Archive for the ‘Individual Enforcement Action’ Category

Louis Berger International And Two Former Employees Resolve Enforcement Action

Monday, July 20th, 2015

LBLast Friday, the DOJ announced the second corporate Foreign Corrupt Practices Act enforcement action of 2015.

It was against Louis Berger International Inc. (LBI, a New Jersey-based infrastructure and development company) and focused on the conduct of two former employees (one located in the Philippines, the other located in India) that allegedly occurred approximately 5 – 17 years ago in connection with projects in Indonesia, Vietnam, India and Kuwait.

The former employees are described as:

  • Richard Hirsch was a high-level executive at the Company, located in the Philippines, who at times oversaw the Company’s overseas operations in, inter alia, Indonesia and Vietnam.
  • James McClung was a high-level executive at the Company, located in India, who at times oversaw the Company’s overseas operations in Vietnam and India.

According to the DOJ, LBI directly and indirectly made payments totaling approximately $3.9 million to foreign government officials in India, Indonesia, Kuwait, Vietnam and elsewhere. To resolve the enforcement action, LBI agreed to pay $17.1 million pursuant to a deferred prosecution agreement and to engage a compliance monitor for a three year period.

Criminal Complaint

The criminal complaint charges LBI with conspiracy to violate the FCPA’s anti-bribery provisions.

According to the criminal compliant, the purpose of the conspiracy “was to make and conceal corrupt payments to foreign officials in India, Indonesia, Kuwait, Vietnam and elsewhere in order to obtain and retain contracts with government entities in those countries and, thus, to enrich the Company and the co-conspirators with the full economic benefits anticipated from such contracts.” In addition, the criminal complaint alleges that “terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee,’ and ‘field operation expenses’ [were used] as code words to conceal the true nature of the bribe payments” and that “cash disbursement forms and invoices [were utilized] which did not truthfully describe the services provided or the purpose of the payment.” Moreover, the complaint alleges that members of the conspiracy created “ostensibly legitimate but ultimately illicit accounts, or “slush funds,” for the payment of bribes through third parties.”

Deferred Prosecution Agreement

The criminal charges were resolved via a deferred prosecution agreement.

The Statement of Facts in the DPA state, under the heading “Overview of the Bribery Scheme” as follows.

“From in or about 1998 until in or about 2010, the Company, through its employees and agents, engaged in a scheme to pay bribes to various foreign officials in Indonesia, Vietnam, India and Kuwait to secure contracts with government agencies and instrumentalities in those countries on behalf of the Company and its subsidiaries and affiliates.  The Company, through its employees and agents, together with others, discussed making the bribe payments to the foreign officials and the ways in which they intended to conceal the corrupt payments.  For example, the Company, through its employees and agents, together with others, used terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee’ and ‘field operation expenses’ as code words to conceal the true nature of the bribe payments and utilized cash disbursement forms and invoices which did not truthfully describe the services provided or the purpose of the payment.

In order to effectuate the payments, the Company, through its employees and agents, utilized various methods.  In many instances, employees and agents of the Company submitted inflated and fictitious invoices to generate cash that was then used later for the payment of bribes through intermediaries.  The Company, through its employees and agents, would then wire certain funds from bank accounts of the Company in New Jersey to bank accounts in various other countries for the purpose of making payments to foreign officials.  In Vietnam, the Company, through its employees and agents, used the Foundation – which was in part a local labor pool – as a conduit for the payment of bribes to foreign government officials in Vietnam to conceal the bribe payments.

In total, the Company, through its employees and agents, together with others, made payments directly and indirectly to foreign officials, including in Indonesia, Vietnam, India and Kuwait, totaling approximately $3,934,431.”

Under the heading “Corrupt Conduct in Indonesia,” the DPA states that “beginning in approximately 2005, the Company sought contracts with the Indonesian government as a subcontractor by interposing a one-man consulting company as the prime contractor in order to avoid directly paying bribes to foreign officials even though the Company was well aware that the prime contractor was paying bribes.”  According to the DPA, in 2008 “when the law firm handling the Company’s internal review directed scrutiny [at a citizen and national of Indonesia employed by the Company in Jakarta] Richard Hirsch and others attempted to discourage [the employee] from speaking with the Company’s review team.” According to the DPA, Hirsch also communicated with co-conspirators on his personal e-mail account to avoid detection by the company.

Under the heading “Corrupt Conduct in Vietnam,” the DPA states that “the Company began its operations in Vietnam during the early 1990s and secured numerous public contracts across the county.  In order to obtain and maintain these contracts, the Company through its employees and agents paid bribes to Vietnamese officials through the Foundation [a non-governmental organization which the Company engaged as a local sponsor, and which served as a key source for local labor and operational support in Vietnam.]  Sometimes the bribe money was disguised as ‘donations’ to the Foundation paid from the Company’s bank accounts in New Jersey to a bank account jointly held by the Company and the Foundation in Vietnam.  On other occasions the bribe money was masked by invoices from the Foundation that were paid from the Company’s New Jersey account to a joint account.”  The DPA further states that beginning in “approximately 2005, when James McClung assumed responsibility for the Company’s Vietnam operations, the Company through its employees and agents generated bribe money by paying vendors for services that had never actually been rendered; those vendors would then serve as conduits for the payment of bribe money to foreign officials.”

Under the heading “Corrupt Conduct in India,” the DPA states: “Along with several consortium partners, the Company won two water development projects in Goa and Guwhati.  The Company paid bribes to win both of those contracts.  The bribe money was disguised as payments to vendors for services that had never actually been rendered.  The Company through its employees and agents and its consortium partner kept track of the bribe payments by circulating a spreadsheet amongst themselves showing the proportionate share of each bribe that they had paid to the foreign officials overseeing their work on the Goa and Guwhati projects.”

Under the heading “Corrupt Conduct in Kuwait,” the DPA states: “In approximately 2005, the Company won a $66 million road construction project with the Kuwait Ministry of Public Works.  In order to secure that contract, the Company through its employees and agents and its joint venture partner made a series of corrupt payments [totaling approximately $71,000) to an official with the Ministry of Public Works.  Some of the payments were made upfront under the guise of ‘proposal’ costs.  Other payments were made through a purported contract for ‘business development’ with another firm.”

In the 3-year DPA, LBI admitted, accepted and acknowledged responsibility for the conduct as described above.

Under the heading “relevant considerations,” the DPA states:

“[The DOJ enters] into this Agreement based on the individual facts and circumstances presented by this case and by LBI … Among the factors considered were the following:  (a) after the government had made LBI … aware of a False Claim Act investigation, [the Company] conducted an internal investigation, discovered potential FCPA violations, and voluntarily self-reported to the [DOJ] the misconduct …; (b) [the Company's] cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, collecting analyzing, and organizing voluminous evidence and information for [the DOJ] and providing updates to the [DOJ] as the conduct and results of the internal investigation; (c) [the Company] has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all Company contracts; (d) [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]; (e) the nature and scope of the offense conduct; and (f) [the Company's] agreement to continue to cooperate [with the DOJ] in any ongoing investigation.”

The Sentencing Guidelines calculation in the DPA sets forth an advisory fine range of $17.1 million – $34.2 million. The DPA states that the ultimate $17.1 million 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 indicated in the DPA, $7.1 million of the fine amount is payable immediately with the remaining amount payable within 12 months.

Pursuant to the DPA, LBI is required to retain an independent compliance monitor for a three year period.

Typical of most corporate FCPA enforcement actions, the DPA contains a “muzzle clause” in which LBI agreed that it shall not directly or indirectly make any public statement contradicting the information set forth in the DPA.

As noted in the DOJ’s release, Hirsch (61, of Makaati, Philippines) and McClung (59, of Dubai, United Arab Emirates) each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. The sentencing hearings for Hirsch and McClung are scheduled for Nov. 5, 2015.

Louis Berger issued this release which states:

“Louis Berger International, has agreed to a three-year deferred prosecution agreement and $17.1 million fine with the U.S. Department of Justice for self-reported improper business activities principally conducted overseas by former managers between 1998 and 2010. All of the managers associated with these improper business activities were separated from the company following the early findings of Louis Berger’s internal investigations.

“The DOJ has acknowledged the extensive global reforms undertaken at Louis Berger since 2010,” said Nicholas J. Masucci, Louis Berger chairman. “2010 was a pivotal year in our company’s history. It marked a clear departure from the past as we assumed new management, new processes and comprehensive system reforms that are the core of our global operations today. Today’s settlement is the critical final milestone in our reform, as it was important for us to take responsibility for the historic actions of former managers and close the chapter on the company’s pre-2010 era.”

Prior to Louis Berger’s 2010 settlement with the U.S. Department of Justice for improper billing on U.S. government overhead accounts, the company undertook a thorough review of past practices of former managers, including improper overseas business activities. The company self-discovered and self-reported potential Foreign Corrupt Practices Act infractions to the U.S. government starting in 2010 and has been working with the government to resolve these issues since that time. In total, the company self-identified and self-reported findings of misconduct in Vietnam, Indonesia, India and Kuwait between 1998 and 2010 totaling $3.9 million in bribes.

Since 2010, Louis Berger has undergone a massive $25+ million reform effort that resulted in new internal controls, new policies and procedures, and comprehensive systems investments, including a new global accounting system.

The company has actively supported the government in its investigation of the culpable individuals and their activities. In addition to separating these former managers from the company, the firm also has added new managers to key positions, including chief financial officer and controller, and regional management teams throughout Asia and the Middle East. Additionally, the company implemented a new corporate operational model to ensure greater centralized oversight and control of overseas business activities. Moreover, the company has reformed its ownership structure by implementing an Employee Stock Ownership Program.

The company established an independent compliance and ethics department under the oversight of an independent audit committee, introduced a global helpline through which employees can report potentially non-compliant activities, and implemented a global code of business conduct. Investments also have funded annual worldwide compliance, ethics and anti-corruption training for all employees.

Under the terms of the deferred prosecution agreement, the company will work with a government-appointed monitor to test and report on its internal processes and controls as well as its compliance and ethics policies and training for three years.

“Transparency and accountability are the hallmarks of a sustainable business, and we are a much more efficient, responsible and transparent company today than we were five years ago,” said Masucci. “We will continue to monitor and improve our existing compliance system while delivering quality work to our clients with a level of integrity they expect.”

Brian Whisler (Baker & McKenzie) and Michael Himmel (Lowenstein Sandler) represented LBI.

The Lack Of Criminal Charges Against PetroTiger Was Not Unique

Tuesday, June 23rd, 2015

FactsThe FCPA-related media has a troubling tendency to take things that are not unique and try to make them unique.

For instance, this recent Compliance Week article stated:

“Typically, when the Justice Department brings charges of FCPA violations against company executives, charges against the company itself aren’t far behind. [...] The decision not to pursue charges of any kind [against PetroTiger] is a marked departure from most FCPA cases, in which the Justice Department will give companies credit for strong compliance programs, often entering into non-prosecution agreements or deferred prosecution agreements, which almost always come with strings attached.  It’s rare that companies get complete exoneration.”

Contrary to the above assertion, the lack of criminal charges against PetroTiger – even though there was an enforcement action against individuals associated with the company – was not unique.

This post highlights the 18 instances since 2000 of the DOJ bringing an enforcement action against an individual or individuals, but not an enforcement action against the business organization associated with the individual(s). (Note: excluded from the list is the manufactured Africa Sting enforcement action against 22 individuals employed by over a dozen companies).

Interesting fact, 16 of the 18 instances (89%) involved individuals associated with privately-held companies like PetroTiger.  The only two instances to involve individuals associated with publicly-traded companies are highlighted below with ***.

  • Dmitrij Harder (2015 – ongoing criminal prosecution of individual associated with  Chestnut Consulting Group Inc., no enforcement action against Chestnut Group).
  • Dmitry Firtash, Andras Knopp, Suren Gevorgyan, Gajendra Lal, Periyasamy Sunderalingam (2014 – ongoing criminal prosecutions of individuals associated with DF Group, no enforcement action against DF Group).
  • Ernesto Lujana, Tomas Clark, Alejandro Hurtado,Benito Chinea, Joseph DeMeneses  (2013-2014 – criminal prosecutions of individuals associated with Direct Access Partners, no enforcement action against Direct Access Partners).
  • Washington Cruz, Amadeus Richers and Cecilia Zurita (2011 – criminal prosecutions of individuals associated with Cinergy Telecommunications Inc., enforcement action against Cinergy Telecommunications was dropped).
  • Jean Fourcand (2010 – criminal prosecution of individual associated with Fourcand Enterprises, Inc., no enforcement action against Fourcand Enterprises).
  • Juan Diaz (2009 – criminal prosecution of individual associated with JD Locator Services Inc., no enforcement action against JD Locator Services).
  • Antonio Perez, Joel Esquenazi and Carlos Rodriguez (2009 – criminal prosecutions of individuals associated with Terra Telecommunications Corp., no enforcement action against Terra Telecommunications).
  • Marguerite Grandison (2009 – criminal prosecution of individual associated with Telecom Consulting Services Corp., no enforcement action against Telecom Consulting Services).
  • Charles Jumet, John Warwick (2009 – criminal prosecutions of individuals associated with Ports Engineering Consulting and Overman Associates- no enforcement action against Ports Engineering Consulting Corp or Overman Associates).
  • Shu Quan-Sheng (2008 – criminal prosecution of individual associated with AMAC International Inc. – no enforcement action against AMAC International Inc.)
  • Leo Smith and Martin Self (2007-2008 – criminal prosecutions of individuals associated with Pacific Consolidated Industries – no enforcement action against Pacific Consolidated Industries).
  • Gerald and Patricia Green (2008 – criminal prosecutions of individuals associated with Film Festival Management – no enforcement action against Film Festival Management).
  • *** Yaw Osei Amoako, Steven Ott, Roger Young (2006-2007  - criminal prosecutions of individuals associated with ITXC Corporation – no enforcement action against against ITXC Corp.)
  • Richard Novak (2006 – criminal prosecution of individual associated with ”several internet businesses” – no enforcement action against the businesses).
  • *** David Kay, Douglas Murphy (2002 – criminal prosecutions of individuals associated with American Rice, Inc. – no enforcement action against American Rice).
  • Richard Pitchford (2002 – criminal prosecution of individual associated with the Central Asia American Enterprise Fund – no enforcement action against the Central Asia American Enterprise Fund).
  • Daniel Rothrock (2001 – criminal prosecution of individual associated with Allied Products Corp. – no enforcement action against Allied Products Corp.) ***
  • Richard Halford, Albert Reitz, Robert King, Pablo Hernandez (2001 – criminal prosecutions of individuals associated with Owl Securities and Investments, Limited – no enforcement action against Owl Securities).

DOJ Brings First Corporate FCPA Enforcement Action Of 2015

Thursday, June 18th, 2015

IAPNo doubt it was a coincidence, but it was hard to ignore the timing.

Hours after the formal conclusion of the DOJ’s latest FCPA trial court debacle in U.S. v. Sigelman (see here, here and here for prior posts), the DOJ announced its first corporate FCPA enforcement action of 2015.

The enforcement action was against IAP Worldwide Services, Inc. (a small Florida-based company that provides facilities management, contingency operations, and professional and technical services in contracting capacities to the U.S. military and other governmental agencies world-wide).

According to its website, approximately 30% of IAP’s workers are veterans and the company was recently recognized by U.S. Veterans Magazine’s as one of the Top Veteran-Friendly Companies in 2014.  IAP has several contracts with the U.S. Government including the U.S. Navy, U.S. Marine Corps and Air Force.

Per the DOJ’s allegations, the improper conduct occurred 7-10 years ago and was engaged in by one individual at IAP who left the company approximately 7 years ago.

The allegations focus on James Rama who was IAP’s Vice President of Special Project and Programs between 2005 and 2007. Prior to arriving at IAP, Rama, while employed in Kuwait by a large American defense contractor not affiliated with IAP, was introduced to a Kuwaiti Consultant and learned that the Kuwaiti Ministry of the Interior (MOI) was planning to build a large-scale homeland security systems called the KSP.

When Rama joined IAP he began pursuing Phase I of the KSP contract on behalf of IAP as well as the more lucrative Phase II of the KSP project.  According to the DOJ, Rama and others formed Ramaco International Consulting LLC “to hide IAP’s involvement in the KSP bidding and contracting process.”

According to the DOJ:

“In or about November 2005, IAP (through Rama) received non-public indications that the MOI would select it for the Phase I contract, although the formal bidding process had not yet begun. In February 2006, at the direction of the MOI and Kuwaiti Consultant, Rama and others agreed to and did set up Ramaco as a shell company to “bid” on the Phase I contract. One purpose of setting up Ramaco was to allow IAP to hide its involvement in Phase I and participate in the later Phase II without any apparent conflict of interest. Ramaco began acting as the agent for IAP on the KSP.

IAP agreed with the MOI that it would perform the KSP Phase I contract for approximately $4 million. Of that amount, IAP agreed that half, or approximately $2 million, would not be for actual work executing the KSP Phase I contract, but instead would be diverted to Kuwaiti Consultant.

In or about 2006, IAP, Ramaco, Rama, and others structured an illicit payment scheme to funnel approximately 50% of the payments received on the Phase I contract to Kuwaiti Consultant so that he could pay bribes to Kuwaiti government officials and took numerous steps to hide these payments and prevent the detection of their scheme. IAP, Ramaco, and Rama understood that to pay Kuwaiti Consultant, Kuwaiti Company would first inflate its invoices to IAP by charging IAP for the total amount of both the legitimate services that Kuwaiti Company was providing and the payments that Kuwaiti Company was funneling to Kuwaiti Consultant without listing or otherwise disclosing the payments that were funneled to Kuwaiti Consultant. After the MOI paid Ramaco for work on the KSP Phase I contract, Ramaco would transfer funds to a bank account of IAP, and IAP would then transfer funds to Kuwaiti Company. IAP, Ramaco, and Rama knew that Kuwaiti Company was then paying Kuwaiti Consultant approximately 50% of the KSP Phase I contract amount. IAP, Ramaco, and Rama knew that these payments to Kuwaiti Consultant were often further disguised.

In or about April 2006, Ramaco opened a bank account in Kuwait for Ramaco that would be used, in part, to pay Kuwaiti Consultant a portion of the money that IAP and Ramaco received from the KSP Phase I contract.

On or about May 10, 2006, Rama signed the KSP Phase I contract between Ramaco and the Government of Kuwait, which included a markup of approximately $2 million that would be kicked back, in whole or in part, to Kuwaiti government officials through Kuwaiti Consultant.

On or about September 19, 2006, IAP wired KD 120,000 (approximately $420,000) from its bank account to Kuwaiti Company’s bank account, and, on or about that same day, Kuwaiti Company paid that amount to Kuwaiti Consultant.

In or about October 2006, employees of IAP and G3 met with Rama and others at IAP’s office in Arlington, Virginia, which is in the Eastern District of Virginia, in an effort to persuade IAP to continue making payments to Kuwaiti Consultant.

On or about October 18, 2006, IAP wired KD 63,000 (approximately $220,500) from its bank account to Kuwaiti Company’s bank account, and, on or about that same day, Kuwaiti Company paid that amount to Kuwaiti Consultant.

On or about June 5, 2007, IAP wired KD 29,962.27 (approximately $105,000) from its bank account in the United States to Kuwaiti Company’s bank account in Kuwait so that Kuwaiti Company could pay Kuwaiti Consultant, and, on or about June 13, 2007, IAP wired that amount from its bank account in the United States to Kuwaiti Company’s bank account.

On or about December 6, 2007, Ramaco paid Kuwaiti Consultant KD 52,250 (approximately $183,000). 22. On or about March 10, 2008, Ramaco paid Kuwaiti Consultant KD 44,250 (approximately $155,000).

Between September 2006 and March 2008, IAP and its co-conspirators paid Kuwaiti Consultant at least KD 509,625 (approximately $1,783,688) on the understanding that some or all of that money would be provided as bribes to Kuwaiti government officials to assist IAP in obtaining and retaining the KSP Phase I contract and to obtain the KSP Phase II contract.”

The above allegations were resolved via a non-prosecution agreement in which IAP agreed to pay”a monetary penalty in the present value amount of $7.1 million”.  Pursuant to the NPA, the penalty is to be paid in four yearly installments of $1.775 million. The NPA, which has a three year term, states as follows:

“Among the facts considered were the following: (a) the Company has cooperated with the Offices, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Offices; (b) the Company has engaged in remediation, including disciplining the officers and employees responsible for the corrupt payments or terminating their employment, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for relevant Company contracts; (c) the Company has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this Agreement; and (d) the Company has agreed to continue to cooperate with the Offices in any ongoing investigation of the conduct of the Company and its officers, directors, employees, agents, and consultants relating to possible violations under investigation by the Offices.”

As noted in the DOJ’s release:

“[The] non-prosecution agreement requires IAP to conduct a review of its existing internal controls, policies and procedures, and make any necessary modifications to ensure that the company maintains accurate record keeping and a rigorous anti-corruption compliance program.  The non-prosecution agreement further requires IAP to report periodically to the Criminal Division and to the U.S. Attorney’s Office of the Eastern District of Virginia regarding remediation and implementation of the aforementioned compliance program and internal controls, policies and procedures.”

Typical of most corporate FCPA enforcement actions, the NPA contains a “muzzle clause” in which IAP agreed that it shall not directly or indirectly make any public statement contradicting the information set forth in the NPA.

Based on the same core conduct alleged in the NPA, the DOJ announced a plea agreement with James Rama to one count of conspiracy to violate the FCPA.  See here for the plea agreement, here for the Statement of Facts, and here for the criminal information.

For additional coverage of the enforcement action see here from Reuters.

 

The Numbers Do Not Support Chair White’s Statement Regarding Individual FCPA Enforcement Actions

Monday, March 30th, 2015

SupportIn this recent testimony before the House Financial Services Committee, SEC Chair Mary Jo White stated: “as in other areas, the Commission is focused on holding individuals accountable in FCPA cases.” (emphasis added).

The numbers do not support White’s statement.

As highlighted in this recent post, since 2008 approximately 85% of SEC corporate FCPA enforcement actions have not (at least yet) resulted in any related SEC action against company employees.

Indeed, prior to the SEC’s November 2014 FCPA enforcement action against Stephen Timms and Yasser Ramahi (individuals who worked in sales at FLIR System Inc.) there was a 2.5 year gap in any SEC individual enforcement actions.  During that 2.5 years, the SEC brought 19 corporate enforcement actions and not one involved any related SEC action against company employees.

As to the accountability portion of White’s statement, the two SEC individual FCPA enforcement during the last three years (the above Timms / Ramahi action and the January 2015 action against former PBSJ International employee Walid Hatoum) involved SEC administrative orders in which the individuals were allowed to settle without admitting or denying the SEC’s findings.

It is debatable what is more concerning.

A political actor making assertions without knowledge of and/or understanding of the underlying facts.

Or a political actor making assertions with knowledge of and/or understanding of the underlying facts, but making the political statement anyway.

Regardless of the cause or reason prompting Chair White’s recent statement, the numbers do not support her assertion that the SEC is “focused on holding individuals accountable in FCPA cases.”

A Focus On SEC FCPA Individual Actions

Tuesday, January 27th, 2015

SECThis previous post provided various facts and figures from 2014 SEC FCPA enforcement.

This post focuses on SEC FCPA individual actions historically.

Like the DOJ, the SEC frequently speaks in lofty rhetoric concerning its focus on holding individuals accountable under the FCPA. For instance, in connection with the 2012 Garth Peterson enforcement action, the SEC’s Director of Enforcement stated (here) that the case “illustrates the SEC’s commitment to holding individuals accountable for FCPA violations.”

Speaking generally, SEC Chairman Mary Jo White has stated that a “core principle of any strong enforcement program is to pursue responsible individuals wherever possible … [and that] is something our enforcement division has always done and will continue to do.”

Most recently in November 2014, the SEC’s Director of Enforcement stated as follows.

“I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.  [...] [I]ndividual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.”

Since 2000, the SEC has charged 61 individuals with FCPA civil offenses.  The breakdown is as follows.

  • 2000 – 0 individuals
  • 2001 – 3 individuals
  • 2002 – 3 individuals
  • 2003 – 4 individuals
  • 2004 - 0 individuals
  • 2005 – 1 individual
  • 2006 – 8 individuals
  • 2007 – 7 individuals
  • 2008 – 5 individuals
  • 2009 – 5 individuals
  • 2010 – 7 individuals
  • 2011 – 12 individuals
  • 2012 – 4 individuals
  • 2013 – 0 individuals
  • 2014 – 2 individuals

As highlighted by the above statistics, most of the individuals charged – 35 (or  57%) were charged since 2008.  Thus, on one level the SEC is correct when it states that individual prosecutions are a focus of its FCPA enforcement program at least as measured against the historical average given that between 1977 and 1999 the SEC charged 22 individuals with FCPA civil offenses.

Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1977 and 1999, the SEC’s statements represent hollow rhetoric as demonstrated by the below figures.

Of the 35 individuals charged with civil FCPA offenses by the SEC since 2008:

  • 7 individuals were in the Siemens case;
  • 4 individuals were in the Willbros Group case;
  • 4 individuals were in the Alliance One case;
  • 3 individuals were in the Maygar Telekom case; and
  • 3 individuals were in the Noble Corp. case.

In other words, 60% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases.

Considering that there has been 72 corporate SEC FCPA enforcement actions since 2008, this is a rather remarkable statistic.  Of the 72 corporate SEC FCPA enforcement actions, 60 (or 83%) have not (at least yet) resulted in any SEC charges against company employees.  This figure is thus higher than the 75% figure recently highlighted regarding the DOJ.  This is notable given that the SEC, as a civil law enforcement agency, has a lower burden of proof in an enforcement action.

Compare the fact that since 2008 83% of corporate SEC enforcement actions have NOT (at least yet) resulted in any SEC charges against company employees to the following statistic. Between 1977 and 2004, 61% of SEC corporate FCPA enforcement actions RESULTED in related charges against company employees.

Like the prior DOJ post on the same topic, although certain historical comparisons of FCPA enforcement lack meaningful value, other comparisons are noteworthy.

For instance, while one can question how the SEC held individuals accountable (i.e whether the civil penalties were too lenient) for most of the FCPA’s history, the SEC did frequently hold individuals accountable when a company resolved an FCPA enforcement action.

With the exception of last week’s creative SEC enforcement action against PBSJ and Walid Hatoum ,the last SEC FCPA enforcement action against a company employee related to a corporate FCPA enforcement action occurred approximately three years ago in connection with the Noble Corporation matter (see here for the SEC’s enforcement action against Thomas O’Rourke, Mark Jackson and James Ruehlen - current or former employees of Noble Corporation).  Of note from this enforcement action is that when Jackson and Ruehlen put the SEC to its burden of proof, the SEC agreed to settle on the eve of trial in what can only be called a win for the defense.  (See here, here and here for prior posts).  Indeed, as highlighted in this post, the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.

Once again, like with the DOJ figures, one can ask the “but nobody was charged” question given the gap between corporate SEC FCPA enforcement and related individual enforcement actions.

Yet, like with the DOJ figures and as highlighted in this recent post, there is an equally plausible reason why so few individuals have been charged in connection with many corporate SEC FCPA enforcement actions.  The reason has to do with the quality and legitimacy of the corporate enforcement action in the first place.

With the SEC, the issue is not so much NPAs or DPAs (although the SEC has used such vehicles three times to resolve an FCPA enforcement action – DPAs with Tenaris in 2011 and PBSJ Corp. in 2015 and a NPA with Ralph Lauren in 2013). Rather, the issue seems to be more the SEC’s neither admit nor deny settlement policy (notwithstanding its minor tweaks in 2013) as well as the SEC’s increased use of administrative actions.

For more on the SEC’s neither admit nor deny settlement policy and its impact of SEC enforcement actions, see pgs. 946-955 of my article “The Facade of FCPA Enforcement.”  In the article, I discuss the affidavit of Professor Joseph Grundfest (Stanford Law School and a former SEC Commissioner) in SEC v. Bank of America and how SEC enforcement actions “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances that, if proven at trial, could cause the Commission to lose it case.”  In the article, I also discuss the SEC’s frank admission in the Bank of America case that a settled SEC enforcement action “does not necessarily reflect the triumph of one party’s position over the other.”

Indeed, a notable development from 2014 (see here) was the Second Circuit concluding that SEC settlements are not about the truth, but pragmatism.

Individuals in an SEC FCPA enforcement, even if only a civil action, and even if frequently allowed to settle on similar neither admit nor deny terms, have their personal reputation at stake and are thus more likely than corporate entities to challenge the SEC and force it satisfy its burden of proof at trial as to all FCPA elements.

More recently, the SEC has been keen on resolving corporate FCPA enforcement actions in the absence of any judicial scrutiny.  As highlighted in this 2013 SEC Year in Review post, a notable statistic from 2013 is that 50% of SEC corporate enforcement actions were not subjected to one ounce of judicial scrutiny either because the action was resolved via a NPA or through an administrative order.  In 2014, as highlighted in this prior year in review post, of the 7 corporate enforcement actions from 2014, 6 enforcement actions (86%) were administrative actions.  In other words, there was no judicial scrutiny of 86% of SEC FCPA enforcement actions from 2014.

It is interesting to note that the SEC has used administrative actions to resolve 9 corporate enforcement actions since 2013 and in none of these actions have there been related SEC enforcement actions against company employees.

In other words, and like in the DOJ context, perhaps the more appropriate question is not “but nobody was charged,” in connection with SEC corporate FCPA enforcement actions, but rather – do SEC corporate FCPA settlements necessarily represent provable FCPA violations?

It is also interesting to analyze the 13 instances since 2008 where an SEC corporate FCPA enforcement action resulted in related charges against company employees.   With the exception of Siemens, KBR/Halliburton and Magyar Telekom, the corporate SEC FCPA enforcement actions resulting in related charges against company employees occurred in what can only be described as relatively minor (at least from a settlement amount perspective) corporate enforcement actions.  These actions are:  Faro Technologies, Willbros Group, Nature’s Sunshine Products, United Industrial Corp., Pride Int’l., Noble Corp., Alliance One, Innospec, Watts Water, and PBSJ.

[Note – the above data was assembled using the “core” approach as well as the definition of an FCPA enforcement action described in this prior post]