In 1986 the SEC brought this civil injunctive action against Ashland Oil, Inc. (a Kentucky based oil refining company) and its Chairman and CEO Orin Atkins for engaging in conduct in violation of the FCPA’s anti-bribery provisions.

The complaint began by noting that in 1975, prior to the passage of the FCPA, the defendants consented to final judgments of permanent injunction enjoining them from using corporate funds “for unlawful political contributions or other similar unlawful purposes.”  As noted in “The Story of the Foreign Corrupt Practices Act” Ashland Oil’s payments to Albert Bernard Bongo, the President of Gabon, were among a group of payments that drew Congressional attention to the foreign corporate payments problem and motivated Congress to pass the FCPA in 1977.

The 1986 Ashland Oil enforcement action is thus notable as the first instance of an “FCPA” repeat “offender.”

As highlighted in more detail below, the enforcement action is also notable for the following reasons:  (i) the thing of value consisted of buying a “foreign official’s” interest in a largely worthless mine); (ii) the conduct at issue lead to an FCPA-related civil suit in which two terminated company employees were awarded $70 million in damages; and (iii) there was controversy both as to the DOJ’s and SEC’s handling of the conduct at issue.

In the 1986 action, the SEC alleged that Ashland Oil and Atkins “paid $25 million in principal plus approximately $4 million in interest, and by virtue of the acquisition of an interest in Midlands Chrome [a largely worthless Zimbabwe mine owned by the "foreign official" and his family], gave something of value to James Landon [a British national seconded (detailed) to the government of Oman who served as a special adviser to the Sultan of Oman on Omani intelligence and security matters] … for the purpose of inducing Landon to use his influence with the government of Oman … in order to assist Ashland in obtaining and retaining business with the government of Oman … namely certain business related to crude oil.”

According to the complaint, Atkins was told that Midlands Chrome “could be purchased from persons who could be sympathetic to Ashland’s desire to become a purchaser of crude oil from Oman.”  Even though a company lawyer advised that the transaction raised issues under the FCPA, the SEC alleged that the “board of directors of Ashland held a meeting at which Atkins presented for the Board’s approval the acquisition of Midland Chrome.”  According to the complaint, Atkins viewed the acquisition as a “high risk project” but one that had “potential of being more than offset by a potential crude oil contract …”.  According to the complaint, initial board meeting minutes show that Atkins said “the corporation was interested [in the Midlands Chrome acquisition] for the reason that it might thereby be enabled to obtain a contract to purchase crude oil from Oman” but that “this statement was deleted from the final version of the minutes at Atkins’ direction.”

Based on the above core conduct, in a detailed 35 page complaint, the SEC alleged three substantive FCPA anti-bribery violations.

Atkins resigned as chairman of Ashland in 1981 after an internal investigation into a number of questionable foreign payments.  According to media reports, when the 1986 matter was resolved Atkins issued a statement which read as follows.  “Although it would be my personal preference to litigate this matter, I have agreed to settle this action so that the company can put this lingering dispute behind it, and because to contest this matter would have involved disproportionate trouble and expense.”  For more on the life of Orin Atkins, see here and here.

In media reports, Richard Murphy, an SEC enforcement lawyer, said the Ashland case was significant because it demonstrated that the SEC will go beyond the traditional “cash cases” and scrutinize more complicated transactions to determine if they represent violations.

In 1995, Ashland Oil changed its name to Ashland Inc.

In an interesting side note, former Ashland employees Bill McKay and Harry Williams sued the company for breach of contract and wrongful discharge, asserting that Ashland’s pattern of corrupt practices amounted to a violation of the Racketeer Influenced and Corrupt Organizations law.   McKay alleged that he was terminated because he refused to take part in any bribery schemes and that he refused in subsequent investigations to hide Ashland’s conduct from officials at the IRS and SEC.  According to a 1989 ABA Journal report, “Williams had not been asked to take part in any foreign payments, but he’d become sympathetic to McKay’s efforts to change Ashland’s policy.”  According to the report,  Williams “made an anonymous phone call to the SEC and spoke freely about Ashland’s recent actions abroad.”  A jury returned a verdict of approximately $70 million.  According to the ABA report, McKay was awarded over $44.5 million, and the rest was apportioned to Williams.  According to the report, Ashland threatened to appeal and the parties settled for $25 million.

Set forth below, in pertinent part, is an interesting article published in the Washington Post on July 10, 1988. about the DOJ’s and SEC’s handling of the conduct at issue.

“Lawyers for two former executives who won a $ 69.5 million award from Ashland Oil Co. contend that their victory shows the Securities and Exchange Commission pulled its punches in handling charges of overseas bribery and other illegal conduct by Ashland.  The two former vice presidents had said in wrongful-dismissal lawsuits and in SEC testimony that Ashland paid tens of millions of dollars in bribes to foreign officials to get scarce crude oil and then tried to cover up the illegal conduct. They said they lost their jobs after refusing to participate in conspiracies, perjury and other crimes.  Last month, a U.S. District Court jury in Covington, Ky., awarded Bill E. McKay $ 44.6 million and Harry D. Williams $ 24.9 million after a 35-day trial. The jury said the liability should be shared by Ashland; its former chairman and chief executive, Orin E. Atkins; John R. Hall, who succeeded Atkins in 1981, and Richard W. Spears, senior vice president for human resources and law.”

“The SEC filed a much narrower civil lawsuit in July 1986 charging that Ashland and Atkins had bribed an official of Oman to get oil from the sultanate. The suit was filed in tandem with a consent decree, a final court judgment in which Ashland and Atkins neither admitted nor denied past violations while agreeing to face criminal penalties for future ones.”

“The jury and the SEC each had essentially the same evidence of possible violations of the Foreign Corrupt Practices Act (FCPA) of 1977. The gap between the jury’s verdict and the SEC action shows that the SEC dealt with the matter too lightly, according to John R. McCall and Kenneth M. Robinson, the lawyers for McKay and Williams.  ‘I can understand how counsel for McKay and Williams are proud of their achievement, and they certainly have the right to crow about it,’ said SEC enforcement chief Gary G. Lynch. ‘But any criticism of the commission’s investigation, or of the results that we achieved, is simply unwarranted.’”

“Punitive damages accounted for only $ 3 million of the awards to McKay and Williams. Compensatory damages were tripled — to $66.5 million — for conspiring to violate, and for violating, the Racketeer Influenced and Corrupt Organizations Act. RICO makes it unlawful for any person associated with an enterprise affecting commerce to lead or to join in ‘conduct of [the] enterprise’s affairs through a pattern of racketeering activity.’  The jury found that the three individual defendants had all conducted or participated in ‘a pattern of racketeering activity’ principally through multiple violations of the FCPA antibribery section and of a law prohibiting travel for the purpose of violating the section.”

[...]

“The SEC’s 1986 lawsuit, which followed months of negotiations with Ashland’s law firm, Cravath, Swaine & Moore, named only one person paid by the oil company, James T.W. (Tim) Landon of Oman, as a foreign government official under the FCPA’s antibribery provisions. The complaint also alleged only one bribe, described by Ashland as a $ 25 million investment in a Landon-controlled chromium mine in Rhodesia.  But the jury found that Ashland, ‘with corrupt intent to bribe,’  had made payments to three figures it said were foreign officials under the FCPA: Landon and Yehia Omar of Oman, and Hassan Y. Yassin of Saudi Arabia (who also has operated a consulting firm in McLean).  With the same corrupt intent, the jury said, Ashland had made payments to a fourth recipient, Sadiq Attia, ‘knowing or having reason to know that’ all or a portion of the money — $ 17 million — ‘would be used to bribe a government official of Abu Dhabi.’”

“The SEC complaint and consent decree did not mention Yehia Omar or cite any Abu Dhabi and Saudi Arabia payments.  Last December, SEC Chairman David S. Ruder told Senate Banking Committee Chairman William Proxmire (D-Wis.) that the Division of Enforcement ‘concluded that the evidence was … insufficient to support further charges of violations’ of the FCPA. In an interview after the jury verdict, Lynch said ‘there was not sufficient evidence that we felt comfortable we could prevail’ if charges were brought based on Ashland payments to Omar. ‘Even before we sat down to negotiate, we had decided privately to exclude Omar, Abu Dhabi, and Saudi Arabia from the consent decree.  ‘It was clear to us that the Landon transaction was the strongest, because we believed we could establish that Landon was a government official at the time the chrome transaction occurred.’ Lynch said. He called a multiple-count complaint unnecessary.  ‘We were suing for injunctive relief,’ and ‘we could get it with Landon,’ he said. ‘There was no need to push and take on a litigation risk in a case that was much less certain.’  He extended this argument to the omission of the Abu Dhabi and Saudi Arabia cases.”

“But lawyers McCall and Robinson disagreed. ‘The finest judicial scrutiny our American judicial system can provide has now determined that the earlier government efforts were incomplete,’ McCall said. It’s ‘ridiculous’ for the SEC to claim the evidence was insufficient to convince a jury that bribery far beyond that which it alleged hadn’t occurred, he said.”

“Lynch also defended the SEC’s decision not to ask a federal court to find Ashland and Atkins had violated a 1975 consent decree and to hold them in criminal contempt.  ‘We did have a concern about meeting the higher burden of proof in order to prove criminal contempt,’ Lynch said. [...] One difficulty in going the criminal route was that ‘the major thrust’ of the 1975 decrees involved unlawful political contributions, and ‘these were foreign bribes,’ Lynch said.”

“But the lawyers for McKay and Williams dismissed this explanation. They pointed out that the 1975 consent decrees prohibited false or fictitious bookkeeping entries, and said the $ 25 million Oman item that the SEC called a bribe, as well as the Abu Dhabi and Saudi Arabia payments, all were recorded by Ashland as ordinary outlays.  ‘It was like shooting ducks in a barrel,’ Robinson said. ‘There was no answer that any Ashland official could give on the stand to explain the fraud that was in the documents that they wrote. And how the SEC could miss that is beyond description.’  ‘The SEC should have seen it. These were indictable offenses … I don’t see the evidence that the SEC even slapped Ashland’s wrist. They just closed the book by executing another consent decree — a promise to pay, which is all that it is.’”

“Arthur F. Mathews, who was an SEC deputy enforcement chief in 1969, said in an interview that ‘in the horse-trading for not litigating,’ Cravath, Swaine ’got the staff to strike Yehia Omar …  If I had to guess, they did not include Yehia Omar in their action because they thought it was a toss-up whether you could prove it, and they gave it up in the bargain.’”

“McCall said the SEC staff may well have done all it could have, particularly in light of the Reagan administration’s apparent reluctance to enforce the FCPA’s antibribery provisions.’ The SEC commissioners, for example, voted 3 to 2 to reject the division’s initial recommendation for a lawsuit that named only Landon as the recipient of a bribe. Only after the division reargued its case did the commission reverse itself, allowing Lynch to file the lawsuit.  Lynch said the SEC disregarded a report by an outside counsel who concluded that the Oman transactions had not violated the FCPA or the 1975 consent decree. Williams and McKay had challenged the independence of the outsider, Pittsburgh attorney Charles J. Queenan. Queenan is a friend of Cravath, Swaine presiding partner and Ashland director Samuel C. Butler, who submitted the report to the SEC as the work of an independent counsel.  ‘We did not accept the conclusion that it was an ‘independent counsel’ report,” Lynch said. The SEC staff ‘did our own very thorough investigation of the matter,’ he said. ‘It is clear that if we had accepted the Queenan report’s findings, we would not have filed an action.”

[...]

“Sen. Proxmire, who monitors FCPA enforcement, also has raised questions about the Justice Department’s role in the Ashland case. The department had full access to the SEC’s files from the start of the SEC staff investigation in May 1983. Last October, after a Washington Post series on Ashland’s payments to overseas consultants, Proxmire asked the department if it had investigated the matter and if ‘it has concluded that violations of the FCPA have taken place.’ If the conclusion was that there’d been no violations, ‘I would like an explanation of the rationale underlying such a judgment,’ Proxmire said. ‘If the department has not investigated these allegations, I request that you do so and let me know the results.’  Assistant Attorney General John R. Bolton said on Jan. 20 that he would respond when he received a report from the fraud section of the Criminal Division.  On June 20, Proxmire, having heard nothing more for six months, sent Attorney General Edwin Meese III a news story on the jury verdict in Kentucky and asked ‘whether the Department of Justice will now initiate a criminal action.’  If not, Proxmire said he wanted to know why. A department spokesman said a response is being prepared.”

On Monday, the DOJ announced (here) criminal obstruction of justice charges against “Frederic Cilins a French citizen [for] attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”

Yesterday, it was reported (here) that former Siemens executive Uriel Sharef had, as expected, settled the SEC enforcement action against him by agreeing, without admitting or denying the SEC’s allegations, to pay a $275,000 penalty.  (See here for the prior post discussing the DOJ’s and SEC’s December 2011 charges against Sharef and others).

Yesterday, the DOJ announced (here) that criminal charges “have been unsealed against one current and one former executive of the U.S. subsidiary of a French power and transportation company for their alleged participation in a scheme to pay bribes to foreign government officials.”  The individuals are:

Frederic Pierucci (“a current company executive who previously held the position of vice president of global sales for the Connecticut-based U.S. subsidiary) “who was charged in an indictment unsealed in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.”  According to the DOJ, Pierucci, a French national, was arrested Sunday night at John F. Kennedy International Airport.

David Rothschild (“a former vice president of sales for the Connecticut-based U.S. subsidiary”) who pleaded guilty on Nov. 2, 2012, to a criminal information charging one count of conspiracy to violate the FCPA.  The charges against Rothschild and his guilty plea were recently unsealed.

Future posts will explore in more detail each of the above developments.

Today’s post is about yesterday’s other FCPA development - the announcement of the long-expected enforcement action against Parker Drilling (a Houston-based oil drilling services company) for conduct in Nigeria.

As indicated in this DOJ release, the Parker Drilling action “stemmed from the DOJ’s Panalpina-related investigations.”

As detailed in this prior post, in November 2010, the DOJ and SEC announced coordinated FCPA enforcement actions against Swiss-based freight forwarder Panalpina and six oil and gas companies that utilized its services in connection with business in Nigeria.  The November 2010 enforcement action resulted in approximately $237 million in combined DOJ/SEC settlement amounts.  (For additional reading on these actions, please visit the CustomsGate tab under the search feature of this site or see here where all the prior actions are linked).  As noted in this prior statistical post, Panalpina-related enforcement actions are one, of just a few unique events, that have given rise to the majority of FCPA enforcements since 2007, and Panalpina-related enforcement actions significantly contributed to the “spike” in FCPA enforcement actions in 2010.

Total fines and penalties in the Parker Drilling enforcement action were approximately $15.9 million (approximately $11.8 million in the DOJ enforcement action and approximately $4.1 million in the SEC enforcement action).

This post summarizes the DOJ’s and SEC’s allegations and resolution documents.

DOJ

The DOJ enforcement action involved a criminal information (here) against Parker Drilling resolved through a deferred prosecution agreement (here)

Criminal Information

Parker Drilling operated oil-drilling rigs in Nigeria owned by Parker Drilling (Nigeria Limited), a Nigerian entity and wholly-owned subsidiary of Parker Drilling Offshore International, Inc., (a Cayman Islands corporation wholly-owned by Parker Drilling).  According to the information, “Parker Drilling ceased drilling operations in Nigeria in 2006″ and the conduct at issues focused on two issues or events that occurred between 8 to 12 years ago.

First, the information, like the prior Panalpina-related enforcement actions, alleged conduct in connection with obtaining temporary importation permits (TIPs) in Nigeria for oil-drilling rigs.  The information alleges that in 2001, Parker Drilling retained Panalpina to “obtain TIPs and TIP extensions on Parker Drilling’s behalf.  According to the information, between 2001 and 2002:

“Panalpina obtained new TIPs for Parker Drilling’s rigs by submitting false paperwork on Parker Drilling’s behalf to avoid the time, cost, and risk associated with exporting the rigs and re-importing them into Nigerian waters (a process that Panalpina referred to as the ‘paper process’ or ‘recycling.’).  Panalpina created and caused to be presented to Nigerian officials documents that reflected that the rigs had been physically exported and re-imported.  In reality, the drilling rigs never left Nigerian waters.”

Second, and more significant in terms of the conduct alleged in the information, the DOJ alleges conduct in relation to the Nigerian ”Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000″ (the “TI Panel”).  According to the information, the TI Panel was “presidentially appointed, operated under the auspices of the Nigerian President’s Office, and possessed the power to issue subpoenas and levy fines” in connection with certain duties and tariffs that the Nigerian Customs Service (“NCS”) collected or failed to collect between 1984 and 2000.

As to the TI Panel, the information alleges that beginning in 2002 the TI Panel began reviewing Parker Drilling.  According to the information, thereafter Parker Drilling engaged Nigeria Outside Counsel (a Nigerian citizen based in Nigeria who advised Parker Drilling on customs and other matters in Nigeria) and a Nigeria Agent (a Nigerian and British citizen based in the U.K. to assist Parker Drilling in connection with customs matters in Nigeria) who represented Parker Drilling before the TI Panel.

The information alleges that in 2004 “the TI Panel concluded that Parker Drilling had violated [Nigerian law] with respect to several of its TIPS” and that the “TI Panel assessed a fine of $3.8 million against Parker Drilling.”  The information then outlines a “bribery scheme,” that resulted in the TI Panel reducing Parking Drilling’s fine ”to just $750,000.”

In connection with this ”bribery scheme,” the information alleges conduct as to Employee A (a U.S. citizen based in Nigeria who, during the relevant time period, was the General Manager of Parker Drilling’s operations in Nigeria); Employee B (a U.S. citizen based in Nigeria who also was a General Manager of Parker Drilling’s Operations in Nigeria); Executive A (a U.S. citizen based in Houston who performed financial and compliance functions for Parker Drilling between 2002 through 2005); Executive B (a U.S. citizen based in Houston who performed a legal function for Parker Drilling); U.S. Outside Counsel (a U.S. citizen and partner in a U.S. law firm who served as Parker Drilling’s outside counsel who provided legal and business advice to Parker Drilling on customs and other issues in Nigeria).

Specifically, the information alleges that U.S Outside Counsel suggested that Parker Drilling retain the Nigeria Agent to resolve its Nigerian customs issues even though Nigeria Agent’s “resume, which U.S. Outside Counsel provided to Parker Drilling, did not reflect any past experience in Nigeria or handling customs issues.”  According to the information, Parker Drilling “conducted no additional due diligence into Nigeria Agent’s qualifications.”

The information alleges that “with one exception, Parking Drilling paid Nigeria agent indirectly through the U.S.-based law firm” and that “Executives A and B paid and caused to be paid all of Nigeria Agent’s expenses without receiving any invoices particularly describing the expenditures’ purposes.”   According to the information, many of expenses related to food, entertainment, social events and the like and the information alleges various meetings the Nigeria Agent had with various Nigerian foreign officials.

The information further alleges that Parker Drilling’s treasurer informed Executive B “that the lack of invoices could raise an issue in Parker Drilling’s ongoing Sarbanes Oxley audit.”  Thereafter, the information alleges, the Nigeria Agent sent an invoice and that Executive B “accepted the invoice and retained it in Parker Drilling’s files, knowing that the invoice did not accurately reflect the true purpose of Parker’s Drillings” prior payments to the Nigeria Agent.

The information then states as follows.  “All told, Parker Drilling transferred and caused to be transferred to Nigeria Agent approximately $1.25 million to address Parker Drilling’s TI Panel issues” and that “Nigeria Agent succeeded in reducing Parker Drilling’s TI Panel Fines.”

Based on the above conduct, the information charges one count of violating the FCPA’s anti-bribery provisions.  Although the above Panalpina-related allegations are incorporated by reference into the paragraphs charging the FCPA violation, the information specifically identifies only the TI Panel conduct and states as follows.  “Parker Drilling made and cause to be made from the United States … a series of payments totaling approximately $1.25 million to Nigeria Agent, knowing that all or a portion of those payments would be given or used to procure goods and services that were to be given to a foreign government official in return for the diminution of a lawfully assessed fine.”

Deferred Prosecution Agreement

The above charge against Parker Drilling was resolved via a DPA in which Parker Drilling admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees and agents as charged in the information.

The DPA has a term of three years and under the heading “relevant considerations” it states as follows.

“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and the Company.  Among the facts considered were the following:  (a) the Company’s cooperation, including conducting an extensive internal investigation and collecting, analyzing, and organizing voluminous evidence and information for the Department; (b) the Company has engaged in extensive remediation, including ending its business relationships with officers, employees or agents primarily responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the Company’s contracts; (c) the Company has retained a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee, as well as staff to assist the Chief Compliance Officer and Counsel; (d) the Company has already significantly enhanced and is committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth [elsewhere in the DPA]; (e) the Company has implemented a compliance-awareness improvement initiative and program that includes issuance of periodic anti-bribery compliance alerts; (f) the Company has already implemented many of the elements described [elsewhere in the DPA]; and (g) the Company has agreed to continue to cooperate with the Department in any ongoing investigation …”.

Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $14.7 million to $29.4 million.  The DPA then states as follows.

“The Company agrees to pay a monetary penalty in the amount of $11,760,000, an approximately 20% reduction off the bottom of the fine range [...].  The Company and the Department agree that this fine is appropriate given the facts and circumstances of this case, including the Company’s cooperation, extensive remediation, committment to continue to enhance its compliance program, and culpability relative to other companies examined in this investigation.”

During the period of the DPA, Parker Drilling will have annual reporting obligations to the DOJ concerning its remediation and implementation of various compliance measures.  As is typical in FCPA DPAs, Parker Drilling also agreed to a ”muzzle clause” (see this prior post for more information).

SEC

In a related enforcement action based on the same core conduct, the SEC brought a civil complaint (here) against Parking Drilling.

The introductory paragraph of the complaint states as follows.

“This matter involves violations of the Foreign Corrupt Practices Act (“FCPA”) by Defendant Parker Drilling Company.  In 2004, through its outside counsel, Parker Drilling retained a Nigerian agent to assist the company with customs disputes related to the importation of its drilling rigs into Nigeria. During the course of the agent’s work, two Parker Drilling executives knowingly paid the agent large sums of money through its outside counsel for, among other things, the “entertainment” of Nigerian foreign officials in an effort to obtain their influence in resolving the customs disputes.”

The SEC complaint also contains a paragraph with the same general Panalpina-related allegations as alleged in the DOJ’s criminal information.

Under the heading “Remedial Efforts” the complaint states as follows.

“Parker Drilling demonstrated significant cooperation and conducted an extensive internal investigation. Since the time of the conduct noted in this Complaint, Parker Drilling has made significant enhancements to its global anti-corruption compliance program, including: retaining a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee and full-time staff to assist him; enhancing anti-corruption due diligence requirements for relationships with third parties; increasing compliance monitoring and corporate auditing specifically tailored to anti-corruption; implementing a compliance awareness initiative that includes issuance of periodic anti-bribery compliance alerts; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.”

Based on the above conduct, the SEC charged an FCPA anti-bribery violation and an FCPA books and records and internal controls violation.  Other than restating the language of the books and records and internal controls provisions, the SEC complaint does not contain any specific allegations concerning these charges.

As noted in this SEC release, Parker Drilling agreed to pay disgorgement of 3,050,00 plus pre-judgment interest of $1,040,818, and consented to the entry of a final judgment permanently enjoining it from future FCPA violations.

Mitchell Ettinger, Saul Pilchen and Stephanie Cherny (Skadden, Arps) represented Parker Drilling.

Parker Drilling in this release stated as follows.

“After an extensive investigation, with which we fully cooperated, we are pleased to have reached agreement with the DOJ and the SEC, and we will continue to maintain a vigorous FCPA compliance program, to emphasize the importance of compliance and ethical business conduct, and to enhance our compliance efforts.”

Parker Drilling had previously disclosed that the DOJ and SEC’s investigations concerned “certain of our operations relating to countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria.”

The year was 1982 and the Foreign Corrupt Practices Act was nearing five years old.  Up to this point, enforcement was sparse and focused on single-actor type cases.  See here, here, here, here and here for FCPA enforcement actions up to this point.

In 1982, the first FCPA mega-case was brought and it involved five corporate defendants and twelve individual defendants.

Specifically, in October 1982, the DOJ brought an indictment (here) against:

• Crawford Enterprises Inc. (“CEI”) (a Houston based private company that sold compression equipment systems to oil and gas companies);
• Donald Crawford (CEI’s Chairman and sole shareholder and, at certain relevant times, CEI’s President);
• William Hall (CEI’s Executive Vice President and, at certain relevant times, CEI’s President);
• Ricardo Beltran (President and majority shareholder of Grupo Industrial Delta, a Mexican corporation);
• Mario Gonzalez (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
• Andres Garcia (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
• George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company);
• Luis Uriarte (the Latin American Regional Manager of Solar);
• Al Eyester (President of Ruston Gas Turbines “Ruston”);and
• James Smith (Vice President of Ruston).

The indictment charged a conspiracy between the defendants and others to pay money to Mexican foreign officials and Grupo Delta “knowing that all or a portion of such money would be offered, given or promised directly or indirectly” to foreign officials for the purpose of influencing the acts and decisions of the officials “in their official capacity, and inducing them to use their influence with Pemex so as to affect and influence the acts and decisions of Pemex in order to assist” Crawford, the other defendants, and others in “obtaining or retaining business with Pemex.”

The indictment alleges that Petroleos Mexicanos (“Pemex”) was the “national oil company wholly owned by the Government of the Republic of Mexico and was responsible for the exploration and production of all of the oil and natural gas resources of Mexico and for acquiring the equipment, including compression equipment systems, necessary for such exploration and production.”

The indictment alleged that “Pemex was an instrumentality of a foreign government” and that two individuals (Ignacio de Leon and Jesus Chavarria) were “foreign officials” based on their positions of “subdirector of Pemex responsible for the purchase of goods and equipment on behalf of Pemex” and “subdirector of Pemex responsible for the exploration and production of Mexican oil and natural gas.”

[As an aside, it should be noted that in the recent "foreign official" challenges, the DOJ has argued that its charging decision in the Crawford cases as to Pemex demonstrated the validity of its position that employees of SOEs are "foreign officials" under the FCPA.  For instance, the recent FCPA Guidance states that the SEC and DOJ ‘‘have pursued cases involving instrumentalities since the time of the FCPA’s enactment’’ and that the ‘‘second-ever FCPA case charged by the DOJ’’ involved bribes to executives of the Mexican national oil company.  

However being consistently wrong, does not make one right and, as noted in my article "Grading the FCPA Guidance," missing from the Guidance discussion or associated citations on this issue, is any reference to the fact that George McLean, the only defendant in the series of related cases to put DOJ to its burden of proof at trial, was found not guilty by the jury.]

The conspiracy charge alleged that CEI and Crawford agreed to pay and paid the “foreign officials” “bribes equalling approximately 4.5% of each Pemex purchase order for compression equipment systems in which” CEI participated and that “it was further a part of the conspiracy” that CEI and Crawford arranged with defendants Beltran, Gonzalez and Garcia that Grupo Delta would: “(a) hold itself out as the Mexican agent of CEI, while in truth acting primarily as the conduit for the bribe payments; (b) disguise the bribe payments as ‘commissions’ due by providing to CEI false and fictitious invoice for each payment received; and (c) provide Gonzalez and Garcia with a base of operations from which to perform their function as middlemen and channels of communications between the co-conspirators” and the foreign officials.”

The indictment further alleged that the defendants used the term “folks” as a code word for the “foreign officials” “in order to conceal from others their true identities as Pemex officials and the existence of the bribe scheme.”  The indictment alleged that “in order to create a pool of money with which to pay bribes” CEI along with Solar and Ruston “submitted to Pemex bids which were inflated to include a 4.5% markup for the “folks.”

The indictment alleged that CEI, along with Solar and Ruston received purchase orders from Pemex for compression equipment systems in the approximate amount of $225 million and that approximately $10 million in bribe payments were made to the “foreign officials” as part of the bribery scheme.

In addition to the conspiracy charge, the indictment also alleged approximately fifty substantive FCPA anti-bribery violations against various combinations of the defendants.  The indictment also charged CEI, Crawford and Hall with an obstruction charge based on allegations that the defendants destroyed certain documents relevant to a grand jury subpoena.

Media reports described the action as the first major criminal investigation under the FCPA.  According to the reports, in November 1982, CEI, Crawford, Hall, Garcia, McLean, Uriate, and Eyster pleaded not guilty.  Crawford and Hall stated that while commission payments were made to Grupo, no such bribes were paid to Pemex officials.

CEI released a statement which said that “despite vigorous and repeated denials by Crawford Enterprises of any wrongdoing in connection with these allegations, the investigation has continued for nearly 3.5 years.”  The company said that Pemex and the Mexican government had looked into similar charges and found no wrongdoing in the award of Pemex contracts to Crawford.  The company’s statement further indicated as follows.  “Four factors accounted for CEI’s success in becoming one of Pemex’s principal gas compression contractors:  its proven experience in the industry; its aggressive delivery schedules that other firms simply could not match; its maintenance and repair of equipment installed in Mexico; and the lower costs to Pemex as a result of all the above.”

Prior to the above-reference October 1982 indictment, in September 1982 the DOJ charged Ruston Gas Turbines Inc., C.E. Miller Corporation and Charles Miller based on the same core set of allegations.  The DOJ charged Ruston Gas Turbines in a one count criminal information (see here) with a substantive FCPA violation and the company pleaded guilty and was ordered to pay a $750,000 fine (see here).  The DOJ charged C.E. Miller Corporation and Miller (President, Chairman of the Board, and majority shareholder of the company) in a one count criminal information charging substantive FCPA violations and aiding and abetting FCPA violations. (See here).  C.E. Miller Corporation and Miller both pleaded guilty and the company was ordered to pay a $20,000 fine and placed on probation for three years (see here) and Miller was sentenced to three years probation (see here).

Prior to the above-referenced September 1982 charges, in May 1981 the DOJ charged Gary Bateman (an International Sales Manager for CEI and also Chairman of the Board, President and sole shareholder of Applied Process Products Overseas, Inc.) in a multi-count information (see here) charging various misdemeanor violations of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme.  Bateman pleaded guilty and agreed to pay a civil penalty of approximately $330,000.  In January 1983, the DOJ also charged Applied Process Products Overseas, Inc. in a one-count information (here) charging a substantive FCPA violation based on the same core set of allegations.  The company pleaded guilty and was ordered to pay a $5,000 fine.  (See here).

After the above-referenced October 1982 charges, in November 1982 the DOJ also filed a criminal information against International Harvester (see here).  The information was based on the same core set of allegations as set forth above and based on the conduct of its employees McLean and Uriarte.  International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement.

The DOJ’s offer of proof in the International Harvester case (see here) contained the following statement.

“After Solar had agreed to participate and to cooperate with CEI, and pursuant to the 1977 enactment of the Foreign Corrupt Practices Act [International Harvester's long-standing Policy on Conflicts of Interest and Ethical Business Conduct] was revised and supplemented to affirm that improper payments prohibited by the Act were also prohibited as a matter of company policy.  In 1977, 1978, 1979, and 1980, through an annual audit process, each International Harvester managerial employee was required to certify his or her compliance and to report any action that might conflict with company policy for review by the Office of the General Counsel and corrective action, if warranted.  During those years, Uriarte and McLean each reported in the annual audit process that he was aware of International Harvester policy and had taken no action in violation thereof.  Insofar as each of them participated in the conspiracy described herein, he accordingly concealed from International Harvester his participation and the participation of the Solar Turbine Division.  Neither Solar employee held a position which required him to report to International Harvester management.  There has been no evidence that any officers, directors or management of International Harvester knew of or participated in the conspiracy charged.”

In January 1983, the DOJ charged Marquis King (an officer and director of C.E. Miller) in a one-count information charging a misdemeanor violation of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. (See here).  King pleaded guilty and he was sentenced to 14 months probation and ordered to pay a $5,000 fine.  (See here).

In June 1985, CEI pleaded guilty to conspiracy to violate the FCPA and 46 substantive FCPA violations.  (See here).  CEI agreed to pay a $10,000 criminal fine as to the conspiracy charge and $75,000 as to each of the 46 substantive charges for a total fine amount of $3,460,000.  At the same time, the following defendants pleaded nolo contendere:  Donald Crawford, Al Eyster, James Smith, Andres Garcia, and William Hall.  Crawford pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $309,000 (see here); Eyster pleaded nolo contendere to conspiracy to violate the FCPA and 41 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Smith pleaded nolo contendere to conspiracy to violate the FCPA and 44 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Garcia pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $75,000 (see here); and Hall pleaded nolo contendere to conspiracy to violate the FCPA and 32 substantive FCPA violations and was ordered to pay a total fine amount of $150,000 (see here).

That leaves McLean and Uriarte.  Stay tuned for the rest of the story.

Of further note from this enforcement action, Pemex filed a civil suit in U.S. District Court in Houston against Crawford, CEI, the two foreign officials, and twelve others in a bid to recover monies allegedly extracted from Pemex.  In its complaint, Pemex sought several million dollars in both compensatory and punitive damages from Crawford and the other entities based upon the same conduct that was alleged in the DOJ enforcement actions.  Pemex’s suit was based upon alleged violations of the Sherman Antitrust Act,  the Robinson-Patman Act, and the Racketeering Influenced and Corrupt Organizations Act.  Pemex also asserted causes of actions based upon commercial bribery and common law fraud.  Various of the defendants in the civil action sought relevant documents from Pemex and it was ultimately held in contempt for not producing the documents.  For additional background on this case, see 643 F.Supp. 370; 826 F.2d 392.

Kazakhstan Customs Inquiry

In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group.  (For more on KPO see here).  According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.”  The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.

Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.

In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct.  In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.

Aguilar Conviction Vacated

This recent post highlighted the official end to the Lindsey Manufacturing prosecution.  The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well.  As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy.  After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody.  Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.

As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction.  In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows.  “The government overreached in its efforts to press this case.  It is bittersweet whenever a prosecution is terminated for misconduct.  Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far.  I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”

Kroll’s 2012 FCPA Benchmarking Report

This post discussed recent FCPA survey data.  Add Kroll’s recent FCPA Benchmarking Report (here) to the list.

As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”

Survey results that caught my eye include the following.

“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry.  [...] 85 percent believe [such risk] will increase or stay the same in the future.”

“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”

“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”

“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”

“[T]he weakest link among survey respondents was how they handled third party relationships.  While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties.  [...] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad.  Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties.  A small number said they worked with more than 100,000 different third parties.”

It’s a third-party world.

The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012.  Survey respondents were drawn mainly from four industries:  financial services, IT/telecommunications, energy, and pharmaceuticals.

The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.

Wal-Mart Civil Suits

One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.

Sure enough.

Wal-Mart’s recent quarterly SEC filing stated as follows.

“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012.  One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”

Chinese SOEs

This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs.  Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report).  As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.”  According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.

*****

A good weekend to all.

Guidance

The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill.  The current conversation thus seems to be focused on DOJ’s promised guidance.

This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.

Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”

The letter begins as follows.  “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”

Topics addressed in the letter include:  “definitions of ‘foreign official’ and ‘instrumentality’”; “consideration of compliance programs in enforcement decisions”; “parent-subsidiary liability”; “successor liability”; “de minimis gifts and hospitality”; “mens rea standard for corporate criminal liability”; and “declination issues.”

In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement.  Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public  domain for those who know where to look.  The Chamber letter similarly states as follows concerning compliance programs.  “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”

Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance.  What the FCPA needs is not guidance, but limited structural reforms  (such as a compliance defense) as well as a change in DOJ policy (such as  elimination of non-prosecution and deferred prosecution agreements).

A Re-Run Worth Watching

If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides.  At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.”  Many thanks to Bruce Carton at Securities Docket for hosting.

Cinergy Telecommunications

In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post).  In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering.  In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy).  As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.

Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy.  The motion states as follows.  “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita.  For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.”  The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.”  The motion concludes as follows.  “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”

Joel Hirschhorn (here - Hirschhorn & Bieber P.A.) represents Cinergy as well as certain individual defendants in the case.

This Week’s FCPA Disclosure

In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny.  So far so good.  This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.

“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”

World Bank Debarment

Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s  acknowledgment of misconduct in relation to a Bank-financed hydropower  project.”  According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a  former senior government official for consultancy services in relation to the  World Bank-financed Zambia Power Rehabilitation Project.”  The release further states as follows. ”The  debarment is part of a Negotiated Resolution Agreement between Alstom and the  World Bank which also includes a restitution payment by the two companies  totaling approximately $9.5 million. The debarment can be reduced to 21 months -  with enhanced oversight – if the companies comply with all conditions of the  agreement.”

What to make of the debarment based on conduct 10 years ago is a bit difficult.  This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows.  “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.”  Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”

Reflecting On The New Era of FCPA Enforcement

As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows.  “We are in a new era of FCPA enforcement’ and we are here to stay.”  Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here.  In this post, titled “The New Era of FCPA Enforcement:  A Time For Reflection” Gorman hit the ball out of the park when he states as follows.

“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”

For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.

*****

A good weekend to all.

ConocoPhillips Shareholder Proposal

Last week ConocoPhillips was hit with an FCPA shareholder proposal – see here.  In the letter, titled “Shareholder Proposal and Statement for Publication in 2012 Proxy Materials Recommending an Audit of Controls on U.S. Foreign Corrupt Practices Act Violations,” the shareholder – Roger Parsons, a former Conoco employee who runs a website “The Iran-Conoco Affair” (here) – recommends “that the Board commission a forensic audit of ConocoPhillips compliance controls that failed to identify violations of the United States Foreign Corrupt Practices Act of 1977 (“FCPA”) arising from James J. Mulva ’s peddling influence with the Bush Administration to obtain Executive Order 13477 on behalf of Muammar al-Qadhafi.”   Mulva is currently ConocoPhillips Chairman and Chief Executive Officer.

Wal-Mart

Add Wal-Mart to the list of company’s under FCPA scrutiny.  In a 10-K filing yesterday, the company disclosed as follows.  “During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known,
we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”

Given the reference to permits, licenses and inspections in the disclosure, it is useful to review the holding of U.S. v. Kay, the only appellate court decision to directly address payments outside the context of directly securing a foreign government contract.  In Kay, the 5th Circuit said that such payments “could” violate the FCPA, but that “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business.  The court specifically stated as follows.  “If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in betting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

Embraer

Bloomberg has additional information (here) regarding Embraer’s FCPA scrutiny (discussed in this previous post).  The article suggests that the “probe started more than a year ago in Argentina with government-controlled Aerolineas Argentinas SA’s $700 million purchase of 20 E-190 jets in 2009.”  The airline has switched between private ownership and government ownership a number of times over the years.

*****

A good weekend to all.

Having left the 1970′s, lets start a new decade, the 1980′s.  The FCPA began to mature and enforcement, while still measured, began to increase.  The 1980′s witnessed nine “core” FCPA enforcement actions (including one involving several distinct companies)  and this post starts off the decade by highlighting the SEC’s enforcement action against Tesoro Petroleum Corporation.

In 1980, the SEC filed a civil injunctive action against Tesoro Petroleum Corporation.  In pertinent part, the SEC complaint alleged (as to conduct that occurred prior to 1977 – the year the FCPA was enacted) as follows.  “Since at least the time Tesoro became a public company, Tesoro and others have engaged in a course of business in connection with acquiring material foreign assets, attempting to acquire material foreign assets, or conducting foreign business whereby they made or caused to be made substantial payments to ‘finders’ and ‘consultants’ where such payments, with respect to multi-million dollar contracts, were disproportionate to the business obtained or the services rendered, were not usual or customary and were made under circumstances such that Tesoro was and continues to be unable to account for or satisfy itself as to the final disposition of such corporate funds.  In certain instances involving payments made in connection with foreign business activities, the circumstances of the payments indicate that the funds, in whole or in part, may have been directly or indirectly transferred to foreign government officials or political leaders.”

The SEC alleged that Tesoro:  ”(1) made and kept books, records and accounts which failed in reasonable detail to accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (2) made transfers and disbursements without adequate records and controls sufficient to ensure that such transfers and disbursements were actually made for the purposes indicated and without adequate records and controls to document whether the services provided therefore, if any, were commensurate with the amounts paid.”

Specifically, the SEC alleged that Tesoro, through the participation of the Chairman of its Board, Robert West, caused approximately $450,000 in payments to be made to James Morgan, a ”finder/consultant who assisted Tesoro in obtaining certain foreign oil and gas concessions from a foreign government.”  According to the SEC, “these payments were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been transferred directly or indirectly to foreign government officials.”  In one instance, the SEC alleged that Tesoro made a payment to Morgan’s home “where an official of the national oil company of the country involved was waiting.”

In another instance, the SEC alleged that Tesoro paid $120,000 to another consultant “in connection with an application to do business in another foreign country, and in connection with subsequent applications by Tesoro to do business in that country and a refinery joint venture.”  According to the SEC, the payments ($10,000 monthly for a year) “were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been passed on to government officials.   The SEC alleged that “during the period when Tesoro’s application to do business was pending” the company transferred money to the consultant’s bank account and that the consultant paid, at various times, a director of the national oil company.  According to the SEC, Tesoro’s application to purchase oil was denied by the national oil company.

Based on the above conduct, the SEC charged Tesoro with filing materially false and misleading reports with the SEC.  Without admitting or denying the SEC’s allegations, Tesoro consented to entry of a final judgment requiring, among other things,  Tesoro: (i) to make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (ii) to disclose in an SEC filing the amount and circumstances of all material ”finders,” “consultants” or other fees similar to those described above, paid in the future in connection with the acquisition or disposition of foreign assets or the conduct of foreign business.

Original source documents from the Tesoro enforcement action can be found here.

Previous posts (here and here) detailed FCPA enforcement actions from the 1970′s against:  (i) Page Airways, Inc. (and six officers and/or directors of the company); and (ii) Kenny International Corporation and Finbar Kenny (Chairman of the Board, President and majority shareholder of Kenny International).

The 1970′s also witnessed:  (i) a SEC civil complaint against Katy Industries, Inc. and its executives Wallace Carroll and Melvan Jones; and (ii) a DOJ civil complaint against Roy Carver and R. Eugene Holley; and (iii) a SEC civil complaint against International Systems & Controls Corporation and its executives J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein.

These enforcement actions are summarized below.

Katy Industries, Wallace Carroll and Melvan Jacobs

In August 1978, the SEC alleged in a civil complaint for permanent injunction that Katy Industries, Inc. (“Katy”), Wallace Carroll (Chairman of the Board and CEO of Katy) and Melvan Jacobs (Director and Member of Katy’s Executive Committee and also an attorney who acted as counsel to Katy as to the conduct at issue)  ”have engaged, are engaged and are about to engage in acts and practices” which constitute violations of various securities law provisions including the FCPA’s anti-bribery provisions.

According to the SEC complaint, Katy was interested in obtaining an oil exploration concession in Indonesia and retained a consultant who was a “close personal friend of a high level Indonesian government official.”  The complaint alleges that Katy representatives and the consultant met with the official and his representative and during the meeting “the official agreed to assist Katy in obtaining an oil production sharing contract.”  Katy agreed to compensate the consultant if it received the contract and the SEC alleged that Katy representatives were “told that the consultant would give a portion of such compensation to the official and the official’s representative.”  According to the SEC, Katy entered into various agreements with the consultant and the official’s representative and thereafter “Katy entered into a thirty year Production Sharing Contract with Pertamina, the Indonesian Government-owned oil and gas enterprise.”  The SEC alleged that “Katy, Carroll and Jacobs knew or had reason to know that the official and the official’s representative would directly or indirectly share in the payments to the consultant for the duration of the thirty year Contract.”  In addition, the SEC alleged that Katy’s books and records did not reflect the true nature and purpose of the payments and that a “substantial portion” of the money paid by Katy to the consultant and the official’s representative “was expected by Katy to be given by the recipient to the official.”

Without admitting or denying the SEC’s allegations, Katy, Carroll and Jacobs consented to entry of final judgment of permanent injunction prohibiting future violations.  Katy also agreed to establish a Special Committee of its Board “to review the matters alleged in the complaint and to conduct such further investigation as it deems appropriate into these and other similar matters” and to file the Special Committee’s findings publicly with the SEC.

See here for original source documents.

Roy Carver and R. Eugene Holley

In April 1979, the DOJ alleged in a civil complaint for permanent injunction that Roy Carver (Chairman of the Board and President of Holcar Oil Corporation) and R. Eugene Holley (Vice President of Holcar Oil Corporation) ”have engaged, are engaged and are about to engage in acts and practices which constitute violations” of the FCPA’s anti-bribery provisions.  The complaint alleges that on a trip to Doha, Qatar, Carver and Holley learned of “the possibility of engaging in the business of petroleum exploration in that country” if a “substantial payment of money were to be made to Ali Jaidah [an official of the government of Qatar – specifically the Director of Petroleum Affairs) for his official approval of a concession agreement.”

According to the complaint, the defendants agreed to proceed with the project by forming Holcar in the Cayman Islands “as a vehicle for the purpose of exploiting the concession.”  The complaint alleges that the defendants further agreed “that an appropriate payment would be paid to Ali Jaidah to secure the necessary approval of the Government of Qatar.”  During a subsequent meeting in Doha, the complaint alleges that Carver and Holley met with Ali Jaidah who requested a $1.5 million payment “into the account of his brother, Kasim Jaidah, at the Swiss Credit Bank of Geneva, Switzerland.”  The complaint alleges that the defendants made the payment “knowing or having reason to know that all or a portion of such funds would be transferred to Ali Jaidah.”  According to the complaint, thereafter, “as a result of the cooperation, influence and approval of Ali Jaidah, the government of Qatar entered into an oil drilling concession agreement with Holcar.”  In addition, the complaint alleges that the defendants were willing to make additional payments to a new Director of Petroleum Affairs (Abdullah Sallat) when Holcar’s original concession agreement was under threat of termination given the company’s financing difficulties.  However, the complaint asserts that “neither Director Sallat nor any other official of the government of Qatar has directly or indirectly received or solicited or been offered any payment in connection with renewal of Holcar’s oil concession.”  Based on the above conduct, the DOJ charged that defendants “violated and may continue to violate” the FCPA’s anti-bribery provisions.

Both Carver and Holley consented to the entry of a final judgment of permanent injunction enjoining future FCPA violations.  See here for original source documents.

International Systems & Controls Corp., J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein

In July 1979, the SEC filed a complaint against International Systems & Controls Corporation (“ISC”) and J. Thomas Kenneally (a director of ISC and its fomer CEO and Chairman of the Board), Herman Frietsch (Senior Vice President), Raymond Hofker (former General Counsel), Albert Angulo (former Treasurer) and Harlan Stein (Chief Engineer).  The complaint alleged, among other things, that ISC ”paid more than $23 million through one or more subsidiaries to certain foreign persons and entities in order to assist the company in securing certain contracts.”  The complaint alleged that “in furtherance of this scheme, ISC disguised such payments on its books and records as consulting fees, consulting services, agent’s fees and commissions.”  The complaint also alleged that “ISC violated the internal accounting controls provisions by failing to devise an adequate system of internal controls because it failed to require vouchers, expense statements, or similar documentation for the activities or services for which certain expenditures were made.”

According to various media reports, the payments at issue were made to government officials and members of ruling families in Iran, Saudi Arabia, Nicaragua, Ivory Coast, Algeria, Chile and Iraq in connection with contracts for engineering and construction projects.

The SEC’s complaint charged violations of the FCPA’s books and records and internal controls provisions, as well as antifraud, proxy, and reporting violations.  In December 1979, ISC, Kenneally and Frietsch, without admitting or denying the SEC’s allegations,  consented to the entry of a final order enjoining future violations.   In addition, the final order directed ISC to, among other things, ”appoint a special agent … who shall investigate and report on certain specific transactions.”  Furthermore,  Kenneally and Frietsch (for periods of four and two years respectively) agreed to be employed as an officer or director of an issuer only if that company “has a committee with duties and functions to those required of the ISC Audit Committee” as required by the consent degree.

See here for original source documents plus this packet of materials sent to me by a loyal reader.

*****

What are the take-away points from FCPA enforcement in the 1970′s?  Clearly, the enforcement agencies were getting their feet wet enforcing an infant statute and, in many of the enforcement actions, the agencies were confronted with conduct that actually pre-dated enactment of the FCPA in December 1977.  Thus, little can – or should be - taken away from the actual charging decisions in these early FCPA cases.

However, one meaningful take-away point is this.  While one can question how the enforcement agencies held company employees accountable (i.e. criminal v. civil charges), one can not question that the enforcement agencies did hold company employees accountable.  All five FCPA enforcement actions from the 1970′s involved company employees – a figure that stands in stark contrast to 2010 FCPA enforcement in which approximately 70% of corporate FCPA enforcement actions have not resulted (at least yet) in any DOJ charges against company employees.  See here for the prior post.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI's] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.

Canada

Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA - in 2005 against Hydro Kleen - resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”

Australia

Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”

U.K.

Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  ”to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the “ procedure based on the guidance contained within [the SFO's] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

The JGC enforcement action involved only a DOJ component. Total settlement amount was $218.8 million and the criminal charges (see here for the information) were resolved via a DOJ deferred prosecution agreement (here).

Criminal Information

The substance of the criminal allegations are the same as in the prior KBR, Technip, and Snamprogetti enforcement actions. That is, the TSKJ consortium, of which JGC was a member, was formed for purposes of bidding on and performing a series of engineering, procurement, and construction (“EPC”) contracts to design and build a liquefied natural gas plant on Bonny Island, Nigeria.

Tesler was hired by TSKJ to “help it obtain business in Nigeria, including by offering to pay and paying bribes to high-level Nigerian government officials” and Tesler “was an agent of TSKJ and of each of the joint venture companies.”

According to the information, TSKJ also hired “Consulting Company B” – a “global trading company headquartered in Tokyo” to help it “obtain business in Nigeria, including by offering to pay and paying bribes to Nigerian government officials” and “Consulting Company B was an agent of TSKJ and of each of the joint venture companies.”

Most of the allegations in the information focus on the conduct of the JGC’s alleged co-conspirators such as Stanley, Tesler, and Tesler’s corporate entity, Tri-Star Investments Ltd. As to U.S. nexus, the information alleges money flowing through U.S. based accounts “to bribe Nigerian government officials” and co-conspirators faxing or e-mailing information into the U.S. in furtherance of the bribery scheme.

Based on the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

DPA

The DOJ’s charges against JGC were resolved via a deferred prosecution agreement.

Pursuant to the DPA, JGC admitted, accepted and acknowledged “that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth above. As is typical in FCPA DPAs, JGC expressly agreed not to make any statements, directly or indirectly, “contradicting” the facts alleged.

The term of the DPA is two years and it states that the DOJ entered into the agreement based on the following factors.

“(a) after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA;

(b) JGC has undertaken remedial measures, including evaluating and enhancing its compliance program, and has agreed to undertake further remedial measures as contemplated by this Agreement; and

(c) the impact of JGC, including collateral consequences, of a guilty plea or criminal conviction.”

As stated in the DPA, the fine range for the above conduct under the U.S. Sentencing Guidelines was $312.6 million to $625.2 million. Pursuant to the DPA, JGC agreed to pay a monetary penalty of $218.8 million (30% below the minimum amount suggested by the guidelines). DPAs frequently then state why such a below-guidelines fine amount is “appropriate,” however the JGC DPA is silent as to this issue. Interesting also is that the conduct at issue took place between 1995 and 2004. Yet, the 2010 sentencing guidelines were used in calculating the fine rather than the 2003 guidelines that were used in the prior KBR, Technip, and Snamprogetti enforcement actions.

Pursuant to the DPA, JGC agreed to “engage a corporate compliance consultant.”

The DOJ release (here) states as follows. “With [the JGC] resolution, each of the four companies in the TSKJ joint venture, the former chairman of the U.S. joint venture partner, and several other individuals have now been held accountable for a massive conspiracy to bribe Nigerian government officials to obtain lucrative construction contracts.” “The approximately $1.5 billion in criminal and civil penalties that have been imposed on the members of the joint venture far exceed their profits from the scheme. Foreign bribery is a serious crime, and as this case makes clear, we are investigating and prosecuting it vigorously.”

Manny Abascal (Latham & Watkins – see here – a former DOJ enforcement attorney) represented JGC.

This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.