and David Mabey] have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein.”

According to the release, at the time of the offense, Forsyth was the Managing Director of Mabey & Johnson and Mabey was the Sales Director. The release notes that Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty. According to the release, all individuals are to be sentenced on February 23rd.

The U.S. has prosecuted numerous companies in connection with Iraqi Oil-For-Food fraud. See here for such allegations in the ABB matter, here for such allegations in the Innospec matter, here for such allegations in the General Electric matter.

However, these prosecutions have generally been corporate only prosecutions with few related enforcement actions against individuals.

In just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.

Bonny Island Bribery Developments

Thursday, February 3rd, 2011

As reported elsewhere earlier this week (see here among other places), JGC Corporation of Japan (here) is close to resolving an FCPA enforcement action. JGC is the fourth joint venture partner along with KBR, Technip and Snamprogetti in the TSKJ consortium (a consortium originally formed by M.W. Kellogg) involved in the Bonny Island, Nigeria project.

In a disclosure earlier this week (here) the company stated:

“JGC and DOJ have been engaged in discussions about a potential resolution of the investigation relating to JGC. It was confirmed at the meeting of JGC’s board of directors held on January 31, 2011 that the Board has approved a potential resolution of the investigation. Based on this approval, JGC recognized a provision for the cost estimated for such a resolution, which will be appropriated as a financial loss in the 3rd Quarter Financial Result. The amount of such loss is 17.8 billion Japanese yen [approximately $218 million]“.

The expected JGC settlement would thus fall in the Top Ten FCPA enforcement actions of all time (see here for the FCPA Blog’s current list) and would bump the total amount of corporate fines and penalties U.S. authorities have collected in Bonny Island bribery cases to approximately $1.52 billion.

See here for my current Bonny Island bribery statistics.

How will JGC’s expected settlement affect KBR (a company, along with its current or former affiliated entities, that has already paid $579 million in U.S. fines and penalties in connection with Bonny Island)?

In early January, KBR announced (here) that it “completed the acquisition of the 44.94 percent share interest in M.W. Kellogg Limited (MWKL) previously held by JGC Corporation. With the completion of the transaction, MWKL, which was previously an affiliate of both companies since 1992, is again a wholly-owned KBR subsidiary.”

During a January 13th earnings call, Sue Carter (KBR – Senior VP and CFO) stated as follows:

“Also in regards to MWKL, included in the transaction is an estimate of JGC’s share of the ongoing [Serious Fraud Office] investigation. Any potential liabilities at this point are only estimated. Therefore any financial impact pending an actual outcome in the investigation will be trued up positive or negative.”

During the Q&A, William Utt (KBR – Chairman, President and CEO) was asked “can you tell us what kind of risks are structured in the MWKL deal? I mean, you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?” He responded as follows: “Well I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation and as Sue commented, we’ve already factored that into the purchase price with JGC subject to a true-up.”

As Halliburton disclosed in its Oct. 22, 2010 10-Q filing, its indemnification obligations to KBR in connection with the SFO investigation “is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”