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ALSTOM – Corruption Investigation Enters the Boardroom

The U.K. Serious Fraud Office (“SFO”) issued this release today which states that “[t]hree members of the Board of ALSTOM in the UK have been arrested on suspicion of bribery and corruption, conspiracy to pay bribes, money laundering and false accounting, and have been taken to police stations to be interviewed by the Serious Fraud Office.”

According to the release, search warrants were executed at five ALSTOM businesses premises and four residential addresses. The operation, involving “109 SFO staff and 44 police officers” is code-named “Operation Ruthenium” and centers on “suspected payment of bribes by companies within the ALSTOM group in the U.K.” According to the release, “[i]t is suspected that bribes have been paid in order to win contracts overseas.”

SFO Director Richard Alderman, in a very DOJ-like statement, noted that “[t]he SFO is committed to tackling corruption” (presumably so long as it does not involve BAE) and that the SFO is “working closely with other criminal justice organizations across the world” and is “taking steps to encourage companies to report any suspicions of corruption, either within their own business or by other companies or individuals.”

ALSTOM (see here) “is a global leader in power generation and rail infrastructure.” One of the company’s major competitors is Siemens. ALSTOM’s shares are listed on the Paris Stock Exchange.

Daimler – Yet Another Bribery, Yet No Bribery Case

In a criminal information filed yesterday (see here) in U.S. District Court for the District of Columbia, the DOJ alleges that:

“[b]etween 1998 and January 2008, DAIMLER made hundreds of improper payments worth tens of milions of dollars to foreign officials in at least 22 countries – including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam, and others – to assist in securing contracts with government customers for the purchase of DAIMLER vehicles valued at hundreds of milions of dollars. In some cases, DAIMLER wired these improper payments to US. bank accounts or to the foreign bank accounts ofU. S. shell companies in order to transmit the bribe. In at least one instance, a US. shell company was incorporated for the specific purpose of entering into a sham consulting agreement with DAIMLER in order to conceal improper payments routed through the shell company to foreign governent offcials. Certain improper payments even continued as late as January 2008. In all cases, DAIMLER improperly recorded these payments in its corporate books and records.”

However, in what is becoming a distubring and troubling new norm (i.e. Siemens, BAE) Daimler was NOT charged with FCPA antibribery violations.

Stay tuned for additional analysis of the 78 page criminal information.

Potpourri

Back in active blogging “mode” here on the campus of the Sweet 16 bound Butler Bulldogs after an enjoyable few days in Washington D.C. where I participated in Georgetown Law’s Combating Global Corruption Conference. It was nice to see some familiar faces, connect faces to some names I have met through this blog, and to meet new people. The title of my presentation and upcoming paper in the Georgetown Journal of International Law is “The Facade of FCPA Enforcement” and I will post in the coming days a short abstract of the paper as well as my presentation slides.

In the meantime, some items of note.

Africa Sting

Christopher Matthews at Main Justice continues to follow the Africa Sting case and has this report of yesterday’s hearing.

Shearman & Sterling Update

Shearman & Sterling pioneered the concept of keeping track of FCPA enforcement actions in an “FCPA Digest” (see here) and it supplements the digest with occasional “Recent Trends and Patters” update. For the latest, see here from Philip Urofsky & Danforth Newcomb.

FCPA Compliance in Phnom Penh

Looking for additional evidence that the FCPA is indeed a hot topic. How about this article from Phnom Penh Post of Cambodia. As noted in the article, a recent FCPA seminar, hosted in part by the American Chamber of Commerce, attracted more than 100 local business leaders.

I wonder if anywhere in the discussion of Siemens and/or BAE the point was made that neither of these entities were charged with FCPA antibribery violations?

Further, I remain perplexed by the curious (and frequent) tendency of FCPA conferences including representatives from FCPA violators – a regional compliance officer for Siemens Singapore presented at the seminar.

Polish Up The Resume

Do you know a thing or two about the FCPA?

Does foreign bribery enforcement policy interest you?

Do you like to design and conduct FCPA training sessions?

Do you like to publicly speak on FCPA issues?

If you answered yes to these questions, the DOJ has a job for you!

Title – Deputy Chief, Fraud Section – FCPA.

The current DOJ Deputy Chief, Fraud Section – FCPA is Mark Mendelsohn. His pending departure has been discussed and confirmed for some time now.

Last Friday, DOJ posted this job opening.

Looking for an extra perk? You will be covered by this, and other, blogs!

Innospec Gets Hit on Both Sides of the Atlantic

Last month (see here) Innospec, Inc. disclosed that it accured $40.2 million for potential settlement of corruption investigations on both sides of the Atlantic. Yesterday, on both sides of the Atlantic, it was announced that Innospec agreed to resolve these enforcement actions by, among other things, paying $40.2 million in combined fines and penalties. How’s that for an accurate corporate disclosure!

See here for the DOJ release and criminal information, here for the SEC release and complaint, and here for the SFO release and supporting documents.

If you are looking for additional evidence / validation that the DOJ and SFO cooperate in enforcement actions, this would be it!

As explained more fully below, the Innospec enforcement action is part Iraqi Oil for Food, part payment of excessive travel and entertainmet expenses, part Cuba, part Indonesia and it involves U.S. companies, U.K. entities, Swiss entities, U.S. citizens, British citizens, German citizens, South African citizens, and Iraqi citizens.

Innospec manufacturers and sells speciality chemicals and is apparently the “world’s only manufacturer of the anti-knock compound tetraethyl lead, used in leaded gasoline.”

DOJ

According to the DOJ criminal information (here), Innospec, Innospec Limited (a wholly-owned U.K. subsidiary), Alcor Chemie Vertriebs GmbH (a wholly-owned Swiss subsidiary), Ousama Naaman (an agent for Innospec and Alcor in Iraq and elsewhere), and others, knowingly conspired: (i) to defraud the U.N. Oil for Food Program; (ii) to violate the FCPA’s antibribery provisions; and (iii) to violate the FCPA’s books and records provisions.

According to the information, the primary purpose of the conspiracy was to “obtain and retain lucrative business with the government of Iraq through payment and promise of payment of kickbacks and bribes to the Iraqi government and its officials.

In addition to the “standard” Oil for Food allegations found in previous enforcement actions (i.e. inflated commission payments to an agent which were then used to pay kickbacks to the government of Iraq), the information further alleges that “Naaman, on behalf of Innospec, paid approximately $150,000 in bribes to officials of the [Ministry of Oil (“MoO”)] to ensure” that a competitor’s product “failed a field trial test and therefore would not be used by the [MoO]…”

In addition, the information alleges that “Innospec and Naaman agreed to pay and promise to pay bribes, including but not limited to money, travel, gifts, and entertainment, to officials of the MoO to obtain and retain contracts.”

Among other overt acts, the information details an e-mail Naaman sent to, among others, Executive B (a U.S. citizen and former senior Innospec executive) that indicates “with [Director’s (a U.K. citizen and former Innospec Division Managing Director)] instructions, we proceeded, as we don’t want to discuss this issue in writing any further because it is so delicate, and as per [Director’s] instructions that we don’t elaborate in writing, for which I agree.”

According to the information, Innospec paid Naaman over $700,000 to reimburse him for payments to Iraqi officials.

The information also contains “travel” allegations including: that Innospec paid approximately $35,000 for eight Iraqi officials to travel to Switzerland for a morning meeting and “four days of sightseeing” complete with “9,000 in pocket money” for the officials;” that Naaman arranged for cash filled envelopes to be given to Iraqi officials visiting the U.K.; that Innospec paid for an Iraqi official’s “vacation with his wife in Thailand” a trip with cost approximately $13,000 including “pocket money” for the official; and that Alcor reimbursed Naaman $35,000 “to cover the cost of the travel of the three Iraqi MoO officials to Lebanon for the half-day meeting to finalize the 2008 Long Term Purchase Agreement, including hotel accomodations for six days, $1,800 for ‘entertainment, lunches, & dinners in Lebanon,’ $1,650 for ‘mobile phone cards for international calling + 3 cameras’ and $15,000 in ‘pocket money.'”

According to the information, all of these payments were improperly recorded on Alcor’s books and records (which were consolidatd with Innospec’s for purposes of financial reporting) as “commissions” or “sales promotion expenditures.”

In addition to the above described conspiracy charge, the information also charges five counts of wire fraud, five counts of FCPA antibribery violations and an FCPA books and records violation.

The DOJ release notes that, pursuant to a yet to be released plea agreement, “Innospec also admitted to selling chemicals to Cuban power plants in violation of the U.S. embargo against Cuba.” The DOJ release further notes that Innospec acknowledged paying “approximately $2.9 million in bribes to officials of the Indonesian government to secure sales.”

According to the DOJ release, as part of the plea agreement, “Innospec agreed to pay a $14.1 million criminal fine and to retain an independent compliance monitor for a minimum of three years to oversee the implementation of a robust anti-corruption and export control compliance program and report periodically to the DOJ.” According to the release, “Innospec also agreed to fully cooperate with the DOJ and other U.S. and foreign authorities in ongoing investigations of corrupt payments by Innospec employees and agents.”

In other words, stayed tuned for more. Previously, Naaman (the agent) was indicted (see here).

In annoucing the charges, Assistant Attorney General Lanny Breuer noted that “[t]oday’s case is a win for law-abiding companies trying to compete fairly in the marketplace” and that “fraud and corruption cannot be viewed simply as a cost of doing business.”

For more on the Innospec plea hearing, including Judge Ellen Segal Huvelle’s concern about the compliance monitor, see here for Christopher Matthew’s piece from Main Justice. For more on compliance monitors, and the controversy often associated with them, see here.

SEC

In its complaint (here), the SEC alleges that “[f]rom 2000 to 2007, Innospec violated the anti-bribery, books and records and internal control provisions of the FCPA when it routinely paid bribes in order to sell Tetra Ethyl Lead (“TEL”) … to government owned refineries and oil companies in Iraq and Indonesia.”

According to the SEC, “Innospec’s former management did nothing to stop the bribery activity, and in fact authorized and encouraged it.” The SEC alleges that “Innospec’s internal controls failed to detect the illicit conduct, which continued for nearly a decade.”

According to the SEC, “[i]n all, Innospec made illicit payments of approximately $6,347,588 and promised an additional $2,870,377 in illicit payments to Iraqi ministries, Iraqi government officials, and Indonesian government officials in exchange for contracts worth $176,717,341 in revenues and profits of $60,071,613.”

The SEC’s charges relating to Iraqi are substantively similar to the DOJ’s allegations in the criminal information and include both Iraqi Oil for Food conduct as well as additional improper conduct after the Oil for Food Program was terminated in late 2003.

The SEC’s complaint has more detail than the DOJ’s criminal information concerning Indonesia and alleges: (i) that “[f]rom 2000 until approximately 2005, Innospec used [a] Indonesian Agent [an Indonesian citizen] and his company to pay bribes of approximately $1,323,507 to Official X [a senior official at BP Migas, an Indonesian state owned oil and gas company … who previously was a senior official at the Ministry of Energy and Mineral Resources]”; (ii) that “in 2000 and 2001, Innospec also made payments [totaling $700,000] to government officials at Pertamina, another state owned oil compay related to BP Migas” through a “privately owned bank in Geneva, Switzerland;” and (iii) that Innospec “also bribed other officials at Pertamina in order to influence their decisions regarding TEL purchases.”

The SEC charged that “at least one U.S. person and officer was complicit in the scheme” and that “[m]any of the bribes were mischaracterized as legitimate commissions, travel and legal fees in Innospec’s books and records.”

According to the SEC, “as evidenced by the extent and duration of the improper payments to foreign officials made by Innospec, the improper recording of these payments in Innospec’s books and records, and the significant involvement of certain members of management at the highest levels of the company, Innospec failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.

The SEC release (here) notes that Innospec, without admitting or denying the SEC’s allegations, was ordered to pay $60,071,613 in disgorgement, but because of Innospec’s “sworn Statement of Financial Condition” all but $11,200,000 of that disgorgement will be waived. The release states that “[b]ased on its financial condition, Innospec offered to pay a reduced criminal fine of $14.1 million to the DOJ and a criminal fine of $12.7 million to the SFO. Innospec will pay $2.2 million to OFAC for unrelated conduct concerning allegations of violations of the Cuban Assets Control Regulations.

***

Stay tuned for additional analysis of the SFO – U.K. prong of this enforcement action.

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