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Congressman Towns Is Asking The Right Questions

Monday, May 24th, 2010

One interesting, surprising, and controversial aspect of FCPA enforcement is that the U.S. government remains a lucrative customer for many FCPA violators, including some of the most egregious violators.

Last December, on the one-year anniversary of the record-setting Siemens enforcement actions, I ran this post – “Siemens … The Year After.”

Among other things, the post noted that in the year since resolution of the Siemens FCPA matter, the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

Using www.recovery.gov, the post then identifies many of the hundreds of government contracts awarded to Siemens’ business units with funds made available from the American Recovery and Reinvestment Act, the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009.

These contracts have been awarded by the following government agencies: Department of Defense, Department of the Air Force, Department of the Army, Department of Transportation, Department of Health and Human Services, Department of Energy, Department of Commerce, Department of Housing and Urban Development, and the General Services Administration. According to Recovery.gov, even the DOJ (i.e. the same government agency that prosecuted Siemens for a pattern of bribery the agency termed “unprecedented in scale and geographic scope”) awarded a Siemens business unit a contract funded with stimulus dollars. Because these are just government contracts awarded with stimulus money, they represent merely the tip of the iceberg.

Siemens is not alone.

In February, BAE settled “FCPA-like” charges. Since the enforcement action, the company has been inking contracts with U.S. government agencies left and right.

Last week it was a $10.7 million contract with the U.S. Army (see here). The week before it was a $5.5 million contract and a $10 million contract with U.S. government agencies (see here and here).

Numerous other FCPA violators could be listed as well.

Against this backdrop, Congressman Edolphus Towns (D-NY), Chairman of the House Committee on Oversight and Government Reform, is asking the right questions.

In a May 18th letter to Attorney General Eric Holder (see here) the Committee expresses its concern “that settlements of civil and criminal cases by DOJ are being used as a shield to foreclose other appropriate remedies, such as suspension and debarment, that protect the government from continuing to do business with contractors who do not have satisfactory records of quality performance and business ethics.”

The letter specifically mentions Kellogg, Brown & Root (KBR), including its 2009 FCPA enforcement action (see here and here).

The letter notes that “remarkably, neither the criminal [FCPA] conviction” nor KBR’s other legal woes “have precluded KBR from continuing to receive new government contracts.”

The letter then correctly notes, as detailed above, that “KBR does not appear to be an isolated example of this inconsistent policy whereby DOJ pursues fines and criminal sanctions for illegal actions by government contractors, yet the negotiated resolution of these cases does not have any effect on the company’s eligibility to continue to receive new contracts. In fact, an agreement by DOJ to intervene on the company’s behalf in any collateral proceedings, such as suspension and debarment, is a staple of deferred prosecution agreements.”

The letter continues:

“This type of clause, in which DOJ agrees to take the company’s side in suspension and debarment proceedings, has become standard and continues to this day. In a settlement just last month in which Daimler paid $185 million to settle criminal and civil charges that it violated the Foreign Corrupt Practices Act, DOJ “agrees to cooperate with Daimler” “[w]ith respect to Daimler’s present reliability and responsibility as a government contractor.” (See here for the Deferred Prosecution Agreement – para 21).

The letter concludes by the Committee asking for answers to the following questions by May 28th.

1. Does DOJ consider resolution of charges to foreclose action by other government agencies to suspend or debar companies from contracting?

2. In view of the fact that suspension and debarment is not a penalty, but is an important means for government agencies to protect themselves from unscrupulous and poorly performing contractors, please provide a detailed explanation of whether the Justice Department believes it is in the government’s best interest to continue to award contracts to those with a record of violations of law.

3. Does DOJ consult with federal government contracting authorities when entering into settlement agreements with companies that compete for government contracts?

4. Identify all instances in which DOJ officials intervened in a suspension and debarment proceeding on behalf of government contractors since 2005 and explain the basis for the DOJ intervention.

These are all the right questions to ask of the DOJ.

I’ve noted in numerous other posts (and elsewhere) that DOJ’s deterrance message will not fully be heard until an FCPA violator is debarred from receiving lucrative government contracts.

For a copy of the Committee’s news release (see here).

Friday Roundup

Friday, February 19th, 2010

Some FCPA news to pass along on this Friday.

SFO Defends BAE Settlement

Richard Alderman, the Director of the U.K. Serious Fraud Office (“SFO”) recently defended the SFO settlement with BAE (see here).

Among other things, Alderman argued that any suggestion BAE “got off lightly” ignores “London’s contribution in enabling the U.S. to impose a $400 million fine.”

Point taken.

Alderman then says that the DOJ “would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ].”

Point not taken.

What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?

What is achieved when you charge BAE’s agent (presumably based on evidence that the following did occur) for “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc” and then a few days later withdraw the charges and state “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

As to this issue, Alderman stated that “the public interet lay in drawing a line under the whole investigation.”

The article notes that “two campaigning groups said they would launch a legal challenge to Mr. Alderman’s decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE’s network of hundreds of agents on four continents.” If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.

For prior posts on BAE, includng the DOJ’s non-bribery, bribery allegations see here.

Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.

The Pipes May Soon Burst

Ocassionaly, I have covered “cases” reportedly in the FCPA pipeline (see here). Set forth below is some “pre-news” about some coming attractions.

Given the above, it seems fitting to start with KBR, Inc.

KBR, Inc.

Here’s what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.

Pride International Inc.

Earlier this week, Pride disclosed (here) that:

“it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {…] The accrual in the fourth quarter 2009 represents the company’s best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual.”

For prior posts about Pride see here.

Innospec, Inc.

Here is what Innospec had to say about its on-going FCPA matter:

“”We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings.”

Alcatel-Lucent

Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:

“As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent’s internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term.”

For the trials and tribulations on both sides of this corporate hyphen see here and here.

Thirsty for more? OK, here is the last one.

Maxwell Technologies Inc.

Here is what the company’s CEO had to say about its $9.3 million accural for a potential FCPA settlement:

“Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department.”

See also here.

*****

A good weekend to all.

Friday Roundup

Friday, February 19th, 2010

Some FCPA news to pass along on this Friday.

SFO Defends BAE Settlement

Richard Alderman, the Director of the U.K. Serious Fraud Office (“SFO”) recently defended the SFO settlement with BAE (see here).

Among other things, Alderman argued that any suggestion BAE “got off lightly” ignores “London’s contribution in enabling the U.S. to impose a $400 million fine.”

Point taken.

Alderman then says that the DOJ “would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ].”

Point not taken.

What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?

What is achieved when you charge BAE’s agent (presumably based on evidence that the following did occur) for “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc” and then a few days later withdraw the charges and state “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

As to this issue, Alderman stated that “the public interet lay in drawing a line under the whole investigation.”

The article notes that “two campaigning groups said they would launch a legal challenge to Mr. Alderman’s decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE’s network of hundreds of agents on four continents.” If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.

For prior posts on BAE, includng the DOJ’s non-bribery, bribery allegations see here.

Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.

The Pipes May Soon Burst

Ocassionaly, I have covered “cases” reportedly in the FCPA pipeline (see here). Set forth below is some “pre-news” about some coming attractions.

Given the above, it seems fitting to start with KBR, Inc.

KBR, Inc.

Here’s what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.

Pride International Inc.

Earlier this week, Pride disclosed (here) that:

“it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {…] The accrual in the fourth quarter 2009 represents the company’s best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual.”

For prior posts about Pride see here.

Innospec, Inc.

Here is what Innospec had to say about its on-going FCPA matter:

“”We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings.”

Alcatel-Lucent

Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:

“As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent’s internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term.”

For the trials and tribulations on both sides of this corporate hyphen see here and here.

Thirsty for more? OK, here is the last one.

Maxwell Technologies Inc.

Here is what the company’s CEO had to say about its $9.3 million accural for a potential FCPA settlement:

“Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department.”

See also here.

*****

A good weekend to all.

An FCPA Triangle

Friday, November 13th, 2009

First it was the company – Willsbros Group Inc. (see here).

Then, it was the company’s employees – Jim Bob Brown (see here) and Jason Steph (see here).

Finally, it is the company’s consultant – Paul Novak (see here).

An FCPA triangle of sorts.

Don’t hold your breath waiting for an FCPA square because, as has been noted in previous posts, the final piece of the puzzle … the “foreign official” will not be happening anytime soon as the FCPA only applies to the “briber-giver” not the “bribe-taker.”

As noted in the DOJ release, Novak (a former consultant for Willbros International Inc. – a subsidiary of Willbros Group Inc.) pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA in connection with payments to Nigerian “foreign officials.”

Assistant Attorney General Breuer (the blog’s “person of the week” given his frequent mention here in the last few days) had this to say:

“The use of intermediaries to pay bribes will not escape prosecution under the FCPA. The Department will continue to hold accountable all the players in an FCPA scheme – from the companies and their executives who hatch the scheme, to the consultant they retain to carry it out.”

Of course, there still must be jurisdiction over the consultant, but this was not a problem in the Novak matter as he is a U.S. citizen and thus subject both to territorial jurisdiction (i.e. U.S. nexus – see 78dd-2(a)) or nationality jurisdiction (see 78dd-2(i)).

This isn’t the first time the DOJ has gone after consultants or agents. In March 2009, the DOJ unsealed indictments against U.K. citizens Jeffrey Tesler and Wojciech Chodan for their alleged roles in the KBR/Halliburton Nigeria bribery scheme. (see here for the DOJ release, here for the indictment).

Halliburton / KBR … The Sequel

Saturday, October 24th, 2009

In February 2009, Halliburton Co., KBR Inc., and Kellogg Brown & Root LLC agreed to resolve parallel DOJ and SEC FCPA enforcement actions concerning improper payments to Nigerian officials in connection with the Bonny Island liquefied natural gas project. (see here, here, and here).

The combined $579 million in fines and penalties remains the most ever against a U.S. company for FCPA violations.

Included in the web of companies involved in the Nigeria conduct was M.W. Kellogg Company (“MWKL”), a United Kingdom joint venture 55% owned by KBR. MWKL is mentioned in the linked DOJ and SEC materials above.

It looks like Halliburton’s exposure via M.W. Kellogg is not over.

Today, in a 10-Q filing (see here – p. 10), Halliburton stated as follows:

“In the United Kingdom, the Serious Fraud Office (SFO) is considering civil claims or criminal prosecution under various United Kingdom laws and appears to be focused on the actions of MWKL, among others. Violations of these laws could result in fines, restitution and confiscation of revenues, among other penalties, some of which could be subject to our indemnification obligations under the master separation agreement. Our indemnity for penalties under the master separation agreement with respect to MWKL is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL. Whether the SFO pursues civil or criminal claims, and the amount of any fines, restitution, confiscation of revenues or other penalties that could be assessed would depend on, among other factors, the SFO’s findings regarding the amount, timing, nature and scope of any improper payments or other activities, whether any such payments or other activities were authorized by or made with knowledge of MWKL, the amount of revenue involved, and the level of cooperation provided to the SFO during the investigations.”

It used to be that companies with FCPA exposure could get a good night’s sleep after resolving DOJ and (if an issuer) SEC enforcement actions.

As this action (and others in recent years) demonstrate, the landscape has changed and “tag-a-long” FCPA-like enforcement actions or inquiries in other countries I think will become the new norm.

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