Archive for the ‘Individual Enforcement Action’ Category

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]

The SEC Gets Creative In Bringing Its First FCPA Enforcement Action Of 2015

Monday, January 26th, 2015

CreativityIn its first Foreign Corrupt Practices Act enforcement action of 2015, the SEC got creative by agreeing to a deferred prosecution agreement with a legal entity that has not existed since April 2011 and bringing a related administrative action against an individual who agreed to resolve the action without admitting or denying the SEC’s findings.  Never before has FCPA enforcement seen such a combination.

While the DOJ frequently uses NPA and DPAs to resolve corporate FCPA enforcement actions, last week’s enforcement action is only the third time the SEC has used an NPA or DPA to resolve an FCPA enforcement action.  The other two instances are Tenaris (DPA in 2011) and Ralph Lauren (NPA in 2013).

The enforcement action was against PBSJ Corporation (PBSJ), an entity acquired in October 1, 2010 by WS Atkins plc (“Atkins”) as well as Walid Hatoum, a former executive of PBS&J International, Inc. (“PBS&J Int’l, a wholly-owned subsidiary of PBSJ) concerning a relationship with an alleged Qatari official in connection with projects in Qatar and Morocco.

As highlighted in this prior post, PBSJ voluntarily disclosed its FCPA scrutiny in December 2009.

Post-acquisition, PBSJ became an indirect wholly-owned subsidiary of Atkins and in April 2011, PBSJ changed its name to The Atkins North America Holdings Corporation.

In summary fashion, the two-year DPA “alleges” that:

“The PBSJ Corporation … on or about 2009, violated [the FCPA's anti-bribery provisions, books and records and internal controls provisions] by making offers and promises of payment and other benefits to certain Qatari government officials in order to secure two multi-million dollar development contracts in Qatar and Morocco and by failing to keep accurate books and records relating to those transactions, and by failing to maintain internal accounting controls to ensure the transactions were recorded accurately and that financial statements were prepared in conformity with generally accepted accounting principles.”

According to the DPA:

“PBS&J International, Inc. (“PBS&J Int’l”) was a wholly-owned subsidiary of PBSJ headquartered and incorporated in Florida. PBS&J Int’l was a provider of engineering, architectural and planning services in international markets, including the Middle East. PBS&J Int’l currently is a subsidiary of Atkins.

The former President of PBS&J lnt’l, Walid Hatoum (“Hatoum”), is a United States citizen who initially worked for PBSJ as an engineer from 1986 until 1990. In February 2009, Hatoum was rehired to join PBS&J Int’l as its Director of lnternational Marketing, even though his prior employment file at PBSJ had been marked “Ineligible for Rehire .” Although Hatoum did not formally join PBS&J Int’l until April 2009, he assisted PBS&J lnt’l with identifying projects as early as November 2008. Hatoum was promoted to President ofPBS&J Int’l in mid-June 2009, and became an officer of PBSJ at the same time.

During 2009, PBS&J Int’l won two multi-million dollar development contracts. One contract was for work in Qatar and the other was for work in Morocco. Both were competitively solicited and approved by the Qatari Diar Real Estate Investment Company (“Qatari Diar”). Qatari Diar was established by the Qatari government to coordinate the country’s real estate development.

PBSJ and PBS&J Int’l, through Hatoum, offered bribes to the then-Director of International Projects at Qatari Diar (“Foreign Official”), to secure Qatari government contracts by planning to funnel funds to a local company the Foreign Official owned and, controlled (“Local Partner”). Foreign Official, a former business colleague of Hatoum’s at another U.S. engineering firm, worked for Qatari Diar throughout 2009, until his resignation from Qatari Diar on December 21, 2009. Prior to joining PBSJ, Hatoum and Foreign Official discussed directing business in the Middle East to Local Partner.

In return, Foreign Official provided PBS&J Int’l with access to confidential sealed-bid information and pricing information on the two government contracts that helped PBS&J Int’l tender bids that had a greater likelihood of being awarded, including a government contract for which the Foreign Official was the project manager.”

Under the heading “Offers and Promises Made to Foreign Officials,” the DPA contains two subsections: “LRT Project in Qatar” and “Design Contract in Morocco.”

As to Qatar, the DPA states:

“In November and December 2008, Hatoum began discussing potential employment with PBSJ. Even before he received a formal employment contract, Hatoum met with PBS&J Int’l to discuss opportunities to grow PBS&J Int’l business in the Middle East. Hatoum discussed projects involving Qatari Diar, including a light rail transit project in Qatar (“the LRT Project”).

In January 2009, Hatoum arranged for Foreign Official’s brother, through Local Partner, to introduce PBS&J Int’l to Qatari Diar senior executives involved in the LRT Project. Soon after that meeting, PBS&J Int’l decided to bid on the LRT Project. PBS&J Int’l added Foreign Official’s company, Local Partner, on its proposal team as a subcontractor to handle local operations such as hiring local labor, as well as complying with bonding and insurance requirements. In return, Hatoum and PBS&J Int’l agreed to pay the Foreign Official, through Local Partner, 40% of the profits realized from any LRT Project contract as well as reimburse its direct costs. The remaining profits were to be split between PBS&J Int’l (40%) and another U.S.-based subcontractor (20%), which
would perform all of the planning and engineering services for the LRT project.

At that time, Hatoum was the only person at PBS&J Int’l who had any knowledge about Foreign Official’s ownership interest in Local Partner. Had PBSJ conducted meaningful due diligence at that time, it would have discovered Foreign Official’s dual role as both government official and third-party owner/operator of Local Partner.

During the bidding process, Foreign Official gave confidential sealed bid information to PBS&J Int’l to assist it in winning the LRT Project in return for promised payments. Foreign Official also made strategic and technical decisions on many aspects of the LRT Project that favored PBS&J Int’l with Hatoum’s knowledge.

Foreign Official used a Local Partner alias to communicate that information to Hatoum and other PBSJ and PBS&J Int’l employees while disguising his involvement on multiple conference calls and in dozens of emails to the United States. Hatoum was aware that Foreign Official was using the alias in communications with PBSJ employees, officers, and directors and with Qatari Diar. Hatoum flew to the Middle East to meet with Qatari Diar officials, including Foreign Official, to discuss PBS&J Int’l’ s qualifications for the LRT Project. At the meeting, neither Foreign Official nor Hatoum informed Qatari Diar that Foreign Official was working for Local Partner and providing confidential information and other assistance to help PBS&J Int’l win the contracts.

Following its initial submission, PBS&J Int’l revised its bid, based on information and guidance provided by the Foreign Official, to best position itself to win the LRT Project and to withstand possible challenges from competitors. On or about August 3, 2009, Qatari Diar awarded the LRT Project contract worth approximately $35.6 million to PBS&J Int’l.

After the award, PBS&J Int’l opened a joint account with Local Partner that was accessible to Foreign Official’s wife. PBS&J Int’l also authorized a four-year letter of credit relating to a bank guarantee in Qatar. The letter of credit was a precondition for receipt of the first contract payment by Qatari Diar to PBS&J Int’l, an up front, 10% (approximately $3.6 million) payment, which was deposited into the joint account.

Once the award was received, Hatoum offered Foreign Official an “agency fee” to Local Partner for 1.8% of the LRT Project contract amount (equivalent to approximately $640,000). Additionally, PBS&J Int’l agreed to pay half of the salary of Foreign Official’s wife, who worked for Local Partner.”

Under the sub-heading “Design Contract in Morocco” the DPA states:

“In addition to the LRT Project, Qatari Diar opened a Morocco hotel resort development (“Morocco Project”) for competitive bid. On August 7, 2009, PBS&J Int’l emailed its Statement of Qualifications for the design contract to Foreign Official, the Qatari Diar project manager for the Morocco Project.

In October 2009, Hatoum offered payment to Foreign Official in the form of an agency fee to Local Partner to secure the Morocco Project. The Morocco Project was worth approximately $25 million to PBS&J Int’l, of which the Foreign Official was offered an agency fee of 3% of the contract amount, which equates to approximately $750,000. Hatoum instructed a PBS&J Int’l employee to hide the agency fee within the company’s bid proposal by inflating other components of the offer for the Morocco Project.

Foreign Official attended meetings with PBS&J Int’l employees to discuss the project but neither Foreign Official nor Hatoum told the employees that he was working for Local Partner. At the same time, Foreign Official, using his Local Partner alias, reviewed and made changes to PBS&J Int’l’ s original bid offer via email and phone. He also made key technical and strategic proposal decisions throughout the bidding process and instructed PBS&J Int’ l to lower its offer to a specific dollar amount. By doing so, he ensured PBS&J Int’l's final bid had a greater likelihood of being approved by Qatari Diar. On or around October 19, 2009, Qatari Diar informed PBS&J Int’l that it was awarded the Morocco Project.”

Under the heading “Red Flags,” the DPA states:

“PBSJ and PBS&J Int’l officers and employees ignored multiple red flags that should have led them to uncover the payment scheme. For example, PBS&J Int’l and PBSJ employees knew that Local Partner was providing them with confidential sealed bid information. Hatoum also informed the employees that he was obtaining information from someone that Hatoum described as a “good friend” and “top executive” at Qatari Diar. Before PBS&J Int’l submitted its bid for the Morocco Project, a PBS&J Int’l officer learned that the husband of one of the Local Partner employees was a government official working on the Morocco Project. The PBSJ Int’l officer learned of Foreign Official’s role while attending dinner with Hatoum, Foreign Official and the Foreign Official’s wife. In addition, a PBSJ employee knew that “agency fees” to Local Partner were disguised as legitimate costs within the Morocco Project bid.”

Under the heading “Discovery of the Payment Scheme,” the DPA states:

“Shortly after PBSJ Int’l was awarded the Morocco Project contract, PBSJ’ s former Chief Operating Officer commented to PBSJ’s then-general counsel that PBS&J Int’l was successful in winning two contracts in the Middle East within a fairly short period of time. PBSJ’s then-general counsel asked Hatoum how he was able to win the LRT and Morocco Project contracts over companies with far more international experience. Hatoum told PBSJ’s then-general counsel PBSJ offered “agency fees” in order to win the projects and, when asked, admitted there “would be a problem” if the agency fees were not paid. PBSJ’ s then-general counsel immediately launched an investigation of this issue.

Three weeks later, in November 2009, a Qatari government official informed Hatoum and the then-President of PBSJ that Qatari Diar had discovered Foreign Official’s involvement in Local Partner and was rescinding PBS&J Int’l's contract for the Morocco Project. Hatoum then secretly made an offer of employment to a second Qatari foreign official in return for influencing Qatari Diar to reinstate the contract. However, Qatari Diar refused to reinstate the contract and did not provide PBS&J Int’l any proceeds for the project. PBSJ suspended Hatoum in December 2009. Hatoum also began deleting emails and other records.

PBS&J Int’l and Qatari Diar negotiated a termination of the LRT Project contract effective December 31,2009. In January 2010, Qatari Diar entered into a bridge contract with PBS&J Int’l to continue work on the LRT Project (the “Bridge Contract”) until a replacement company could be found. Ultimately, the period of performance on the Bridge Contract was 16  months . PBS&J Int’l earned $2,892,504 in profits on the Bridge Contract.

PBSJ and Qatari Diar caught Hatoum’s scheme before any of the offered and authorized amounts were paid.”

Under the heading “Failure to Maintain Adequate Internal Controls,” the DPA states:

“PBSJ failed to devise and maintain an adequate system of internal accounting controls. The violations involved conduct orchestrated by a high level manager at PBS&J Int’l and numerous red flags were overlooked by PBSJ and PBS&J Int’l managers and employees. Employees were aware that they were receiving confidential information in a sealed-bid process from a foreign official and that their bids were inflated to conceal payments to Local Partner. Over a million dollars in payments were offered and authorized to Foreign Official through Local Partner without a system of internal accounting controls to identify and detect the improper transactions. PBS&J Int’l agreed to pay Local Partner 40% of the LRT Project profits without subjecting Local Partner or its employees to any meaningful due diligence. PBS&J Int’l did not request a due diligence questionnaire from Local Partner before it initiated its investigation into the matter, and asked no questions about Local Partner’s purported financial statements, work experience, ability to perform the work it was supposed to do under the contract, external auditors, or owners, despite knowing that a Local Partner employee was married to a government official at Qatari Diar. In fact, during the period, PBSJ considered but declined adopting due diligence controls over its contractors and joint venture partners.

As a result, PBS&J Int’l, through Hatoum, offered and authorized bribes to Foreign Official through Local Partner totaling approximately $1,390,000 to secure the LRT and Morocco Projects, plus a portion of any profits Local Partner realized from the LRT Project and partial salary to Foreign Official ‘s wife.

Although PBSJ offered FCPA training at PBSJ and PBS&J Int’l, the company did not ensure that its employees take the training prior to working on international matters. As a result, key PBS&J Int’l personnel on the LRT and Morocco Projects received little, if any, FCPA training during the relevant period. Hatoum received annual FCPA training from his previous employer. Hatoum was offered FCPA training by PBSJ on his first day of official employment in April 2009, but did not take it. Hatoum did not receive training from PBSJ until after Qatari Diar cancelled the Morocco Project in November 2009.”

Under the heading “Failure to Maintain Books and Records,” the DPA states:

“PBSJ, directly and through PBS&J Int’l, failed to make and keep books, records, and accounts which accurately and fairly reflected PBS&J Int’l's transactions with Local Partner intended for Foreign Official. Some of the payments offered and authorized to Foreign Official were concealed within other, legitimate categories of costs within bids, while others were improperly described in the books and records as legitimate transaction costs. PBSJ failed to accurately disclose in its books and records that the joint account entered into with Local Partner would benefit Foreign Official.”

Under the heading “Self-Report, Remediation, and Cooperation,” the DPA states:

“PBSJ conducted an internal investigation. PBSJ self-reported its preliminary findings of the conduct to staff of the Division of Enforcement (“Division”) and the Department of Justice (“DOJ”).

PBSJ also took immediate steps to end the misconduct. PBSJ suspended Hatoum in December 2009 and later reprimanded four other employees that missed red flags that should have alerted them to the illegal activity. PBSJ also withdrew all proposals in the Middle East initiated during Hatoum’s tenure with PBS&J Int’l. PBSJ reviewed its preexisting compliance program and revised and enhanced its compliance program, including, in part, adoption of: (1) a detailed due diligence questionnaire for contractors, sponsors, and agents; (2) an enhanced FCP A compliance program with mandatory annual training for employees and third-party agents; (3) an international compliance oversight committee at the corporate level; and (4) an annual FCPA compliance audit.

PBSJ ultimately provided substantial cooperation to the staff of the Division, including: voluntarily producing documents and disclosing information to the staff; voluntarily making witnesses available for interviews; and allowing its then-general counsel to interview with staff; and providing factual chronologies, timelines, internal interview summaries, and full forensic images of data.”

The DPA contains a so-called muzzle clause in which PBSJ and Atkins is prohibited from “denying, directly or indirectly, any aspect of [DPA] or creating the impression that the statements [in the DPA] are without factual basis.

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

“Hatoum offered and authorized nearly $1.4 million in bribes disguised as ‘agency fees’ intended for a foreign official who used an alias to communicate confidential information that assisted PBSJ. PBSJ ignored multiple red flags that should have enabled other officers and employees to uncover the bribery scheme at an earlier stage.  But once discovered, the company self-reported the potential FCPA violations and cooperated substantially.”

As noted in the release:

“Under the DPA, PBSJ agreed to pay disgorgement and interest of $3,032,875 and a penalty of $375,000.  PBSJ took quick steps to end the misconduct after self-reporting to the SEC, and the company voluntarily made witnesses available for interviews and provided factual chronologies, timelines, internal summaries, and full forensic images to cooperate with the SEC’s investigation.”

Based on the same core conduct “alleged” in the DPA, the SEC also brought an administrative action against Hatoum.

In summary, the Administrative Order states under the heading “Hatoum Caused PBSJ’s Inaccurate Books and Records” as follows.

“Hatoum authorized illicit payments to Foreign Official that were not accurately and fairly reflected on PBSJ’s books and records. Hatoum directed subordinates to conceal some of the payments he offered and authorized to Foreign Official within bids. Other offers and promises to pay authorized by Hatoum to Foreign Official were improperly described in the books and records as legitimate transaction costs with his knowledge.”

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

“On April 22, 2009, Hatoum signed a “Business Conduct Standards” agreement for PBSJ employees in which he agreed that “I will neither accept nor give bribes or kickbacks of any value for services or favorable treatment for contracts.” As a high level manager at PBS&J Int’l and later as an officer of PBSJ, Hatoum was responsible for maintaining and ensuring compliance with PBSJ’s internal accounting controls at PBS&J Int’l. Hatoum, however, repeatedly exploited the company’s internal accounting control deficiencies to offer and authorize payments to Foreign Official through Local Partner totaling approximately $1,390,000 to secure the LRT and Morocco Projects, plus 40% of any profits realized from the LRT Project and partial salary to Foreign Official’s wife. Hatoum instructed subordinates to inflate PBS&J Int’l bids by concealing payments to Local Partner intended for Foreign Official. Hatoum took advantage of PBSJ’s accounting controls system by introducing Local Partner as a “legitimate” potential partner for the LRT Project and authorized a subordinate to execute an agreement to pay Local Partner 40% of the LRT Project profits without subjecting Local Partner or its employees to any meaningful due diligence. Hatoum also knowingly executed – and caused a PBS&J Int’l employee to send a questionnaire requesting advocacy assistance from the United States Department of Commerce that included false representations about Local Partner and PBS&J Int’l. Although Hatoum did not participate in PBSJ’s FCPA training until after the scheme was uncovered, Hatoum was aware of the prohibitions of the FCPA from annual FCPA training that he received from his former employer.”

As noted in the SEC’s release:

“The SEC’s order against Hatoum finds that he violated the anti-bribery, internal accounting controls, books and records, and false records provisions of the Securities Exchange Act of 1934.  Without admitting or denying the findings, Hatoum agreed to pay a penalty of $50,000.”

PBSJ and Atkins were represented by Mark Schnapp (Greenberg Traurig).  Hatoum was represented by Michael Lamont of Wiand Guerra King.