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More On Technip

A post last week (see here) contained a high-level overview of the Technip matter as described in the DOJ release.

Let’s take a closer look at the criminal information (see here) and the deferred prosecution agreement (see here).

Information

Not surprisingly, the Technip information largely mirrors the criminal information previously filed in February 2009 (see here) against the Kellogg Brown & Root entity also part of the joint venture engaged in the Bonny Island bribery scheme.

That is, the Technip information charges conspiracy to violate the FCPA and violations of the FCPA’s antibribery provisions and alleges that Technip was part of a joint venture (“JV”) in Nigeria to design, build and expand LNG facilities on Bonny Island. According to the information, JV profits, revenues, and expenses were equally shared among the four JV partners. The JV’s Steering Committee consisted of high-level executives from each of the four companies and the Steering Committee made major decisions on behalf of the JV, including whether to hire agents to assist the JV in winning contracts, who to hire as agents, and how much to pay the agents.

The information charges that the JV operated through three Portuguese special purpose corporations, including a corporation (#3), 25% owned by Technip, specifically used to enter into consulting agreements with JV agents.

The criminal conduct charged centers on two agents hired by the JV.

The first agent, Jeffrey Tesler was a citizen of the United Kingdom who used a Gibraltar-based company as a vehicle to enter into agent contracts and receive payments from the JV. The information charges that the JV paid the company over $130 million to bribe high-ranking Nigerian government officials. According to the information, Tesler was an agent of the JV and each of the JV companies.

The second agent was a global trading company headquartered in Tokyo (the “Japanese Agent”), which was hired by the JV to help it obtain business in Nigeria, including by paying bribes to Nigerian officials. The information charges that the JV paid the consulting company over $50 million to bribe Nigerian government officials. According to the information, the Japanese Agent was an agent of the JV and each of the JV companies.

According to the information, between 1995 and 2004, the JV was awarded four contracts (collectively valued at over $6 billion) to build the Bonny Island Project and alleges that Technip, Tesler, the Japanese Agent, Kellogg Brown & Root, and others, were engaged in a conspiracy to obtain and retain the contracts “through the promise and payment of tens of millions in bribes to officials of the Executive Branch of Nigeria, officials of Nigeria National Petroleum Corporation (NNPC), officials of Nigeria LNG Limited (NLNG) and others.”

[According to the information, NNPC was a Nigerian government-owned company and an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA. According to the information, NLNG was also an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA, notwithstanding the fact that NLNG was 51% owned by multinational oil companies. Why? Presumably because, as the information alleges, “through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the abilty to block the award” of the relevant contracts.]

Among other means of the conspiracy, the information alleges that:

“Senior executives and employees of Technip and their co-conspirators caused wire transfers totaling approximately $132 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands, to bank accounts in New York, New York, to be further credited to bank accounts in Switzerland and Monaco controlled by Tesler for Tesler to use to bribe Nigerian government officials.”

“Senior executives and employees of Technip and their co-conspirators caused wire transfers totaling over $50 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands to [Japanese Agent’s] bank account in Japan for [the Japanese Agent to use to bribe Nigerian government officials.”

Based on the same core conduct, the information also charges a substantive violation of the FCPA’s antibribery provisions and alleges that “Technip
caused […] corrupt U.S. dollar payments to be wire transferred
from [#3’s] bank account in Amsterdam, The Netherlands, via correspondent bank accounts in New York, New York, to bank accounts of [Tesler’s Gibraltar based company] in Switzerland for use in part to bribe Nigerian government officials.”

DPA

The DPA has a term of two years and seven months. 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 Technip abides by its obligations under the DPA, the criminal charges will be dismissed when the DPA’s term expires.

Pursuant to the DPA, Technip admitted, accepted, and acknowledged that it is responsible for the acts of its employees, subsidiaries, and agents as detailed in the above criminal information.

According to the DPA, the DOJ agreed to enter into the agreement with Technip based on the following factors: “(a) Technip cooperated with the DOJ’s investigation of Technip and others; (b) Technip undertook remedial measures, including the implementation of an enhanced compliance program, and agreed to undertake further remedial measures; (c) Technip agreed to continue to cooperate with the DOJ in any ongoing investigation of the conduct of Technip and its employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA; and (d) the impact on Technip, including collateral consequences, of a guilty plea or criminal conviction. (emphasis added).

According to the DPA, the fine range under the advisory U.S. Sentencing Guidelines for Technip’s conduct is $318.4 million – $636.8 million. Technip agreed to pay a criminal penalty of $240 million or approximately 25% below the bottom of the fine range. The Technip enforcement action is thus another example of the DOJ allowing a corporation to settle significant bribery allegations for an amount below even the bottom range of fines available under the advisory Sentencing Guidelines.

Pursuant to the DPA, Technip agreed to engage a corporate compliance monitor for a two year period. The DPA specifically states that this individual will be a “French national.”

Representing Technip in the FCPA enforcement action was Robert Luskin from Patton Boggs LLP (see here) and John Savarese from Wachtell Lipton Rosen & Katz (see here).

As referenced above, the Technip allegations largely mirror the previous allegations against the Kellogg Brown & Root entity also part of the joint venture engaged in the Bonny Island bribery scheme.

How does the DOJ component of these two FCPA enforcement actions compare?

Technip settled pursuant to a DPA and paid a $240 million criminal penalty – an amount 25% below the bottom range allowed under the advisory Sentencing Guidelines.

Kellogg Brown & Root was required to plead guilty and paid a $402 million criminal penalty – an amount within the advisory Sentencing Guidelines range of $376.8 million – $753.6 million.

The disparate treatment of Technip and Kellogg Brown & Root – two entities involved in the same joint venture engaged in the same bribery scheme – is likely due to the fact that, per the government’s allegations, Kellogg Brown & Root appeared to have played a more active role in the bribery scheme. Specifically, Albert Jack Stanley, a former officer and director of various Kellogg Brown & Root entities, was directly involved in the bribery scheme as evidenced by his prior guilty plea (see here).

Coverage From The Conference Circuit

The end of June was a busy time on the FCPA conference circuit with events taking place around the world.

Wrage Blog (see here) has a summary of certain events, including comments by Hank Walther, the Assistant Chief DOJ Fraud Section, at an event hosted by Ethical Corporation (see here).

As noted in the post, with official FCPA guidance “pretty sparse,” reading the “tea leaves” from comments made by government enforcement attorneys at conferences “become more important.” It all seems like a rather odd way for a law to develop and for enforcement theories and priorities to be disclosed, but such is the current state of affairs.

Among the “tea leaves” discussed in the Wrage Blog post:

“The ‘Siemens Phenomena’ is here to stay. That is, the DOJ will continue to pursue large cases where the alleged misconduct spans multiple continents. [Walther] noted that the Siemens case, with its billion-dollar-plus settlement, was not an outlier. [Walther] pointed to other recent eye-catching settlements: BAE ($400 million), Daimler ($93 million criminal penalty) and KBR ($402 million).”

[Comment: why does the DOJ continue to trumpet the BAE case as an FCPA case when it (or others in government) did not have the gumption to actually charge BAE with FCPA violations despite allegations which seem to support such a charge?]

“…the DOJ’s interest in pursuing marquee names does not mean private companies are off the hook. Per [Walther], the DOJ still likes the smaller cases. Although the public company prosecutions grab the headlines, [Walther] was quick to note that more private companies have been prosecuted under the FCPA than public companies.”

“Individuals remain squarely in the DOJ’s cross hairs. [Walther] pointed out that, even as recently as four or five years ago, the DOJ rarely charged individuals with FCPA violations. What has changed? First, an apparent public policy shift at the DOJ has occurred. The DOJ has come to realize that ‘it can’t build an enforcement regime on criminal fines alone.’ That is, if bribery convictions only impact corporate coffers, then paying bribes just becomes a cost of doing business. If, instead, the specter of jail time is factored into the cost-benefit analysis, then the calculus changes dramatically. Second, the DOJ has become more adept at gathering evidence in FCPA cases.”

For additional coverage on the DOJ’s focus on individuals, see this article from Aruna Viswanatha at Main Justice. Of particular interest, the Main Justice article quotes Walther as saying that “a fine-only enforcement policy allows companies to calculate such settlements as the cost of doing business.”

That fine-only FCPA enforcement actions (particularly those that leave the company in a “net positive” position after the improper payments) and FCPA enforcement actions that allow the company to escape the “most fitting” charges and penalties do not deter is precisely one of the points I made in these prior posts (see here and here) challenging Mark Mendelsohn and William Jacobson’s (both former DOJ FCPA enforcement attorneys) defense of the Siemens enforcement action.

For coverage of another recent event (The Marcus Evans 4th FCPA & Anti-Corruption Compliance Conference) see this piece from Joe Palazzolo at Main Justice regarding how the FBI anti-corruption unit is expanding and being more aggressive.

Smith & Wesson’s Recent Disclosures

In January, Amaro Goncalves was one of the individuals indicted in the Africa Sting case.

Goncalves is described in the indictment as “the Vice President of Sales for Company A, a United States company headquartered in Springfield, Massachusetts. Company A was a world-wide leader in the design and manufacture of firearms, firearm safety/security products, rifles, firearms systems, and accessories. The shares of Company A were publicly traded on the NASDAQ stock exchange.”

Company A is Smith & Wesson, a fact quickly acknowledged by the company in this press release.

I noted in January:

“At present, this case only involves individuals.

However, as indicated by Assistant Attorney General Breuer in yesterday’s DOJ release (here) the investigation is “ongoing” and you can bet that many of the companies which employ these individuals are “lawyering up” as past FCPA enforcement actions demonstrate that corporate enforcement actions or investigations often, but not always, precede or follow individual enforcement actions.”

Indeed, the companies indirectly implicated in the Africa Sting by their employees alleged conduct did “lawyer up.”

Because Smith & Wesson is a public company, the public is provided a better glimpse of how the Africa Sting case is affecting this company compared to the many other companies indirectly implicated – many of which are small, private businesses.

On June 30th, Smith & Wesson reported its Fourth Quarter and Full Year 2010 Financial Results Ended April 30, 2010 (see here). The company release contains this paragraph:

“Operating expenses of $89.1 million, or 21.9% of sales, for fiscal 2010 decreased versus operating expenses of $170.5 million, or 50.9% of sales, for fiscal 2009. Excluding the impact of the impairment charge recorded in the second quarter of fiscal 2009 and $9.7 million of operating expense at USR not contained in prior year results, operating expenses increased $7.1 million for the current fiscal year. This increase included $3.2 million in legal and consulting fees related to allegations against one of our employees under the Foreign Corrupt Practices Act (FCPA).”

If nothing more, Amaro Goncalves is probably not on the short-list for employee of the month because of his alleged conduct.

Yesterday, Smith & Wesson filed its annual report (see here). The report contained the following:

Foreign Corrupt Practices Act (FCPA)

On January 19, 2010, the U.S. Department of Justice (“DOJ”) unsealed indictments of 22 individuals from the law enforcement and military equipment industries, one of whom was our Vice President−Sales, International & U.S. Law Enforcement. We were not charged in the indictment. We also were served with a Grand Jury subpoena for the production of documents. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the DOJ in this matter and have undertaken a comprehensive review of company policies and procedures, the DOJ may determine that we have violated FCPA laws. We cannot predict when this investigation will be completed or its outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, or if our employee is convicted of FCPA violations, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts, and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.

SEC Investigation

Subsequent to the end of fiscal 2010, we received a letter from the staff of the SEC giving notice that the SEC is conducting a non−public, fact−finding inquiry to determine whether there have been any violations of the federal securities laws. It appears this civil inquiry was triggered in part by the DOJ investigation into potential FCPA violations. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the SEC in this matter, the SEC may determine that we have violated federal securities laws. We cannot predict when this inquiry will be completed or its outcome. If the SEC determines that we have violated federal securities laws, we may face injunctive relief, disgorgement of ill−gotten gains, and sanctions, including fines and penalties, or may be forced to take corrective actions that could increase our costs or otherwise adversely affect our business, results of operations, and liquidity. We also face increased legal expenses and could see an increase in the cost of doing business. We could also see private civil litigation arising as a result of the outcome of this inquiry. In addition, responding to the inquiry may divert the time and attention of our management from normal business operations. Regardless of the outcome of the inquiry, the publicity surrounding the inquiry and the potential risks associated with the inquiry could negatively impact the perception of our company by investors, customers, and others.”

Smith & Wesson’s disclosure is hardly surprising. Anytime a company’s employee is criminally indicted for an FCPA violation, it is reasonable to assume that the DOJ will wonder “who knew what and when” and will seek to discover whether the employee’s alleged conduct is isolated or evidence of broader, more systemic conduct. When that employee is the “Vice President−Sales, International & U.S. Law Enforcement” it is virtually guaranteed that the DOJ will ask such questions.

It is unlikely that Smith & Wesson is the only company implicated in the Africa Sting case under investigation. However, as stated above, because Smith & Wesson is a public company, the public is provided a better glimpse of how the Africa Sting case is affecting this company compared to the many other companies implicated – many of which are small, private businesses. These companies are “domestic concerns” and thus subject to the FCPA, it’s just that FCPA inquiries of non-public companies generate less attention that FCPA inquiries of public companies.

Nor is it surprising that Smith & Wesson disclosed the existence of an SEC investigation.

I noted in January:

“Given that one of the individuals indicted is employed by a public-company issuer, the SEC may also be interested in that company from, at the very least, an FCPA books and records and internal control perspective.”

Even if Smith & Wesson is never charged with violating the FCPA’s antibribery provisions, it is likely that the company could face some exposure under the FCPA’s books and records and internal control provisions.

The SEC’s analysis would likely be as follows.

Goncalves, if the alleged conduct is true, no doubt, while a Smith & Wesson employee, made entries on the company’s books and records that did not accurately or fairly represent the transactions at issue. That, in and of itself, would be an FCPA books and records violation. Further, the SEC will take the position that if Smith & Wesson had effective internal controls, Goncalves could not have engaged in the conduct he is alleged to have engaged in. If he did, this in and of itself, is evidence that Smith & Wesson lacked effective internal controls.

A bit simplistic, yes. But this is perhaps how the Smith & Wesson inquiry will play out.

A final point.

Smith & Wesson is a supplier to numerous government customers and military installations. Under guidelines issued by the Office of Management and Budget, a person or firm found in violation of the FCPA may be barred from doing business with the Federal government. Add this issue to the list of issues to follow as the Smith & Wesson FCPA inquiry escalates. However, this sanction (to my knowledge) has never been used against an FCPA violator.

July Fireworks?

Discussing this, it seems to me, has a “the police have a traffic ticket quota to meet” quality to it. In any event, notwithstanding the Technip and Veraz Networks enforcement actions this week, and notwithstanding the fact that twenty-two individual defendants were indicted in the Africa Sting case (an event which causes a spike in the “statistics”), FCPA enforcement has slowed down thus far this year compared to the past few. For possible reasons why see this recent post from Richard Cassin at the FCPA Blog.

To recap, so far this year, there has been the “Kyrgyzstan, Thailand, Tobacco, and Piranha Fishing” SEC enforcement action (see here), the Daimler “bribery, yet no bribery” DOJ/SEC enforcement action (see here), the Innospec “we can’t afford to pay the full amount” DOJ/SEC enforcement action (see here), the BAE “non-FCPA, FCPA like” DOJ enforcement action (see here), the “Africa Sting” DOJ indictments (see here), and the NATCO “extortion can still lead to FCPA books and records and internal control issues” SEC enforcement action (see here).

With much pre-enforcement action news of late (see here among other posts), will July be the month in which the FCPA fireworks fly?

Last July saw many FCPA fireworks as the following enforcement actions were announced: Control Components Inc. (see here), Nature’s Sunshine Products, Inc. (see here), Helmerich & Payne Inc. (see here), and Avery Dennison (see here).

While waiting for the figurative fireworks, enjoy the real stuff.

Until next week, a Happy Fourth of July weekend to all! To my non-U.S. readers, a swell few days to you as well!

Disconnected … Another Telecommunications Company Settles An FCPA Enforcement Action

Yesterday, Veraz Networks, Inc. (see here) joined a long list of telecommunications companies to recently settle an FCPA enforcement action. Veraz, a California-based telecommunications provider, went public in April 2007 and sells its telecommunication products through both direct and indirect sales channels with a majority of its revenue coming from sales outside of the U.S.

Other telecommunications companies, or individuals employed in that industry, to recently resolve FCPA enforcement actions include: UTStarcom (see here and here for the enforcement action), Latin Node, Inc. (see here for the enforcement action), Lucent Technologies (see here and here for the enforcement action), Siemens (in part, see here for the enforcement action), various individuals in connection with the Haiti Teleco matter (see here for the enforcement action), and various employees of ITXC Corporation (see here for the enforcement action). Pending FCPA enforcement actions against telecommunications companies presumably include: Magygar Telekom (see here) and Global Crossing Limited (see here).

That’s a long list.

Back to Veraz.

According to the SEC release (see here), Veraz violated the FCPA’s books and records and internal control provisions in connection with “improper payments made by Veraz to foreign officials in China and Vietnam after the company went public in 2007.”

The SEC complaint (see here) alleges that “from 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz.” According to the complaint, a Veraz supervisor referred to certain of these payments as the “gift scheme.” The complaint further alleges that “Veraz failed to accurately record these improper payments on the Company’s books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA […] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate.”

The SEC’s sparse factual allegations fall under two headings: “Veraz Made Improper Payments to Chinese Government Officials” and “Veraz Made Improper Payments to Vietnamese Government Officials.”

As to payments to “Chinese Government Officials,” the SEC alleges that Veraz engaged a consultant in China to assist Veraz sell products “to a telecommunications company controlled by the government of China.” The complaint further alleges that the consultant “provided approximately $4,500 worth of gifts to officials” of the telecommunications company “in an attempt to secure a business deal for Veraz.” The complaint further alleges that the consultant “also offered a separate improper payment to officials” at the telecommunications company “to secure a deal for Veraz valued at approximately $233,000.” According to the complaint, “Veraz discovered this improper offer of payment prior to receiving any money from the transaction and cancelled the sale.”

As to payments to “Vietnamese Government Officials,” the SEC alleges that “Veraz sold products to a telecommunications company controlled by the government of Vietnam through a Singapore-based reseller.” According to the complaint, a “Veraz employee, through the Singapore-based reseller, at times made or offered illicit payments to the CEO” of the telecommunications company “in order to win business for Veraz.” The complaint further alleges that Veraz “approved of and reimbursed its employee for questionable expenses related” to the telecommunications company “including gifts and entertainment” for employees of the company and “flowers for the wife of the CEO” of the company.

In both instances, according to the complaint: (i) Veraz did not make or keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the improper gifts or payments provided by Veraz; and (ii) Veraz failed to devise and maintain an effective system of internal controls to prevent or detect violations of the FCPA.

Based on these allegations, the SEC charged Veraz with violating the FCPA’s books and records and internal control provisions.

According to the SEC’s release, Veraz, without admitting or denying the SEC’s allegations, consented to entry of a final judgment permanently enjoining Veraz from future FCPA violations and ordering Veraz to pay a $300,000 civil penalty.

In an article to be published later this summer titled “The Facade of FCPA Enforcement,” I highlight four pillars which contribute to the facade of FCPA enforcement.

The first pillar highlights the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones, and legal conclusory statements of facts or allegations. Check as to the Veraz enforcement action. Just who were those Chinese and Vietnamese Government officials? The SEC complaint contains these wonderfully descriptive allegations: “a telecommunications company controlled by the government of China” and a “telecommunications company controlled by the government of Vietnam.” What was the nature of the “illicit payments” made or offered to the CEO of the Vietnamese telecommunications company and what were the “questionable expenses” related to the same company? The complaint does not elaborate.

The second pillar highlights the increasing and alarming trend of FCPA enforcement actions being resolved based on tenuous, dubious and untested legal theories. Check as to the Veraz enforcement action. True, the enforcement action does not allege antibribery violations, but let’s face it, if Veraz’s books and records did not adequately reflect sales and marketing expenses associated with domestic customers and if Veraz did not have sufficient internal controls to prevent and detect such expenses, we would not be reading about this case as an “FCPA enforcement action” even though such conduct would similarly violate the FCPA’s books and records and internal control provisions. Rather, this is an FCPA enforcement action (in the traditional sense) because the improperly recorded payments were directed at “foreign officials” – so alleges the SEC under the theory, never accepted by a court, that employees of state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

The third pillar highlights highlights the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties. Check as to the Veraz enforcement action. If ever there were carbon copy FCPA enforcement actions, it would seem to be Veraz, UTStarcom and Lucent. All principally involved providing things of value to Chinese “foreign officials” (employees of alleged state-owned enterprises). One would expect then that the charges would be similar as well. Wrong. Veraz appears to be only an SEC enforcement action charging only FCPA books and records and internal control violations. UTStarcom involved a DOJ non-prosecution agreement and an SEC enforcement action charging FCPA antibribery as well as books and records and internal control violations. Lucent also involved a DOJ non-prosecution agreement and an SEC enforcement action charging only FCPA books and records and internal control violations. Thus, three similar cases resolved three distinct ways.

[The fourth pillar highlights how seemingly clear-cut instances of corporate bribery and corruption (per the government’s own allegations) are resolved without FCPA antibribery charges. Veraz is not BAE, Siemens, or Daimler – and thus this pillar is of little significance here].

One final point demonstrated by the Veraz enforcement action: resolution fines/penalties represent merely the “tip of the iceberg” in terms of the costs associated with an FCPA inquiry.

The final fine amount, $300,000, is 1/10 the amount of expenses incurred by the company in connection with the SEC investigation. As stated in the company’s most recent 10-Q filing (May 2010) (see here) “as of March 31, 2010, the Company has incurred expenses relating to the SEC investigation of approximately $3 million.”

No wonder Forbes (see here) recently termed the increase in FCPA enforcement the “bribery racket.” No wonder the Wall Street Journal Law Blog (see here) recently posed the question – “is the FCPA Just a Full-Employment Act for the Private Bar?”

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