Archive for the ‘Individual Enforcement Action’ Category

DOJ / SEC Bring FCPA Enforcement Action Against Former SAP Sales Exec

Thursday, August 13th, 2015

GarciaYesterday the DOJ and SEC announced (see here and here) a rare joint Foreign Corrupt Practices Act enforcement action against an individual – Vicente Garcia (a U.S. citizen and former head of Latin American sales for SAP – see here for Garcia’s SAP biography).

SEC Action

The SEC brought this administrative cease and desist order against Garcia.

In summary fashion, the order states:

“This matter concerns violations of the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) by Vicente E. Garcia (“Garcia”), a U.S. citizen and the head of Latin American sales for SAP SE (“SAP”), a European Union corporation headquartered in Waldorf, Germany. SAP provides technology solutions and services in approximately 188 countries and has more than 68,000 employees. Garcia and others offered to pay bribes to two government officials, and paid bribes of at least $145,000 to another senior government official of the Republic of Panama in order to secure software license sales of approximately $3.7 million to various government agencies; the sales were recorded initially in the books and records of SAP Mexico and subsequently consolidated into the financial statements of SAP. Garcia circumvented SAP’s internal controls by falsely justifying the discount amount offered to its local partner. In doing so Garcia helped to facilitate the local partner’s ability to generate excess earnings on the final, end-user sale, which earnings were then used to create a slush fund to finance the bribes paid to government officials.”

The order finds as follows.

“From at least June 2009 through November 2013, Garcia, along with others, planned and executed a scheme to offer and pay bribes to three senior government officials of the Republic of Panama in order to obtain approximately $3.7 million worth of software sales by SAP to the Panamanian government. Garcia, in concert with others, paid bribes to one Panamanian government official in the amount of $145,000, and promised to pay bribes to two other government officials, all in contravention of the Foreign Corrupt Practices Act of 1977 (the “FCPA”).

Garcia was SAP’s Vice-President of Global and Strategic Accounts, responsible for sales in Latin America from February 2008 until April 2014, when SAP requested that he resign for his misconduct discussed herein. Garcia was employed by SAPI and worked on large deals all over Latin America using resources and personnel from other SAP subsidiaries including SAP Mexico.

SAP, through its 272 subsidiaries, sells software licenses and related services to 263,000 customers in 188 countries. SAP’s global business is directed and operated from its headquarters in Waldorf, Germany and executed through its numerous subsidiaries. Approximately 15% of SAP’s sales are directly to the customer. The remainder of SAP’s business is conducted through a network of more than 11,500 partners worldwide that provide an additional workforce of 380,000 individuals skilled in SAP software solutions and technology. SAP’s sales using a partner can be either (i) a direct sale to a customer with a sales commission paid to a partner that provides assistance, (ii) an indirect sale through a partner that purchases the software license and resells it to a customer at an independently determined increased price, or (iii) a direct sale to the partner, which acts as a distributor and independently resells the software licenses to customers in the future.

In June 2009, Garcia’s business associate, a Panamanian lobbyist (the “Lobbyist”), informed Garcia about potential software sales opportunities with the government of Panama and that he had an existing relationship with the newly elected government, including a high ranking Government Official A, who was tasked with improving technology solutions across multiple government agencies in Panama and had significant influence over Panama’s software purchasing decisions. Thereafter, SAP began investigating possible software sales to the Panamanian government. Initially this endeavor was led by local SAP sales employees in Mexico. Garcia, however, took over the business opportunity by recommending that SAP designate the Panama government as part of the Premier Customer Network – a group of large, strategically important, regional customers – which Garcia headed.

On February 9, 2010, Government Official A asked in an e-mail whether SAP could send him a letter inviting him to Mexico for “some fictional meetings in order to justify a trip there on Monday and Tuesday of Carnival.” The same day, Garcia acceded to the request and sent an e-mail to Government Official A with an attached fictitious letter on SAP letterhead inviting him “to Mexico City so that you can directly and personally evaluate the benefits that the Government of Mexico has obtained by adopting our products and services.” The letter also included a fictitious itinerary of proposed meetings that never occurred. The next day, on February 10, Garcia sent an e-mail from his personal Yahoo! e-mail account inquiring about possible business opportunities from Government Official A stating: “Any news . . . ? Was the document OK for him? Can you ask him to finalize a deal for us in Feb-March, I need between $5 and $10 million.”

In late February 2010, Garcia and another SAP employee traveled from Miami, Florida to Panama and met with Government Official A and others to discuss business opportunities. Thereafter, in April 2010, Garcia began preparing a proposal to sell approximately $29 million worth of software licenses to the Panamanian social security agency, anticipating that this sale would be the first of multiple deals with various ministries and agencies of the Panamanian government totaling over $100 million. Ultimately, some of these additional sales never materialized and others were smaller than expected.

Garcia and others were informed by the Lobbyist that in order to obtain these contracts from the government of Panama, they needed to bribe three Panamanian government officials that had significant influence in the Panamanian government’s award of contracts to purchase software.

In anticipation of the sales to the government of Panama, Garcia and others began planning the details of the bribery scheme. On June 9 and 10, 2010, Garcia discussed with others, including via e-mail, their plans to pay bribes to Government Official A (2% of the value of the contract) and Government Official B (10%), and receive kickbacks for themselves (2%). Also, on October 26, 2010, e-mails were exchanged with two attached spreadsheets referencing planned payments to Government Officials A and C of approximately $100,000 and $300,000, respectively.

To facilitate payments to Government Official B, the Lobbyist proposed using a sham contract for fictitious services to be provided by Government Official B’s brother-in-law’s company. On June 17, 2010, Government Official A received two draft sham contracts with the stated purpose of having these two back-to-back contracts so that “no trace remains if SAP conducts an audit . . . . I made it as simple as possible and made it look like a real contract.” On June 18, 2010, the Lobbyist e-mailed Garcia an unsigned corrected copy of the proposed consulting agreement, which provided that Government Official B’s brother-in-law’s company would receive “10% (ten percent) for performance of its Services and Consulting duties” relating to all “business opportunities” with the Panamanian government.

On October 19, 2011, the Lobbyist e-mailed a spreadsheet to Government Official C indicating that they would share $274,000 in 2011 and $226,000 in 2012. On January 9, 2013, another business associate of Garcia e-mailed Government Official A stating that Garcia and his business associate had agreed to give Government Official A some of their kickback so that Government Official A could receive a larger “commission” of $150,000. In addition, the business associate confirmed that Government Official A already had been paid $45,000 and acknowledged that $105,000 was still outstanding.

As a result of Garcia’s conduct in the bribery scheme, SAP, with its local partner, was able to sell software to the Panamanian government through four contracts from 2010 to 2013. These contracts generated revenues of $3.7 million to SAP.

One of the four contracts was a software license sale to the Panamanian social security agency, which was initially proposed to be a direct sale with the assistance of local partners. In order to facilitate the bribery scheme, the existing partners were replaced with a new local Panamanian partner. Because SAP refused to pay additional commission to this new Panamanian company, Garcia and others began looking for other ways to advance the bribery scheme. Finally, in the fall of 2010, Garcia finalized an indirect sale of the software license to the agency through the local partner, which, with Garcia’s assistance, ultimately sought and obtained an 82% discount on the sale price. Garcia caused various approval forms to be submitted that misstated the reasons for the large discount. Garcia stated that the discounts were necessary to compete with other software companies in establishing a relationship with the government of Panama when, in fact, the discounts were necessary to pay bribes to government officials. Garcia and others planned to sell SAP software to the intermediary at an 82% discount, who in turn would sell them at significantly higher prices to the Panamanian government and use part of the profits from the sale to pay bribes.

SAP agreed to sell the software licenses for the Panamanian social security agency to the local partner for approximately $2.1 million. In November 2010, the local partner successfully bid $14.5 million for the contract, which was awarded by the Panamanian government on January 31, 2011. Garcia, along with others, planned to pay bribes to Panamanian government officials from the proceeds of the software sale to the government of Panama.

Thereafter, as noted above, between June 2012 and December 2013, the Panamanian government awarded three additional contracts that included SAP software products valued at approximately $13.5 million, which were also sold at deep discounts by SAP to its local partner. For these contracts also, Garcia and others agreed to pay bribes to Panamanian officials from the proceeds of the software sales.

Between April 11, 2012 and August 13, 2013, Garcia and his business associate paid at least $145,000 in bribes to Government Official A. Between December 27, 2011 and October 29, 2012, another Garcia business associate paid Garcia a kickback of approximately $85,965 in his bank account in Florida from the proceeds of the sale of SAP software licenses to the Panamanian government. Thus, Garcia, with the assistance of others, bribed one government official and promised to pay bribes to two other government officials to obtain contracts to sell software to Panamanian government, all in violation of the FCPA.”

Based on the above, the order finds:

“By engaging in the conduct described above, Garcia, as an agent of SAP, violated [the anti-bribery provisions] in connection with the sale of software licenses and other related services to the government of Panama. On behalf of SAP, Garcia participated in structuring the deal as an indirect sale through the local partner, with the understanding that it would act as a conduit to send corrupt payments to several government officials. Garcia, along with others, promised to make bribe payments to two senior government officials and made bribe payments to another government official, all in violation of the FCPA. Garcia used the mails and other means and instrumentalities of interstate commerce to bribe government officials. Garcia used his SAP email account and his personal Yahoo! e-mail account to plan and execute the bribery scheme. In addition, as part of the bribery scheme, Garcia flew from Miami to Panama to meet with government officials and others, and Garcia received $85,965 in “kickbacks” into his bank account in Florida.”

“Garcia knowingly falsified SAP Mexico’s books and records by engaging in a scheme to create a slush fund at the local partner, which was used to pay bribes to Panamanian government officials. Garcia also knowingly circumvented the company’s internal controls to change the sale of the software licenses from a direct sale to the government of Panama to an indirect sale through intermediaries at deep discounts in order to facilitate payments to government officials. Specifically, Garcia justified the deep discounts by falsely claiming in approval forms that the discounts were necessary to beat competitors and obtain entry into the Panamanian market when, in fact, the discounts were necessary to generate funds to pay bribes to government officials. With respect to the leisure trip for Government Official A, Garcia prepared a fictitious letter and itinerary, and even used a personal e-mail account to avoid detection of his corrupt activities. Finally, despite signing SAP’s Code of Conduct prohibiting bribery, he engaged in an elaborate bribery scheme. Accordingly, Garcia violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1.”

In the SEC release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated: “Garcia attempted to avoid detection by arranging large, illegitimate discounts to a corporate partner in order to generate a cash pot to bribe government officials and win business for SAP.”

As noted in the SEC’s release,  the order “finds that Garcia violated the anti-bribery and internal controls provisions of the Securities Exchange Act of 1934.  Garcia consented to the entry of the cease-and-desist order and agreed to pay disgorgement of $85,965, which is the total amount of kickbacks he received, plus prejudgment interest of $6,430 for a total of $92,395.”

DOJ Action

Based on the same core conduct described above, in July the DOJ filed this criminal information against Garcia charging conspiracy to violate the FCPA’s anti-bribery provisions. As noted in the DOJ’s release, Garcia pleaded guilty and sentencing is to occur on Dec. 16, 2015.

Note – the plea agreement was filed with the court yesterday but is not publicly available.  This post will be updated when the plea agreement is made public.

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.”