Archive for the ‘Individual Enforcement Action’ Category

Current CEO Of LAN Airlines Resolves SEC FCPA Enforcement Action Based On A Payment He Authorized 10 Years Ago In Connection With A Labor Dispute

Monday, February 8th, 2016

PlazaLast week was busy for SEC Foreign Corrupt Practices Act enforcement.

First, there was the $3.9 million enforcement action against SAP (see here).

Then, there was the $12.8 million enforcement action against SciClone Pharmaceuticals (see here).

And then, as highlighted in this post, there was an individual action against Ignacio Cueto Plaza, the current CEO of LAN Airlines (pictured at left).

The Cueto enforcement action was noteworthy in at least five respects.

  • First, it was a rare SEC individual FCPA enforcement action (the Cueto action represents only the fourth core individual action since April 2012).
  • Second, it was an FCPA enforcement action against a CEO (rarely do individual FCPA enforcement actions involve an executive officer).
  • Third, it was an FCPA enforcement action against an existing CEO (most individual FCPA enforcement involve former employees because the company, as part of its remedial measures, terminates the employee found to be in violation of the FCPA).
  • Fourth, even though most FCPA enforcement actions are based on “old” conduct, a 2016 enforcement action based on 2006 conduct stretches the credibility of the SEC’s enforcement program to a new level, coupled with the fact that a U.S. law enforcement agency brought an enforcement action against a Chilean citizen based on alleged improper conduct in Argentina.
  • Fifth, most FCPA enforcement actions, even those that “only” charge or find FCPA books and records and internal controls violations, are still based on the alleged “foreign officials.” In this regard, the Cueto enforcement action is vague whether the SEC viewed the Argentine “union officials” to be “foreign officials” under the FCPA. If the SEC did view the “union officials” as such, it stretches the definition of “foreign official” even further. If the SEC did not view the “union officials” as foreign officials, the Cueto action represents a rare enforcement action concerning improper booking and insufficient internal controls concerning an instance of commercial bribery.

In this administrative action, the SEC found as follows.

“In 2006 and 2007, Ignacio Cueto Plaza (“Cueto”), the CEO of LAN Airlines S.A. (“LAN”), authorized $1.15 million in improper payments to a third party consultant in Argentina in connection with LAN’s attempts to settle disputes on wages and other work conditions between LAN Argentina S.A. (“LAN Argentina”), a subsidiary of LAN, and its employees. At the time, Cueto understood that it was possible the consultant would pass some portion of the $1.15 million to union officials in Argentina. The payments were made pursuant to an unsigned consulting agreement that purported to provide services that Cueto understood would not occur. Cueto authorized subordinates to make the payments that were improperly booked in the Company’s books and records, which circumvented LAN’s internal accounting controls.”

Cueto is described as follows.

” [A] Chilean citizen and, since 2012, has been CEO of LAN. From 1995 to 1998, Cueto served as President of LAN Cargo, a LAN subsidiary located in Miami, Florida. He served on the Board of Directors of LAN from 1995 to 1997. From 1999 to 2005, Cueto was CEO of LAN’s passenger airline business. In 2005, Cueto became President and COO of LAN Airlines S.A. He remained in that position until June of 2012, when LAN merged with Brazilian Airline TAM, S.A. (“TAM”) and became LATAM Airlines Group S.A. (“LATAM”). Cueto remains CEO of LAN, which is now part of LATAM.”

The enforcement action focuses the “obstacles that LAN might face in trying to enter the Argentine airline market.” Under the heading “LAN Faces Major Issues Upon Entering the Argentine Market,” the order states:

“Upon entering the Argentine passenger airline market LAN immediately faced several major issues impacting its viability and began losing money. First, it needed to meet demands from labor unions representing the employees acquired from LAFSA and Southern Winds. Second, LAN needed majority ownership of its Argentine subsidiary, and therefore had to persuade the Argentine government to change its existing law on foreign ownership of domestic airlines and to increase caps on airfares. Third, LAN needed regulatory authorization to operate various flight routes, both domestically and internationally, in Argentina. Since the Argentine passenger airline market was heavily regulated by the government, particularly officials within the Department of Transportation who had close ties to the unions, LAN sought help from the government officials with each of these issues.

In early 2006, the consultant again contacted the Vice President of Business Development and offered to assist LAN in Argentina. By this time, the consultant was a government official in the Ministry of Federal Planning, Public Investment and Services, Department of Transportation. On January 31, 2005, the Secretary of Transportation appointed the consultant as a Cabinet Advisor “ad-honorem.”

LAN executives, including Cueto, knew that for LAN Argentina to become profitable it would need an infusion of cash. LAN asked Argentine government officials to liberalize the laws on foreign ownership so that LAN could own a majority share of LAN Argentina and sought government authorization to raise regulated airfares. On or about August 8, 2006, the President of Argentina signed a Decree that enabled LAN to become a majority owner of LAN Argentina and allowed LAN to raise airfares by 20%. LAN Argentina was also awarded critical additional flight routes by the Transportation Secretary.”

Under the heading “LAN Encounters Problems with the Unions in Argentina,” the order states:

“As part of the deal that LAN reached with the Argentine government in March 2005, LAN was required to hire between six and eight hundred employees from the defunct LAFSA and Southern Winds airlines. LAN was bound by the existing bargaining agreements between LAFSA, Southern Winds and the labor unions.

There were five unions representing airline employees in Argentina. They included the grounds crew union, the Asociación del Personal Aeronáutico (APA), the pilots’ union, the Asociación de Pilotos de Lineas Aereas (APLA), the mechanics’ union, Asociacion del Personal Técnico Aeronáutico (APTA), the flight attendants’ union, Asociación de Tripulantes de Cabina de Pasajeros de Empresas Aerocomerciales (ATCPEA), and the supervisors’ union, Unión del Personal Superior y Profesional de Empresas Aerocomerciales (UPSA).

All of the unions were powerful and unafraid to make demands on LAN. They sought wage increases and additional benefits, and used the terms of their respective Collective Bargaining Agreements (“CBAs”) as leverage. These labor agreements contained provisions that LAN believed were unfavorable, such as restrictions on the hours employees could work and their work locations.

The mechanics’ union, the flight attendants’ union and the supervisors’ union each had a single-function rule contained in their CBAs. The single-function rule was a provision that limited workers from performing more than one work function at a time for LAN. The single-function rule was loosely interpreted and for the most part not enforced by the unions. Had it been enforced, the single-function rule would have required LAN to double its work force and would have seriously imperiled LAN’s ability to continue its operations in Argentina.

Around 2006 the unions began campaigning for wage increases. The unions threatened to enforce the single-function rule unless LAN Argentina agreed to a substantial wage increase. LAN’s management, including Cueto, attempted to negotiate on the wage issues but made no progress and things worsened over time. Eventually there were work stoppages and slowdowns on the part of the workforce, including strikes involving the pilots’ and the mechanics’ unions.”

Under the heading “Cueto Approves Improper Payments,” the order states:

“Beginning in the summer of 2006, the consultant supplied LAN executives with information on how to deal with specific union members and the unions in general. Eventually, the consultant offered to negotiate directly with the unions on LAN’s behalf, making it clear that he would expect compensation for such negotiations, and that payments would be made to third parties who had influence over the unions. After his staff informed Cueto that the consultant was well connected with the unions and could effectively negotiate an agreement with union officials, Cueto approved the retention of the consultant.

During the summer of 2006, Cueto approved payments totaling $1,150,000 to the consultant in connection with LAN’s attempts to settle disputes on wages and other work conditions with the unions. At the time, Cueto understood that it was possible the consultant would pass some portion of the $1.15 million to union officials in Argentina. Cueto approved the payments to get the unions to abandon their threats to enforce the single-function rule and to get them to accept a wage increase lower than the amount asked for in negotiations. LAN and the consultant agreed that LAN would make the payment to a company controlled by the consultant in Argentina. In 2006, LAN did not have a policy requiring that due diligence be performed on consultants, and neither Cueto nor LAN conducted any due diligence on the consultant or any of his related entities.

Around August 2006, Cueto’s staff informed him that the consultant had reached an oral agreement to settle the wage dispute with the mechanics’ union on LAN’s behalf. Although the existing Collective Bargaining Agreement with the mechanics’ union would remain unchanged, Cueto understood that the union would orally agree not to seek enforcement of the single-function rule for a period of four years in exchange for a wage increase of approximately 6 15% of salary. The wage increase of approximately 15% was lower than the amount originally sought by the mechanics’ union.

Around August 2006, the flight attendants’ and supervisors’ unions both agreed to accept wage increases of approximately 15% and 10% respectively of salaries. The amounts were lower than the amounts originally sought by each union.”

Under the heading, “Cueto Authorized Improper Payments That Were Not Accurately and Fairly Feflected on LAN’s Books and Records,” the order states:

“Cueto directed subordinates to make the improper payments. The improper payments authorized by Cueto were improperly described in the books and records as “other debtors” costs in a LAN subsidiary that had no role in LAN’s argentine business.”

Under the heading, “Cueto Caused LAN’s Internal Accounting Control Failure,” the order states:

“As President and Chief Operating Officer of LAN, Cueto, along with others, was responsible for devising and maintaining compliance with internal accounting controls at LAN. Cueto did not follow the company’s existing internal accounting controls when he authorized the payment of $1,150,000 to the consultant’s company and failed to prevent the payment of $58,000 to another company owned by consultant’s son and wife. Cueto received and approved the sham contract for the consultant’s company to provide consulting services to LAN, knowing that such services would never be provided. Cueto also authorized payment of invoices from the consultant’s company that contained a description of services listed on the invoices that was false.”

Based on the above findings, the order finds that Cueto caused books and records and internal controls violations by LAN and that Cueto also knowingly circumvented or knowingly failed to implement a system of internal accounting controls or knowingly falsified book, record or account and that Cueto also violated falsified or cause to be falsified, a book, record, or account.

Under the heading “Remedial Actions and Undertakings,” the order states:

“As the CEO of LAN, which is now a division of LATAM, Cueto is subject to LATAM’s enhanced compliance structure and internal accounting controls. Cueto is required to certify compliance with LATAM’s new Code of Conduct that was adopted in 2013, as well as other internal corporate policies, including an Anti-Corruption Guide, a Gifts, Travel, Hospitality and Entertainment Policy, an Escalation Policy, and Procurement and Payment policies.

Cueto has attended the Corporate Governance Training provided by the LATAM Chief Compliance Officer and has provided a certification confirming acknowledgement of the Code of Conduct, the relevant applicable regulations, as well as the Company policies. Cueto has also executed an amendment to his employment agreement whereby Respondent acknowledges having been informed regarding the LATAM Manual for the Prevention of Corruption, among other matters, and his responsibilities to perform his duties with the highest ethical standards, in compliance with all Company Policies and Procedures.

[...]

Cueto also undertakes to attend all anti-corruption training sessions required for senior executives at LAN. These sessions will include, but are not limited to, both live and online anti-corruption trainings to be completed on at least an annual basis and according to LAN’s Compliance Department’s training schedule. These sessions will include, in addition to anticorruption laws and regulations, such as the FCPA, training on anti-trust laws, the Company’s Code of Conduct and all other applicable policies that each LAN employee must follow. After the conclusion of each session Cueto will sign the appropriate documentation that acknowledges his attendance and understanding of the topics presented. Should LAN modify the schedule of such  training sessions for any reason, Cueto will, so long as he is a senior executive of LAN, attend a comparable anti-corruption session on an annual basis and complete appropriate documentation attesting to his attendance and the session’s contents.”

Without admitting or denying the SEC’s findings, Cueto agreed to cease and desist from future legal violations and agreed to pay a $75,000 civil penalty.

Cueto was represented by Richard Grime (Gibson, Dunn & Crutcher –  a former Assistant Director of Enforcement at the SEC heavily involved in FCPA enforcement). Commenting generally on the SEC’s evolving and expansive FCPA enforcement theories, Grime recently stated:

“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.”

Like A Kid In The Candy Store

Friday, January 29th, 2016

Kid in Candy StoreLike every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[...]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[...]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[...]

“[Regarding the 2015 BNY Mellon "internship" enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.

DOJ Individual Actions: The Strange Public – Private Divide

Thursday, January 14th, 2016

SurpriseThis recent post highlighted certain facts and figures regarding the DOJ’s prosecution of individuals for FCPA offenses in 2015 and historically.

As highlighted in the prior post, DOJ FCPA individual enforcement actions are significantly skewed by a small handful of enforcement actions and the reality is, despite the DOJ’s rhetoric, that 72% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees.

Another very interesting and significant picture emerges when analyzing DOJ individual FCPA prosecutions based on whether the individual charged was employed by or otherwise associated with a publicly traded corporation or a private business organization.

Of the 107 individuals charged by the DOJ with FCPA criminal offenses since 2008, 82 of the individuals (77%) were employees or otherwise affiliated with private business organizations.  This is a striking statistic given that 53 of the 69 corporate DOJ FCPA enforcement actions since 2008 (79%) were against publicly traded corporations.

In the 16 private business organization DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 9 of those actions (56%).  In contrast, in the 53 publicly traded corporation DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 10 of those cases (19%). Indeed, since 2012 there have been only three instances of an individual associated with a publicly traded company being criminally charged with FCPA violations (Garth Peterson, Alain Riedo and Vicente Garcia).

In short, a DOJ FCPA enforcement against a private business organization is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a DOJ FCPA enforcement action against a publicly traded corporation.

The below information highlights all individuals criminally charged with FCPA violations since 2008 and whether they were associated with a publicly traded company or private business organization.

Individuals Charged With FCPA Criminal Offenses Since 2008 (Employer / Affiliation)

Bold = employed or affiliated with a private business entity

Gerald Green, Patricia Green (owners / operators of several private companies)

Martin Eric Self (employees of Pacific Consolidated Industries LP – a private business entity)

Shu Quan Sheng (owner of AMAC International Inc., but acting on behalf of French Company A – a publicly traded corporation)

Misao Hioki (employee of Bridgestone Corporation – a publicly traded corporation)

Nam Nguyen, Joseph Lukas, Kim Nguyen, An Nguyen (employees / agents of Nexus Technologies – a private business entity)

James Tillery and Paul Novak (employee / agent of Willbros Group)

Albert Jack Stanley, Jeffrey Tesler, Wojciech Chodan (employees / agents of KBR Inc., – a publicly traded corporation and/or other publicly traded corporations)

Richard Morlock, Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, Han Yong Kim, Mario Covino (employees of Control Components Inc. – a private business entity)

Ousama Naaman (agent of Innospec – a publicly traded corporation)

John Jospeh O’Shea, Fernando Maya Basurto (employee / agent of ABB Ltd. – a publicly traded corporation)

Charles Paul Edward Jumet, John Warwick (employees of Ports Engineering Consultants Corporation – a private business entity)

Jorge Granados, Manuel Caceres, Juan Pablo Vasquez, Manuel Salvoch (employees of Latin Node Inc. – a private business entity)

Juan Diaz, Antonio Perez, Joel Esquenazi, Carlos Rodriguez, Marguerite Grandison, Jean Fourcand, Washington Vasconez Cruz, Amadeus Richers, Cecilia Zurita (employees / agents of Terra Telecommunications Corp., Telecom Consulting Services Corp., JD Locator Services, Inc. or Cinergy Telecommunications – all private business entities)

Enrique Faustino Aguilar, Angela Maria Gomez Aguilar, Keith Lindsey, Steve Lee (employees / agents of Lindsey Manufacturing Corp. – a private business entity)

Richard Bistrong (employee of Armor Holdings Inc. – a publicly traded corporation)

Jonathan Spiller John Mushriqui, Jeanna Mushriqui, David Painter, Lee Wares, Pankesh Patel, Ofer Paz, Israel Weisler, Michael Sacks, John Benson Wier, Haim Geri, Yochanan Choan, Saul Mishkin, R. Patrick Caldwell, Stephen Giordanella, Andrew Bigelow, Helmie Ashiblie, Daniel Alvirez, Lee Allen Tolleson, John Gregory Godsey (all employees of private business entities), Mark Morales (employee of Allied Defense Group – a publicly traded corporation), Amaro Goncalves (employee of Smith & Wesson – a publicly traded corporation)

Bobby Elkin (employee of Alliance One International – a publicly traded corporation)

Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch (employees / agents of Siemens – a publicly traded corporation)

Garth Peterson (employee of Morgan Stanley, a publicly traded corporation

Peter DuBois, Neah Uhl, Bernd Kowalewski, Jald Jenson (associated with BizJet Int’l – a private business entity)

William Pomponi, Lawrence Hoskins, David Rotschild, Frederic Pierucci (associated with Alstom Power – a private business entity [note the individuals were charged under the dd-2 prong of the FCPA even though Alstom (the parent company) was a publicly traded company]

Joseph Sigelman, Knut Hammarskjold, Gregory Weisman (associated with Petro Tiger Ltd – a private business entity)

Dmitry Firtash, Andras Knopp, Suren Gevorgyan, Gajendra Lal, Periyasamy Sunderalingam (associated with DF Group – a private business entity)

Benito Chinea, Joseph DeMeneses, Tomas Clark, Alejandro Hurtardo, Ernesto Lujana (associated with Direct Access Partners – a private business entity)

Alain Riedo (associated with Maxwell Technologies – a publicly traded corporation)

Dmitrij Harder (associated with Chestnut Consulting Group – a private business entity)

James Rama (associated with IAP Worldwide – a private business entity)

Richard Hirsch, James McClung (associated with Louis Berger Int’l – a private business entity)

Vicente Garcia (associated with SAP – a publicly traded corporation)

Daren Condrey (associated with Transport Logistics International – a private business entity)

Roberto Rincon, Abraham Shiera (associated with private business entities)

A Focus On DOJ Individual Actions

Tuesday, January 12th, 2016

Criminal LawYesterday’s post focused on SEC individual FCPA actions and this post highlights certain facts and figures concerning the DOJ’s prosecution of individuals for Foreign Corrupt Practices Act offenses in 2015 and historically.

As highlighted numerous times on FCPA Professor over the past several years, the DOJ frequently talks about the importance of individual FCPA prosecutions. Assistant Attorney General Leslie Caldwell has stated that “certainly…there has been an increased emphasis on, let’s get some individuals” and that it is “very important for [the DOJ] to hold accountable individuals who engage in criminal misconduct in white-collar (cases), as we do in every other kind of crime.”

DOJ FCPA Unit Chief Patrick Stokes has said that the DOJ is “very focused” on prosecuting individuals as well as companies and that “going after one or the other is not sufficient for deterrence purposes.”

Most recently, Deputy Assistant Attorney General Sung-Hee Suh stated:

“[T]he prosecution of individuals for corporate wrongdoing has been and continues to be a high priority for the Criminal Division and for the Justice Department as a whole.”

Against this backdrop, what do the facts actually show?

Since 2000, the DOJ has charged 141 individuals with FCPA criminal offenses.  The breakdown is as follows.

  • 2000 – 0 individuals
  • 2001 – 8 individuals
  • 2002 – 4 individuals
  • 2003 – 4 individuals
  • 2004 – 2 individuals
  • 2005 – 3 individuals
  • 2006 – 6 individuals
  • 2007 – 7 individuals
  • 2008 – 14 individuals
  • 2009 – 18 individuals
  • 2010 – 33 individuals (including 22 in the Africa Sting case)
  • 2011 – 10 individuals
  • 2012 – 2 individuals
  • 2013 – 12 individuals
  • 2014 – 10 individuals
  • 2015 – 8 individuals

An analysis of the numbers reveals some interesting points.

Most of the individuals – 107 (or 76%) were charged since 2008.  Thus, on one level the DOJ is correct when it states that there has been an “increased emphasis” on individual prosecutions – at least as measured against the historical average given that between 1978 and 1999, the DOJ charged 38 individuals with FCPA criminal offenses.

Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1978 and 1999, the DOJ’s statements about its focus on individuals represents hollow rhetoric as demonstrated by the below figures.

Of the 107 individuals criminally charged with FCPA offenses by the DOJ since 2008:

  • 22 individuals were in the failed (and manufactured) Africa Sting case;
  • 9 individuals (minus the “foreign officials” charged) were in the Haiti Teleco case;
  • 8 individuals were in connection with the Control Components case;
  • 8 individuals were in connection with the Siemens case;
  • 5 individuals were associated with DF Group in the Indian mining licenses case;
  • 5 individuals were associated with Direct Access Partners;
  • 4 individuals were in connection with the Lindsey Manufacturing case;
  • 4 individuals were  in connection with the LatinNode / Hondutel case;
  • 4 individuals were in connection with the Nexus Technologies case;
  • 4 individuals were in connection with the BizJet case; and
  • 4 individuals were in connection with the Alstom case.

In other words, 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just six cases and 72% of the individuals charged by the DOJ since 2008 have been in just eleven cases.  This was previously highlighted as the clustering phenomenon of DOJ individual FCPA actions.

Considering that there has been 69 corporate DOJ FCPA enforcement actions since 2008, this is a rather remarkable statistic.  Of the 69 corporate DOJ FCPA enforcement actions, 50 (or 72%) have not (at least yet) resulted in any DOJ charges against company employees.

Compare this figure to FCPA enforcement prior to 2004.

As highlighted in this prior post, from 1977 to 2004 approximately 90% of DOJ criminal corporate FCPA enforcement actions RESULTED in related charges against company employees.

Why the change?

Read the recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement” in which a hypothesis is tested as well as to see comprehensive charts detailing every DOJ corporate FCPA enforcement and whether the action also resulted in related charges against company employees.

In short, and as demonstrated by the statistics, DOJ FCPA individual enforcement actions are significantly skewed by a small handful of enforcement actions and the reality is that 72% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees.

A Focus On SEC Individual Actions

Monday, January 11th, 2016

SECThis previous post highlighted various facts and figures from 2015 SEC FCPA enforcement (both corporate and individual).

As highlighted in the prior post, of the 9 corporate SEC FCPA enforcement actions from 2015, 2 (22%) (PBSJ and FLIR Systems) have involved, at present, related SEC charges against company employees.

As further highlighted in the prior post, the SEC brought two individual enforcement actions in 2015 (Vicente Garcia – associated with SAP and Walid Hatoum – associated with PBSJ).

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.

In November 2014, the SEC’s Director of Enforcement stated:

“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.”

Most recently in November 2015, the SEC’s Director of Enforcement stated:

“Holding individuals accountable for their wrongdoing is critical to effective deterrence and, therefore, the Division considers individual liability in every case. [...] The Commission is committed to holding individuals accountable and I expect you will continue to see more FCPA cases against individuals.”

Since 2000, the SEC has charged 63 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
  • 2015 –  2 individuals

As highlighted by the above statistics, most of the individuals charged – 37 (or  59%) 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 37 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, 57% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases.

Considering that there has been 81 corporate SEC FCPA enforcement actions since 2008, this is a rather remarkable statistic.  Of the 81 corporate SEC FCPA enforcement actions, 67 (or 83%) have not (at least yet) resulted in any SEC charges against company employees.

This is an interesting figure given that between 1977 and 2004 61% of SEC corporate FCPA enforcement actions did indeed result in related charges against company employees.  In other words, for most of the FCPA’s history the majority of corporate SEC FCPA enforcement resulted in related individual accountability, but in the SEC’s modern FCPA enforcement program, the vast majority of corporate SEC FCPA enforcement actions have not resulted in related individual accountability despite the SEC’s rhetoric.

It is also interesting to analyze the 14 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, PBSJ and FLIR Systems.

Set forth below is a complete list of SEC corporate FCPA enforcement actions since 2008 and whether the corporate enforcement action resulted in any related individual charges. Beginning in October 2014, I publicly invited (see here) the SEC to refute these numbers to support its individual accountability rhetoric. The SEC has not responded and the invitation still stands.

Year

 

Corporate Action

Related Action Against Any Employee 

2008

Fiat

No

2008

Siemens

Yes

2008

Con-Way

No

2008

Faro

Yes

2008

Willbros

Yes

2008

AB Volvo

No

2008

Flowserve

No

2008

Westinghouse Air Brake

No

2009

UTStarcom

No

2009

AGCO

No

2009

Nature’s Sunshine

Yes

2009

Helmerich & Payne

No

2009

Avery Dennison

No

2009

United Industrial Corp.

Yes

2009

Novo Nordisk

No

2009

ITT Corp.

No

2009

KBR/Halliburton

Yes

2010

Alcatel-Lucent

No

2010

RAE Systems

No

2010

Panalpina

No

2010

Pride Int’l

Yes

2010

Tidewater

No

2010

Transocean

No

2010

GlobalSantaFe

No

2010

Noble Corp.

Yes

2010

Royal Dutch Shell

No

2010

ABB

No

2010

Alliance One

Yes

2010

Universal

No

2010

GE/Ionics

No

2010

Eni/Snamprogetti

No

2010

Veraz Networks

No

2010

Technip

No

2010

Daimler

No

2010

Innospec

Yes

2010

Natco

No

2011

Magyar Telekom

Yes

2011

Aon

No

2011

Watts Water

Yes

2011

Diageo

No

2011

Armor Holdings

No

2011

Tenaris

No

2011

Rockwell

No

2011

Johnson & Johnson

No

2011

Comverse

No

2011

Ball Corp.

No

2011

IBM

No

2011

Tyson

No

2011

Maxwell Tech.

No

2012

Eli Lilly

No

2012

Allianz

No

2012

Tyco

No

2012

Oracle

No

2012

Pfizer

No

2012

Orthofix

No

2012

Biomet

No

2012

Smith & Nephew

No

2013

Philips

No

2013

Parker Drilling

No

2013

Ralph Lauren

No

2013

Total

No

2013

Diebold

No

2013

Stryker

No

2013

Weatherford Int’l

No

2013

ADM

No

2014

Alcoa

No

2014

HP

No

2014

Smith & Wesson

No

2014

Layne Christensen

No

2014

Bio-Rad

No

2014

Bruker

No

2014

Avon

No

2015

PBSJ

Yes

2015

Goodyear

No

2015

FLIR Systems

Yes

2015

BHP Billiton

No

2015

Mead Johnson

No

2015

BNY Mellon

No

2015

Hitachi

No

2015

Hyperdynamics

No

2015

Bristol-Myers Squibb

No