... But Nobody Was Charged

James Stewart’s first Common Sense column for Business Day at the New York Times (here) profiles the February 2011 FCPA enforcement action against Tyson Foods involving Mexican veterinarians. (See here for the prior post).

The column is silent as to the relevant fact (as indicated in the DOJ's charging document) that Mexican law permitted certain of the veterinarians at issue to charge the facility in which they work a fee for their services in addition to their official salary.

But that is besides the point, because Stewart's column once again raises the valid issue that so many FCPA enforcement actions involve corporate resolutions only - with no related individual prosecutions.

Stewart writes as follows. "It would seem self-evident that if Tyson engaged in a conspiracy and violated the Foreign Corrupt Practices Act, then someone at Tyson did so as well." Stewart further noted as follows. "But surely bribery, not to mention other forms of corporate wrongdoing, would be more effectively deterred if someone was actually held accountable for it."

Spot on.

In my November 2010 prepared statement (here) to the Senate Judiciary Committee I stated as follows.

"Key to achieving deterrence in the FCPA context is prosecuting individuals, to the extent the individual’s conduct legitimately satisfies the elements of an FCPA anti-bribery violation. For a corporate employee with job duties that provide an opportunity to violate the FCPA, it is easy to dismiss corporate money being used to pay corporate FCPA fines and penalties. It is not easy to dismiss hearing of an individual with a similar background and job duties being criminally indicted and sent to federal prison for violating the FCPA."

I further observed that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecuting individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, I asked, why is DOJ’s FCPA enforcement program largely a corporate fine-only program devoid of individual prosecutions?

As highlighted in this prior post, 70% of DOJ FCPA enforcement actions in 2010 have not involved (at least thus far) DOJ prosecutions of company employees.

What do the numbers look like thus far at the mid-point of 2011?

So far this year there have been six DOJ FCPA enforcement actions against companies (Maxwell Technlogies, Tyson Foods, Johnson & Johnson, Comverse Technologies, JGC of Japan, and Tenaris).

None of these FCPA enforcement actions have resulted (at least thus far) in DOJ prosecutions of company employees. Nor has the SEC brought civil charges against any employees of these companies. Nor has the SEC charged any employees (at least thus far) in the three SEC only FCPA enforcement actions this year (IBM, Ball Corporation, and Rockwell Automation).

As I noted in my Senate testimony, the high percentage of corporate FCPA enforcement actions that do not result in related enforcement actions against individuals legitimately causes one to wonder whether the conduct given rise to the corporate enforcement action was engaged in by ghosts.

Yet, I submit, there is an equally plausible reason why no individuals have been charged in some of the above-mentioned enforcement actions (and others) and that involves the quality of the corporate enforcement action.

Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ or SEC's theory of prosecution is questionable. [See here for a prior post detailing a former DOJ prosecutor's concern regarding NPAs and DPAs as to these issues].

Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ or SEC to satisfy its high burden of proof as to all FCPA elements.

Regardless of what you think about the possible reasons, the fact remains FCPA enforcement is, despite enforcement agency rhetoric, largely corporate enforcement only.

While on the topic of individual prosecutions, it must be noted that the bulk of such recent prosecutions are in the manufactured Africa Sting case where 22 individuals were criminally charged. Last week (see here for the prior post) Judge Richard Leon declared a mistrial in the trial of the first 4 defendants. The FCPA Blog had a stellar post yesterday (here) titled "Feds Should Forget Shot Show Defendants" and stated that instead of future sting operations to dig up FCPA individual defendants, the DOJ should focus "instead on the real bad apples [companies that have admitted to violating the FCPA and paid big fines] who paid real bribes to real foreign officials."

Spot on.

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Report Cards

Imagine I give a test to the 37 students in my class. However, because of reasons uniquely relevant to many of the students, not all students are equally capable of passing the test.

I hope all would view this test to be a bit empty.

This post summarizes the OECD Working Group on Bribery Annual Report and Transparency International's Annual Progress Report of the OECD Anti-Bribery Convention.

For reasons discussed below, these two report cards suffer from the same dynamic described in the above hypothetical.

In many OECD member countries there is no such thing as corporate criminal liability - or even if there is - such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than in the U.S. where, under respondeat superior principles, a business organization can face legal liability (civil and criminal) based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.

In most OECD member countries prosecuting authorities have two choices - to prosecute or not to prosecute - there is no such thing as non-prosecution or deferred prosecution agreements (NPAs/DPAs). Not so in the U.S. where the majority of these alternative resolution vehicles are used to resolve FCPA enforcement actions. As the OECD itself stated in its Phase 3 Report of U.S. enforcement of the FCPA - "it seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S." (See here for the prior post). Former DOJ FCPA enforcement chief Mark Mendelsohn was asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” and he stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”

In certain other OECD member countries, there is a compliance defense relevant to the prosecution of bribery and corruption offenses. (See here for the prior post).

Given these differing dynamics (among others), it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses.

With that in mind, on to the report cards.

Transparency International Progress Report 2011 - Enforcement of the OECD Anti-Bribery Convention

On May 24th, Transparency International (TI) released (here) its seventh annual Progress Report on Enforcement of the OECD Convention.

The report "shows no improvement in the enforcement of the OECD Anti-Bribery Convention in the past year and warns that this could signal a dangerous loss of momentum in the fight against corruption."

The report covers 37 countries and "shows that there are still only seven countries with active enforcement, nine with moderate enforcement, and 21 with little or no enforcement." Huguette Labelle, Chair of TI, stated that "the collective commitment to stamp out foreign bribery made by all OECD parties is undermined when a large number of countries have inadequate enforcement."

The introduction of the report includes the following statement.

"Continued lack of enforcement in 21 countries a decade after the Convention entered into force, notwithstanding repeated OECD reviews, clearly indicates lack of political commitment by their governments. And in some of those with moderate enforcement, the level of commitment is also uncertain. This is a danger signal because the OECD Convention depends on the collective commitment of all parties to ending foreign bribery."

The reports "major conclusions" include the following: "risk of loss of momentum" and "lack of political commitment."

As to the former, the report states as follows. "The Convention has not yet reached the point at which the prohibition of foreign bribery is consistently enforced. With little or no enforcement by half of the signatory governments, backsliding by enforcing governments is a serious threat. This concern is aggravated in a troubled global economy in which companies are scrambling for business. Business organisations have increasingly criticised anti-bribery enforcement as a competitive obstacle. The present position of the Convention is unstable, and unless forward momentum is recovered, the progress made in the past decade could unravel."

As to the "lack of political commitment", the report states as follows. "Reviews conducted by TI experts indicate that the principal cause of lagging enforcement is lack of political commitment by government leaders. In countries where there is committed political leadership, the OECD’s rigorous monitoring programme has helped improve laws and enforcement programmes. However, in the absence of political will, even repeated OECD reviews have little effect."

Once again, Canada received a public lashing from TI.

Under the heading "lack of progress in Canada," the report states as follows. "Canada is the only G7 country in the little or no enforcement category, and has been in this category since the first edition of this report in 2005. It is also the only OECD member that does not provide nationality jurisdiction, which presents a serious obstacle to enforcement. [...] TI welcomes that the government of Canada has publicly reported the number of investigations for the first time. It is promising that 23 foreign bribery investigations are under way. If these investigations lead to prosecutions, Canada may finally move out of the little or no enforcement category." (A future post will summarize the recent Canadian enforcement action against Niko Resources).

TI's 2010 report (see here for the prior post) included reference to many big picture enforcement issues such as the use of negotiated settlements (NPAs and DPAs), judicial scrutiny of enforcement actions, and the proper amount of fines and penalties. However, TI's 2011 report was silent as to many big picture issues.

OECD Working Group on Bribery Annual Report

On April 20th, the OECD Working Group on Bribery released its annual report (here). The release (here) states as follows. "Most governments are not meeting their international commitments to clamp down on bribery and corruption in international business, with only five signatories to the OECD Anti-Bribery Convention having sanctioned individuals or companies in the past year."

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Friday Roundup

Another FCPA hearing on Capital Hill next week, news regarding Goldmann Sachs, questioning the use of NPAs and DPAs, an informative read regarding India, and something for your "foreign official" file.

Its all here in the Friday roundup.

House Hearing

Next Tuesday, June 14th, the Subcommittee on Crime, Terrorism and Homeland Security of the House Judiciary Committee will hold a hearing titled "Foreign Corrupt Practices Act." According to this report by Christopher Matthews of Main Justice the hearing is expected to focus on the following issues: successor liability, a potential compliance defense, "foreign official," and corporate mens rea issues.

The witness list for the hearing is as follows (see here).

Hon. Michael Mukasey (Former Attorney General, Partner, Debevoise & Plimpton LLP - see here); Mr. Greg Andres (Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice); Mr. George Terwilliger (Partner, White & Case LLP - see here); and Ms. Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers - see here).

Predictably, some are blasting the very existence of the hearing. For instance, Political Correction, a project of Media Matters Action Network (a self-described progressive research and information center dedicated to analyzing and correcting conservative misinformation in the U.S. media), describes the hearing here as "Rep. Lamar Smith's Fight to Make Bribery Easier For Big Business."

The House hearing follows a November 30th Senate hearing titled "Examining Enforcement of the Foreign Corrupt Practices Act." See here for a prior post.

This post, prior to the 2010 hearing provided some guiding words, and if those were not enough, how about this statement from William Brock, U.S. Trade Representative, on April 18, 1983 during a hearing before the House Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs.

"Mr. Chairman, no one minimizes the complexity of the issue before you today. Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’ That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years. After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond. Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”

Well said.

Goldman Inquiry

Yesterday, the Wall Street Journal reported - "Eyes on Goldman-Libya Dealings" - that the SEC is "examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya's sovereign wealth fund." The inquiry appears to be focused on a "$50 million fee Goldman initially agreed to pay [but one that was never paid to] the Libyan sovereign-wealth fund as part of a proposal ... to help the fund recoup losses."

A Goldman spokesman is quoted as follows. "We are confident that nothing we did or proposed was or could have been a breach of any rule or regulation. We retained outside counsel, as is our normal practice for any transaction to ensure that we were compliant with all applicable rules."

Can the FCPA be implicated by payments never made?

Yes. The anti-bribery provisions prohibit "an offer, payment, promise to pay, or authorization of payment ...".

What about payments to foreign governments?

No. The anti-bribery provisions only apply to offers, payments, promises of payment, or authorizations of payments to "foreign officials."

However, according to the WSJ article the inquiry appears to focus on whether the contemplated payment would have been passed on to an outside adviser firm "run at the time by the son-in-law of the head of Libya's state-owned oil company."

For more on the Goldman inquiry, see here from Ashby Jones (WSJ Law Blog) and here from Samuel Rubenfeld (WSJ Corruption Currents).

NPAs / DPAs

Non-prosecution and deferred prosecution agreements ought to be abolished. I've argued here and in other places that these agreements have traded one negative externality of white collar prosecution (the much over-hyped Arthur Anderson effect) for a host of others, including the alarming lack of any meaningful judicial scrutiny to ensure that NPAs and DPAs are truly based on facts and appropriate legal theories to support the charges “alleged.”

Mark Mendelsohn, the former head of the DOJ's FCPA unit during its era of resurgence, stated in a September 2010 interview with Corporate Crime Reporter, that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”

Asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” Mendelsohn stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”

Add W. Neil Eggleston, a former DOJ enforcement attorney currently a partner at Debevoise (here), to the growing list of former DOJ enforcement attorneys critical of these alternative resolution vehicles.

In this recent interview with Corporate Crime Reporter, Eggleston stated as follows. “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”

Well said.

India

If India is a country of concern or focus of yours, you will want to check out the most recent quarterly newsletter of the India Committee of the ABA Section of International Law. (See here).

Guest editor James Parkinson of BuckleySandler (here) provides the following articles, among others, in the newsletter: one devoted to the FCPA risks of doing business in India; another devoted to India's demand-side statute - the Prevention of Corruption Act; another focused on reducing corruption risks in India through compliance programs; and another calling for India to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

"Foreign Official"

And finally, because your "foreign official" file would be incomplete without it, here is a transcript of the May 9th oral argument in the Carson "foreign official" challenge. See here and here for previous posts.

*****

A good weekend to all.

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What Others Are Saying About The SEC's First DPA

Non-prosecution and deferred prosecution agreements have been a staple of DOJ FCPA enforcement for years. 2010 saw 15 such resolution vehicles (4 NPAs) and (11 DPAs) (see here for the prior post) and these resolution vehicles are significantly different than a corporate entity being criminally charged or pleading guilty.

Last month, the SEC used a DPA for the first time in resolving the Tenaris FCPA enforcement action. See here for the prior post.

This post collects what others are saying about the SEC's first DPA, including whether resolution via such a vehicle is all that different from traditional SEC resolution procedures.

In this publication, Shearman & Sterling noted as follows. "Prior to this settlement, the SEC had employed only two enforcement options: civil complaints seeking injunctive relief or administrative cease-and-desist orders. In both cases, even though the company could settle without admitting or denying the SEC’s allegations, the relevant adjudicator (either a judge or the Commission) necessarily made a formal finding that the company had indeed violated the law and that the injunction or order was necessary to prevent it from doing so again." Shearman notes that "in the criminal context, DPAs and non-prosecution agreements, their slightly less formal cousins which do not involve filed charges, were first used in FCPA cases beginning in 2004" and further notes the benefits of a DPA compared to criminal charges. However, the Shearman publication states as follows. "It is not clear whether the benefits afforded by a civil DPA in a SEC enforcement action confer similar benefits. With due respect to the SEC, a civil enforcement adjudication is a much less fearsome matter than a criminal conviction. Further, although the issuance of an injunction or an order undoubtedly represents some finding of wrongdoing, since they are settled without the defendant company admitting or denying the relevant facts, they do not bar the company from contesting such facts in non-SEC proceedings. Further, they do not have the automatic collateral consequences of a criminal conviction. Thus, one must question what benefits a SEC DPA really affords." As to the Tenaris DPA, Shearman states as follows. "Although the company was not required to pay a civil fine, the SEC has similarly forgone fines in some previous traditional settlements in the past, requiring the defendant company only to disgorge its illicit gains. Moreover, by tolling the statute of limitations, the company potentially extends its exposure and subjects itself to potential civil enforcement for a greater period of time than if it had settled the SEC matter in the traditional way. Finally, it is not clear that the company received any financial benefit from entering into a DPA as opposed to the usual consent judgment or administrative settlement. [...] [T]he SEC appears to have exacted the full amount of disgorgement and interest in this matter." The Shearman publication also contains an interesting discussion about the "concealed penalty" in the Tenaris DPA and states as follows. "The Tenaris DPA also reflects a disturbing development relating to the financial penalty, which may not be restricted to DPAs. Specifically, the SEC’s DPA with Tenaris provides that the company must “refrain from seeking or accepting a US federal or state tax credit or deduction for any monies paid pursuant to this Agreement.” Since the only monies paid related to disgorgement and prejudgment interest, this effectively precludes the company from recouping any taxes it might have paid on the profits it now has to disgorge, resulting in a hidden additional penalty." Finally, Shearman touches upon an issue it has frequently raised in such FCPA alerts and that is the expansive jurisdictional theories frequently used by U.S. enforcement authorities to prosecute non-U.S. companies for FCPA offenses. As to Tenaris, the Shearman publication states as follows. "The Tenaris matter demonstrates the U.S. government’s continued aggressive approach to expanding the reach of the FCPA, no matter how attenuated or de minimis a non-U.S. company’s contact with the U.S. may be."

In this publication, Gibson Dunn observes as follows. "One question raised by this case is where the SEC draws the line between use of a DPA and an NPA. Based on comments by the Commission staff in announcing the DPA, Tenaris was a DPA candidate because of its immediate disclosure and exceptional cooperation. However, it appears not to have been an NPA candidate because of the alleged underlying violation." Gibson Dunn asks - "the key question now is how a defendant benefits from receiving an NPA or DPA from the SEC over a traditional settled enforcement action" and states as follows. "Turning to a DPA, the defendant agrees to what appear to be remedies very similar to those historically obtained by the SEC in a settled enforcement action, but potential defendants need to consider the risks and benefits of a DPA more carefully. Optically, for a company that does not go on to violate the agreement, a DPA can be favorably described as the SEC's decision not to take an enforcement action against the defendant. This distinction is meaningful for a defendant's public image and reputation. [...] A second potential advantage of a DPA is avoidance of the collateral consequences. Some collateral consequences, such as disclosure obligations or disqualifications from participation in the securities industry, arise from the entry of an injunction, which a DPA avoids." Gibson Dunn further states as follows. "On the other hand, the DPA's model is untested. One reason parties settle SEC proceedings is to avoid the collateral estoppel effect of adverse findings of fact and conclusions of law in contested litigation which an adversary may use in a claim for damages or other relief. Generally, courts have concluded that they will not impose collateral estoppel based on factual recitations contained in settled SEC enforcement actions and that settled SEC complaints or administrative orders are not evidence. Because DPAs are new, there is less precedent on how courts will view similar factual recitations." Finally, Gibson Dunn observes that "companies considering a DPA may wish to consider confirming that their insurance carriers will not construe a DPA as an admission that could adversely affect coverage for a company and/or its directors and officers."

In this alert, Dewey & LeBoeuf stated as follows. "The Tenaris DPA is significant insofar as it shows the SEC’s willingness to cut a break to those companies that demonstrate “high levels of corporate accountability and cooperation” with SEC enforcement investigations. Tenaris was credited for “immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training.” These great lengths allowed it to obtain a more lenient sanction than it may have otherwise received. As companies under investigation by the SEC tend to go to such lengths in order to settle rather than litigate SEC cases, it is likely that we will see more DPAs from the SEC in the future. This is especially true with respect to SEC cases involving allegations of FCPA violations, which are routinely settled rather than litigated."

In this alert, Debevoise & Plimpton states as follows. "... [T]he nature and circumstances of the settlement call into question how beneficial the settlement overall, and particularly the SEC’s novel form of resolution, actually was for Tenaris. The company, even by the government’s account, did everything right after discovering potentially improper conduct: It immediately and voluntarily disclosed the conduct at issue, retained outside counsel to conduct a worldwide investigation, cooperated extensively and in “real time” with the SEC and DOJ, and implemented substantial remedial measures and compliance enhancements. Yet Tenaris still had to pay millions in disgorgement and fines, adopt wide-ranging compliance requirements (including certification by all directors and members of management regarding compliance with a revised code of conduct) on top of the extensive reforms and enhancements the company had already implemented, commit to notify the DOJ during the two-year term of the NPA of any conduct by any Tenaris employee that violates U.S. federal or state criminal law or any non-U.S. fraud or anticorruption law (or even any investigation of such conduct) that comes to the attention of the company’s senior management, and, perhaps most significantly, agree not to dispute detailed accounts of the company’s conduct that include express statements that the conduct was “illegal” and “improper.” For example, although the DPA includes a pro forma recitation that Tenaris was not “admitting or denying” the SEC’s allegations, Tenaris agreed not to dispute a statement of facts that describes the payments as “illegal payments to OAO officials” and identifies those OAO employees as “‘foreign officials’ within the meaning of [the FCPA].” The SEC’s resolution of the Tenaris investigation by means of a DPA reflects the adoption by the SEC of aggressive techniques and practices employed by the DOJ in criminal matters – a trend that may continue as the SEC increases the vigor of its FCPA enforcement efforts."

In this alert, Foley & Lardner noted as follows. "The agreement also does not contain an injunction or an order of a court, which reduces the risk of collateral actions (securities class actions, shareholder breach of fiduciary duty actions). Undoubtedly, Tenaris’s full disclosure and cooperation played a major role in SEC’s deciding to use a deferred prosecution agreement for the first time."

In this alert, Bryan Cave noted as follows. "It is telling that the SEC’s first use of a DPA occurred in an investigation involving alleged violations of the Foreign Corrupt Practices Act (“FCPA”). Such investigations, which typically require reviews of detailed financial records, e-mails and other documents in numerous jurisdictions, often in languages other than English, present substantial challenges to the SEC and other authorities. In these situations, what the SEC describes as “extraordinary cooperation” on the part of a corporation has particular value."

In this alert, Dechert stated as follows. "It is noteworthy that the SEC chose to offer a DPA to Tenaris but an NPA to Carter’s. The SEC has offered no public explanation why it used different cooperation tools, and in fact the instructions in the SEC manual for the use of the two types of agreements are similar. The SEC press releases for both use similar language to describe the cooperation from the respective companies. One explanation for this different treatment may lie in the seriousness with which the SEC views FCPA violations. While NPAs are typically reserved for those viewed by the charging agency as witnesses with little or no criminal exposure, DPAs are often accompanied by a formal charging document, are filed with a court, and generally include a rigorous set of corrective measures that the cooperating company must undertake in order for the prosecution to remain deferred. Thus, the DPA is likely to remain a favored agreement in the FCPA context, where there will invariably be additional measures for the corporate defendant to undertake in the area of compliance and/or monitoring. Moreover, there are potentially additional adverse consequences if the DPA is violated, so it is a more rigorous enforcement tool."

In this alert, Cahill Gordon & Reindel note as follows. "Significantly, the DPA does not require Tenaris to make an admission of wrongdoing, or admit to a statement of facts detailing the misconduct, as is common in agreements of this type in the criminal context. Such admissions can be used against a company by criminal authorities or by private plaintiffs, neither of whom are bound by the DPA."

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Tenaris Resolves FCPA Enforcement - SEC Uses a DPA For the First Time

Once upon a time there was a law enforcement system in this country where companies that committed crimes or engaged in other wrongdoing were prosecuted criminally and/or civilly and where companies that did not commit crimes or did not engage in other wrongdoing were not prosecuted. That system has to a large extent been abandoned by the DOJ years ago – particularly in the FCPA context – and now that system appears to be crumbling at the SEC as well.

In December 2010, the SEC entered into its first non-prosecution agreement - albeit not in the FCPA context (see here for the prior post) and yesterday the SEC announced its first deferred prosecution agreement - of any kind - against Tenaris to resolve an FCPA enforcement action.

As has generally happened with the DOJ’s enforcement of the FCPA, the SEC’s enforcement of the FCPA will now be even further removed from judicial scrutiny and resolutions will now more frequently be negotiated over private conference room tables.

This is a troubling development on many fronts and it gives the public little confidence that our laws are enforced in a consistent and transparent manner or that regulators and companies are being held accountable.

With that introduction, let's take a look at the Tenaris enforcement action.

Tenaris (here) "is a leading supplier of tubes and related services for the world’s energy industry and certain other industrial applications." Tenaris is headquartered in Luxembourg and its American Depository Receipts ("ADRs") are listed on the New York Stock Exchange. In FCPA-speak, that makes Tenaris an "issuer."

The enforcement action involved both a DOJ and SEC component. Total settlement amount was $8.9 million ($3.5 million criminal penalty via a DOJ non prosecution agreement; $5.4 million in disgorgement and prejudgment interest via a SEC deferred prosecution agreement ... its feels odd just writing that).

Both enforcement actions involve commission payments to an Uzbekistan agent to receive confidential bidding documents in connection with tenders conducted by alleged Uzbekistan state-owned or state-controlled companies. The enforcement actions state that Tenaris employees "were aware or substantially certain that all or a portion" of the commission payments would be offered by the Agent to employees at the SOEs and that certain of the payments were paid via a wire transfer through a New York bank account.

DOJ

The NPA (here - dated March 14, 2011) begins as follows.

The DOJ "will not criminally prosecute" Tenaris and its subsidiaries and affiliates for any crimes "related to Tenaris's knowing violations of the anti-bribery and books and records provisions of the FCPA ... arising from and related to the making of improper payments by employees and agents of Tenaris to officials of OJSC O'ztashqineftgaz ("OAO"), an Uzbekistan state-controlled oil and gas production company, and the accounting and record-keeping associated with these improper payments."

The NPA has a term of two years and Tenaris admitted, accepted, and acknowledged responsibility for the below described conduct. As is typical in FCPA NPAs or DPAs, Tenaris agreed "not to make any public statement contradicting" the described conduct.

According to the NPA, Tenaris has more than 24,000 employees around the world and it conducts operations in 12 countries and its customers include the world's leading oil and gas companies. The NPA states that Tenaris's operations included supplying steel pipe and related servics in the Caspian Sea region, including Uzbekistan. This region accounted for approximately 1% of Tenaris's total global sales and services from 2003 to 2008. Tenaris's Caspian Sea business was run from offices in Azerbaijan and Kazakhstan.

According to the NPA, "Tenaris obtained oilfeld services business in the Caspian Sea region in part by bidding on contracts solicited by state-owned companies or governmental agencies to provide pipeline used in the development and production of oil and natural gas. Tenaris often used agents to assist in biddig on government contracts in the Caspian Sea region."

The conduct at issue focused on OAO contracts between 2006 and 2007. According to the NPA, OAO "was a wholly owned subsidiary of Uzbekneftegaz, the state holding company of Uzbekistan's oil and gas industry" and during the relevant time period "Uzbekneftegaz and OAO were wholly owned by the Government Uzbekistan." The NPA then states, "OAO was an agency and instrumentality of the Government of Uzbekistan and its employees were foreign officials within the meaning of the FCPA."

According to its website (here) the current ownership of OAO is as follows: "government’s share – 51%; foreign investors’ share – 37.27%; free market trade share – 11.73%."

According to the NPA, in December 2006, Tenaris "was introduced to a potential agent ("OAO Agent") to help Tenaris bid on additional contracts with OAO" and "as an incentive to retain the OAO Agent, the OAO Agent offered Tenaris access to confidential bidding information of competitors obtained from officials in OAO's tender department, who would allow Tenaris to submit revised bids after reviewing the confidential information." The NPA states that "Tenaris would use the confidential competitor bid information to submit revised bids in order to increase the likelihood of Tenaris being awarded the underlying contract."

According to the NPA, Tenaris "agreed to pay the OAO Agent a fee of 3.5% for these services" and that Employees A, B, C, and D (non-U.S. citizens but "employees and agents" of Tenaris) "were aware or substantially certain that all or a portion of such money would be offered by the OAO Agent to one or more OAO employees."

The NPA then lists approximately $19.4 million in contracts Tenaris obtained using this system and states that certain of the commission payments to the OAO Agent were paid via wire transfer through a New York bank account.

Under the heading "Additional Improper Conduct to Avoid Detection," the NPA states that in November 2007 the above referenced employees learned of complaints from company competitors as to the bidding process on certain of the contracts and that an investigation by Uzbekekspertiza JSC (a Uzbekistani government agency) might commence. According to the NPA, "in an effort to avert the potential investigation of the bidding process, the OAO Agent recommended to Tenaris that the OAO Agent make an improper payment to Uzbekekspertiza officials to refrain from recommending the investigation against Tenaris or re-opening the bidding process to Tenaris's competitors" and that the employees "agreed to pay the recommended payment" to the officials to avert the investigation. However, the NPA states as follows: "the investigation did not uncover evidence that any such payment was made."

As to books and records, the NPA states that "the books, records and accounts reflecting Tenaris's transactions ... were incorporated into Tenaris's consolidated year-end financial statements" and that "Tenaris knowingly failed to make and keep books, records, and accounts that accurately and fairly reflected Tenaris's transactions ... and the payments to the OAO Agent."

Based on the above conduct, Tenaris agreed to pay a $3.5 million criminal penalty. The NPA states as follows. "This substantially reduced monetary penalty reflects the DOJ's determination to meaningfully credit Tenaris for its extraordinary cooperation with the Department, including its timely and voluntary disclosure, its subsequent investigation, and the effective manner in which Tenaris conveyed information to the [DOJ and the SEC]."

Inquiring minds want to know - how much was the penalty "substantially reduced?"

According to the NPA, the DOJ agreed to resolve the action via an NPA based, in part, on the following factors.

(a) Tenaris's timely, voluntary, and complete disclosure of the conduct at issue;

(b) Tenaris's extensive, thorough, real-time cooperation with the DOJ and the SEC;

(c) subsequent to its voluntary disclosure of certain conduct unrelated to Uzbekistan, but prior to discovery of the unlawful conduct related to Uzbekistan, Tenaris's voluntary investigation of the Company's business operations throughout the world, specifically including the thorough and effective manner in which this investigation was carried out and information was disclosed to the DOJ and SEC;

(d) Tenaris's remedial efforts already undertaken and to be undertaken, including voluntary enhancements to its compliance program; and

(e) Tenaris's commitment to implement enchanced compliance measures described in the NPA.

Based on (c) above, inquiring minds want to know - what did Tenaris originally voluntarily disclose?

Under the heading, "Disclosure and Investigation of Improper Activity," the NPA states as follows.

"In or about March 2009, a third party disclosed to Tenaris information indicating that certain sales agency payments were made by Tenaris in relation to business in a country other than Uzbekistan. These payments appeared to be for an improper purpose. In response to this information, Tenaris's Audit Committee retained outside counsel to investigate the allegations. Thereafter, in a Form 20-F filed with the SEC on or about June 30, 2009, Tenaris disclosed information related to these allegations. Tenaris also made a prompt, full disclosure of the information to the [DOJ] and the [SEC] concerning the allegations. In or around July 2009, counsel for Tenaris met with the [DOJ and SEC] and disclosed preliminary findings of the internal investigation. Such disclosure was related to facts known to Tenaris at the time but was not related to transactions in Uzbekistan. Tenaris's counsel also informed the [DOJ and the SEC] that it would conduct a thorough, world-wide investigation of its business operations and internal controls and would report the findings to the [DOJ and SEC]. Tenaris's investigation plan included significant collection and review of a substantial quantity of electronic and paper records from the company and third parties from multiple locations around the world, translation of all relevant materials into English, subsequent interviews of relevant personnel including senior executives and third parties, and review and testing of internal controls and compliance procedures. In or around June 2010, Tenaris disclosed the factual findings from its internal investigation in a thorough, complete and useful manner to the [DOJ and SEC]. As a result of its internal investigation, Tenaris discovered facts and transactions in Uzbekistan that constitute the violations set forth above. Tenaris voluntaly engaged in certain remediation efforts to include termination and disciplinary measures of the persons involved. Tenaris also thoroughly reviewed its pre-existing compliance program and applicable internal controls, and undertook voluntary, affirmative steps to update and improve its compliance program and to implement enhanced compliance measures and controls. Tenaris also agreed to provide real and meaningful cooperation with the [DOJ and SEC] and any law enforcement agency in connection with this matter."

Again, inquiring minds want to know - what did Tenaris originally voluntarily disclose?

See here for the DOJ's release announcing the enforcement action.

SEC

The SEC DPA (here) is based on the same core conduct described above.

As to internal controls, the SEC DPA states as follows.

"... Tenaris's system of internal controls failed to detect or prevent payments to OAO officials in an effort to obtain and retain business in Uzbekistan, including a failure to ensure that proper and effective due diligence was conducted on the Agent for the OAO contracts, and that the review process for authorization or approval of payments to the Agent failed to detect or prevent the illegal payments to OAO officials. Tenaris's policies, procedures and training related to anticorruption and the Foreign Corrupt Practices Act ("FCPA") compliance in place at that time warranted further strengthening to ensure effective compliance with the related laws."

One of the undertakings Tenaris agreed to in the DPA was the following.

"To conduct effective training regarding anticorruption and compliance with the FCPA for (1) all current officers and managers, (2) all employees working in Finance, Accounting, Internal Audit, Sales, and Government Relations, (3) all other employees working in positions Tenaris deems to involve activities implicated by Tenaris's policies regarding anticorruption and compliance with the FCPA, on or before December 31, 2011, and (4) all such future employees within 90 days oftheir affiliation with Tenaris."

Under the terms of the two-year DPA, Tenaris, without admitting or denying the SEC's allegations (the same way defendants are ordinarly allowed to resolve SEC enforcement actions), agreed to pay $5.4 million in disgorgement and prejudgment interest.

Pursuant to the DPA, Tenaris agreed "not to contest or contradict the factual statements" supporting the Statement of Facts. As noted in this prior post when the SEC announced its intention to make use of NPAs and DPAs, "[a]n admission or an agreement not to contest the relevant facts underlying the alleged offenses" is a key factor the SEC will consider in determining whether a company should receive a deferred prosecution agreement.

Like the SEC's prior NPA, the Tenaris DPA is very similar to DOJ DPAs and NPAs.

In a release (here) the SEC touted its first use of a DPA.

Robert Khuzami (Director of the SEC's Division of Enforcement) stated as follows. “The Tenaris foreign bribery scheme was unacceptable and unlawful, but the company’s response demonstrated high levels of corporate accountability and cooperation. The company’s immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training made it an appropriate candidate for the Enforcement Division’s first Deferred Prosecution Agreement. Effective enforcement of the securities laws includes acknowledging and providing credit to those who fully and completely support our investigations and who display an exemplary commitment to compliance, cooperation, and remediation.”‬

Cheryl Scarboro (Chief of the SEC's FCPA Unit) stated as follows. “Tenaris’s conduct was clearly in violation of the FCPA. The company’s employees bribed government officials in Uzbekistan to obtain government contracts. But when Tenaris discovered the illegal conduct, it took noteworthy steps to address the violations and significantly enhance its anti-corruption policies and practices to remediate weaknesses in its internal controls.”

Robert Giuffra, Jr. of Sullivan & Cromwell (here) represented Tenaris.

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One Win, One Loss

The conviction last week of Lindsey Manufacturing Inc. (see here for the prior post) was indeed the first instance of a company being tried and convicted on FCPA violations - as noted in the DOJ's release (here).

However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.

That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.

Thus, the DOJ's record in corporate FCPA trials is one win, one loss.

This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.

*****

In 1990, Harris Corporation ("Harris"), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court - Northern District of California.

As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems ("DTS") division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.

Robert O'Hara (an unindicted co-conspirator - more on O'Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. - a Delaware corporation created by O'Hara "to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia."

The conduct at issue involved "The Empress Nacional de Telecomunicaciones or Telecom" an alleged "instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia." According to the indictment, "Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA." However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.

The indictment charged that Harris, Iacobucci, Schultz and O'Hara conspired to violate the FCPA by paying and authorizing the payment of money to O'Hara "while knowing that a portion of such money" would be offered or given, directly or indirectly, to "foreign officials, that is, officials of the Government of Colombia" in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA's books and records provisions.

According to the indictment, part of the conspiracy was that Harris retained O'Hara "as a consultant based upon the representation of O'Hara that he had connections with officials of the Government of Colombia that he would use to assist" Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O'Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.

The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a "member of the Camara de Representates (CDR), the national legislative of Colombia;" a local Colombian company "that was owned in part by a foreign official, that is, a member of the CDR;" and "various officials of the Government of Colombia."

The indictment alleged specific meetings and documents that set into motion the bribery scheme.

In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.

Original source newspaper reports from the time detail as follows.

Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment - "The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly."

A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. "We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges."

At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.

Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that "the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year."

The same article contained the following background on the case. "The government's case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. [...] The defendants insist that they authorized only legitimate consulting payments to secure Colombia's business and claim that the government's case rests on trumped-up charges by a disgruntled employee. [...] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. [...] A key prosecution witness is Robert O'Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records."

On March 19, 1991, Judge Legge, "after hearing the prosecution's case ... granted a verdict of acquittal ... the defense was not called upon to present its case." The San Francisco Chronicle stated as follows. "Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that 'no reasonable jury' could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence." The Chronicle called the dismissal a "stunning defeat for the Justice Department" after a 12-member jury heard two weeks of testimony by prosecution witnesses.

The Chronicle further stated as follows. "The acquittal also reinforced the Justice Department's poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago."

Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. "We're very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department's case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people's time, and suffered a substantial disruption of the corporation's business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment."

Michael Fayad, a lawyer for Harris, stated as follows. "[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment ... that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent."

Charles Bryer, Schultz's lawyer, stated as follows. "The case was paper-thin, built on a con man's story and a disgruntled employee's vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose."

According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith - "We're disappointed with the judge's ruling. We feel that we presented a good case, but we accept the judge's ruling."

Today, Harris Corporation is alive and well. See here for its webpage.

As to O'Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O'Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O'Hara's alleged co-conspirators was not a "fair and just reason" sufficient to allow O'Hara to withdraw his guilty plea. O'Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).

*****

If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).

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Maxwell Technologies is the First Corporate Enforcement Action of 2011

In early January, Maxwell Technologies Inc. ("Maxwell"), announced that the U.S. Department of Defense awarded the company a $1.7 million contract (here), "for the initial phase of a multi-phase program to develop a lighter, longer-lasting, energy source for field radios and other portable electronic equipment carried by military personnel."

On January 31st, Maxwell became the first company in 2011 to settle an FCPA enforcement action.

The Maxwell enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $14.4 million ($8 million criminal fine via a DOJ deferred prosecution agreement; $6.4 million in disgorgement and prejudgment interest via a SEC settled complaint).

Maxwell previously disclosed (see here) that "discussions with the SEC and DOJ have resulted in an estimate of potential settlement of up to $20.0 million – representing the combined first offer of settlement put forth by the SEC and DOJ." Presumably, the company's disclosure of the government's settlement offer did not sit well with the DOJ and on July 30, 2009, Maxwell issued this strange press release.

As set forth more fully below, the alleged recipients of the bribe payments at issue were all employees of alleged Chinese state-owned or state-controlled enterprises. Also of note, the SEC's charges include disclosure violations not often seen in FCPA enforcement actions, based on allegation that Maxwell's bribe payments allowed the company to offset losses and fund product expansions that are now a source of revenue for the company.

DOJ

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

Criminal Information

The criminal information, a short eight pages, alleges that "from at least July 2002 through in or about May 2009, Maxwell and its subsidiaries paid approximately $2,789,131 to Agent 1 [a Chinese national, third-party agent responsible for Maxwell S.A.'s (a wholly-owned subsidiary of Maxwell) high voltage capacitor sales to Chinese customers] to be distributed to Chinese foreign officials, in return for securing contracts that profited Maxwell."

The Chinese foreign officials?

You guessed it, employees of alleged state-owned entities such as:

"Pinggao Group Co. Ltd. [formerly Pingdingshan High Voltage Switchgear Works) ... a state owned manufacturer of electric-utility infrastructure in Henan Province, China" (see here for the company's website)

"New Northeast Electric Shenyang HV Switchgear Co., Ltd. ... a state-owned manufacturer of electric-utility infrastructure in Liaoning Province, China" (see here for company information) and

"Xi-an XD High Voltage Apparatus Co., Ltd., ... a state-owned manufacturer of electric-utility infrastructure in Shaanxi Province, China" (see here for the company's website).

According to the information, "Maxwell and its subsidiaries accomplished [the bribe] payments by using Agent 1 to market and sell Maxwell's high voltage capacitors to Chinese consumers ... substantially all of which were Chinese state-owned entities." The information alleges that Agent 1 "requested quotes from Maxwell S.A. on behalf of prospective Chinese state-owned entities" and that "upon Agent 1's instruction, Maxwell S.A. added an extra 20 percent to the quoted amounts to arrive at a higher price for Maxwell S.A.'s high-voltage equipment." The information alleges that Agent 1 then distributed the extra amount "to officials at the Chinese state-owned entities" including employees of the above referenced companies.

Under the heading, "Knowledge Within Maxwell's U.S. Management," the information alleges that "Maxwell's management within the United States discovered, tactitly approved, concealed and caused to be concealed the bribery scheme." According to the information, following discovery of the payments by Maxwell senior management in the U.S. including by Executive A, Executive B, and Executive C (all U.S. citizens), under Executive E's (a Swiss citizen and Maxwell S.A's Vice President and General Manager) oversight and supervision, the payments at issue to Agent 1 actually increased from approximately $165,000 in 2002 to nearly $1.1 million in 2008.

According to the information, Maxwell's financial statements and reports described the bribe payments as "sales-commission expenses."

Based on the above allegations, the information charges Maxwell with FCPA anti-bribery violations and knowingly violating the FCPA's books and records provisions.

DPA

The DOJ's charges against Maxwell were resolved via a deferred prosecution agreement.

Pursuant to the DPA, Maxwell admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.

The term of the DPA is three years and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and Maxwell.

Among the factors stated are the following.

(a) Maxwell voluntarily disclosed its FCPA violations to both the DOJ and the SEC;

(b) Maxwell cooperated with the Department's investigation of Maxwell and others;

(c) Maxwell undertook remedial measures, including the implementation of an enhanced compliance program, and agreed to undertake further remedial measures ...;

(d) Maxwell agreed to cooperate with the Department in any ongoing investigation of the conduct of Maxwell and its employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA; and

(e) the impact on Maxwell, including collateral consequences, of a guilty plea or criminal conviction.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $10.5 million to $21 million. Pursuant to the DPA, Maxwell agreed to pay a monetary penalty of $8 million (25% below the minimum amount suggested by the guidelines).

Pursuant to the DPA, Maxwell agreed to self-report to the DOJ "periodically, at no less than 12-month intervals" during the term of the DPA "regarding remediation and implementation of the compliance program and internal controls, policies, and procedures" described in the DPA.

As is standard in FCPA DPAs, Maxwell agreed not to make any public statement "contradicting the acceptance of responsibility" by Maxwell as set forth in the DPA and Maxwell further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

As to debarment issues, paragraph 22 of the DPA states as follows:

"The Department agrees to bring to the attention of governmental and other debarment authorities the facts and circumstances relating to the nature of the conduct underlying this Agreement, including the nature and quality of Maxwell's cooperation and remediation. By agreeing to provide this information to debarment authorities, the Department is not agreeing to advocate on Maxwell's behalf, but rather is providing facts to be evaluated independently by the debarment authorities."

See here for the DOJ release.

SEC

The SEC's civil complaint (here) alleges, in summary, as follows.

"From 2002 through May 2009, Maxwell violated the anti-bribery, books and records and internal control provisions of the Foreign Corrupt Practices Act ("FCPA") when it repeatedly paid bribes to Chinese officials in order to obtain and retain sales contracts for high voltage capacitors from several Chinese state-owned entities. Maxwell engaged in bribery to maintain its high-voltage capacitor business in China, which accounted for material revenue and profits during the relevant time period."

According to the complaint, "the illicit payments were made with the knowledge and tacit approval of certain former Maxwell officers and Maxwell failed to accurately record these payments on its books and records, and failed to implement or maintain a system of effective internal accounting controls to detect or prevent the payments."

The complaint alleges that "the improper payments generated nearly $15.4 million in sales contracts, from which Maxwell realized profits ofover $5.6 million."

According to the SEC:

"Maxwell violated [the FCPA's anti-bribery provisions] by engaging in widespread bribery of government officials in China in order to sell its high-voltage capacitors to several Chinese state-owned enterprises. Maxwell violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-l, and 13a13 thereunder by failing to disclose in its annual and periodic filings that the material revenues and profits associated with its long-standing bribery scheme enabled Maxwell to better financially position itself until new products could be commercially developed and sold. Maxwell violated [the FCPA's internal control provisions] by failing to maintain internal controls to prevent or detect the bribes paid to officials at Chinese state owned-entities. Finally, Maxwell violated [the FCPA's books and records provisions] by failing to accurately reflect the nature of the improper payments in Maxwell's books, records, and accounts."

The SEC's complaint contains an allegation not often seen in FCPA enforcement actions about how the company's alleged bribery scheme helped offset losses in other areas and helped fund future product development.

According to the SEC:

"Maxwell greatly depended on the revenue from Maxwell SA's high-voltage capacitor sales to China in order to help fund Maxwell's expansion into new product lines that are now expected to become Maxwell's future source of revenue. Maxwell engaged in the bribery scheme because it enabled the company to obtain material revenue needed to financially position itself to help fund the very products that today are sustaining Maxwell's future growth."

As to "Discovery of the Illicit Payments" the complaint states as follows.

"Potential FCPA and accounting concerns came to the attention of Maxwell's finance department in September 2008, during an internal review of Maxwell SA's commission expenses involving the Chinese Agent. Maxwell's management team asked about these commission payments after learning of the unusually high Chinese Agent commissions, which included the Extra Amounts. During this review, Executive A informed Maxwell's finance department that the payments made to the Chinese Agent were recorded as sales commissions. Maxwell's finance department then sought and obtained a signed FCPA certificate from the Chinese Agent in which he represented that he was familiar with the U.S. FCPA and local laws and regulations regarding corrupt payments" and that he had not in the past and will not in the future make any improper payments.

However, according to the SEC, "after obtaining the representations, Maxwell's finance department took no further corrective action regarding the commissions and Extra Amounts paid to the Chinese Agent ...".

In February 2009, Maxwell's new CEO, became aware of the issues with the Chinese Agent and he "immediately notified Maxwell's audit committee and outside counsel."

According to the SEC:

"During the relevant period, Maxwell's controls designed to prevent illicit payments to foreign officials were wholly inadequate. At the time, Maxwell's Code of Conduct contained a brief section on FCPA issues, but there is no evidence that employees received any FCPA training prior to the company's remedial steps."

As to Maxwell's internal controls failures, the complaint states as follows:

"Maxwell (1) failed to question why the contract prices were artificially inflated by 20% above the bid prices; (2) did not request supporting documentation for the invoices or track where the commission payments ultimately were distributed; (3) performed no due diligence on the agent; (4) did not require FCPA training for all relevant employees; and (5) failed to take any action even though it appears that certain former officers and senior managers of Maxwell had knowledge of the bribes paid by Maxwell SA and its agent since at least November 2002."

Without admitting or denying the SEC's allegations, Maxwell agreed to an injunction prohibiting future FCPA violations and agreed to $5,654,576 in disgorgement and $696,314 in prejudgment interest.

In the SEC release (here) Cheryl Scarboro (Chief of the SEC's FCPA Unit) stated as follows: "Maxwell's bribery allowed the company to obtain revenue and better financially position itself until new products were commercially developed and sold. This enforcement action shows that corruption can constitute disclosure violations as well as violations of other securities laws."

Jeffrey Higgins (here) of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP and Jerome Roth (here) of Munger Tolles & Olson LLP represented Maxwell.

Since announcement of the January 31st enforcement action, Maxwell's shares are up approximately 6%.

As I explored in this recent post, 60% of 2010 corporate FCPA enforcement actions involved (in whole or in part) employees of alleged state-owned or state-controlled enterprises ("SOE"). In these cases, the enforcement agencies generally allege that such enterprises are "instrumentalities" of a foreign government and that such employees are therefore "foreign officials" under the FCPA.

So far in 2011, it's 100%.

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DOJ Enforcement of the FCPA - Year in Review

A few weeks ago I ran a SEC FCPA enforcement year in review (here).

Today I highlight facts and figures from the DOJ's FCPA enforcement program in 2010.

And what it year it had.

As noted in this recent DOJ release, "the Criminal Division’s Foreign Corrupt Practices Act (FCPA) enforcement involved imposition of $1 billion in penalties in FY 2010, the largest in the history of FCPA enforcement."

In comparison, in 2000 the DOJ did not bring one FCPA enforcement action. The past decade has thus witnessed a remarkable transformation – not as to the FCPA itself (the statute has not changed since 1998), but as to FCPA enforcement and theories of prosecution both at the DOJ and the SEC.

As the DOJ’s former Assistant Chief for FCPA enforcement candidly stated (here), “the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

This post highlights the 16 DOJ corporate FCPA enforcement actions from 2010. Not included are BAE (an enforcement action (see here) in which the DOJ did not even charge FCPA offenses) or Lindsey Manufacturing (see here) given that the company was indicted and thus the enforcement action remains open.

Of the 16 enforcement actions, 6 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 DOJ broght 9 unique corporate FCPA enforcement actions in 2010.

In the 16 corporate FCPA enforcement actions from 2010, the DOJ brought in $870 million in criminal fines - thrown in the $400 million BAE enforcement action if you insist and the number is $1.27 billion.

Tack on the SEC's recovery (both civil penalties and disgorgement) in 2010 corporate FCPA enforcement actions of approximately $530 million and one finds $1.8 billion in corporate FCPA fines, penalties and disgorgement in 2010.

DOJ FCPA enforcement in 2010 was both large ($240 million in criminal fines against both Technip and Snamprogetti, $93.6 million in criminal fines against Daimler) and small ($32,000 against Mercator Corporation in the bizarre James Giffen related case involving two snowmobiles, and $1.7 million against RAE Systems).

The numbers present some interesting results.

Despite aggressive DOJ rhetoric and despite the DOJ seeking a sentencing guidelines enhancement applicable to FCPA offenses (see here) in 10 of 12 FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.

In these 10 cases, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina).

The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.

[Note - why are only 12 of the 16 enforcement actions included in the above analysis? I excluded Innospec because the company's claimed inability to pay (but see here) resulted in an invalid fine to guidelines analysis; I excluded Mercator Corp. because the DOJ and the company could not even agree on what guidelines to use; and I excluded Noble Corp. and RAE Systems (both enforcement actions resolved via an NPA) because the DOJ never set forth a guidelines range in the agreement or related documents].

During the November 2010 Senate FCPA hearing (see here) an issue discussed was the general lack of individual DOJ FCPA prosecutions.

How many corporate FCPA enforcement actions involved related individual prosecutions of company employees (not talking agents here such as in Innospec) by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?

Of the 17 corporate DOJ enforcement actions or indictments (Lindsey Manufacturing is back in the mix here) 12 of the 17 enforcement actions (70%) have not involved (at least thus far) DOJ prosecutions of company employees. Included in the 12 enforcement actions are the top 3 from 2010 from a criminal fine perspective: Technip, Snamprogetti, and Daimler.

What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?

2010 saw 15 such resolution vehicles (4 NPAs) and (11 DPAs).

As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements.

Among the criticisms noted in the Gibson Dunn report is that "by continually entering DPAs and NPAs, the DOJ can shield its expansive interpretation of important statutes from judicial review." As to the FCPA the report states, "because FCPA allegations against corporations rarely, if ever, go to trial, and DPAs and NPAs are subject to only minimal judicial scrutiny, the DOJ's sometimes expansive interpretations of the FCPA is never truly tested."

Spot on!

As evident from the material below, a typical way for DOJ to resolve corporate FCPA enforcement actions in 2010 was for the parent company to enter into an NPA or DPA and for a subsidiary (usually a foreign subsidiary) to plea to a criminal charge. Daimler, Alliance One, Universal, ABB, Panalpina, Pride International, Royal Dutch Shell, and Alcatel-Lucent all involved such hybrid resolution vehicles.

In the SEC year in review piece, I noted that 97% of the $529,967,294 collected in SEC FCPA enforcement actions in 2010 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.

What does this number look like for DOJ FCPA enforcement actions in 2010 - recognizing that by disclosure I am talking about voluntary disclosure in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) as well as other forms of public disclosure (such as identification in 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)?

Of the $870 million in criminal fines collected by the DOJ in FCPA enforcement actions, 97% would appear to fit this description as well.

Thus, much like the SEC, the DOJ also appears to be a reactive agency when it comes to corporate FCPA enforcement.

Set forth below are facts and figures from each 2010 DOJ corporate FCPA enforcement action.

Innospec (March 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to commit wire fraud and to violate the FCPA's anti-bribery and books and records provisions; wire fraud; and FCPA anti-bribery and books and records violations.

Resolution Vehicle: Plea.

Guidelines Range: $101.5 - $203 million.

Penalty: $14.1 million (based on claimed inability to pay).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Daimler (March 2010)

See here for the prior analysis and principal allegations.

Charges: Daimler AG (conspiracy to violate the FCPA's books and records provisions and violating the FCPA's books and records provisions); DaimlerChrysler China Ltd. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); DaimlerChrysler Automotive Russia SAO (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); Daimler Export and Trade Finance GmbH (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions).

Resolution Vehicle: Daimler AG (deferred prosecution agreement); DaimlerChrysler China Ltd. (deferred prosecution agreement); DaimlerChrysler Automotive Russia SAO (plea); Daimler Export and Trade Finance GmbH (plea).

Guidelines Range: $116 - $232 million.

Penalty: $93.6 million (20% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Technip (June 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $318.4 - $636.8 Million

Penalty: $240 million (25% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - two years.

Individuals Charged by DOJ: No.

Snamprogetti (July 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $300 Million - $600 Million

Penalty: $240 million (20% below the minimum guidelines range)

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Alliance One (August 2010)

See here for the prior analysis and principal allegations.

Charges: Alliance One International AG (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions, and violations of the FCPA's books and records provisions); Alliance One Tobacco Osh LLC (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions and books and records provisions).

Resolution Vehicle: Alliance One International Inc. (non-prosecution agreement); Alliance One International AG (plea); Alliance One Tobacco Osh LLC (plea).

Guidelines Range: $8.4 - $16.8 million.

Penalty: $9.45 million.

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: Yes.

Universal Corp. (August 2010)

See here for the prior analysis and principal allegations.

Charges: Universal Leaf Tabacos Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery provisions).

Resolution Vehicle: Universal Corporation (non-prosecution agreement); Universal Leaf Tabacos Ltd. (plea).

Guidelines Range: $6.3 - $12.6 million

Penalty: $4.4 million (30% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: No.

Mercator Corp. (August 2010)

See here for the prior analysis and principal allegations.

Charges: FCPA anti-bribery violations.

Resolution Vehicle: Plea.

Guidelines Range: The parties disagreed as to whether the 2009 or 2008 guidelines applied. If 2009, $650,000 - $1.3 million; If 2008, $30,000 to $60,000.

Penalty: $32,000.

Disclosure: Unclear.

Monitor: No.

Individuals Charged by DOJ: Yes (but Giffen pleaded to a misdemeanor tax violation).

ABB Ltd. (September 2010)

See here for the prior analysis and principal allegations.

Charges: ABB Inc. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); ABB Ltd. - Jordan (conspiracy to commit wire fraud and to violate the FCPA's books and records provisions).

Resolution Vehicle: ABB Ltd. (deferred prosecution agreement); ABB Inc. (plea); ABB Ltd. - Jordan (plea).

Guidelines Range: $30.42 - $60.2 million.

Penalty: $19 million (approximately 38% below the minimum guidelines range).

Disclosure: Yes.

Monitor: Company agreed to follow the recommendations of an independent compliance consultant.

Individuals Charged by DOJ: Yes.

Lindsey Manuf. (October 2010)

See here for the prior analysis and principal allegations.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.

Resolution Vehicle: N/A

Guidelines Range: N/A

Penalty: N/A

Disclosure: Unclear.

Monitor: N/A

Individuals Charged by DOJ: Yes.

Panalpina (November 2010)

See here for the prior analysis and principal allegations.

Charges: Panalpina World Transport (Holding) Ltd. (conspiracy to violate and violating the FCPA's anti-bribery provisions) ; Panalpina Inc. (conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA books and records provisions).

Resolution Vehicle: Panalpina World (deferred prosecution agreement); Panalpina Inc. (plea).

Guidelines Range: 72.8 million to $145.6 million.

Penalty: 70.6 million (approximately 5% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Pride International (November 2010)

See here for the prior analysis and principal allegations.

Charges: Pride International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery and books and records provisions); Pride Forasol S.A.S. (conspiracy to violate the FCPA's anti-bribery and books and records provisions, violating the FCPA's anti-bribery provisions, and aiding and abetting violations of the FCPA's books and records provisions).

Resolution Vehicle: Pride International Inc. (deferred prosecution agreement); Pride Forasol (plea).

Guidelines Range: $72.5 - $145 million.

Penalty: $32.6 million (approximately 55% below the minimum guideline range).

Voluntary Disclosure: Yes.

Monitor: No.

Individuals Charged: No.

Tidewater (November 2010)

See here for the prior analysis and principal allegations.

Charges: Tidewater Marine International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $10.5 - $21 million.

Penalty: $7.4 million (30% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Transocean (November 2010)

See here for the prior analysis and principal allegations.

Charges: Transocean Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; violating the FCPA's anti-bribery provisions; and aiding and abetting FCPA books and record violations).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $16.8 - $33.6 million.

Penalty: $13.4 million (20% below the minimum guidelines range).

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Noble Corp. (November 2010)

See here for the prior analysis and principal allegations.

Charges: N/A

Resolution Vehicle: Non-prosecution agreement.

Guidelines Range: Not addressed.

Penalty: $2.6 million.

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Royal Dutch Shell (November 2010)

See here for the prior analysis and principal allegations.

Charges: Shell Nigeria Exploration and Production Company Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; aiding and abetting FCPA books and records violations).

Resolution Vehicle: Deferred prosecution agreement.

Guidelines Range: $34.2 - $68.4 million.

Penalty: $30 million (approximately 15% below the minimum guidelines range).

Disclosure: No.

Monitor: No.

Individuals Charged by DOJ: No.

RAE Systems (December 2010)

See here for the prior analysis and principal allegations.

Charges: Although a non-prosecution agreement, the agreements states "knowing violations of the FCPA's books and records and internal controls provisions."

Resolution Vehicle: Non-prosecution agreement.

Guidelines Range: Not addressed.

Penalty: $1.7 million.

Disclosure: Yes.

Monitor: No.

Individuals Charged by DOJ: No.

Alcatel-Lucent (December 2010)

See here for the prior analysis and principal allegations.

Charges: Alcatel-Lucent S.A. (FCPA books and records and internal control provisions); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. (conspiracy to violate the FCPA's anti-bribery, books and records, and internal control provisions).

Resolution Vehicle: Alcatel-Lucent S.A. (deferred prosecution agreement); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. pleas.

Guidelines Range: $86.58 - $173.16 million.

Penalty: $92 million.

Disclosure: Yes.

Monitor: Yes - three years.

Individuals Charged by DOJ: Yes.

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Analyzing Alcatel-Lucent

In 2006, Alcatel-Lucent, S.A. ("Alcatel") was formed when an Alcatel S.A. subsidiary merged with Lucent Technologies, Inc. Prior to the merger, Alcatel was a worldwide provider of a wide variety of telecommunications equipment and services and other technology products. The company operated in more than 130 countries directly and through certain wholly owned and indirect subsidiaries including in Costa Rica, Honduras, Malaysia and Taiwan. From 1998 until late 2006, ADR shares of Alcatel were traded on the New York Stock Exchange.

In 2007, the right side of the hyphen - Lucent Technologies - settled an FCPA enforcement action (see here and here).

In 2010, in what was the last FCPA enforcement action of the year, the left side of the hyphen - Alcatel and certain of its subsidiaries - settled an FCPA enforcement.

This post analyzes the Alcatel-Lucent enforcement action. The enforcement action (all 360 pages) is a FCPA feast. Principally based on the lack of due diligence of third-party agents, the enforcement action serves up the following: lots of alleged state-owned or state-controlled telecommunication entities; consultants hired after contracts were secured; a purported telecommunications consultant with only perfume experience; payments to legislators and political parties; things of value including excessive travel and entertainment expenses and crystal for the secretary; joint ventures; and payments from New York and Miami bank accounts.

The Alcatel-Lucent enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $137.4 million ($92 million criminal fine via DOJ plea agreements and a deferred prosecution agreement; $45.4 million in disgorgement via a SEC settled complaint).

DOJ

The DOJ enforcement action involved a criminal information against Alcatel-Lucent, S.A. ("Alcatel") resolved through a deferred prosecution agreement and a criminal information against Alcatel-Lucent France S.A. ("Alcatel CIT"), Alcatel-Lucent Trade International A.G. ("Alcatel Standard"), and Alcatel CentroAmerica, S.A. ("ACR") resolved through plea agreements. See here for the DOJ release.

Alcatel-Lucent S.A. Criminal Information

The information (here) begins with a heading "Background Regarding Alcatel's Business Practices and the State of Its Internal Controls."

It states as follows. "Starting in the 1990s and continuing through at least last 2006, Alcatel pursued many of its business opportunities around the world through the use of third-party agents and consultants. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits for bribe payments to foreign officials (and business executives of private customers) to obtain or retain business in many countries."

The information also highlights Alcatel's "de-centralized business structure" which permitted different Alcatel employees around the world "to initially vet the the third-party consultants, and then rely on Executive 1 [a French citizen who served as Chief Executive Officer of Alcatel Standard in Basel, Switzerland] at Alcatel to perform due diligence on them." According to the information, "this de-centralized structure and approval process permitted corruption to occur, as the local employees were more interested in obtaining business than ensuring that business was won ethically and legally."

Further, the information alleges that "Executive 1 performed no due diligence of substance and remained, at best, deliberately ignorant of the true purpose behind the retention of and payment to many of the third-party consultants." Specifically, the information alleges that "Executive 1 made no effort, or virtually no effort, to verify the information provided by the consultant in the Consultant Profile [a form the consultant was supposed to complete with information concerning its ownership, business activities, capabilities, banking arrangements, and professional references], apart from using Dun & Bradstreet reports to confirm the consultant's existence and physical address." According to the information, "if the paperwork was completed, regardless of any obvious issues (such as close relationships with foreign officials or a clear lack of skill, experience or telecommunications expertise), Executive 1 authorized hiring and paying the third-party consultant."

As to payments to the consultants, the information alleges that "Alcatel Standard [a wholly-owned subsidiary of Alcatel located and incorporated in Switzerland and an entity "responsible for entering into most agreements with consultants worldwide on behalf of Alcatel and certain other entities] would contract with the third-party consultant and then Alcatel CIT [a wholly owned subsidiary of Alcatel located and incorporated in France] would pay the consultant" including through a bank account at ABN Amro Bank in New York.

The information alleges as follows. "Often senior executives at Alcatel CIT, Alcatel Standard, and ACR [a wholly owned subsidiary of Alcatel located and incorporated in Costa Rica], among others, knew bribes were being paid, or were aware of the high probability that many of these third-party consultants were paying bribes, to foreign officials to obtain or retain business. For example, in a significant number of instances, the consultant contracts were executed after Alcatel had already obtained the customer business, the consultant commissions were excessive, and lump sum payments were made to the consultants that did not appear to correspond to any one one contract."

According to the information, "Alcatel CIT, Alcatel Standard, ACR, and certain employees of Alcatel CIT, Alcatel Standard, and ACR knew, or purposefully ignored" that much of the consultant documentation "did not accurately reflect the true nature and purpose of the agreements" and that "many of the invoices submitted by various third-party consultants falsely claimed that legitimate work had been completed, while the true purpose of the monies sought by the invoices was to funnel all or some of the money to foreign officials, directly and indirectly."

The information alleges that "these transactions were designed to circumvent Alcatel's internal controls system and were further undertaken knowing that they would not be accurately and fairly reflected in Alcatel CIT, Alcatel Standard, and ACR's books and records, which were included in the consolidated financial statements that Alcatel filed with the SEC."

The information then contains ten separate sections: conduct in Costa Rica; conduct in Honduras; conduct in Malaysia; conduct in Taiwan; conduct in Kenya; conduct in Nigeria; conduct in Bangladesh; conduct in Ecuador; conduct in Nicaragua; and other consultancy agreements entered into without proper due diligence.

Costa Rica

The alleged conduct focuses on the actions of Christian Sapsizian and Edgar Valverde Acosta and consultancy agreements on behalf of Alcatel CIT with two Costa Rican consultants which were intended to make improper payments to Costa Rican government officials for telecommunications contracts. According to the indictment, Sapsizian (a French citizen) was a long-term employee of Alcatel and Alcatel CIT responsible for developing business in Latin America. Valverde (a Costa Rica citizen) served as the President of ACR and the Country Senior Officer of Costa Rica. See here for the prior enforcement actions against Sapsizian and Valverde.

According to the information, "both consultants had many personal contacts at ICE [Instituto Costarricense de Electricidad S.A. - a "wholly state-owned telecommunications authority in Costa Rica responsible for awarding and administering public tenders for telecommunications contracts].

According to the information, Sapsizian's supervisor, the President of Area 1 who worked in Miami, approved more than $18 million in payments to the consultants notwithstanding that the President of Area 1, according to Sapsizian, "told him on several occasions that he knew he was 'risking jail time' as a result of his approval of these payments, which he understood would, at least in part, ultimately wind up in the hands of public officials."

The information alleges that various Alcatel entities "conducted insufficient due diligence" on the consultants and that "neither Alcatel nor any of its subsidiaries took sufficient steps to ensure that the consultants were complying with the FCPA or other relevant anti-corruption laws."

According to the information, the above described payments were ultimately used to provide money to various ICE officials, a Costa Rica executive branch official, and a Costa Rica legislator, that ultimately assisted Alcatel CIT obtain a $44 million contract, a $149.5 million contract, a $109.5 million contract.

The information also alleges that Sapsizian "approved the payment of approximately $25,000 in travel, hotel, and other expenses incurred by ICE officials during a primarily pleasure trip to Paris" - a trip that "was partially intended to reward these government officials for providing Alcatel with lucrative contracts ...".

Based on this conduct, the information alleges that "employees of Alcatel CIT, Alcatel Standard, and ACR knowingly circumvented Alcatel's internal controls system and made inaccurate and false entries in the books and records of Alcatel CIT, Alcatel Standard, and ACR, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC. As a result of the contracts won by Alcatel CIT in Costa Rica as a result of bribe payments, Alcatel earned approximately $23,661,000 in profits."

Honduras

The information charges that "employees of ACR, along with Sapsizian, pursued business opportunities on behalf of Alcatel in Honduras with Hondutel [Empresa Hondurena de Telecomunicaciones - an alleged wholly state-owned telecommunications authority in Honduras responsible for providing telecommunications services in Honduras including evaluating and awarding telecommunications contracts on behalf of the government of Honduras] and Conatel [Comision Nacional de Telecouniciaciones - an alleged Honduran government agency that regulated the telecommunications sector in Honduras that issued licenses and concessions for fixed-line and wireless telephony, data transmission and internet services]."

According to the information, Alcatel CIT and Alcatel Mexico made large commission payments to at least one consultant, knowing that all or some of the money paid to that consultant would be paid to a close relative of a Honduran government official, with the high probability that some or all of the money would be passed on to the Honduran government official, in exchange for favorable treatment of Alcatel, Alcatel CIT, and Alcatel Mexico."

According to the information, the consultant was retained at the request of a high-ranking government official in the Honduran executive branch; however, the consultant was an exclusive distributor of "brand name perfumes" and had no contacts in, or prior experience with, the telecommunications industry in Honduras or anywhere else.

The information alleges that in retaining the consultant, "Alcatel Standard knowingly failed to conduct appropriate due dligence" and "did not follow up on numerous, obvious red flags."

The information alleges that by utilizing the services of the consultant, Hondutel awarded Alcatel a $1 million contract and four additional contracts for a combined value of approximately $47 million.

The information also alleges that "Alcatel CIT and ACR employees arranged for several other Honduran government officials to take primarily pleasure trips to France, which were paid by Alcatel CIT or ACR directly." In addition, the information charges that a "high-ranking executive at Hondutel" also "received gifts and improper payments from Alcatel CIT and ACR employees" including $2,000 for an educational trip for the official's daughter and a trip to Paris (along with the official's spouse) that mostly consisted of "touring activities via a chauffeur-driven vehicle." Further, the information alleges that "Alcatel CIT also made payments to a Hondutel attorney who worked" on a contract secured by Alcatel including paying for a trip by the attorney and the attorney's daughter to Paris.

Based on this conduct, the information alleges that "employees of Alcatel CIT, Alcatel Standard, and ACR knowingly circumvented Alcatel's internal controls system and caused inaccurate and false entries in the books and records of Alcatel CIT, Alcatel Standard, and ACR, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC." According to the information, "as a result of the bribe payments, Alcatel earned approximately $870,000 in profits."

Malaysia

The information alleges that "in at least 17 instances in or around 2004 to in or around 2006, Alcatel Malaysia [a joint venture in which Alcatel owned a majority share of and exercised control of] employees, with the consent and approval of Alcatel Malaysia's management, such as Executive 2 [Alcatel Malaysia's Country Senior Officer] and Executive 3 [Alcatel Malaysia's Chief Financial Officer], made improper payments to Telekcom Malaysia [an alleged state-owned and controlled telecommunications provider in Malaysia responsible for awarding telecommunications contracts 43% owned by the Malaysian Ministry of Finance] employees in exchange for nonpublic information relating to ongoing public tenders." According to the information, "the documents purchased generally consisted of internal assessments by Celcom's [Telekom Malaysia's wholly owned subsidiary] tender committee of non-public pricing information." According to the information, "eight of the 17 improper payments to Telekom Malaysia employees were made in connection with a single public tender that Alcatel Malaysia ultimately won ...". The information alleges that the payments were falsely characterized as "document fees" or accurately as "purchase of tender documents."

The information further alleges that Alcatel Standard entered into a consulting agreement for more than $500,000 with a Malaysian consultant even though "Alcatel typically paid its agents and consultants commission rates based on the total value of a contract rather than pay a fixed fee for services." According to the information, "at the time the payments were made to Malaysian Consultant 1, Alcatel Malaysia and Alcatel Standard were aware of a significant risk that Malaysian Consultant 1 would pass on all or a part of these payments to foreign officials."

The information further alleges that Alcatel Standard entered into another consulting agreement with another consultant by which Alcatel Standard agreed to pay the consultant $500,000 for a "strategic intelligence report on Celcom's positioning in the celluar industry in relation to its competitors." According to the information, despite paying the consultant "half a million dollars for this report ... there is no evidence that Malaysian Consultant 2 did any actual work for Alcatel Malaysia or ever produced the report." The information states that "Alcatel Standard and Alcatel Malaysia were aware of a significant risk that Malaysian Consultant 2 was serving merely as a conduit for bribe payments to foreign officials."

The information further alleges, in summary fashion, as follows. "Alcatel Malaysia lacked internal controls, such as formal policies covering expenditure for gifts, travel, and entertainment for customers, leading to Alcatel Malaysia employees giving lavish gifts to Telekom Malaysia officials."

Based on this conduct, the information alleges that "Alcatel Standard and Alcatel Malaysia knowingly circumvented Alcatel's internal controls system and caused inaccurate and false entries in the books and records of Alcatel Standard and Alcatel Malaysia, whose financial results were included in the consolidated financial statements of Alcatel submitted to the SEC." The information states that "although Alcatel won the $85 million Celcom contract, Alcatel did not generate any profits from it."

Taiwan

According to the information, Alcatel pursued business in Taiwan through its indirect subsidiary Alcatel SEL, a company located and incorporated in Germany. The information states that Executive 4 [a German citizen who served on Alcatel SEL's director of international business ans sales] hired two third-party consultants to assist Alcatel SEL and Taisel, a joint venture 60% owned by an Alcatel subsidiary in obtaiing an axle counting contracts from the TRA [the Taiwan Railway Administration - an alleged wholly state-owned authority in Taiwan responsible for managing, maintaining, and running passenger freight services on Taiwan's railroad lines]." According to the information, "both consultants claimed to have close ties to certain legislators in the Taiwanese government who were understood to have influence in awarding the contract due to their particular responsibilities in the legislature."

The information alleges that the "purpose behind Alcatel's hiring of Taiwanese Consultant 1 was so that Alcatel SEL could make improper payments to three Taiwanese legislators who had influence in the award of the TRA axle counting contract." According to the information, after Taisel has been awarded the contract, "Alcatel SEL paid Taiwanese Consultant 1 a commission of approximately $921,413 by wire transfer from Alcatel SEL's ABN Amro bank account in New York" and that Taiwanese Consultant 1, in turn, "made improper payments to two Taiwanese legislators: Legislator 2 and Legislator 3 - both members of the Legislative Yuan, the unicameral legislative assembly of the Republic of China. Among other things, the information alleges: that the the consultant promised approximately $180,000 in campaign funds for Legislator 3's 2004 election campaign and then paid Legislator 3 approximately $90,000 after Alcatel SEL won the bid; that Executive 4 and the consultant "spent approximately $8,000 on trips to Germany" that were "primarly for personal, entertainment purposes, with only nominal business justification;" that Alcatel SEL paid the consultant "approximately $3,000 to reimburse it for a set of crystal given to the secretary of the Taiwan Transportation and Communications Minister."

The information also alleges that Executive 4 also hired another consultant because "Taiwanese Consultant 2's owner was the brother of Legislator 4, who had influence with respect to TRA matters." The information alleges that "to bribe Legislator 4, Alcatel SEL arranged for a bogus consulting agreement between Taisel and Taiwanese Consultant 2."

The information alleges as follows. "Neither Taiwanese Consultant 1 nor Taiwanese Consultant 2 provided legitimate services to Alcatel or Alcatel SEL. Their only function was to pass on improper payments to three Taiwanese legislators on behalf of Alcatel SEL and Taisel. On or about December 30, 2003 Taisel's bid was accepted by the TRA, which granted Taisel a supply contract worth approximately $19.2 million ...".

According to the information, "Alcatel SEL's financial results were included in the consolidated financial statements of Alcatel submitted to the SEC" and "as a result of contracts won by Alcatel in Taiwan as a result of bribe payments, Alcatel earned approximately $4,342,600 in profits."

Kenya

The information describes a Kenyan joint venture ("Kenyan JV") formed by a French telecommunications company ("French Telecom") and a Kenyan company ("Kenyan Company") to apply for a mobile telecommunications license that the Kenyan JV was awarded for approximately $55 million. Several companies, including Alcatel CIT, bid to provide approximately $87 million in infrastructure and services to the Kenyan JV. The information alleges that Alcatel CIT was informed by French Telecom that Alcatel CIT "would win the bid under one condition: an Alcatel entity had to make improper payments to an intermediary in the approximate amount of $20 million."

The information then describes the intermediary and payments made to it and concludes with the following paragraph. "After entering into the various contracts, the intermediary provided monthly reports and economic intelligence on the telecommunications market in Africa, but never provided any information related to the 2nd GSM license or the Kenyan telecommunications market. In light of the huge amounts of the payments, the fact that the intermediary performed little legitimate work in connection with the 2nd GSM license, and the fact that Company Z [another company suggested by the intermediary] was an offshore holding of Kenyan Company, there is a high probability that all or a portion of the approximately $20 million in payments made by Alcatel CIT to the intermediary and the related entities was passed on to Kenyan Company, which in turn passed on the funds to Kenyan government officials who had played a role in awarding the original contract to French Telecom."

Nigeria

The information states that between 1999 and 2007, Alcatel pursued business with various Nigerian customers and alleges as follows.

"Certain Alcatel subsidiaries made improper payments to government officials in Nigeria in the following contexts: (a) payments made to government officials for the purpose of reducing tax or other liabilities; (b) payments made to government officials to obtain security services from the Nigerian police; (c) a payment of approximately $75,000 to a former Nigerian Ambassador to the United Nations for the purpose of arranging meetings between Alcatel representatives and Nigerian Senior Government Official 1, a high-ranking official in the Nigerian executive branch; (d) payments made to government officials for the purpose of securing recovery of a debt totaling approximately $36.5 million owed by the government of Nigeria to ITT Nigeria [an Alcatel entity]; and (e) a payment to a People's Democractic Party official. These payments were not described accurately and fairly on Alcatel's books and records."

The information also alleges as follows. "Alcatel personnel also made improper payments via a consultant to a Senior Executive at Nigerian Telecommunications Company 1" and "Alcatel also made large improper payments to two other consultants which were owned at least in part by a relative of the Senior Executive at Nigerian Telecommunications Company 1." "These payments were not described accurately and fairly on Alcatel's books and records." There is nothing in the information to suggest that Nigerian Telecommunications Company 1 was a state-owned or controlled enterprise and the information refers to payments to the Senior Executive as "commercial bribe payments."

Bangladesh

The information generally alleges that "Alcatel generated a significant portion of its revenue in Bangladesh from Bangladesh Telegraph and Telephone Board, the state-controlled telecommunications services provider" and that Alcatel used an agent in Bangladesh but "Alcatel Standard did not conduct adequate due diligence" on the consultant. In addition, the information alleges that Alcatel Standard retained the agent in connection with a submarine cable project connecting fourteen countries - Alcatel's portion of the contract was approximately $258 million. According to the information, Alcatel CIT paid the consultant approximately $626,492 in compensation for services provided in connection with the project and approximately $2,524,939 in connection with various upgrades to a predecessor of the project "aware of a significant risk that Bangladsh Consultant would pass on all or a part of these payments to foreign officials."

Ecuador

According to the information, "Alcatel conducted business in Ecuador with three major telecommunicatios customers, all of which were state-owned: Andinatel, Pacifictel, and Empresa Municipl de Telecomunicaciones, Aqua Potable, Alcantarillados y Saneamiento. The information alleges that Alcatel retained a consultant in Ecuador ("a wealthy businessman"), but that the consultant and the entities he controlled "did little legitimate work for Alcatel." The information alleges as follows. "Instead, it was anticipated that Ecuadorian Consultant would funnel a portion of the funds Alcatel paid him to officials of the Ecuadorian state-owned telecommunications companies in order to secure business and other benefits for Alcatel. Improper payments were anticipated to be made or offered in connection with at least nine contracts with government-owned telecommunication companies."

According to the information, at least some of Alcatel's payments to the consultant wre made to bank accounts in Miami.

In addition, the information alleges as follows. "Alcatel also paid for trips taken by officials of the three telecommunications companies that were principally for pleasure. For example, both the Vice-President and the Chairman of the Board of Pacifictel received improper all-expenses paid trips to France."

Nicaragua

According to the information, "Alcatel's only customer in Nicaragua was Empresa Nicaraguense de Telecomunicaciones S.A. ("Enitel") which was state-owned during the relevant time period." The Ecuadorian consultant referenced above, also served as Alcatel's consultant in Nicaragua. According to the information, "with the assistance of Ecuadorian Consultant, Alcatel CIT secured two contracts with Enitel" valued at approximately $1.6 million and $370,000. The information alleges that Alcatel CIT made payments totaling approximately $229,3822 to the Miami bank account of the consultant and that the consultant "likely used a portion of these payments to bribe certain key Enitel officials in order to influence Enitel to award the two contracts to Alcatel, to obtain confidential information about competing bids, and to secure favorable financial terms." The information alleges that payments to the consultant were "identified in Alcatel's books and records as consulting fees, and thus the description of those payments did not accurately and fairly reflect those transactions."

The information further alleges that "Alcatel CIT also provided a trip to Paris and Madrid to two Enitel officials in late 2001 in order to encourage the execution of one of the two contracts" and that the "purpose of the trip was largley for pleasure, and it appears that Alcatel CIT covered all travel costs and a large portion of the expenses."

The substantive portion of the information ends with a section titled "Other Consultancy Agreements Entered Into Without Proper Due Diligence." The allegations concern consultants in Angola, the Ivory Coast, Burkina Faso, Uganda, and Mali. The customers associated with the consultants were either allegedly state-owned or private companies.

Based on all of the above conduct, the information charges Alcatel with violations of the FCPA's internal control provisions. The information alleges that Alcatel "knowingly: (a) failed to implement sufficient anti-bribery compliance policies and procedures; (b) failed to maintain a sufficient system for the selection and approval of consultants, which, in turn, permitted corrupt conduct to occur at certain subsidiaries; (c) entered into purported business consulting agreements with no apparent basis, and without performing any due diligence, sometimes after the cmpany had already won the relevant project; (d) failed to verify information provided by consultants, including failing to follow up in circumstances in which managers knew or were substantially certain illicit activity was taking place; (e) failed to prevent consultants from using multiple shell companies to receive commissions in excess of 10% knowing there was a substantial likelihood those consultants were acting as conduits for corrupt payments; (f) failed to conduct appropriate audits of payments to purported business consultants; (g) failed to prohibit lump sum payments being made to consultants that did not correspond to any contract; (h) failed to prohibit payments to consultants and public officials pursuant to an oral 'gentlemen's agreement'; (i) failed to appropriately investigate and respond to allegations of corrupt payments and discipline employees involved in making corrupt payments; (j) failed to establish a sufficiently empowered and competent Corporate Compliance Officer; (k) failed to exercise due diligence to prevent and detect criminal conduct; (l) failed to take reasonable steps to ensure the company's compliance and ethics program was followed, including monitoring and internal audits to detect criminal conduct; (m) failed to evaluate regularly the effectiveness of the company's compliance and ethics program; and (n) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program."

Based on the above conduct, the information also charges Alcatel with FCPA books and records violations for (a) drafting sham business consulting agreements to justify third party payments; (b) mis-characterizing bribes in the corporate books and records as consulting fees and other seemingly legitimate expenses; (c) justifying payments to purported business consultants based on false invoices; and (d) entering into purported business consulting agreements with no basis, sometimes after Alcatel had won the relevant project.

Alcatel-Lucent DPA

The DOJ's charges against Alcatel were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, Alcatel admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and those of Alcatel's subsidiaries as described above.

The term of the DPA is three years and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and Alcatel-Lucent. Among the factors stated are the following.

(a) following press reports concerning bribery by Alcatel, S.A., in Costa Rica, the company investigated and disclosed over the course of several years to the Department and the United States Securities and Exchange Commission the misconduct described above;

(b) Alcatel-Lucent conducted a global internal investigation concerning bribery and related misconduct;

(c) Alcatel-Lucent reported its findings to the Department and the SEC;

(d) after limited and inadequate cooperation for a substantial period of time, Alcatel-Lucent substantially improved its cooperation with the Department's investigation of this matter, as well as the SEC's investigation;

(e) Alcatel-Lucent undertook remedial measures, including the implementation of an enhanced compliance program, and agreed to undertake further remedial measures as contemplated by the DPA;

(f) on its own initiative and at a substantial financial cost, Alcatel-Lucent determined as matter of company policy to no longer use third party sales and marketing agents in conducting its worldwide business; and

(g) Alcatel-Lucent agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Alcatel-Lucent and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.

As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $86.58 - $173.16 million. Pursuant to the DPA, Alcatel-Lucent agreed to pay a monetary penalty of $92 million - a rather rare instance of an FCPA criminal fine actually being within the Guidelines range and not below even the minimum range suggested by the Guidelines. Also relevant is that Alcatel's culpability score was reduced only by -1, reflecting that Alcatel did not receive cooperation credit as many FCPA corporate defendants do receive.

The DPA states that above fine is appropriate given, among other things, "penalties related to the same conduct in Costa Rica [see here], and the extraordinary remedial step of terminating use of third-party sales and marketing agents."

Pursuant to the DPA, Alcatel agreed to a host of compliance undertakings including the retention of an independent compliance monitor "who is a French national" for a three year term. Corporate Monitors used to be common in FCPA enforcement actions (circa 2005-2008), but required use of corporate monitors has become less common over the past few years.

As is standard in FCPA DPAs, Alcatel agreed not to make any public statement "contradicting the acceptance of responsibility by Alcatel-Lucent as set forth" in the DPA and Alcatel-Lucent further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

As to potential debarment issues, the DPA states as follows. "The Department agrees to bring to the attention of governmental and other debarment authorities the facts and circumstances relating to the nature of the conduct underlying this Agreement, including the nature and quality of Alcatel-Lucent's cooperation and remediation. By agreeing to provide this information to debarment authorities, the Department is not agreeing to advocate on behalf of Alcatel-Lucent, but rather is providing facts to be evaluated independently by the debarment authorities."

Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G. and Alcatel CentroAmerica, S.A. Criminal Information

The criminal information against the above Alcatel subsidiaries is virtually identical to the above-described criminal information against Alcatel, albeit it is limited to Costa Rica, Honduras, Malaysia, and Taiwan conduct. Based on this conduct, the information charges the entities with conspiracy to violate the FCPA's anti-bribery and books and records and internal control provisions. According to the information, the purpose of the conspiracy was to "secure the assistance of officials of various governments, including those in Costa Rica, Honduras, Malaysia, and Taiwan, in obtaining and retaining lucrative telecommunications business through the offer, promise, and payment of bribes."

Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G. and Alcatel CentroAmerica, S.A. Plea Agreements

The above described charges were resolved via separate plea agreements with Alcatel-Lucent France (here), Alcatel-Lucent Trade International (here) and Alcatel CentroAmercia (here). Each plea agreement states that in light of the overall dispositions with the other Alcatel-Lucent entities and "the interrelationship among the charges and conduct underlying those dispositions" the agreed upon fine is $500,000.

SEC

The SEC's civil complaint (here) alleges in summary fashion as follows.

"From December 2001 through June 2006, Alcatel, S.A., now called Alcatel-Lucent, S.A. ("Alcatel" or the "company"), through its subsidiaries and agents, violated the Foreign Corrupt Practices Act 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."

"During this period, Alcatel's agents and/or subsidiaries paid bribes to foreign government officials in several countries to obtain or retain business:

• From December 2001 to October 2004, Alcatel's agents and/or subsidiaries paid at least $7 million in bribes to government officials of Costa Rica to obtain or retain three contracts to provide telephone services in Costa Rica totaling approximately $303 million.

• From December 2002 to June 2006, Alcatel's agents and/or subsidiaries paid bribes to government officials of Honduras to obtain or retain five telecommunications contracts totaling approximately $48 million.

• From October 2003 to May 2004, Alcatel's agents and/or subsidiaries paid bribes to government officials of Taiwan to obtain or retain a railway axle counting contract valued at approximately $27 million.

• From October 2004 to February 2006, Alcatel's agents and/or subsidiaries paid bribes to government officials of Malaysia to obtain or retain a telecommunications contract valued at approximately $85 million."

"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."

The SEC complaint contains allegations about the same "Costa Rica Bribery Scheme," "The Honduras Bribery Scheme," "The Taiwan Bribery Scheme," and "The Malaysia Bribery Scheme" referenced above. Typically, SEC complaints in FCPA matters are more broad than DOJ resolution documents, yet in this case the SEC complaint is more narrow than the DOJ resolution documents in that the SEC complaint does not contain any allegations as to conduct in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, the Ivory Coast, Burkina Faso, Uganda, and Mali - as does the DOJ information.

Based on the above conduct, the SEC charged Alcatel with FCPA anti-bribery and books and records and internal control violations and knowingly failing to implement a system of internal controls and knowingly falsifying books and records.

As to books and records the complaint alleges as follows.

"Specifically, A1catel failed to keep accurate books and records by (1) entering into consulting agreements retroactively; (2) establishing and using a system of intermediaries to obscure the source and destination of funds; (3) making payments pursuant to business consulting agreements that inaccurately described the services provided; (4) generating false invoices and other false documents to justify payments; (5) disbursing funds in cash with inaccurate documentation authorizing or supporting the withdrawals; (6) recording illicit payments as legitimate consulting fees; and (7) recording bribes as payment for legitimate services."

As to internal controls, the complaint alleges as follows.

"Alcatel failed to implement adequate internal controls to comply with the
company's NYSE listing, including the detection and prevention of violations of the FCPA. First, Alcatel and/or its subsidiaries falsified books and records, entered into agreements retroactively, and obscured the purpose for, and ultimate recipient of, illicit payments. Alcatel used business consultants and intermediaries to funnel bribes in at least four countries. Alcatel created and used false invoices and payment documentation under business consulting agreements that described services that were never intended to be rendered. Illicit payments were falsely recorded as expenses for consulting fees."

"Second, Alcatel also routinely circumvented the internal controls the company had in place. Although the company in theory had a policy of "checks and balances" to authorize the retention of business consultants, which required several signatures to approve the retention of, and payment to, business consultants, Alcatel employees often violated that policy. In numerous instances, Alcatel officials responsible for reviewing due diligence reports on consultants failed to conduct any review of the documents or could not read the language in which the documents were written. Alcatel employees also entered into agreements retroactively and obscured the amounts paid to business consultants by splitting the payments among separate
agreements (to conceal the high commissions Alcatel paid). Finally, Alcatel Standard's due diligence on business consultants was inadequate, and Alcatel CIT often paid business consultants without adequate proof of services rendered. Alcatel CIT failed to establish robust controls over cash disbursements, allowed manual payments without documentation, and Alcatel's FCPA compliance function was understaffed and lacked independence. Alcatel also failed to conduct thorough anti-bribery and corruption training."

Without admitting or denying the SEC's allegations, Alcatel agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $45.372 million.

In a relese (here), Robert Khuzami (Director of the SEC's enforcement division) stated as follows. "“Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business. Alcatel’s bribery scheme was the product of a lax corporate control environment at the company.” Glenn Gordon (Associate Director of Enforcement in the SEC's Miami office) added, "the serious sanctions Alcatel has agreed to, including paying back all net profits made on the contracts Alcatel illegally obtained, should serve as a reminder that we are committed to enforcing the FCPA and a level playing field for companies seeking to obtain or retain business in other countries.”

In a company press release (here), Steve Reynolds, Alcatel-Lucent General Counsel, stated as follow. "We take responsibility for and regret what happened and have implemented policies and procedures to prevent these violations from happening again. The violations largely occurred prior to the merger of Alcatel and Lucent Technologies and involved improper activities in several countries. These settlements resolve the company’s FCPA liability with the DOJ and SEC. We are pleased to have reached these settlements and look forward to putting these matters behind us. Alcatel-Lucent, created as a result of the merger of Alcatel and Lucent Technologies at the end of 2006, is a radically different company today: It has different management, including a new CEO, a new executive committee and a different Board of Directors; It has a zero-tolerance policy regarding bribery and corruption and has a system in place with strong processes and Internet-based and live training designed to prevent these types of situations in all aspects of our business; and as the first in its industry to do so, Alcatel-Lucent announced in 2008 that it would terminate the use of sales agents and consultants -- the primary means by which certain former employees made the improper payments involved in the violations described in the DOJ and SEC settlement papers.”

Martin Weinstein (here) of Willkie Farr & Gallagher represented the Alcatel entities.

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