Archive for the ‘Brazil’ Category

Friday Roundup

Friday, April 17th, 2015

Roundup2In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article - ”local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[...]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[...]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[...]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[...]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil's  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

*****

Miller & Chevalier’s FCPA Spring Review 2015 is here.

*****

A good weekend to all.

Friday Roundup

Friday, April 10th, 2015

Roundup2Making a difference, to FCPA Inc., and scrutiny alert.  It’s all here in the Friday roundup.

Making a Difference

In running this website, I sometimes feel like the captain of a small ship on a wide vast ocean.  My metrics tell me that many people are reading, but is the content on FCPA Professor making a difference?  Many people have told me that it is and I could cite several examples such as the most recent one.

On April 2nd, FCPA Professor published this post about the recent decision from the W.D. of Ark. in the Wal-Mart FCPA-related derivative actions.  The post highlighted two errors in the court’s decision.

“In a footnote, Judge Hickey’s order states: “The Foreign Corrupt Practices Act prohibits United States companies from bribing foreign officials to secure improper business advantage.”

This is an inaccurate statement of law.

Rather, the FCPA contains an “obtain or retain business” element that must be proved.  Indeed, the DOJ’s position that the FCPA captures payments to “secure an improper business advantage” wholly apart from the “obtain or retain business” element has been specifically rejected by courts. (See here for the prior post).

The inaccurate statement of law in the order is perhaps not surprising given that the Judge referred to the FCPA as the “Federal Corrupt Practices Act.”

I am happy to see that a day later, on April 3rd, the court issued an amended order to “reflect the correction of minor typographical errors.”

The above referenced footnote (and its substance) no longer appear in the decision and reference to the “Federal” Corrupt Practices Act has been removed.

 To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

Earlier this week, Morrison & Foerster announced:

James Koukios, who served in the Fraud Section of the Criminal Division at the U.S. Department of Justice (DOJ), most recently as Senior Deputy Chief, has joined the firm’s Washington, D.C. office as a partner in the Securities Litigation, Enforcement & White-Collar Criminal Defense Practice Group.

Mr. Koukios is the second high-ranking DOJ prosecutor to join MoFo in the past year, following the 2014 arrival of former Fraud Section Deputy Chief Charles Duross, who served as head of the DOJ’s Foreign Corrupt Practices Act (FCPA) Unit. In his most recent position, Mr. Koukios oversaw the FCPA, Health Care Fraud, and Securities and Financial Fraud Units. With the addition of Mr. Koukios, who previously served as an Assistant Chief in the FCPA Unit and tried two of the most significant FCPA cases in the past decade, MoFo is the only law firm in the world with two former FCPA Unit managers.

[...]

During his tenure at DOJ, Mr. Koukios worked with domestic and foreign law enforcement authorities around the globe. He tried nearly two dozen jury cases, serving as a lead trial attorney in two landmark FCPA-enforcement trials: Esquenazi and Duperval.”

Not to dissect the MoFo press release too much, but the Duperval case was not an “FCPA-enforcement” trial. Rather, it was a non-FCPA case against the alleged “foreign official” in the Esquenazi case and directly related to the Esquenazi case.

Scrutiny Alert

The Wall Street reports on a bribery probe separate and distinct from the ongoing Petrobras probe.  According to the article:

“Prosecutors said 74 companies and 24 individuals are under investigation. None have been named publicly and no charges have been filed. But a leading investigator on the case said companies under investigation include Ford Motor Brazil, a unit of Ford Motor Co.; JBS, the world’s largest meatpacker, the Brazilian unit of the Spanish bank Banco Santander SA; and Brazil’s second largest private-sector bank, Bradesco SA.

[...]

Brazil’s tax system is among the most onerous and complex in the world. Penalties can be steep. That has fostered an environment where corruption can flourish, experts say.

“Taxes in Brazil are so high and complicated that it is easy for companies to get in trouble with the taxman,” the leading investigator told The Wall Street Journal. The investigator said frequent tax disputes created opportunities for ill-intentioned public servants to profit by helping firms circumvent red tape.”

Speaking of the Petrobras inquiry, the Wall Street Journal goes in-depth here.

*****

A good weekend to all.

Friday Roundup

Friday, March 27th, 2015

Roundup2Is this appropriate, sentenced, scrutiny alerts and updates, quotable, a future foreign official teaser?, Brazil update, and for the reading stack.

It’s all here in the Friday roundup.

Is This Appropriate?

If this truly is an event, “Drinks With an FBI Agent – Inside Stories From the Foreign Corrupt Practices Act,” is it appropriate?

Sentenced

Chinea and DeMeneses Sentences

The DOJ announced

“Benito Chinea and Joseph DeMeneses, the former chief executive officer and former managing director of a broker-dealer Direct Access Partner “were sentenced to prison … for their roles in a scheme to pay bribes to a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (Bandes), in return for trading business that generated more than $60 million in commissions.”

Chinea and DeMeneses were each sentenced to four years in prison.  They were also ordered to pay $3,636,432 and $2,670,612 in forfeiture, respectively, which amounts represent their earnings from the bribery scheme.  On Dec. 17, 2014, both defendants pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act and the Travel Act.”

In the release, Assistant Attorney General Leslie Caldwell stated:

“These Wall Street executives orchestrated a massive bribery scheme with a corrupt official in Venezuela to illegally secure tens of millions of dollars in business for their firm. The convictions and prison sentences of the CEO and Managing Director of a sophisticated Wall Street broker-dealer demonstrate that the Department of Justice will hold individuals accountable for violations of the FCPA and will pursue executives no matter where they are on the corporate ladder.”

U.S. Attorney Preet Bharara of the Southern District of New York stated:

“Benito Chinea and Joseph DeMeneses paid bribes to an officer of a state-run development bank in exchange for lucrative business she steered to their firm. Chinea and DeMeneses profited for a time from the corrupt arrangement, but that profit has turned into prison and now they must forfeit their millions of dollars in ill-gotten gains as well as their liberty.”

Elgawhary Sentence

This previous post highlighted the DOJ enforcement action against Asem Elgawhary, a former principal vice president of Bechtel Corporation and general manager of a joint venture operated by Bechtel and an Egyptian utility company, for allegedly accepting $5.2 million in kickbacks to manipulate the competitive bidding process for state-run power contracts in Egypt.

The DOJ recently announced that Elgawhary was sentenced to 42 months in federal prison.

When the Alstom enforcement action was announced in December 2014 (see here and here for prior posts), Elgawhary was described as an Egyptian “foreign official.”

So what was Elgawhary?

A former principal vice president of Bechtel Corporation and general manager of a joint venture operated by Bechtel and an Egyptian utility company or a Egyptian “foreign official?”

Can the DOJ have it both ways?

Scrutiny Alerts and Updates

Anheuser-Busch InBev

Anheuser-Busch InBev recently disclosed in its annual report:

“We have been informed by the U.S. Securities and Exchange Commission and the U.S. Department of Justice that they are conducting investigations into our affiliates in India, including a non-consolidated Indian joint venture that we previously owned, ABInBev India Private Limited, and whether certain relationships of agents and employees were compliant with the FCPA. We are investigating the conduct in question and are cooperating with the U.S. Securities and Exchange Commission and the U.S. Department of Justice.”

Bilfinger

As highlighted in this previous post, in December 2013 German-based Bilfinger paid approximately $32 million to resolve an FCPA enforcement action concerning alleged conduct in Nigeria.  The enforcement action was resolved via a three-year deferred prosecution agreement.

As noted in the previous post, Bilfinger’s CEO described the conduct at issue as “events from the distant past.”

From the not-so distant past, Bilfinger recently announced:

“Bilfinger received internal information last year indicating that there may have been violations of the Group’s compliance regulations in connection with orders for the supply of monitor walls for security control centres in several large municipalities in Brazil. The company immediately launched a comprehensive investigation. The allegation relates to suspected bribery payments from employees of a Bilfinger company in Brazil to public officials and employees of state companies.”

See here for a follow-up announcement from the company.

As a foreign company, Bilfinger is only subject to the FCPA’s anti-bribery violations to the extent the payment scheme involves a U.S. nexus (as was alleged in the prior Bilfinger FCPA enforcement action).

IBM

Canadian media reports:

“Seven people, including Revenue Quebec employees and officials with computer companies IBM and EBR, were [recently] arrested … in connection with an alleged corruption scheme aimed at obtaining a government IT contract worth $24 million.Two Revenue Quebec employees, Hamid Iatmanene and Jamal El Khaiat, stand accused of providing privileged information about an upcoming government contract to a consortium made up of IBM and Quebec company Informatique EBR Inc.”

As highlighted here, in 2000 IBM resolved an FCPA enforcement action.

As highlighted here, in 2011 IBM resolved another FCPA enforcement action.  This enforcement action was filed in federal court (back in the day when the SEC actually filed FCPA enforcement actions in federal court vs. its preferred in-house method now) and Judge Richard Leon was concerned about the settlement process.  As highlighted here, Judge Leon approved the settlement, but his July 2013 final order states, among other things:

“[For a two year period IBM is required to submit annual reports] to the Commission and this Court describing its efforts to comply with the Foreign Corrupt Practices Act (“FCPA”), and to report to the Commission and this Court immediately upon learning it is reasonably likely that IBM has violated the FCPA in connection with either improper payments to foreign officials to obtain or retain business or any fraudulent books and records entries …””

According to media reports, Judge Leon stated: “if there’s another violation over the next two years, it won’t be a happy day.”

Quotable

In this Law360 article, Richard Grime (former Assistant Director of Enforcement at the SEC and current partner at Gibson Dunn) states regarding recent alleged FCPA violations.

“It’s not that you couldn’t intellectually [conceive of] the violation. It’s that the government is sort of probing every area where there is an interaction with government officials and then working backwards from there to see if there is a violation, as opposed to starting out with the statute … and what it prohibits.”

Given that most SEC FCPA enforcement actions are the result of voluntary disclosures, it is a curious statement.  Perhaps its companies, at the urging of FCPA Inc., that are probing every area where there is an interaction with government officials and then working backwards?

*****

As reported here:

“Greek authorities [recently] indicted 64 people to stand trial over years-old allegations of bribery involving Siemens AG, the German engineering giant … A probe of corporate dealings from 1992 to 2006 allegedly found that Greece had lost about 70 million euros in the sale of equipment from Siemens to Greek telephone operator Hellenic Telecommunications also known as OTE, which was still owned by the state at the beginning of that period … A panel of judges decided that those indicted, including both Greek and German nationals, should stand trial for bribery or money laundering. The list of suspects includes former Siemens and OTE officials.”

As noted here, Joe Kaeser (President and CEO of Siemens) reportedly stated:

“I really believe the country (Greece) can move to the future, rather than trying to find the solutions in the past.” He added that his company had a “dark history,” mentioning compliance issues. But he said it was not a “black and white story” when asked whether the indictments had been politically motivated by the current friction between the German and Greek governments. ”Looking at the past doesn’t help the future because the past is the past.”

If the U.S. brings FCPA enforcement actions based on conduct that in some instances is 10 – 15 years old, it is not surprising that Greece is doing the same.  Yet is this right?

As the U.S. Supreme Court recently stated in Gabelli:

“Statute of limitations are intended to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.  They provide ‘security and stability to human affairs.  [They] are ‘vital to the welfare of society [and] ‘even wrongdoers are entitled to assume that their sins may be forgotten.’ […] It ‘would be utterly repugnant to the genius of our laws if actions for penalties could ‘be brought at any distance of time.’”

****

Since day one, I called Morgan-Stanley’s so-called declination politically motivated.  (See here and here).

I am glad to see that FCPA commentator Michael Volkov recently joined the club.  Writing on the Garth Peterson / Morgan Stanley so-called declination, Volkov states:  ”my intelligence on the case indicated that … [the] DOJ apparently wanted to demonstrate for political reasons that it could recognize a company’s compliance program to decline a case against a company.

A Future Foreign Official Teaser?

As recently reported by the Wall Street,

“China’s leadership is preparing to radically consolidate the country’s bloated state-owned sector, telling thousands of enterprises they need to rely less on state life support and get ready to list on public markets. [...] Communist Party leaders plan to release broad guidelines in the next months for restructuring the country’s more than 100,000 state-owned enterprises, according to government officials and advisers with knowledge of the deliberations. [...]  Strategically important industries such as energy, resources and telecommunications are marked for consolidation, the officials and advisers say. The merged entities would then be reorganized as asset-investment firms, with a mandate to make sure they run more like commercial operations than arms of the government. Upper management will be under orders to maximize returns and prepare many of the companies for eventual listing on stock markets, these people say.”

In U.S. v. Esquenazi, the 11th Circuit concluded that  an “instrumentality” under the FCPA is an “entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The Court recognized that what “constitutes control and what constitutes a function the government treats as its own are fact-bound questions” and, without seeking to list all “factors that might prove relevant,” the court did list “some factors that may be relevant” in deciding issues of control and function.

As to control, the 11th Circuit listed the following factors:

“[whether] the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.”

As to function, the 11th Circuit listed the following factors:

“whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Have fun applying this test should China’s proposed changes go forward.

Brazil Update

My own cents regarding Brazil’s recent implementation of regulations regarding certain features of its Clean Companies Act (a law which provides for only civil and administrative liability of corporate entities for alleged acts of bribery) is that the regulations are a yawner for any company that is already acting consistent with FCPA best practices.

Yet, if you feel the urge to read up on Brazil’s recent regulations, comprehensive coverage can be found here from Debevoise & Plimpton and here from FCPAmericas.

For the Reading Stack

A thoughtful article here from Alexandra Wrage (President of Trace) regarding the “cult of the imperfect.”  It states:

“Sir Robert Alexander Watson-Watt is credited with saving thousands of lives in Britain during the worst days of World War II after developing Chain Home, a low-frequency radar system able to detect aircraft from about 90 miles away. He openly encouraged what he called the “cult of the imperfect” among his team. He knew that Britain didn’t need the best possible radar system in five years; the country needed a viable radar system urgently. Immediately. Watson-Watt, who was knighted shortly after the Battle of Britain, is said to have instructed his team to strive for the third-best option, because “the second-best comes too late . . . the best never comes.

[...]

Perfect due diligence risk assessments never come. And even second-best may come too late. Just get started. You’ll see more protections and benefits from good (for now) than perfect (some day, maybe . . .).”

Sound advice that I agree with and completely consistent with Congressional intent in enacting the FCPA’s internal controls provisions and even prior enforcement agency guidance.

Problem is, the DOJ and SEC wear rose-colored glasses, including as to conduct years ago, and if a company is acting consistent with FCPA best practices 99% of the time, that means 1% of the time they are not.

*****

A good weekend to all. On Wisconsin!

Dallas Airmotive Inc. The Latest Aircraft Maintenance Company To Resolve An FCPA Enforcement Action

Friday, December 12th, 2014

Dallas Air

First it was Oklahoma-based BizJet International in 2012 (see here).  Then it was Oklahoma-based The NORDAM Group in 2012 (see here). The latest aircraft maintenance company to resolve a Foreign Corrupt Practices Act enforcement action is Texas-based Dallas Airmotive.

Earlier this week, the DOJ announced that “Dallas Airmotive Inc., a provider of aircraft engine maintenance, repair and overhaul (MRO) services based in Grapevine, Texas, has admitted to violations of the Foreign Corrupt Practices Act (FCPA) and agreed to pay a $14 million criminal penalty to resolve charges that it bribed Latin American government officials in order to secure lucrative government contracts.”

As highlighted in this post discussing unsealed documents in connection with individual FCPA prosecutions of BizJet executives, all three enforcement actions seemed to be casually related.

Criminal Information

The Dallas Airmotive criminal information focuses on the conduct of Dallas Airmotive do Brasil (DAB), a corporate affiliate under the direction and control of Dallas Airmotive Inc. (DAI), and the information states that DAB’s employees were supervised and managed by directors and managers of DAI.  According to the information, DAB assisted DAI in providing MRO engine services to customers in Latin America, including to governmental and other customers.  The information states that DAB also bid on and secured engine service contracts with Brazilian government and commercial customers, the work for which was often done in part by DAI.

According to the information, DAI conspired with a DAI Sales Director (an individual responsible for overseeing DAI’s sales efforts in Latin America), a DAI Sales Agent (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), a DAI Sales Manager (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), DAB Manager A (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), DAB Manager B (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with government customers), Official 1 (a Sub-Officer in the Brazilian Air Force – BAF), Official 2 (a Sergeant in the BAF), Official 3 (a Captain for the Governor of the Brazilian state of Roraima), Front Company A (a Brazil-based sales and logistics services company that was affiliated with Official 1), Front Company B (a Brazil-based sales and logistics services company that was beneficially owned by Official 1), and a Intermediary Company (a Brazil-based company that was used to make payments for the benefit of Official 3), and others to make improper payments to the foreign officials to assist DAI in obtaining and retaining business.

According to the information, the purpose of the conspiracy was to obtain and retain engine MRO service business for DAI and DAB from foreign government customers in Latin America, including the BAF, the Peruvian Air Force, the Office of the Governor of the Brazilian State of Roraima, and the Office of the Governor of the Argentinean State of San Juan, by paying bribes to foreign officials employed by such customers.

According to the information, DAI, through its employees and agents, including employees of DAB, discussed in person and via e-mail making bribe payments – which they called “commissions” or “consulting fees” – and granting other benefits to employees of customers, including foreign government customers, in order to obtain and retain for DAI and DAB business to perform engine MRO services.  According to the information, certain bribe payments were wired from DAI’s bank account in New York and DAB’s bank account in Brazil to bank accounts of Front Company A, Front Company B, and Intermediary Company in Brazil.

The information also alleges that DAI/ DAB paid for a vacation for Official 2 and his spouse in exchange for Official 2′s assistance in securing MRO business.

As to Peru and Argentina, the information alleges that payments were made to a bank account of a third party commercial representative in Florida and Argentina (respectively) while knowing that the funds, at least in part, would be passed on to officials of the Peruvian Air Force and the office of the Governor of the Argentinean State of San Juan.

In addition to the conspiracy charge, DAI was also charged with one substantive violation of the FCPA’s anti-bribery provisions.

Deferred Prosecution Agreement

The above charges were resolved via this DPA in which DAI admitted, accepted and acknowledged that it was responsible for the acts alleged in the information.  The 3 year DPA states, under relevant considerations, as follows.

“The DOJ enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the factors considered were the following: (a) the Company’s substantial cooperation, including conducting an internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ; (b) the Company’s improvements to date to its compliance program and internal controls, as well as its commitment to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in the DPA; (c) the nature and scope of the offense conduct; and (d) the Company’s agreement to continue to cooperate with the DOJ in any ongoing investigation of the conduct of the Company and its officers, directors, employees, and agents relating to possible violations under investigation by the DOJ.”

As highlighted in the DPA, the advisory guidelines fine range was $17.5 million to $35 million.  The DPA states as follows.

“The Company agrees to pay a monetary penalty in the amount of $14,000,000 to the United States Treasury within ten (10) days of the filing of the Information. The Company and the Office agree that this fine is appropriate given the facts and circumstances of this case, including the cooperation in this matter and the nature and scope of the offense conduct.”

As common in FCPA DPAs, DAI “expressly agree[d] that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for the Company, make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by the Company set forth [in the DPA and Information].”

Karen Seymour (Sullivan & Cromwell) represented Dallas Airmotive.

This Wall Street Journal Risk & Compliance post notes:

“A spokeswoman for the company said the U.S. Justice Department acknowledged the firm’s cooperation and the improvements it made to its compliance program. She said the company upholds high standards articulated in its code of business ethics, but it regrets that “those standards were breached by a limited number of third-party agents and employees of Dallas Airmotive’s business in South America” from 2008 through 2012. “These individuals are no longer with the company, and Dallas Airmotive do Brasil and our South American sales team are operating under new leadership,” the spokeswoman said in an email.”

Items Of Interest From The Recent Dutch Enforcement Action Against SBM Offshore

Monday, December 1st, 2014

Dutch-based SBM Offshore recently resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action is believed to be the third largest bribery enforcement action of 2014 with China’s $490 million enforcement action against GlaxoSmithKline and the U.S.’s $384 million enforcement action against Alcoa consisting of the top two.

The enforcement action was pursuant to Article 74 of the Dutch Penal Code, a provision of Dutch law that has been criticized by the OECD.

As stated by the OECD, Article 74 of the Dutch Penal Code “essentially involves the payment of a sum of money by the defendant to avoid criminal proceedings.”  Regarding such out-of-court settlements, the OECD has further noted that “out-of-court settlements in the Netherlands do not require an admission of guilt.”

In its December 2012 Phase 3 review of the Netherlands, one of the follow-up items listed was: “the use of out-of-court transactions for foreign bribery offences, as governed by article 74 of the  Dutch Penal Code, to ensure that they result in the imposition of effective, proportionate and dissuasive sanctions (Convention, Article 3.1).”

Regarding the SBM Offshore action, the Dutch Prosecutor’s Service announced:

“SBM Offshore has accepted an offer from the Dutch Public Prosecutor’s Service to enter into an out-of-court settlement. The settlement consists of a payment by SBM Offshore … of US$ 240,000,000 in total. This amount consists of a US$ 40,000,000 fine and US$ 200,000,000 disgorgement. This settlement relates to improper payments to sales agents and foreign government officials in Equatorial Guinea, Angola and Brazil in the period from 2007 through 2011 [...]. According to the [Dutch prosecutors] those payments constitute the indictable offences of bribery in the public and the private sector as well as forgery.”

According to the release, the reasons for the out-of-court settlement include:

  • SBM Offshore itself brought the facts to the attention of the authorities …SBM Offshore itself investigated the matter and agreed to fully cooperate with subsequent criminal investigations …;
  • there has been a new Management Board since 2012;
  • after it became aware of the facts, the newly established Management Board of SBM Offshore, at its own initiative, has taken significant measures to improve the company’s compliance; and
  • as noted in SBM Offshore’s press release, the current Management Board and Supervisory Board regret the failure of control mechanisms in place in the past.

According to the release, “from 2007 to 2011, SBM Offshore paid approximately US$ 200 million in commissions to foreign sales agents for services.  The largest part of these commissions totaling US $180.6 million, relate to Equatorial Guinea, Angola and Brazil.”

As to Equatorial Guinea, the release states:

“In early 2012, it came to SBM Offshore’s attention that one of its former sales agents might have given certain items of value to government officials in Equatorial Guinea. This reportedly involved one or more cars and a building. In the opinion of the Openbaar Ministerie and the FIOD, SBM Offshore’s former sales agent paid a significant portion of the commissions paid to him by SBM Offshore on to third parties, who in turn would have forwarded parts of these payments to one or more government officials in Equatorial Guinea. There also are other payments, such as education and health insurance costs. In the opinion of the [Dutch authorities], such (forwarded) payments took place with the knowledge of people who at the time were SBM Offshore employees, including someone who at the time was a member of the Management Board. From 2007 through 2011, SBM Offshore paid that particular sales agent USD 18.8 million in total in relation to Equatorial Guinea.”

As to Angola, the release states:

“In the period from 2007 through 2011, SBM Offshore also used several sales agents in Angola. These sales agents received commissions for services regarding certain projects in Angola. In the opinion of the [Dutch authorities], Angolan government officials, or persons associated with Angolan government officials, who are associated with at least one of these sales agents, received funds. In addition, there are payments for travel and study costs to one or more Angolan government officials or their relatives. Also with respect to Angola, the [Dutch authorities] are of the opinion that such payments took place with the knowledge of people who at the time were SBM Offshore employees. In the period from 2007 through 2011, SBM Offshore paid USD 22.7 million in commissions to its sales agents in connection with Angola.”

As to Brazil, the release states:

“With regard to Brazil, certain “red flags” relating to the main sales agent used in Brazil were found during the internal investigation commissioned by SBM Offshore. These red flags included:

  • the high amounts (in absolute terms) of commission that were paid to the sales agent and its companies;
  • a split between commissions paid to the sales agent between its Brazilian and its offshore entities; and
  • documents indicating the sales agent had knowledge of confidential information about a Brazilian client.

The internal investigation conducted by SBM Offshore did not yield any concrete evidence that payments may have been made to one or more government officials in Brazil. In the period from 2007 through 2011, SBM Offshore paid USD 139.1 million in commissions to its sales agents in connection with Brazil.

A mutual legal assistance request in the context of the investigation conducted by the [Dutch authorities] established that payments were made from the Brazilian sales agent’s offshore entities to Brazilian government officials. These findings resulted from means of investigation inaccessible to SBM Offshore.”

The release states, under the heading “Further Investigation” as follows.

“It appears from the criminal investigation that certain natural persons have been involved in the criminal offences committed in the opinion of the [Dutch authorities]. In a case like the one at hand, the [Dutch authorities] has jurisdiction if criminal acts are committed in the Netherlands, or when criminal acts are committed abroad by persons with the Dutch nationality. From the current state of affairs of the investigation, this does not appear to be the case. The [Dutch authorities] will cooperate fully with the countries that have jurisdiction to prosecute the natural persons involved.”

In this release, SBM Offshore stated that “the United States Department of Justice has informed SBM Offshore that it is not prosecuting the Company and has closed its inquiry into the matter.”

The SBM Offshore release further states:

Self-Reporting

The settlement with the [Dutch authorities] is a result of the discussions between the [Dutch authorities] and SBM Offshore, which started after SBM Offshore voluntarily informed the [Dutch authorities] and the United States Department of Justice of its self-initiated internal investigation in the spring of 2012. The findings of the internal investigation were communicated in SBM Offshore’s press release of April 2, 2014. SBM Offshore fully cooperated with the [Dutch authorities] and the United States Department of Justice.

Remedial Measures

With its voluntary reporting of the internal investigation to the [Dutch authorities], the United States Department of Justice and the market in April 2012, SBM Offshore made it clear that it wants to conduct its business transparently. The Supervisory Board appointed a new Management Board that took office in the first half of 2012. The new Management Board has repeatedly stressed the importance of compliance inside and outside the organisation. The Company, with the assistance of its advisors, enhanced its anti-corruption compliance program and related internal controls. The Company shared these measures with the [Dutch authorities] and the United States Department of Justice. The measures include:

  • the appointment of [a] Chief Governance and Compliance Officer, a newly created Management Board position;
  • the appointment of a seasoned compliance professional as Compliance Director, another newly created position;
  • the enhancement of anti-corruption related policies and procedures designed to ensure compliance by Company employees as well as third parties;
  • at the inception of the internal investigation, a review of all sales agents who were active at that time;
  • a decision to no longer use sales agents in those countries where the Company itself has a substantial presence;
  • the enhancement of compliance procedures related to the retention of sales agents, other intermediaries and joint venture partners;
  • the launch of a significant training effort for employees in compliance-sensitive positions;
  • the enhancement of mechanisms to report potential wrongdoing;
  • the enhancement of the Company’s internal financial controls related to anti-corruption compliance and internal audit processes; and
  • disciplinary actions against employees who were involved in or had knowledge of possible improper payments, including termination of employment agreements.

Although the current Management Board and the Supervisory Board regret that in the past, SBM Offshore’s processes relating to the monitoring of its sales agents appeared to not have been of a standard that allowed SBM Offshore to ensure the integrity of the actions taken by its sales agents, SBM Offshore believes that with these measures it offers a transparent and open Company to its clients and other stakeholders.

In the release Bruno Chabas (CEO of SBM Offshore) stated:

“SBM welcomes the conclusion of all discussions with the Dutch and U.S. authorities. We have been open, transparent and accountable throughout this difficult process which has addressed issues from a past era. We can now focus on the future, secure in the knowledge that we have put in place an enhanced compliance culture which embeds our core values.”

To some, the lack of a DOJ enforcement action against SBM Offshore was a declination.  However, such a conclusion implies that there was actually an FCPA enforcement action to bring against SBM Offshore.

Two points are relevant to this issue.  First, as noted in this Global Investigations Review article, SBM Offshore’s outside counsel comments that the company disclosed to the Dutch authorities an the DOJ “before we had done much of the internal investigation.” Second, SBM Offshore could only be prosecuted for FCPA anti-bribery violations to the extent the conduct at issue had a U.S. nexus.