FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ's, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should - but that is a subject for another day). For an enforcement agency that, for a long time, did not want any part in enforcing the FCPA's anti-bribery provisions (more on that in the future as well), the SEC in 2010 brought in $529,967,294 in corporate FCPA settlements. [Note this figure does not include the approximate $50 million the SEC assessed but waived against Innospec based on its claimed inability to pay].
This $529,967,294 breaks down as follows.
$20,182,000 in civil penalties (ABB's $16.5 million civil penalty makes up approximately 82% of this figure).
$509,785,294 in disgorgement and prejudgment interest.
Thus, 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest.
Of the disgorgement and prejudgment interest amount, approximately 44% was in the two Bonny Island, Nigeria enforcement actions of 2010 (Technip and ENI/Snamprogetti). For a current Bonny Island bribery scorecard see here.
If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (such as General Electric, ABB, and Tidewater), whereas other enforcement actions include only disgorgement and prejudgment interest (such as Technip, Pride International, Transocean, Noble, Royal Dutch Shell, and RAE Systems), whereas other enforcement actions include only disgorgement and a civil penalty (GlobalSantaFe), whereas other enforcement actions include only disgorgement (such as Innospec, ENI/Snamprogetti, Daimler, Alliance One, Universal, Panalpina, and Alcate-Lucent), whereas other enforcement actions include only a civil penalty (such as NATCO and Veraz Networks), good luck and please enlighten us all with your insight.
It also remains a mystery as to how the SEC goes about its resolving decisions. For instance, in the Panalpina-related enforcement actions, an enforcement action generally alleging the same core conduct against numerous companies, all companies except Royal Dutch Shell were charged in a civil complaint. Royal Dutch Shell resolved its enforcement action via an SEC administrative cease and desist proceeding.
Based on publicly available information, the SEC appears to be a reactive, "me-too" enforcement agency when it comes to FCPA enforcement.
Of the $529,967,294 collected in SEC FCPA enforcement actions in 2010, 97% appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ. The only SEC FCPA enforcement action of 2010 apparently not in this category is Royal Dutch Shell on the basis that its SEC's filings indicate that it was contacted by the DOJ regarding Shell's use of Panalpina. All other SEC FCPA enforcement actions of 2010 appear to have been voluntarily disclosed in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) or the result of some other public disclosure (i.e. the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies).
During the November 2010 Senate hearing (see here for complete coverage), it was noted that the DOJ's FCPA enforcement program is largely corporate-focused, and that individual charges are often lacking in many DOJ FCPA enforcement actions, including the most egregious actions.
The same criticism can also be made of the SEC's FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement actio and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges. However, in just 3 SEC FCPA enforcement actions in 2010 (Innospec, Alliance One, and Pride International) did the SEC charge individuals despite allegations that employees, including senior management, were engaged in the improper conduct at issue.
Like the DOJ, the SEC bases much of its FCPA enforcement on untested and dubious legal theories that have never been subjected to any meaningful judicial scrutiny. In the SEC context, FCPA defendants can settle enforcement actions "without admitting or denying" the SEC's allegations. Thus, most companies find it easier, more cost efficient, and more certain to resolve disputes with its primary government regulator than to engage in long protracted litigation. Even the SEC recently acknowledged that settlement of an SEC enforcement action does "not necessarily reflect the triumph of one party's position over the other." (See here at page 949).
Thus, the facade of FCPA enforcement is present in SEC FCPA enforcement, not just DOJ enforcement, and 2010 highlighted this troubling trend.
For instance, many of the SEC's enforcement actions (ABB and RAE Systems for example) hinge on employees of state-owned or state-controlled enterprises being "foreign officials" under the FCPA. Other enforcement actions, notably the Panalpina related enforcement actions, concern payments made to secure foreign licenses or permits. Another legal theory subject to controversy is successor liability such as in the Alliance One enforcement action where the company's entire FCPA exposure was based, not on anything it did, but rather successor liability theories (same too as to the bulk of GE's exposure).
This post provides an overview of SEC FCPA enforcement in 2010.
According to my figures, the SEC brought 19 corporate enforcement actions. As demonstrated below, 7 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions, and 2 were the related Alliance One and Universal actions.
Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the SEC brought 11 unique corporate FCPA enforcement actions in 2010. 3 of these enforcement actions (Innospec, GE, and ABB) involved, in whole or in part, Iraqi Oil for Food conduct.
SEC FCPA enforcement in 2010 was both small (Natco - $65,000; Veraz Networks - $300,000) and large (ENI/Snamprogetti - $125 million; Technip - $98 million; Daimler - $91.4 million).
[Note as to the below information - "Voluntary Disclosure" means traditional voluntary disclosure as well as other public disclosure as discussed above. "Individuals Charged" means individuals (employed by the entity resolving the enforcement action) charged by the SEC.]
Natco (Jan. 2010)
See here for the prior analysis.
Principle Allegations: TEST Automation & Controls, Inc., a wholly-owned subsidiary of NATCO Group, "created and accepted false documents while paying extorted immigration fines and obtaining immigration visas in the Republic of Kazakhstan." According to the complaint, "NATCO's system of internal accounting controls failed to ensure that TEST recorded the true purpose of the payments, and NATCO's consolidated books and records did not accurately reflect these payments."
Charges: FCPA books and records and internal controls violations.
Settlement: $65,000 civil penalty; also administrative cease and desist order.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: According to the SEC, improperly characterizing even extorted payments is an independent violation of the law. The SEC order states that NATCO "expanded its investigation to examine TEST's other worldwide operations, including Nigeria, Angola, and China, geographic locations with historic FCPA concerns." However, the SEC order notes that "NATCO's expanded internal investigation of TEST uncovered no wrongdoing." This enforcement action (like several others in 2010) once again demonstrates that companies which voluntarily disclose conduct to the enforcement agencies, will likely be asked the "where else" question - even if no concrete evidence exists to suggest FCPA violations elsewhere. Answering this "where else" question significantly increases the costs of an FCPA disclosure and significantly expands the time frame to resolve the disclosed conduct.
Innospec (March 2010)
See here for the prior analysis.
Principle Allegations: "[f]rom 2000 to 2007, Innospec violated the anti-bribery, books and records and internal control provisions of the FCPA when it routinely paid bribes in order to sell Tetra Ethyl Lead ("TEL") ... to government owned refineries and oil companies in Iraq and Indonesia." According to the SEC, "Innospec's former management did nothing to stop the bribery activity, and in fact authorized and encouraged it." The SEC alleges that "Innospec's internal controls failed to detect the illicit conduct, which continued for nearly a decade."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $60,071,613 in disgorgement, but because of Innospec's "sworn Statement of Financial Condition" all but $11,200,000 of that disgorgement will be waived.
Voluntary Disclosure: Yes.
Individuals Charged: Yes. See here and here for the SEC enforcement action against Ousama Naaman (Innospec's agent in Iraq) and David Turner, (the Business Director of Innospec's TEL Group).
Related DOJ Enforcement Action: Yes (as well as an enforcement action by the U.K. Serious Fraud Office).
Of Note: Despite getting a pass on paying approxmately $50 million in disgorgement, since the March 2010 enforcement action, Innospec has consistently reported positive financial results. See here. It is believed that the $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.
Daimler (April 2010)
See here and here for the prior analysis.
Principle Allegations: "From at least 1998 through 2008, Daimler AG, formerly known as DaimlerChrysler AG ("Daimler"), and certain of its subsidiaries and affiliates, violated the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act (the "FCPA") by making illicit payments, directly or indirectly, to foreign government officials in order to secure and maintain business worldwide. During this time period, Daimler paid bribes to government officials to further government sales in Asia, Africa, Eastern Europe and the Middle East. In connection with at least 51 transactions, Daimler violated the anti-bribery provision of the FCPA by paying tens of millions of dollars in corrupt payments to foreign government officials to secure business in Russia, China, Vietnam, Nigeria, Hungary, Latvia, Croatia and Bosnia. These corrupt payments were made through the use of U.S. mails or the means or instrumentality of U.S. interstate commerce. Daimler also violated the FCPA's books and records and internal controls provisions in connection with the 51 transactions and at least an additional 154 transactions, in which it made improper payments totaling at least $56 million to secure business in 22 countries, including, among others, Russia, China, Nigeria, Vietnam, Egypt, Greece, Hungary, North Korea, and Indonesia.
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $91.4 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Technip and Eni/Snamprogetti (June / July 2010)
Technip
See here and here for the prior analysis.
Principal Allegations: "Between at least 1995 and 2004, senior executives at Technip, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas (“LNG”) production facilities on Bonny Island, Nigeria. A four-company joint venture called “TSKJ,” of which Technip was a member, won the contracts. To conceal the illicit payments, Technip and others, through the joint venture, entered into sham “consulting” or “services” agreements with intermediaries who would then funnel their purportedly legitimate fees to Nigerian officials. Specifically, Technip, through the joint venture, implemented this scheme by using a Gibraltar shell company controlled by a solicitor based in the United Kingdom (“the UK Agent”) and a Japanese trading company (“the Japanese Agent”) as conduits for the bribes." "As a result of the scheme, numerous books and records of Technip contained false information relating to, among other things, the UK Agent and the Japanese Agent, and the payments made to them." As to Technip's internal controls violations, the SEC alleges as follows. "Technip conducted due diligence on the UK Agent that was not adequate to detect, deter or prevent the UK Agent from paying bribes, and Technip conducted no due diligence on the Japanese Agent." "The due diligence procedures adopted by Technip only required that potential agents respond to a written questionnaire, seeking minimal background information about the agent. No additional due diligence was required, such as an interview of the agent, or a background check, or obtaining information beyond that provided by the answers to the questionnaire. A senior executive of Technip admitted that the due diligence procedures adopted by Technip were a perfunctory exercise, conducted so that Technip would have some documentation in its files of purported due diligence. In fact, Technip executives knew that the purpose of the agreements with the UK Agent was to funnel bribes to Nigerian officials, and therefore certain answers by the UK Agent to the questionnaire were false."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $98 million in disgorgement and prejudgment interest.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Eni/Snamprogetti
See here and here for prior analysis.
Principal Allegations: "Between at least 1995 and 2004, senior executives at Snamprogetti, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas production facilities on Bonny Island, Nigeria" that a four-company JV, of which Snamprogetti was a member, won the contracts to build. According to the SEC, "as a result of the scheme, numerous books and records of Snamprogetti and ENI contained false information relating to, among other things" Tesler and the Japanese Agent "and the payments made to them." Specifically, the SEC alleged that "Snamprogetti's business records [...] contained the contracts with [Tesler] and the Japanese Agent, which falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services." According to the SEC, "these documents were part of Snamprogetti's business records and supported Snampogetti's financial statements, which were consolidated into ENI's financial statements." The SEC alleges that "Snamprogetti did not conduct due diligence" on Tesler or the Japanese Agent and "ENI failed to ensure that Snamprogetti complied with ENI's policies regarding the use of agents." Specifically, the SEC alleged that "ENI's policies and procedures governed Snamprogetti's use of agents" but that "ENI failed to ensure that Snamprogetti conducted due diligence on agents hired through JV's in which Snamprogetti participated."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $125 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The SEC charged Snamprogetti, a non-issuer, as "an agent of a U.S. issuer" with violating the FCPA's antibribery provisions and knowingly falsifying books and records that supported the financial statements of ENI and knowingly circumventing ENI's internal accounting controls. The SEC charged ENI with violating the FCPA's books and records and internal control provisions. According to the SEC, "ENI exercised control and supervision of [...] Snamprogetti during the relevant time and on certain of its business decisions, such as Snamprogetti's entry into the JV."
Veraz Networks (June 2010)
See here for the prior analysis.
Principle Allegations: "From 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz." "Veraz failed to accurately record these improper payments on the Company's books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA [...] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate."
Charges: FCPA books and records and internal control violations.
Settlement: $300,000 civil penalty.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: Although the complaint does not charge FCPA anti-bribery violations, the alleged "foreign officials" were employees of alleged state-owned or state-controlled telecommunications companies (China and Vietnam). Former SEC FCPA enforcement attorney Richard Grime criticized various aspects of the SEC's enforcement action (see here).
General Electric (July 2010)
See here for the prior analysis.
Principal Allegations: "Two GE subsidiaries - along with two other subsidiaries of public companies that have since been acquired by GE - made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program."
Charges: FCPA books and records and internal control violations.
Settlement: $23.4 million ($1 million penalty, $18.4 million in disgorgement, 4,080,665 in prejudgment interest)
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: Unlike other Iraqi Oil-For-Food cases, the GE enforcement action did not involve a related DOJ enforcement action. Also, unlike most public companies facing FCPA exposure, GE apparently did not previously disclose the SEC's investigation. Also, according to GE's release: “The SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions."
Alliance One and Universal (Aug. 2010)
See here for the prior analysis.
Alliance One
Principal Allegations: "During the period from 1996 through 2004, Dimon, Incorporated ("Dimon") made multiple improper payments to foreign officials in Kyrgyzstan and Thailand in violation of the Foreign Corrupt Practices Act ("FCPA"). During the period from 2001 through 2004, Standard Commercial Corporation ("Standard") made multiple improper payments to foreign officials in Thailand in violation of the FCPA. "Despite their extensive international operations, Dimon and Standard lacked sufficient internal controls designed to prevent or detect violations of the FCPA. During the 2000-2004 period, Dimon and Standard each had a policy manual prohibiting bribery, but the training and guidance provided to their employees regarding compliance with the FCPA were not adequate or effective. Dimon and Standard each also failed to establish a program to monitor compliance with the FCPA by its employees, agents, and subsidiaries." The SEC's complaint also contains allegations about other unrelated payments in China, Thailand, Greece and Indonesia. In May 2005, Dimon and Standard merged to form Alliance One International, Inc. ("Alliance One").
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $10 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: Yes. See here for the SEC enforcement action against Bobby Elkin (Dimon's former Country Manager Kyrgyzstan), Baxter Myers (Dimon's former Regional Financial Director), Thomas Reynolds (Dimon's former Corporate Controller), and Tommy Williams (Dimon's former Senior Vice President of Sales).
Related DOJ Enforcement Action: Yes.
Of Note: Alliance One's entire exposure was based, not on anything it did, but rather successor liability theories.
Universal
Principal Allegations: "From 2000 through 2007, Universal Corporation violated the Foreign Corrupt Practices Act (the "FCPA") by paying, through its subsidiaries, over $900,000 to govemment officials in Thailand and Mozambique to influence acts and decisions by those foreign officials to obtain or retain business for Universal. Those payments were directed by employees at multiple levels of the company, including management in its corporate offices and at its wholly-or majority-owned and controlled foreign subsidiaries. The Company had inadequate internal controls to prevent or detect any of these improper payments, and improperly recorded the payments in its books and records." "Between 2000 and 2004, Universal subsidiaries paid approximately $800,000 to bribe officials of the government-owned Thailand Tobacco Monopoly ("TTM") in exchange for securing approximately $11.5 million in sales contracts for its subsidiaries in Brazil and Europe. From 2004 through 2007, Universal subsidiaries made a series of payments in excess of $165,000 to government officials in Mozambique, through corporate subsidiaries in Belgium and Africa. Among other things, the payments were made to secure an exclusive right to purchase tobacco from regional growers and to procure legislation beneficial to the Company's business." "In addition, between 2002 and 2003, Universal, subsidiaries paid $850,000 to high ranking Malawian government officials. Those payments were authorized by, among others, two successive regional heads for Universal's African operations. Universal did not accurately record these payments in its books and records."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $4.6 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The Alliance One / Universal enforcement action is believed to be the first time the enforcement agencies consolidated an enforcement action against two unrelated companies in such a fashion - likely due to the fact that a significant part of the improper conduct at both companies involved the same entity - The Thailand Tobacco Monopoly ("TTM") - an alleged agency and instrumentality of the Thai government.
ABB (Sept. 2010)
Principal Allegations: "From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB." "As evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB's knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB's books and records, ABB's failure to detect these irregularities, and ABB's failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $39.3 million ($17.1 milion in disgorgement, $5.7 million in prejudgment interest, and a $16.5 million civil penalty).
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: In 2004, ABB Ltd. resolved a separate SEC FCPA enforcement action (see here) involving conduct in Nigeria, Angola and Kazakhstan.
Panalpina Related Settlements (Nov. 2010)
Panalpina
See here for the prior analysis.
Principal Allegations: "Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.' s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some members of Panalpina, Inc.'s management." "The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity. These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as 'local processing,' 'special intervention,' 'special handling,' and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers."
Charges: FCPA's anti-bribery violations; aiding and abetting FCPA books and records and internal control violations.
Settlement: $11.3 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The SEC specifically stated that Panalpina was not an issuer for purposes of the FCPA, but nevertheless charged Panalpina "while acting as an agent of its issuer customers" with violating the FCPA's anti-bribery provisions and aiding and abetting its issuer customers' violations of the FCPA's anti-bribery provisions and books and records and internal control provisions.
Pride International
See here for the prior analysis.
Principal Allegations: "From in or about 2003 to in or about 2005, employees and/or agents of Pride authorized and/or made payments to third parties while aware of a high probability that all or a portion of such payments would be offered, given, or promised to foreign officials in Venezuela, India, and Mexico in violation of the U.S. Foreign Corrupt Practices Act." "From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela's state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables." "In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride's U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made." "In or about late 2004, Bobby Benton, Pride's Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat." The SEC's complaint also describes certain other "transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries' books."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $23.5 million ($19,341,870 in disgorgement, $4,187,848 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: Yes. See here for the SEC enforcement action against Joe Summers (former Venezuela Country Manager), here for the SEC enforcement action against Bobby Benton (former Vice President Western Hemisphere Operations).
Related DOJ Enforcement Action: Yes.
Of Note: Numerous of the allegations relate to employees of a state-owned or controlled enterprises being "foreign officials;" payments made to secure legitimate receivables; and/or payments made to secure licenses or permits.
Tidewater
Principal Allegations: "Between August 2001 and November 2005, Tidewater Inc. [...] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA's anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor." According to the SEC, "these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments." As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that "from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters." According to the SEC, both the Azeri and Nigerian payments: "[w]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control provisions.
Settlement: $8.3 million ($7,223,216 in disgorgement, $881,146 in prejudgment interest and a $217,000 civil penalty).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Transocean
See here for the prior analysis.
Principal Allegations: "From at least 2002 through 2007, Transocean made illicit payments through its customs agents to Nigerian government officials to extend the temporary importation status of its drilling rigs, to obtain false paperwork associated with its drilling rigs, and obtain inward clearance authorizations for its rigs and a bond registration." "Transocean made illicit payments through Panalpina World Transport Holding Ltd.'s Pancourier express courier service to Nigerian government officials to expedite the import of various goods, equipment and materials into Nigeria. In most instances, customs duties for these items were not paid by either Panalpina or Transocean. In addition, Transocean made illicit payments through Panalpina to Nigerian government officials to expedite the delivery of medicine and other materials into Nigeria." As to the company's internal controls, the SEC complaint simply states as follows. "... [a]s evidenced by the extent and duration of the improper payments to Nigerian officials, the improper recording of these payments in Transocean's books and records, the failure of Transocean's management to detect these irregularities, and the actual involvement of certain members of senior management, Transocean failed to devise and maintain an effective system ofinternal controls to prevent or detect these violations."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls.
Settlement: $7.2 million ($5,981,693 in disgorgement, $1,283,387 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The enforcement action is largely based, as were other Panalpina related cases, on customs payments and expedited courier service payments.
GlobalSantaFe
See here for the prior analyis.
Principal Allegations: "From approximately January 2002 through July 2007,GlobalSantaFe Corp. ("GSF") violated the anti-bribery, books and records, and internal controls provisions ofthe Foreign Corrupt Practices Act (the "FCPA") when GSF made illegal payments through customs brokers to officials of the Nigerian Customs Service ("NCS") in order to obtain preferential treatment during the customs process for the purpose of assisting GSF in retaining business in Nigeria. Instead of moving its oil drilling rigs out of Nigerian waters when GSF's permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all." "In addition, GSF, through its customs brokers, made payments to government officials in Gabon, Angola, and Equatorial Guinea in order to obtain preferential treatment during the customs process. These payments were described on invoices as for example, "customs vacation," "customs escort," "costs extra to police to obtain visa," "official dues," and "authorities fees."
Charges: FCPA anti-bribery charges; FCPA books and records and internal controls.
Settlement: $5.85 million (approximately 3.75 million in disgorgement and a $2.1 million penalty).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: This was the only Panalpina-related enforcement action that did not involve a DOJ component.
Noble
See here for the prior analysis.
Principal Allegations: "From January 2003 through May 2007, Noble authorized, and its Nigerian subsidiary made, payments to its customs agent in Nigeria, a portion of which certain Noble's officers and other employees believed would be passed on to Nigerian government offcials. These payments to the customs agent were authorized and made to obtain temporary importation permits ("TIPs") and extensions of TIPs for drilling rigs, including certain TIPs that were based on false paperwork." As to the FCPA's books and records charge, the SEC alleges that "Noble Nigeria recorded the portion of the payments it made to its customs agent that certain Noble personnel believed were being passed on to Nigerian government officials in Noble's 'facilitating payment' account and in some cases to other operating expense accounts..." However, without elaborating the SEC states, "because these payments were not qualifying facilitating payments under the FCPA or otherwise legitimate expenses, Noble created false books and records by recording the payments as such." As to the internal controls charges, the SEC alleges that "although Noble had an FCPA policy in place, Noble lacked sufficient FCPA procedures, training, and internal controls to prevent the use of the paper process and making of payments to Nigerian government officials to obtain TIPs and TIP extensions."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $5,576,998 ($4,294,933 in disgorgement and $1,282,065 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: Recording an apparent facilitating payment as a "facilitating payment" is a violation of the FCPA's books and records provisions if the SEC does not agree that the payment was a facilitating payment.
Royal Dutch Shell
See here for the prior analysis.
Principal Allegations: "From September 2002 through November 2005, SIEP, on behalf of Shell, authorized the reimbursement or continued use of services provided by a company acting as a customs broker that involved suspicious payments of approximately $3.5 million to officials of the Nigerian Customs Service in order to obtain preferential treatment during the customs process for the purpose of assisting Shell in obtaining or retaining business in Nigeria on Shell’s Bonga Project. As a result of these payments, Shell profited in the amount of approximately $14 million. None of the improper payments was accurately reflected in Shell’s books and records, nor was Shell’s system of internal accounting controls adequate at the time to detect and prevent these suspicious payments."
Charges: None, action was resolved via an SEC administrative order finding violations of the FCPA's anti-bribery provisions and books and records and internal control provisions.
Settlement: $18.1 million ($14,153,536 in disgorgement and $3,995,923 in prejudgment interest).
Voluntary Disclosure: Shell's anual report states as follows. "In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has an ongoing internal investigation and is co-operating with the US Department of Justice and the US Securities and Exchange Commission investigations."
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: Shell was the only company in the Panalpina related enforcement actions note to be charged via an SEC complaint.
RAE (Dec. 2010)
See here for the prior analysis.
Principal Allegations: "From 2004 through 2008" RAE Systems violated the FCPA "by paying, through two of its joint venture entities in China, approximately $400,000 to third party agents and government officials in China to influence acts or decisions by foreign officials to obtain or retain business for RAE Systems." The payments "were made primarily by the direct sales force utilized by RAE Systems" at its two Chinese joint-venture entities: RAE-KLH and RAE-Fushun. "While the payments were made exclusively in China and were conducted by Chinese employees of RAE-KLH and RAE-Fushun, RAE Systems was aware of significant indications of ongoing bribery at RAE-KLH. At the time, RAE Systems failed to effectively investigate these indications, or red flags, and to stop the bribery from continuing. RAE System's failure to act on these significant red flags allowed, at least in part, bribery to continue at RAE-KLH." RAE Systems was held liable for RAE-KLH's improper payments even though "RAE Systems Instruct[ed] KLH Personnel to Stop Bribery Practices." According to the SEC, "while RAE Systems communicated these instructions to RAE-KLH personnel, RAE Systems did not impose sufficient internal controls or make any changes to the practice of sales personnel obtaining cash advances."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $1.25 million ($1,147,800 in disgorgement; $109,212 in prejudgment interest).
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: According to the enforcement agencies, the standard of liability for payments made by joint venture partners appears to be something close to strict liability. Also the alleged "foreign officials" were primarily employees of alleged state-owned or state-controlled enterprises (China).
Alcatel-Lucent (Dec. 2010)
See here for the prior analysis.
Principal Allegations: "From December 2001 through June 2006, Alcatel, S.A., now called Alcatel-Lucent, S.A. ("Alcatel"), through its subsidiaries and agents, violated the Foreign Corrupt Practices Act ("FCPA") by paying more than $8 million in bribes to foreign government officials. Alcatel made these payments to influence acts and decisions by these foreign government officials to obtain or retain business, with the knowledge and approval of certain management level personnel of the relevant Alcatel subsidiaries. Alcatel lacked sufficient internal controls to prevent or detect such improper payments, and improperly recorded the payments in its books and records." "All of these payments were undocumented or improperly recorded as consulting fees in the books of Alcatel's subsidiaries, and then consolidated into Alcatel's financial statements. A lax corporate control environment aided Alcatel's improper conduct. Alcatel failed to detect or investigate numerous red flags suggesting that its business consultants were likely making illicit payments and gifts to government officials in these countries at the direction of certain Alcatel employees. The respective heads of several Alcatel subsidiaries and geographical regions, some of whom reported directly to Alcatel's executive committee, authorized extremely high commission payments under circumstances in which they failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA. These high-level employees therefore knew, or were severely reckless in not knowing, that Alcatel paid bribes to foreign government officials."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $45.372 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: In 2007, Lucent Technologies Inc. settled a separate SEC FCPA enforcement action (see here).
This $529,967,294 breaks down as follows.
$20,182,000 in civil penalties (ABB's $16.5 million civil penalty makes up approximately 82% of this figure).
$509,785,294 in disgorgement and prejudgment interest.
Thus, 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest.
Of the disgorgement and prejudgment interest amount, approximately 44% was in the two Bonny Island, Nigeria enforcement actions of 2010 (Technip and ENI/Snamprogetti). For a current Bonny Island bribery scorecard see here.
If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (such as General Electric, ABB, and Tidewater), whereas other enforcement actions include only disgorgement and prejudgment interest (such as Technip, Pride International, Transocean, Noble, Royal Dutch Shell, and RAE Systems), whereas other enforcement actions include only disgorgement and a civil penalty (GlobalSantaFe), whereas other enforcement actions include only disgorgement (such as Innospec, ENI/Snamprogetti, Daimler, Alliance One, Universal, Panalpina, and Alcate-Lucent), whereas other enforcement actions include only a civil penalty (such as NATCO and Veraz Networks), good luck and please enlighten us all with your insight.
It also remains a mystery as to how the SEC goes about its resolving decisions. For instance, in the Panalpina-related enforcement actions, an enforcement action generally alleging the same core conduct against numerous companies, all companies except Royal Dutch Shell were charged in a civil complaint. Royal Dutch Shell resolved its enforcement action via an SEC administrative cease and desist proceeding.
Based on publicly available information, the SEC appears to be a reactive, "me-too" enforcement agency when it comes to FCPA enforcement.
Of the $529,967,294 collected in SEC FCPA enforcement actions in 2010, 97% appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ. The only SEC FCPA enforcement action of 2010 apparently not in this category is Royal Dutch Shell on the basis that its SEC's filings indicate that it was contacted by the DOJ regarding Shell's use of Panalpina. All other SEC FCPA enforcement actions of 2010 appear to have been voluntarily disclosed in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) or the result of some other public disclosure (i.e. the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies).
During the November 2010 Senate hearing (see here for complete coverage), it was noted that the DOJ's FCPA enforcement program is largely corporate-focused, and that individual charges are often lacking in many DOJ FCPA enforcement actions, including the most egregious actions.
The same criticism can also be made of the SEC's FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement actio and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges. However, in just 3 SEC FCPA enforcement actions in 2010 (Innospec, Alliance One, and Pride International) did the SEC charge individuals despite allegations that employees, including senior management, were engaged in the improper conduct at issue.
Like the DOJ, the SEC bases much of its FCPA enforcement on untested and dubious legal theories that have never been subjected to any meaningful judicial scrutiny. In the SEC context, FCPA defendants can settle enforcement actions "without admitting or denying" the SEC's allegations. Thus, most companies find it easier, more cost efficient, and more certain to resolve disputes with its primary government regulator than to engage in long protracted litigation. Even the SEC recently acknowledged that settlement of an SEC enforcement action does "not necessarily reflect the triumph of one party's position over the other." (See here at page 949).
Thus, the facade of FCPA enforcement is present in SEC FCPA enforcement, not just DOJ enforcement, and 2010 highlighted this troubling trend.
For instance, many of the SEC's enforcement actions (ABB and RAE Systems for example) hinge on employees of state-owned or state-controlled enterprises being "foreign officials" under the FCPA. Other enforcement actions, notably the Panalpina related enforcement actions, concern payments made to secure foreign licenses or permits. Another legal theory subject to controversy is successor liability such as in the Alliance One enforcement action where the company's entire FCPA exposure was based, not on anything it did, but rather successor liability theories (same too as to the bulk of GE's exposure).
This post provides an overview of SEC FCPA enforcement in 2010.
According to my figures, the SEC brought 19 corporate enforcement actions. As demonstrated below, 7 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions, and 2 were the related Alliance One and Universal actions.
Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the SEC brought 11 unique corporate FCPA enforcement actions in 2010. 3 of these enforcement actions (Innospec, GE, and ABB) involved, in whole or in part, Iraqi Oil for Food conduct.
SEC FCPA enforcement in 2010 was both small (Natco - $65,000; Veraz Networks - $300,000) and large (ENI/Snamprogetti - $125 million; Technip - $98 million; Daimler - $91.4 million).
[Note as to the below information - "Voluntary Disclosure" means traditional voluntary disclosure as well as other public disclosure as discussed above. "Individuals Charged" means individuals (employed by the entity resolving the enforcement action) charged by the SEC.]
Natco (Jan. 2010)
See here for the prior analysis.
Principle Allegations: TEST Automation & Controls, Inc., a wholly-owned subsidiary of NATCO Group, "created and accepted false documents while paying extorted immigration fines and obtaining immigration visas in the Republic of Kazakhstan." According to the complaint, "NATCO's system of internal accounting controls failed to ensure that TEST recorded the true purpose of the payments, and NATCO's consolidated books and records did not accurately reflect these payments."
Charges: FCPA books and records and internal controls violations.
Settlement: $65,000 civil penalty; also administrative cease and desist order.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: According to the SEC, improperly characterizing even extorted payments is an independent violation of the law. The SEC order states that NATCO "expanded its investigation to examine TEST's other worldwide operations, including Nigeria, Angola, and China, geographic locations with historic FCPA concerns." However, the SEC order notes that "NATCO's expanded internal investigation of TEST uncovered no wrongdoing." This enforcement action (like several others in 2010) once again demonstrates that companies which voluntarily disclose conduct to the enforcement agencies, will likely be asked the "where else" question - even if no concrete evidence exists to suggest FCPA violations elsewhere. Answering this "where else" question significantly increases the costs of an FCPA disclosure and significantly expands the time frame to resolve the disclosed conduct.
Innospec (March 2010)
See here for the prior analysis.
Principle Allegations: "[f]rom 2000 to 2007, Innospec violated the anti-bribery, books and records and internal control provisions of the FCPA when it routinely paid bribes in order to sell Tetra Ethyl Lead ("TEL") ... to government owned refineries and oil companies in Iraq and Indonesia." According to the SEC, "Innospec's former management did nothing to stop the bribery activity, and in fact authorized and encouraged it." The SEC alleges that "Innospec's internal controls failed to detect the illicit conduct, which continued for nearly a decade."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $60,071,613 in disgorgement, but because of Innospec's "sworn Statement of Financial Condition" all but $11,200,000 of that disgorgement will be waived.
Voluntary Disclosure: Yes.
Individuals Charged: Yes. See here and here for the SEC enforcement action against Ousama Naaman (Innospec's agent in Iraq) and David Turner, (the Business Director of Innospec's TEL Group).
Related DOJ Enforcement Action: Yes (as well as an enforcement action by the U.K. Serious Fraud Office).
Of Note: Despite getting a pass on paying approxmately $50 million in disgorgement, since the March 2010 enforcement action, Innospec has consistently reported positive financial results. See here. It is believed that the $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.
Daimler (April 2010)
See here and here for the prior analysis.
Principle Allegations: "From at least 1998 through 2008, Daimler AG, formerly known as DaimlerChrysler AG ("Daimler"), and certain of its subsidiaries and affiliates, violated the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act (the "FCPA") by making illicit payments, directly or indirectly, to foreign government officials in order to secure and maintain business worldwide. During this time period, Daimler paid bribes to government officials to further government sales in Asia, Africa, Eastern Europe and the Middle East. In connection with at least 51 transactions, Daimler violated the anti-bribery provision of the FCPA by paying tens of millions of dollars in corrupt payments to foreign government officials to secure business in Russia, China, Vietnam, Nigeria, Hungary, Latvia, Croatia and Bosnia. These corrupt payments were made through the use of U.S. mails or the means or instrumentality of U.S. interstate commerce. Daimler also violated the FCPA's books and records and internal controls provisions in connection with the 51 transactions and at least an additional 154 transactions, in which it made improper payments totaling at least $56 million to secure business in 22 countries, including, among others, Russia, China, Nigeria, Vietnam, Egypt, Greece, Hungary, North Korea, and Indonesia.
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $91.4 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Technip and Eni/Snamprogetti (June / July 2010)
Technip
See here and here for the prior analysis.
Principal Allegations: "Between at least 1995 and 2004, senior executives at Technip, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas (“LNG”) production facilities on Bonny Island, Nigeria. A four-company joint venture called “TSKJ,” of which Technip was a member, won the contracts. To conceal the illicit payments, Technip and others, through the joint venture, entered into sham “consulting” or “services” agreements with intermediaries who would then funnel their purportedly legitimate fees to Nigerian officials. Specifically, Technip, through the joint venture, implemented this scheme by using a Gibraltar shell company controlled by a solicitor based in the United Kingdom (“the UK Agent”) and a Japanese trading company (“the Japanese Agent”) as conduits for the bribes." "As a result of the scheme, numerous books and records of Technip contained false information relating to, among other things, the UK Agent and the Japanese Agent, and the payments made to them." As to Technip's internal controls violations, the SEC alleges as follows. "Technip conducted due diligence on the UK Agent that was not adequate to detect, deter or prevent the UK Agent from paying bribes, and Technip conducted no due diligence on the Japanese Agent." "The due diligence procedures adopted by Technip only required that potential agents respond to a written questionnaire, seeking minimal background information about the agent. No additional due diligence was required, such as an interview of the agent, or a background check, or obtaining information beyond that provided by the answers to the questionnaire. A senior executive of Technip admitted that the due diligence procedures adopted by Technip were a perfunctory exercise, conducted so that Technip would have some documentation in its files of purported due diligence. In fact, Technip executives knew that the purpose of the agreements with the UK Agent was to funnel bribes to Nigerian officials, and therefore certain answers by the UK Agent to the questionnaire were false."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $98 million in disgorgement and prejudgment interest.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Eni/Snamprogetti
See here and here for prior analysis.
Principal Allegations: "Between at least 1995 and 2004, senior executives at Snamprogetti, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas production facilities on Bonny Island, Nigeria" that a four-company JV, of which Snamprogetti was a member, won the contracts to build. According to the SEC, "as a result of the scheme, numerous books and records of Snamprogetti and ENI contained false information relating to, among other things" Tesler and the Japanese Agent "and the payments made to them." Specifically, the SEC alleged that "Snamprogetti's business records [...] contained the contracts with [Tesler] and the Japanese Agent, which falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services." According to the SEC, "these documents were part of Snamprogetti's business records and supported Snampogetti's financial statements, which were consolidated into ENI's financial statements." The SEC alleges that "Snamprogetti did not conduct due diligence" on Tesler or the Japanese Agent and "ENI failed to ensure that Snamprogetti complied with ENI's policies regarding the use of agents." Specifically, the SEC alleged that "ENI's policies and procedures governed Snamprogetti's use of agents" but that "ENI failed to ensure that Snamprogetti conducted due diligence on agents hired through JV's in which Snamprogetti participated."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $125 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The SEC charged Snamprogetti, a non-issuer, as "an agent of a U.S. issuer" with violating the FCPA's antibribery provisions and knowingly falsifying books and records that supported the financial statements of ENI and knowingly circumventing ENI's internal accounting controls. The SEC charged ENI with violating the FCPA's books and records and internal control provisions. According to the SEC, "ENI exercised control and supervision of [...] Snamprogetti during the relevant time and on certain of its business decisions, such as Snamprogetti's entry into the JV."
Veraz Networks (June 2010)
See here for the prior analysis.
Principle Allegations: "From 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz." "Veraz failed to accurately record these improper payments on the Company's books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA [...] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate."
Charges: FCPA books and records and internal control violations.
Settlement: $300,000 civil penalty.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: Although the complaint does not charge FCPA anti-bribery violations, the alleged "foreign officials" were employees of alleged state-owned or state-controlled telecommunications companies (China and Vietnam). Former SEC FCPA enforcement attorney Richard Grime criticized various aspects of the SEC's enforcement action (see here).
General Electric (July 2010)
See here for the prior analysis.
Principal Allegations: "Two GE subsidiaries - along with two other subsidiaries of public companies that have since been acquired by GE - made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program."
Charges: FCPA books and records and internal control violations.
Settlement: $23.4 million ($1 million penalty, $18.4 million in disgorgement, 4,080,665 in prejudgment interest)
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: Unlike other Iraqi Oil-For-Food cases, the GE enforcement action did not involve a related DOJ enforcement action. Also, unlike most public companies facing FCPA exposure, GE apparently did not previously disclose the SEC's investigation. Also, according to GE's release: “The SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions."
Alliance One and Universal (Aug. 2010)
See here for the prior analysis.
Alliance One
Principal Allegations: "During the period from 1996 through 2004, Dimon, Incorporated ("Dimon") made multiple improper payments to foreign officials in Kyrgyzstan and Thailand in violation of the Foreign Corrupt Practices Act ("FCPA"). During the period from 2001 through 2004, Standard Commercial Corporation ("Standard") made multiple improper payments to foreign officials in Thailand in violation of the FCPA. "Despite their extensive international operations, Dimon and Standard lacked sufficient internal controls designed to prevent or detect violations of the FCPA. During the 2000-2004 period, Dimon and Standard each had a policy manual prohibiting bribery, but the training and guidance provided to their employees regarding compliance with the FCPA were not adequate or effective. Dimon and Standard each also failed to establish a program to monitor compliance with the FCPA by its employees, agents, and subsidiaries." The SEC's complaint also contains allegations about other unrelated payments in China, Thailand, Greece and Indonesia. In May 2005, Dimon and Standard merged to form Alliance One International, Inc. ("Alliance One").
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $10 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: Yes. See here for the SEC enforcement action against Bobby Elkin (Dimon's former Country Manager Kyrgyzstan), Baxter Myers (Dimon's former Regional Financial Director), Thomas Reynolds (Dimon's former Corporate Controller), and Tommy Williams (Dimon's former Senior Vice President of Sales).
Related DOJ Enforcement Action: Yes.
Of Note: Alliance One's entire exposure was based, not on anything it did, but rather successor liability theories.
Universal
Principal Allegations: "From 2000 through 2007, Universal Corporation violated the Foreign Corrupt Practices Act (the "FCPA") by paying, through its subsidiaries, over $900,000 to govemment officials in Thailand and Mozambique to influence acts and decisions by those foreign officials to obtain or retain business for Universal. Those payments were directed by employees at multiple levels of the company, including management in its corporate offices and at its wholly-or majority-owned and controlled foreign subsidiaries. The Company had inadequate internal controls to prevent or detect any of these improper payments, and improperly recorded the payments in its books and records." "Between 2000 and 2004, Universal subsidiaries paid approximately $800,000 to bribe officials of the government-owned Thailand Tobacco Monopoly ("TTM") in exchange for securing approximately $11.5 million in sales contracts for its subsidiaries in Brazil and Europe. From 2004 through 2007, Universal subsidiaries made a series of payments in excess of $165,000 to government officials in Mozambique, through corporate subsidiaries in Belgium and Africa. Among other things, the payments were made to secure an exclusive right to purchase tobacco from regional growers and to procure legislation beneficial to the Company's business." "In addition, between 2002 and 2003, Universal, subsidiaries paid $850,000 to high ranking Malawian government officials. Those payments were authorized by, among others, two successive regional heads for Universal's African operations. Universal did not accurately record these payments in its books and records."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $4.6 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The Alliance One / Universal enforcement action is believed to be the first time the enforcement agencies consolidated an enforcement action against two unrelated companies in such a fashion - likely due to the fact that a significant part of the improper conduct at both companies involved the same entity - The Thailand Tobacco Monopoly ("TTM") - an alleged agency and instrumentality of the Thai government.
ABB (Sept. 2010)
Principal Allegations: "From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB." "As evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB's knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB's books and records, ABB's failure to detect these irregularities, and ABB's failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $39.3 million ($17.1 milion in disgorgement, $5.7 million in prejudgment interest, and a $16.5 million civil penalty).
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: In 2004, ABB Ltd. resolved a separate SEC FCPA enforcement action (see here) involving conduct in Nigeria, Angola and Kazakhstan.
Panalpina Related Settlements (Nov. 2010)
Panalpina
See here for the prior analysis.
Principal Allegations: "Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.' s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some members of Panalpina, Inc.'s management." "The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity. These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as 'local processing,' 'special intervention,' 'special handling,' and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers."
Charges: FCPA's anti-bribery violations; aiding and abetting FCPA books and records and internal control violations.
Settlement: $11.3 million in disgorgement.
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The SEC specifically stated that Panalpina was not an issuer for purposes of the FCPA, but nevertheless charged Panalpina "while acting as an agent of its issuer customers" with violating the FCPA's anti-bribery provisions and aiding and abetting its issuer customers' violations of the FCPA's anti-bribery provisions and books and records and internal control provisions.
Pride International
See here for the prior analysis.
Principal Allegations: "From in or about 2003 to in or about 2005, employees and/or agents of Pride authorized and/or made payments to third parties while aware of a high probability that all or a portion of such payments would be offered, given, or promised to foreign officials in Venezuela, India, and Mexico in violation of the U.S. Foreign Corrupt Practices Act." "From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela's state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables." "In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride's U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made." "In or about late 2004, Bobby Benton, Pride's Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat." The SEC's complaint also describes certain other "transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries' books."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $23.5 million ($19,341,870 in disgorgement, $4,187,848 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: Yes. See here for the SEC enforcement action against Joe Summers (former Venezuela Country Manager), here for the SEC enforcement action against Bobby Benton (former Vice President Western Hemisphere Operations).
Related DOJ Enforcement Action: Yes.
Of Note: Numerous of the allegations relate to employees of a state-owned or controlled enterprises being "foreign officials;" payments made to secure legitimate receivables; and/or payments made to secure licenses or permits.
Tidewater
Principal Allegations: "Between August 2001 and November 2005, Tidewater Inc. [...] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA's anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor." According to the SEC, "these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments." As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that "from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters." According to the SEC, both the Azeri and Nigerian payments: "[w]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control provisions.
Settlement: $8.3 million ($7,223,216 in disgorgement, $881,146 in prejudgment interest and a $217,000 civil penalty).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Transocean
See here for the prior analysis.
Principal Allegations: "From at least 2002 through 2007, Transocean made illicit payments through its customs agents to Nigerian government officials to extend the temporary importation status of its drilling rigs, to obtain false paperwork associated with its drilling rigs, and obtain inward clearance authorizations for its rigs and a bond registration." "Transocean made illicit payments through Panalpina World Transport Holding Ltd.'s Pancourier express courier service to Nigerian government officials to expedite the import of various goods, equipment and materials into Nigeria. In most instances, customs duties for these items were not paid by either Panalpina or Transocean. In addition, Transocean made illicit payments through Panalpina to Nigerian government officials to expedite the delivery of medicine and other materials into Nigeria." As to the company's internal controls, the SEC complaint simply states as follows. "... [a]s evidenced by the extent and duration of the improper payments to Nigerian officials, the improper recording of these payments in Transocean's books and records, the failure of Transocean's management to detect these irregularities, and the actual involvement of certain members of senior management, Transocean failed to devise and maintain an effective system ofinternal controls to prevent or detect these violations."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls.
Settlement: $7.2 million ($5,981,693 in disgorgement, $1,283,387 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: The enforcement action is largely based, as were other Panalpina related cases, on customs payments and expedited courier service payments.
GlobalSantaFe
See here for the prior analyis.
Principal Allegations: "From approximately January 2002 through July 2007,GlobalSantaFe Corp. ("GSF") violated the anti-bribery, books and records, and internal controls provisions ofthe Foreign Corrupt Practices Act (the "FCPA") when GSF made illegal payments through customs brokers to officials of the Nigerian Customs Service ("NCS") in order to obtain preferential treatment during the customs process for the purpose of assisting GSF in retaining business in Nigeria. Instead of moving its oil drilling rigs out of Nigerian waters when GSF's permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all." "In addition, GSF, through its customs brokers, made payments to government officials in Gabon, Angola, and Equatorial Guinea in order to obtain preferential treatment during the customs process. These payments were described on invoices as for example, "customs vacation," "customs escort," "costs extra to police to obtain visa," "official dues," and "authorities fees."
Charges: FCPA anti-bribery charges; FCPA books and records and internal controls.
Settlement: $5.85 million (approximately 3.75 million in disgorgement and a $2.1 million penalty).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Of Note: This was the only Panalpina-related enforcement action that did not involve a DOJ component.
Noble
See here for the prior analysis.
Principal Allegations: "From January 2003 through May 2007, Noble authorized, and its Nigerian subsidiary made, payments to its customs agent in Nigeria, a portion of which certain Noble's officers and other employees believed would be passed on to Nigerian government offcials. These payments to the customs agent were authorized and made to obtain temporary importation permits ("TIPs") and extensions of TIPs for drilling rigs, including certain TIPs that were based on false paperwork." As to the FCPA's books and records charge, the SEC alleges that "Noble Nigeria recorded the portion of the payments it made to its customs agent that certain Noble personnel believed were being passed on to Nigerian government officials in Noble's 'facilitating payment' account and in some cases to other operating expense accounts..." However, without elaborating the SEC states, "because these payments were not qualifying facilitating payments under the FCPA or otherwise legitimate expenses, Noble created false books and records by recording the payments as such." As to the internal controls charges, the SEC alleges that "although Noble had an FCPA policy in place, Noble lacked sufficient FCPA procedures, training, and internal controls to prevent the use of the paper process and making of payments to Nigerian government officials to obtain TIPs and TIP extensions."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $5,576,998 ($4,294,933 in disgorgement and $1,282,065 in prejudgment interest).
Voluntary Disclosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: Recording an apparent facilitating payment as a "facilitating payment" is a violation of the FCPA's books and records provisions if the SEC does not agree that the payment was a facilitating payment.
Royal Dutch Shell
See here for the prior analysis.
Principal Allegations: "From September 2002 through November 2005, SIEP, on behalf of Shell, authorized the reimbursement or continued use of services provided by a company acting as a customs broker that involved suspicious payments of approximately $3.5 million to officials of the Nigerian Customs Service in order to obtain preferential treatment during the customs process for the purpose of assisting Shell in obtaining or retaining business in Nigeria on Shell’s Bonga Project. As a result of these payments, Shell profited in the amount of approximately $14 million. None of the improper payments was accurately reflected in Shell’s books and records, nor was Shell’s system of internal accounting controls adequate at the time to detect and prevent these suspicious payments."
Charges: None, action was resolved via an SEC administrative order finding violations of the FCPA's anti-bribery provisions and books and records and internal control provisions.
Settlement: $18.1 million ($14,153,536 in disgorgement and $3,995,923 in prejudgment interest).
Voluntary Disclosure: Shell's anual report states as follows. "In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has an ongoing internal investigation and is co-operating with the US Department of Justice and the US Securities and Exchange Commission investigations."
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: Shell was the only company in the Panalpina related enforcement actions note to be charged via an SEC complaint.
RAE (Dec. 2010)
See here for the prior analysis.
Principal Allegations: "From 2004 through 2008" RAE Systems violated the FCPA "by paying, through two of its joint venture entities in China, approximately $400,000 to third party agents and government officials in China to influence acts or decisions by foreign officials to obtain or retain business for RAE Systems." The payments "were made primarily by the direct sales force utilized by RAE Systems" at its two Chinese joint-venture entities: RAE-KLH and RAE-Fushun. "While the payments were made exclusively in China and were conducted by Chinese employees of RAE-KLH and RAE-Fushun, RAE Systems was aware of significant indications of ongoing bribery at RAE-KLH. At the time, RAE Systems failed to effectively investigate these indications, or red flags, and to stop the bribery from continuing. RAE System's failure to act on these significant red flags allowed, at least in part, bribery to continue at RAE-KLH." RAE Systems was held liable for RAE-KLH's improper payments even though "RAE Systems Instruct[ed] KLH Personnel to Stop Bribery Practices." According to the SEC, "while RAE Systems communicated these instructions to RAE-KLH personnel, RAE Systems did not impose sufficient internal controls or make any changes to the practice of sales personnel obtaining cash advances."
Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.
Settlement: $1.25 million ($1,147,800 in disgorgement; $109,212 in prejudgment interest).
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: According to the enforcement agencies, the standard of liability for payments made by joint venture partners appears to be something close to strict liability. Also the alleged "foreign officials" were primarily employees of alleged state-owned or state-controlled enterprises (China).
Alcatel-Lucent (Dec. 2010)
See here for the prior analysis.
Principal Allegations: "From December 2001 through June 2006, Alcatel, S.A., now called Alcatel-Lucent, S.A. ("Alcatel"), through its subsidiaries and agents, violated the Foreign Corrupt Practices Act ("FCPA") by paying more than $8 million in bribes to foreign government officials. Alcatel made these payments to influence acts and decisions by these foreign government officials to obtain or retain business, with the knowledge and approval of certain management level personnel of the relevant Alcatel subsidiaries. Alcatel lacked sufficient internal controls to prevent or detect such improper payments, and improperly recorded the payments in its books and records." "All of these payments were undocumented or improperly recorded as consulting fees in the books of Alcatel's subsidiaries, and then consolidated into Alcatel's financial statements. A lax corporate control environment aided Alcatel's improper conduct. Alcatel failed to detect or investigate numerous red flags suggesting that its business consultants were likely making illicit payments and gifts to government officials in these countries at the direction of certain Alcatel employees. The respective heads of several Alcatel subsidiaries and geographical regions, some of whom reported directly to Alcatel's executive committee, authorized extremely high commission payments under circumstances in which they failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA. These high-level employees therefore knew, or were severely reckless in not knowing, that Alcatel paid bribes to foreign government officials."
Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.
Settlement: $45.372 million in disgorgement.
Voluntary Dislcosure: Yes.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Of Note: In 2007, Lucent Technologies Inc. settled a separate SEC FCPA enforcement action (see here).
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