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Friday Roundup

Save the date, Halliburton speaks on Nigeria, and the SEC’s first non-prosecution agreement … it’s all here in the Friday roundup.

Save the Date

FCPA enforcement 2010 is coming to a close. The three most significant events from 2010? The three most interesting events from 2010? And a bold prediction?

That is my task on December 29th when I participate in Securities Docket’s annual “Year in Review” webcast slated for 1 p.m. EST. The webcast is free and you can sign up here.

Other participants who address the same questions as to their area of expertise include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors), Francis Pileggi (Delaware corporate law guru), Kevin LaCroix (The D&O Diary), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket’s Bruce Carton.

Halliburton Statement on Nigeria Charges

In last week’s Friday roundup, it was noted that Nigeria dropped charges against Dick Cheney after his former employer, Halliburton, reportedly agreed to pay a $250 million fine. According to various media reports, the sum consisted of $120 million in penalties and the repatriation of $130 million.

A Halliburton spokesman was quoted as saying “we have no comment to make on this.”

Halliburton has now spoken and its statement (here) contradicts the widely reported $250 million figure. The statement reads, in full, as follows:

“Halliburton announced today the resolution of the previously disclosed investigation by the Federal Government of Nigeria (FGN) arising out of allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by a joint venture known as TSKJ of a natural gas liquefaction project on Bonny Island, Nigeria, in which Halliburton’s former subsidiary KBR, Inc. had an approximate 25 percent interest. Pursuant to this agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, the FGN agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay US$32.5 million to the FGN and to pay an additional US$2.5 million for FGN’s attorneys’ fees and other expenses. Among other provisions, Halliburton agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account of a former TSKJ agent and affirmed a continuing commitment with regard to corporate governance. Any charges related to this settlement will be reflected in discontinued operations.”

SEC’s First Non-Prosecution Agreement

In January 2010, the SEC announced a series of measures (see here) “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions.”

“New cooperation tools” not previously available to the SEC, include, among other things:

* “Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.”

* “Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.”

and

* “Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.”

The SEC release noted that “similar cooperation tools have been regularly and successfully used by the Justice Department in its criminal investigations and prosecutions.”

Earlier this week, the SEC announced (here) its first non-prosecution agreement against Carter’s Inc. related to enforcement action against its former Executive Vice President (Joseph M. Elles) for engaging in financial fraud and insider trading.

The SEC’s announcement states as follows:

“The SEC also announced that it has entered a non-prosecution agreement with Carter’s under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles’s unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter’s prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter’s extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC’s new cooperation initiative earlier this year.”

The NPA (here) is similar to DOJ NPAs and DPAs in the FCPA context. Carter’s agreed to cooperate in the investigation of its former employee and any other related enforcement action and Carter’s is prohibited from making any public statement contrary to the factual basis of the agreement (notwithstanding that the NPA does not contain a factual basis or a statement of facts). The NPA specifically states that the agreement should not “be deemed exoneration of [Carter’s] or be construed as a finding by the Commission that no violation of the federal securities laws have occurred.”

Although the Carter NPA is not in an FCPA enforcement action, it is likely that NPAs (and DPAs) will be frequently used by the SEC (as they are by the DOJ) in the FCPA context.

As I note in the “Facade of FCPA Enforcement” (here), DOJ NPAs and DPAs have exploded in recent years and the “lions share” of these agreements are used to resolve FCPA enforcement actions. Many observers believe that NPAs and DPAs have taken the place of declinations and that companies are pressured to enter into such agreements prematurely even before each element of the relevant charge is established.

With the SEC now using such alternative resolution vehicles, the end result will be even less judicial scrutiny (not that there is much judicial scrutiny at present) as to SEC interpretations of the FCPA and whether factual evidence actually exists to support each element of an FCPA charge.

Friday Roundup

Save the date, Halliburton speaks on Nigeria, and the SEC’s first non-prosecution agreement … it’s all here in the Friday roundup.

Save the Date

FCPA enforcement 2010 is coming to a close. The three most significant events from 2010? The three most interesting events from 2010? And a bold prediction?

That is my task on December 29th when I participate in Securities Docket’s annual “Year in Review” webcast slated for 1 p.m. EST. The webcast is free and you can sign up here.

Other participants who address the same questions as to their area of expertise include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors), Francis Pileggi (Delaware corporate law guru), Kevin LaCroix (The D&O Diary), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket’s Bruce Carton.

Halliburton Statement on Nigeria Charges

In last week’s Friday roundup, it was noted that Nigeria dropped charges against Dick Cheney after his former employer, Halliburton, reportedly agreed to pay a $250 million fine. According to various media reports, the sum consisted of $120 million in penalties and the repatriation of $130 million.

A Halliburton spokesman was quoted as saying “we have no comment to make on this.”

Halliburton has now spoken and its statement (here) contradicts the widely reported $250 million figure. The statement reads, in full, as follows:

“Halliburton announced today the resolution of the previously disclosed investigation by the Federal Government of Nigeria (FGN) arising out of allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by a joint venture known as TSKJ of a natural gas liquefaction project on Bonny Island, Nigeria, in which Halliburton’s former subsidiary KBR, Inc. had an approximate 25 percent interest. Pursuant to this agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, the FGN agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay US$32.5 million to the FGN and to pay an additional US$2.5 million for FGN’s attorneys’ fees and other expenses. Among other provisions, Halliburton agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account of a former TSKJ agent and affirmed a continuing commitment with regard to corporate governance. Any charges related to this settlement will be reflected in discontinued operations.”

SEC’s First Non-Prosecution Agreement

In January 2010, the SEC announced a series of measures (see here) “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions.”

“New cooperation tools” not previously available to the SEC, include, among other things:

* “Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.”

* “Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.”

and

* “Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.”

The SEC release noted that “similar cooperation tools have been regularly and successfully used by the Justice Department in its criminal investigations and prosecutions.”

Earlier this week, the SEC announced (here) its first non-prosecution agreement against Carter’s Inc. related to enforcement action against its former Executive Vice President (Joseph M. Elles) for engaging in financial fraud and insider trading.

The SEC’s announcement states as follows:

“The SEC also announced that it has entered a non-prosecution agreement with Carter’s under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles’s unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter’s prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter’s extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC’s new cooperation initiative earlier this year.”

The NPA (here) is similar to DOJ NPAs and DPAs in the FCPA context. Carter’s agreed to cooperate in the investigation of its former employee and any other related enforcement action and Carter’s is prohibited from making any public statement contrary to the factual basis of the agreement (notwithstanding that the NPA does not contain a factual basis or a statement of facts). The NPA specifically states that the agreement should not “be deemed exoneration of [Carter’s] or be construed as a finding by the Commission that no violation of the federal securities laws have occurred.”

Although the Carter NPA is not in an FCPA enforcement action, it is likely that NPAs (and DPAs) will be frequently used by the SEC (as they are by the DOJ) in the FCPA context.

As I note in the “Facade of FCPA Enforcement” (here), DOJ NPAs and DPAs have exploded in recent years and the “lions share” of these agreements are used to resolve FCPA enforcement actions. Many observers believe that NPAs and DPAs have taken the place of declinations and that companies are pressured to enter into such agreements prematurely even before each element of the relevant charge is established.

With the SEC now using such alternative resolution vehicles, the end result will be even less judicial scrutiny (not that there is much judicial scrutiny at present) as to SEC interpretations of the FCPA and whether factual evidence actually exists to support each element of an FCPA charge.

Still Yet Another Noisy Exit

Perhaps it is a new trend.

Perhaps it is because the media now covers anything and everything FCPA related.

In any event, it is noticeable.

There has been still yet another “noisy exist.”

Including the below example, I count five in the last few months. See here, here and here for the prior posts.

In October 2009, Stephen Lowe was hired by Allison Transmission (“Allison”) as its Managing Director, China, Japan & Korea Operations. [Allison (here) is an Indiana based designer, manufacturer and supplier of automatic transmissions for medium- and heavy-duty commercial vehicles and military vehicles. In 2007 (see here) The Carlyle Group and Onex Corporation acquired Allison Transmission from General Motors Corporation for US$5.575 billion.]

Lowe alleges in this complaint recently filed in Marion County (Indiana) Superior Court that Allison fired him in July 2010 because he “refused to engage in violations of the FCPA.” Lowe’s complaint implicates both Allison’s Vice President of International Sales and Marketing (“Vice President”) and Allison’s Commercial Director of Asia Strategy (“Commercial Director”).

Among other things, Lowe alleges that: (i) he witnessed the Commercial Director deliver a cash filled envelope to Beijing City Bus officials during dinner; (ii) he heard the Commercial Director describe how he purchased silver jewelry for Chinese government officials “in order to please the officials” (iii) the Commercial Director bragged about winning a Beijing City Bus Olympics contract by doing “whatever it took to please the officials” “including giving gifts, money and prostitutes” and (iv) the Commercial Director “deliberately lost” high-stakes card games to “key Beijing City Bus officials.” [Brain teaser of the day – is deliberately losing a high-stakes card game to a “foreign official” providing the official with a “thing of value”?]

According to the complaint, Allison’s Vice President knew, and approved of, certain of the Commercial Director’s conduct. According to the complaint, “a month before Allison fired him” Lowe disclosed his concerns about the Commercial Director and the Vice President to Allison’s Marketing Manager.

Lowe’s complaint, filed by The Employment Law Group law firm, alleges various Indiana state law causes of action including retaliatory discharge, breach of contract, and breach of the implied covenant of good faith and fair dealing.

For additional coverage of Lowe’s complaint, see here from the Indiana Business Journal.

U.K. Judge Reluctantly Accepts The “Loosely and Hastily Drafted” SFO – BAE Plea Agreement

In February 2010, the U.K. Serious Fraud Office (“SFO”) and the U.S. DOJ announced resolution of a joint enforcement action against BAE Systems. (See here for the prior post).

Despite years of widespread bribery allegations and despite the DOJ’s bribery, yet no bribery allegations (see here), BAE escaped bribery and corruption charges. The U.S. enforcement action came to a formal conclusion in March (see here). As noted in the DOJ release (here) BAE pleaded guilty to “conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations” and was sentenced to “pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ’s ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws.”

The SFO’s plea agreement with BAE was even more limited. As noted in this SFO release, the SFO “reached an agreement with BAE Systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.” As noted in the SFO release BAE agreed to pay a £30 million penalty “comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.”

Days before the SFO-BAE plea agreement, the SFO charged BAE’s former agent with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” However, these charges were quickly withdrawn and the SFO release states that “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.” As discussed in this prior post, the SFO agreed to drop the criminal charges against BAE’s former agent because BAE would not agree to the proposed SFO plea (as watered down as it was) without the SFO agreeing to drop the charges against the former agent.

Under no circumstances, it appeared, could BAE (or anyone associated with it) be accused of bribery or corruption. This would have complicated things too greatly for BAE, the world’s second largest defense contractor. (See page 15 of the DOJ’s sentencing memo – here).

With BAE’s U.S. legal exposure in the rear-view mirror, the final act in this circus was approval of the SFO – BAE plea agreement by a U.K. court.

Fast forward to December 20th, the day BAE was supposed to be fined and sentenced.

Enter Mr. Justice David Michael Bean.

As widely reported, Justice Bean, notwithstanding the accounting only charges, wanted to know “whether some of the payments had been channelled corruptly to decision makers in Tanzania.” (See here). Justice Bean said “he couldn’t approve the settlement until he knew the intended use of $12.4 million in payments to a local businessman, because Bean said it looked to him as though the money was so he could pay “whatever was necessary to whomever it was necessary” to win the $40 million contract.” (See here). Justice Bean suggested the “obvious inference” was that part of the secret payments was used as a “bribe” to win a lucrative contract. (See here).

Prosecutor Victor Temple QC for the SFO said it was not part of his case that any part of the payments at issue was improperly used. David Perry, QC, representing BAE, said the SFO was not alleging bribery or offering evidence of it. He said this was “fundamental to the plea agreement” between the company and the prosecutor to end the corruption probe.

Remember, under no circumstance could BAE be accused of bribery or corruption.

Justice Bean wanted to hear more arguments and postponed BAE’s fine and sentence.

The delay was termed (see here) a blow to the SFO and its use of U.S. style plea agreements.

Yesterday, Justice Bean announced his decision.

Justice Bean fined BAE £500,000 for failing to keep proper records of payments it made to an adviser in Tanzania. He also ordered BAE to pay £225,000 in costs.

Because the SFO-BAE plea agreement allowed BAE to deduct the court-ordered fine from the £30m it had offered to the people of Tanzania to settle the case, Justice Bean said he felt pressure to keep the court fine to a minimum. As noted here, Justice Bean stated “the structure of this settlement agreement places moral pressure on the court to keep the fine to a minimum so that the reparation is kept at a maximum.”

Justice Bean called the SFO-BAE plea agreement “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge,” such as conspiracy to corrupt or false accounting. (See here).

See here for Justice Bean’s sentencing remarks.

See here for the SFO release.

As noted here, the only money BAE is legally obliged to pay is a £500,000 fine and costs of £250,000 as ordered by Mr Justice Bean. After the sentencing, Richard Alderman, the SFO Director said: “I expect BAE to honour the agreement. I expect the company to pay it [the reparation payment to Tanzania] as quickly as possible.” As noted in the article, such a payment could be problematic.

In a statement (here) BAE stated:

“Today’s judgment concludes and draws a line under this historical matter. The company accepts the decision of the Court and will abide by it. In the decade since the conduct referred to in this settlement occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognised for responsible conduct as it is for high quality services and advanced technologies.”

In a statement (see here) Transparency International UK noted that despite Justice Bean’s “damning comments, [BAE] has not admitted bribery and no individuals have been punished.” Chandrashekhar Krishnan, Executive Director of Transparency International UK stated as follows: “This hearing also highlights the need for a thorough review of sentencing law and procedures, to ensure that judges presented with agreed settlements are able to sentence on a fully informed and transparent basis. It is clear that BAE Systems has got off lightly. The best that can now happen is that the company demonstrates it has turned a new leaf and is irrevocably committed to clean business.”

In an editorial, the Financial Times stated as follows.

“The plea-bargain deal BAE Systems struck earlier this year with the UK’s anti-corruption authority was designed to draw a line under the company’s murky past. This may indeed be the judicial outcome of the deal, which was sanctioned by a court on December 21. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done. The Serious Fraud Office has long been accused, with justice, of being toothless. So this newspaper welcomed its decision last year to prosecute BAE for allegedly paying bribes to foreign governments to win contracts in several African and eastern European countries. Although the SFO later switched to pursuing a more limited plea bargain, it was still hoped that this might raise the agency’s profile as a crusader against corporate corruption. This week’s court proceedings, which saw a judge reluctantly accept the SFO’s deal, have undermined that hope. British courts bridle at plea bargains because of the way they fetter judicial discretion. But even allowing for this aversion, the BAE deal rightly stuck in the judge’s craw. The company did not admit to any corruption, pleading guilty only to a trivial charge of keeping inadequate accounting records. In return, BAE and its officers were extraordinarily given blanket immunity from any offences before 2004 – whether admitted to or not. A cap was placed on the total amount BAE would pay to settle the litigation – whether as a fine or in compensation. There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped. The UK is trying to get its act together. But it is still some way from – to quote a minister in the last government – “giving the Americans a run for their money”. There are grounds for hope. Britain has passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency – hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed.”

*****

Hope is a fitting word to end the BAE circus.

Hope that a case of this magnitude is never again resolved the way it was resolved both in the U.S. and the U.K.

DOJ Charges Two Executives In Hondutel Matter

In April 2009, Latin Node, Inc. (“Latin Node”), a privately-held telecommunication services company headquartered in Miami, pleaded guilty to violating the FCPA’s anti-bribery provisions in connection with improper payments made to “foreign officials” in Honduras and Yemen. (See here). The criminal information (here) details Latin Node’s efforts to obtain and retain business with Hondutel (the Honduran government-owned telecommunications company).

Yesterday, the DOJ announced (see here) the unsealing of a 19 count criminal indictment against Jorge Granados and Manuel Caceres.

According to the indictment (here), Granados “was the founder, Chief Executive Officer and Chairman of the Board of Latin Node” between 1999 and 2007. During this time period, Granados, a U.S. citizen, had authority to set company policy, contract with telecommunications companies, hire and fire employees, set sales prices, and approve sales practices in foreign countries.” Caceres was a senior executive of Latin Node from 2004 to 2007, holding such titles as Vice President of Business Development. The indictment alleges that Caceres, a citizen of Honduras and a lawful permanent resident of the U.S., was responsible for, among other things, developing Latin Node’s business in Honduras.

The indictment centers on an “interconnection agreement” between Latin Node and Hondutel “the wholly state-owned telecommunications authority in Honduras, established under Honduran law and headquartered in Tegucigalpa, Honduras.” According to the indictment, Hondutel’s operations “were overseen by another Honduran government entity, Comision Nacional de Telecomunicaciones.”

According to the indictment, “almost immediately after winning the interconnection agreement with Hondutel, Latin Node executives realized that Latin Node needed to obtain a reduction in the Termination Rates in order to be more competitive in the Honduran telecommunications market.” The indictment charges that “Latin Node executives also learned that Official 1 [a senior Hondutel executive with broad decision-making authority and influence over telecommunications contracts with private service providers] was considering whether to rescind Hondutel’s interconnection agreement with Latin Node.”

The indictment charges one count of conspiracy to violate the FCPA’s anti-bribery provisions, twelve counts of FCPA anti-bribery violations, one count of money laundering conspiracy, and five counts of money laundering.

According to the indictment, the “purpose of the conspiracy was to obtain from Hondutel business advantages for Latin Node including, but not limited to, preferred telecommunications rates, retaining the interconnection agreement, and continued operation in Honduras despite late payments to Hondutel, by paying bribes to Honduran government officials, including to officers and employees of the Government of Honduras and of Hondutel …”.

Among other things, the indictment alleges that Granados and Caceres, and others, “would and did offer to pay, promise to pay, and authorize the payments of bribes, directly and indirectly to and for the benefit of Official 1, Official 2 [an attorney in the Hondutel legal department who worked directly for Official 1], and Official 3 [a Minister in the Honduran Government who was a member of Hondutel’s Board of Directors], in exchange for these Officials’ agreements to secure lower rates and other benefits for Latin Node under the interconnection agreement with Hondutel.” The indictment charges that Granados and Caceres, and others, “would and did wire and cause to be wired certain bribe payments from Latin Node’s bank accounts in Miami-Dade County, Florida, to the bank accounts designated by Official 1, Official 2 and Official 3.”

According to the DOJ release, “between September 2006 and June 2007, the defendants allegedly paid more than $500,000 in brobes to the officials, concealing many of the payments by laundering the money through Latin Node subsidiaries in Guatemala and to accounts in Honduras controlled by the Honduran government officials.”

As noted in the DOJ release, in early 2007, eLandia International Inc., (here) announced an agreement to acquire Latin Node.” “The indictment alleges that the defendants took additional measures to conceal the illicit payments during the acquisition due diligence process.”

The DOJ release further notes that the April 2009 resolution with Latin Node resulted from the “actions of eLandia in disclosing potential FCPA violations to the department after eLandia’s acquisition of Latin Node and discovery of the improper payments.”

***

Did the Latin Node enforcement action contribute to a coup? That is the question asked in this interesting piece by Gregory Paw (Pepper Hamilton).

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