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Deferred prosecution agreements (DPAs) tend to be interesting reads. Often times, a DPA raises more questions than it answers.

The recent ABB Ltd. DPA (here) is no exception.

The DOJ and SEC recently announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. – Jordan (see here for the prior post).

This post discusses the ABB Ltd. DPA as well as the ABB Inc. plea agreement.

The short summary is as follows: the DOJ resolution concerns Iraq Oil-for-Food conduct as well as conduct in Mexico. However, the DPA is clear that there was “other misconduct” as well and that “corrupt payments” were made by ABB sudsidiaries “in various countries around the world.” ABB Ltd. agrees to pay a total monetary penalty of $30.4 million – the “bottom of the applicable combined Sentencing Guidelines fine range for ABB Inc. [Mexico conduct] and ABB Ltd – Jordan [Iraqi Oil for Food conduct].” As is common in DPA’s, ABB Ltd. agrees to forever say silent about any issues contradicting the facts of the settlement in exchange for the DOJ agreeing to defer prosecution of the criminal charges. In exchange, the DOJ “agrees to cooperate with ABB Ltd.” and tell any “governmental and other debarment authority” about how “extraordinary” ABB Ltd’s “cooperation and remediation” was in the enforcement action.

No wonder DPAs are controversial.

ABB Ltd. Deferred Prosecution Agreement

The DPA has a term of three years. [A DPA is a less harsh resolution to an FCPA enforcement action because, while the criminal charges are technically filed, the charges are deferred or not prosecuted during the term of the DPA.] If ABB abides by its obligations under the DPA, the criminal charges (see below) will be dismissed when the DPA’s term expires.

Those obligations include a corporate compliance program meeting certain common elements as set forth in Attachment C of the DPA as well as “Enhanced Corporate Compliance and Reporting Obligations and Condition of Corporate Probation” as set forth in Attachment D of the DPA (described more fully below).

The DPA term, however, may be terminated early “in the event the Fraud Section finds, in its sole discretion, that there exists a change in circumstances sufficient to eliminate the need for the enhanced compliance obligations” set forth in the agreement.

Pursuant to the DPA, ABB “accepted and acknowledged that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth in the ABB Inc. and ABB Ltd. Jordan criminal informations (see here and here).

According to the DPA, the DOJ agreed to enter into the agreement with ABB based on the following factors: “(a) following discovery of the bribery, ABB Ltd. and ABB Inc. voluntarily and timely disclosed to the Fraud Section and the [SEC] the misconduct” set forth in the informations; “(b) ABB Ltd. conducted a thorough internal investigation of that and other misconduct; (c) ABB Ltd. regularly reported all of its findings to the Fraud Section and SEC; (d) ABB Ltd. cooperated in the Fraud Section’s investigation of this matter, as well as the related SEC investigation; (e) ABB Ltd. undertook substantial remedial measures, including those recommended by the independent compliance consultant engaged after ABB Vetco Gray Inc. and ABB Vetco Gray UK Ltd. settlement in 2004 with the Fraud Section and SEC and the implementation of an enhanced compliance program, and agreed to undertake further remedial measures as contemplated by this Agreement; and (f) ABB Ltd. agreed to continue to cooperate with the Fraud Section subject to applicable law and regulation in any ongoing investigation of the conduct of ABB Ltd. and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.” (emphasis added).

The DPA further notes that “ABB Ltd’s cooperation during this investigation has been extraordinary.”

According to the ABB Inc. plea agreement (here), “the extraordinary cooperation” of ABB Ltd. and ABB Inc. “had lead, in part, to the guilty plea by ABB Inc. agent Fernando Maya Basurto […] and the indictment of former ABB Inc. General Manager John Joseph O’Shea …” (see here for more).

According to the DPA, the fine range under the advisory U.S. Sentencing Guidelines for ABB Inc’s conduct was $28.5 million – $57 million; for ABB Ltd. – Jordan’s conduct $1.92 million – $3.2 million. The combined fine range was thus $30.42 million – $60.2 million.

ABB Ltd. agreed to pay a total monetary penalty of $30.42 million “or the bottom of the applicable combined Sentencing Guidelines fine range for ABB Inc. and ABB Ltd – Jordan.”

The DPA states that “the Fraud Section and ABB Ltd. further agree that a fine at the bottom of the applicable combined Sentencing Guidelines fine range is appropriate given the nature and extent of ABB Ltd’s extraordinary cooperation in this matter, including sharing information with the Fraud Section regarding evidence obtained as a result of ABB Ltd’s extensive investigation of corrupt payments made by ABB subsidiaries in various countries around the world.” (emphasis added).

Paragraph 22 of the DPA contains this clause:

“With respect to ABB Ltd’s present reliability and responsibility as a government contractor, the Fraud Section agrees to cooperate with ABB Ltd., in a form and manner to be agreed, in bringing facts relating to the nature of the conduct underlying this Agreement and to ABB Ltd’s and ABB Inc’s extraordinary cooperation and remediation to the attention of governmental and other debarment authorities, including the [Multilateral Development Banks] or other entities, as requested.” The ABB Inc. plea agreement contains the same provision.

The DPA, as most commonly do, forever muzzles ABB or “its attorneys, directors, employees, agents, or any other person authorized to speak for ABB” for making any public statement contradicting the acceptance of responsibility by ABB.” Similarly, the ABB Inc. plea agreement contains this clause: “the defendant agrees that if it or its parent corporation issues a press release in connection with this Agreement, the defendant shall first consult the Fraud Section to determine whether the text of the release is acceptable, and shall only issue a release that has been deemed acceptable to the Fraud Section.” In the U.K. Serious Fraud Office enforcement action against Innospec, Lord Justice Thomas specifically criticized this feature of settlement (see here) and Richard Alderman recently stated in my Q&A with him (see here) that that the “SFO will not be doing this again.”

Attachment D of the DPA is titled “Enhanced Corporate Compliance and Reporting Obligations and Condition of Corporate Probation”

It begins by stating:

“AB will continue to implement and adhere to the 101 compliance program elements recommended by the Independent Compliance Consultant in the Report of the Independent Consultant to ABB Ltd, Securities and Exchange Commission v. ABB Ltd, Civ. Action No. 04-1141 (D.D.C. July 23, 2007) (revised in December 2007), except where not possible because of local law.”

It then contains an extensive list of things ABB will continue to implement relating, but not limited to: risk assessments and audits; acquisitions; business model modification such as “eliminat[ing] the use of ABB Representatives whenever possible;” relationships with third parties; gift, travel, and entertainment; complaints, reports, and compliance issues; training; and certification.


A future post will highlight how the above FCPA enforcement actions against ABB Ltd. and certain of its subsidiaries was not the first time ABB Ltd. and those within its corporate hierachy have settled FCPA enforcement actions.

Save The Date …. and … The Friday Roundup

Save The Date

Deferred prosecution agreements, affirmative defenses, companies x, y, and z.

On a daily basis this site and – those who follow it – are, to use the analogy, generally focused on the trees. However, the trees are part of a vast forest.

Against the backdrop of aggressive enforcement of bribery and corruption laws worldwide, several basic questions remain unanswered, or at least subject to dispute.

It is these big-picture questions that will be the focus of an upcoming roundtable discussion (“Bribery – What is It, What Can Be Done, What Should Be Done, and How to Comply?”) at International Law Weekend, an event presented by the American Branch of the International Law Association and the International Law Students Association. The roundtable will take place on Saturday, October 23 at 10:45 at Fordham University School of Law.

I am pleased to co-chair the panel along with Corinne Lammers (Paul, Hastings – see here). Other participants include: Bruce Bean (Michigan State College of Law – here), Daniel Chow (The Ohio State University College of Law – here), Elizabeth Spahn (New England College of Law – Boston – here), and Andy Spalding (Chicago-Kent College of Law – here).

See here for the full event schedule.

Friday Roundup

An FCPA investigation in the midst of a merger, a voluntary disclosure involving “minor” entertainment and gifts relating to a few “discrete transactions involving immaterial revenue,” World Bank debarment, and the blogging life … it’s all here in the Friday roundup.

FCPA Investigation in the Midst of a Merger

In June, Spain-based Grifols, S.A. (a global healthcare company and leading producer of plasma protein therapies) and Talecris (a U.S.-based biotherapeutics products company) announced that they signed a definitive agreement by which Grifols will acquire Talecris. See here and here.

In the meantime, Talecris is conducting a mammoth FCPA internal investigation. Here is the lastest from the recent Form F-4 Registration Statement of Grifols.

“Talecris is conducting an internal investigation into potential violations of the FCPA that it became aware of during the conduct of an unrelated review. The FCPA investigation is being conducted by outside counsel under the direction of a special committee of the Talecris Board of Directors. The investigation into certain possibly improper payments to individuals and entities made after Talecris’ formation initially focused on payments made in connection with sales in certain Eastern European and Middle Eastern countries, primarily Belarus, Russia and Iran, but Talecris is also reviewing sales practices in Brazil, China, Georgia, Turkey and other countries as deemed appropriate.”

“In July 2009, Talecris voluntarily contacted the U.S. Department of Justice, which is referred to as the DOJ, to advise them of the investigation and to offer its cooperation in any investigation that they want to conduct or they want Talecris to conduct. The DOJ has not indicated what action it may take, if any, against Talecris or any individual, or the extent to which it may conduct its own investigation. The DOJ or other federal agencies may seek to impose sanctions on Talecris that may include, among other things, injunctive relief, disgorgement, fines, penalties, appointment of a monitor, appointment of new control staff, or enhancement of existing compliance and training programs. Other countries in which Talecris does business may initiate their own investigations and impose similar penalties. As a result of this investigation, Talecris suspended shipments to some countries while it put additional safeguards in place. In some cases, safeguards involved terminating consultants and suspending relations with or terminating distributors in countries under investigation as circumstances warranted. These actions unfavorably affected revenue from these countries in 2009 and have an ongoing unfavorable impact on revenue in 2010. Talecris has resumed sales in countries where it has appropriate safeguards in place and is reallocating product to other countries as necessary. To the extent that Talecris concludes, or the DOJ concludes, that Talecris cannot implement adequate safeguards or otherwise need to change its business practices, distributors, or consultants in affected countries or other countries, this may result in a permanent loss of business from those countries. These sanctions or the loss of business, if any, could have a material adverse effect on Talecris or its results of operations.”

What has the internal investigation cost thus far?

According to the same filing, approximately $12.9 million (see pg. 303).

The above was not the only FCPA disclosure news this week.

The Voluntary Disclosure Involving “Minor” Entertainment and Gifts Relating to a Few “Discrete Transactions Involving Immaterial Revenues”

Real estate is not generally thought of as an FCPA high-risk industry.

Yet, earlier this week CB Richard Ellis, a “global leader in real estate services” (see here), disclosed as follows in its 8-K:

“As a result of an internal investigation that began in the first quarter of 2010, the Company determined that some of its employees in certain of its offices in China made payments in violation of Company policy to local governmental officials, including payments for non−business entertainment and in the form of gifts. The payments the Company discovered are minor in amount and the Company believes relate to only a few discrete transactions involving immaterial revenues. Nonetheless, the Company believes that the payments may have been in violation of the U.S. Foreign Corrupt Practices Act or other applicable laws. Consequently, the Company voluntarily disclosed these events to the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”) on February 27, 2010 and has continued to cooperate with both the DOJ and the SEC in connection with this
investigation. The Company engaged outside counsel to investigate these events and has implemented thorough remedial measures.

In addition, in the third quarter of 2010, the Company began another internal investigation, with the assistance of outside counsel, involving the use of a third party agent in connection with a purchase in 2008 of an investment property in China for one of the funds the Company manages through its Global Investment Management business. This investigation is ongoing and at this point the Company is unable to predict the duration, scope or results thereof. In light of the Company’s cooperation with the DOJ and the SEC as described above, the Company voluntarily notified both agencies of this separate internal investigation and will report back to them when the Company has more information.”

One can perhaps understand a voluntary disclosure when the payments at issue involve suitcases full of cash to government officials to obtain or retain government contracts.

But a voluntary disclosure based on “minor” entertainment and gifts involving a “few discrete transactions involving immaterial revenues?”

Has it truly come to this rather than the company internally handling such “minor” “discrete transactions involving immaterial revenue” in an effective manner?

Did FCPA counsel advise the company that voluntary disclosure was necessary in this instance? Perhaps not necessary, but preferable? How would you handle this issue if you were the company’s in-house counsel or on the company’s board?

Interesting questions indeed.

For more on voluntary disclosure and the role of FCPA counsel see this prior post.

World Bank Debarment

The EU and US debarment directives and regulations may be “toothless,” but the World Bank is in charge of its own debarment decisions when it comes to World Bank financed or executed projects.

A prior post (here) discussed the World Bank’s debarment of Macmillan Limited and recently the World Bank announced (see here) that its Sanctions Board debarred “four companies and two individuals for fraudulent practices in projects in India and Afghanistan” following “inquiries by the World Bank’s Integrity Vice Presidency (INT), which is responsible for investigating fraud and corruption in World Bank-financed projects.”

According to the release:

“In India, the World Bank Group debarred Ambalal Sarabhai Enterprises Limited (ASE) and Chemito Technologies Pvt. Ltd. (Chemito) for having engaged in fraudulent practices relating to the Food and Drugs Capacity Building project. Both ASE and Chemito are ineligible to be awarded contracts under any Bank Group-financed or Bank Group-executed project or otherwise participate in the preparation or implementation of such projects for three years. The debarment may be reduced to two years if the companies put in place and implement effective corporate compliance programs.”

“The third decision relates to fraudulent practices by Global Spin Weave Limited (GSW) and its Director Sudhir Agrawal. The company’s misconduct was substantiated in relation to three Bank-financed projects in India; namely: First Reproductive and Child Health Project, Second National HIV/AIDS Control Project and the Malaria Control Project. According to the Sanctions Board decision, GSW is ineligible to be awarded contracts under any Bank Group-financed or Bank Group-executed project or otherwise participate in the preparation or implementation of such projects for five years. The debarment may be reduced to four years if GSW puts in place and implements an effective corporate compliance program. Mr. Agrawal’s period of ineligibility is three years.”

“In relation to the Urban Water Supply and Sanitation Project in Afghanistan, the Sanctions Board debarred Ronberg Gruppe LLC, AG (Ronberg) and its Director Nikolay V. Vakorin for having engaged in fraudulent practices. Ronberg and Mr. Vakorin are ineligible to be awarded contracts under any Bank Group-financed or Bank Group-executed project or otherwise participate in the preparation or implementation of such projects for three years.”

The World Bank release notes that the above “cases are eligible for cross debarment under the April 2010 Agreement for Mutual Enforcement of Debarment Decisions entered into by the African Development Bank Group, Asian Development Bank, the European Bank for Reconstruction and Development, the World Bank Group and the Inter-American Development Bank Group.” For more on that Agreement see here.

The Blogging Life

Interested in blogging?

See here for my recent interview with Jerod Morris of Corporate Compliance Insights. We also talk a bit about the FCPA!

A good weekend to all.

Securency International Probe Heats Up

According to this U.K. Serious Fraud Office (SFO) release, “a coordinated search and arrest operation” involving U.K., Spanish, and Australian authorities focused on Securency International PTY Ltd. has taken place. According to the release, the action involves the “activities of employees and agents of Securency International and their alleged corrupt role in securing international polymer banknote contracts.”

Securency International (here) is a joint venture between the Reserve Bank of Australia, the country’s central bank, and Innovia Films (here), a Cumbria, England-based company that makes cellulose films for packaging and labels.

According to this article in the Sydney Morning Herald the “Reserve Bank is reeling after Federal Police and overseas law-enforcement agencies staged co-ordinated global raids yesterday to uncover evidence of corruption and bribery involving the bank note firm Securency.” Bribery is suspected to have occurred in several countries, including Vietnam, Nigeria, Malaysia and Indonesia. As the article notes, if criminal charges are filed, it would be Australia’s first foreign bribery prosecution.

The above linked Sydney Morning Herald article also has an informative five minute audio clip about the raid and the allegations against Securency International.

Will the U.S. get involved?

That depends if there is even jurisdiction.

Neither Securency or Innovia appear to be an “issuer” or “domestic concern.” But there is still the 78dd-3 prong of the FCPA which applies to “any person” (corporate or individual) that generally performs any act in furtherance of an improper payment scheme while in the territory of the U.S. Like most FCPA issues, the DOJ takes an expansive view of this jurisdictional element and prior enforcement actions have been based on use of the U.S. bank accounts, U.S. dollar-denominated financial transactions, and use of the U.S. mail and wires (such as e-mail) in connection with the improper payment scheme.

For more on expansive FCPA jurisdiction over non-U.S. companies, see this July 2010 Shearman & Sterling publication.

A Conversation With Richard Alderman – Director of the U.K. Serious Fraud Office

While in London recently to chair the World Bribery & Corruption Compliance Forum (see here, here and here for previous posts), I was pleased to accept the invitation of the U.K. Serious Fraud Office to visit its offices and meet top-level SFO personnel to discuss Bribery Act and other anti-corruption issues and topics. As part of the invitation, Richard Alderman (here), the Director of the SFO, invited me to submit questions to him on any topic of my choosing.

I submitted approximately thirty detailed questions covering a broad range of topics, including the role and policies of the SFO, the Bribery Act, the BAE and Innospec cases, Bribery Inc., and other questions of general interest. Except for certain questions regarding the BAE case, which is still pending in the U.K. courts, Mr. Alderman provided answers to every question, including on topics I have been critical of the SFO in the past.

In his answers, Mr. Alderman, among other things:

(i) compares and contrasts the SFO’s role with the DOJ’s role in enforcing the Foreign Corrupt Practices Act, including the more active and independent role U.K. courts have in reviewing SFO charging decisions;

(ii) talks about voluntary disclosure, and the role of non-prosecution and deferred prosecution agreements;

(iii) discusses reputational harm, debarment, and reparations; and

(iv) talks specifically about the Bribery Act which is to be implemented in April 2011.

I thank Mr. Alderman and other SFO personnel for taking a keen interest in my work and commend the “active engagement” approach the SFO has taken in going about its work.

My complete “conversation” with Mr. Alderman can be downloaded here.

“A Tip A Day”

According to Joe Palazzolo’s recent post in Corruption Currents (a Wall Street Journal blog), “a person familiar with the matter” said the SEC “has been receiving at least one tip a day about potential foreign bribery violations” pursuant to Dodd-Frank’s new whistleblower provisions.

Whether those tips turn into enforcement actions will be the question.

As I noted in this prior post, my guess is that the new whistleblower provisions will have a negligible impact on FCPA enforcement.

Speaking generally on Dodd-Frank’s whistleblower provisions (i.e., not just in terms of the FCPA) SEC Chairman Mary Schapiro had this to say (see here) in September 30th testimony before the Senate Committee on Banking, Housing, and Urban Affairs:

“Staff in the Division of Enforcement, with assistance from other divisions and offices, is actively working to draft implementing regulations for the whistleblower program. Pending the issuance of these regulations (due no later than 270 days after the date of enactment of the Act), the staff has been and will continue to be able to receive whistleblower complaints. Also, information for potential whistleblowers has been posted on our website. Already, since the passage of the Act, we have seen a slight uptick in the number of tips and complaints received, and, more importantly, an uptick in the quality of complaints.”

As noted in Schapiro’s testimony, “the first report to Congress on the whistleblower program will be provided on October 30, 2010.”

For more on Dodd-Frank’s whistleblower provisions see here.

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