Top Menu

General Electric Settles Iraqi Oil For Food Matter

Just when you think Iraqi Oil for Food Program FCPA-related enforcement actions have run their course, along comes another.

The SEC announced this morning (see here) that General Electric Company (GE) agreed to resolve an FCPA books and records and internal controls enforcement action based on allegations that “two GE subsidiaries – along with two other subsidiaries of public companies that have seen been acquired by GE – made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.”

As noted in the SEC release, “the SEC has now taken 15 FCPA enforcement actions against companies involved in the Oil for Food-related kickback schemes with Iraq, recovering more than $204 million.”

The GE enforcement action, like other Iraqi Oil for Food enforcement actions with a few exceptions, does not allege FCPA anti-bribery violations presumably because the alleged payments were made directly to the Iraqi government or government ministries – not to specific “foreign officials” as prohibited by the FCPA’s anti-bribery provisions.

The GE enforcement action is also an outlier of sorts in that it is merely a SEC enforcement action with no parallel DOJ enforcement action – a fact mentioned in GE’s press release detailed below.

For instance, the March 2010 enforcement action against Innospec (which was part Iraqi Oil For Food) involved a DOJ criminal information as to those allegations (see here); the September 2009 enforcement action against AGCO Corporation involved a DOJ criminal information and deferred prosecution agreement (see here); and the May 2009 enforcement action against Novo Nordisk A/S involved a DOJ criminal information and deferred prosecution agreement (see here).

So much for substantively similar conduct being resolved in a similar fashion.

Without admitting or denying the SEC’s allegations (detailed below), GE, GE Ionics Inc. and GE Healthcare Ltd. consented to a court order permanently enjoining future violations of the FCPA books and records and internal control provisions. GE agreed to pay $23.4 million to settle the matter – including approximately $18.4 million in disgorgement of profits on the alleged contracts at issue.

The SEC complaint (see here) alleges as follows:

“From approximately 2000 to 2003, two subsidiaries of the General Electric Company (“GE”) — Marquette-Hellige (“Marquette”) and OEC-Medical Systems (Europa) AG (“OEC-Medical”) — made approximately $2.04 million in kickback payments in the form of computer equipment, medical supplies, and services to the Iraqi Health Ministry under the Program. Prior to GE’s acquisition of their parent companies, two other current GE subsidiaries –Ionics Italba. S.r.L. (“Ionics Italba”), and Nycomed Imaging AS, currently GE Healthcare AS (”Nycomed”) – made approximately $1.55 million in cash kickback payments under the Program. Nycomed was a subsidiary of publicly-registered Amersham plc, which was acquired by GE after the conduct at issue in this Complaint and is currently known as GE Healthcare Ltd. Ionics Italba was a subsidiary of publicly-registered Ionics, Inc., which was acquired by GE after the conduct at issue in this Complaint and is currently known as GE Ionics, Inc.”

According to the complaint:

“Marquette, OEC-Medical, Ionics Italba, and Nycomed each authorized and paid kickbacks to Iraqi government ministries through agents in the form of ‘aftersales service fees’ (ASSF) on sales of products to Iraq. All four subsidiaries knew that such kickbacks were prohibited by the Oil for Food Program and U.S. and international trade sanctions on Iraq.”

According to the complaint, the above subsidaries, “only two of which were GE subsidiaries during the relevant time period,” “working through third-party agents, made ASSF kickback payments of approximately $3,584,842. The four subsidiaries earned profits of approximately $18,397,949 as a result oftheir illegal kickbacks.”

As to the acquired subsidiaries, the SEC simply alleges, without any elaboration, that GE acquired the liabilities of Amersham and Ionic, along with assets, in the acquisitions and that “GE Ionics, Inc. and GE Healthcare Ltd., both subsidiaries of GE, are the respective successors to the liability of Ionics and Amersham.”

Cheryl Scarboro, the Chief of the SEC’s newly formed FCPA Unit, stated as follows:

“GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved.”

In a press release (see here) GE stated that the enforcement action “concludes the SEC’s investigation and related Department of Justice review of GE regarding the Oil-for-Food Program.” The release notes that the company “has received confirmation from the U.S. Department of Justice that the Department has closed its investigation and will take no action relating to these matters.”

As to the merits of the SEC’s allegations, the company stated as follows:

“In this case, the SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions. The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets. The other four transactions relate to GE Healthcare units in Europe. These units declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records. This conduct did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.”

No matter how flimsy the SEC’s legal theory of liability, the agency continues to extract multi-million dollar FCPA settlements from the companies it oversees. These companies view settlement as easier and more cost efficient than engaging in a protracted legal dispute with a principal government regulator.

The end result, in such cases, is a continuation of the facade of FCPA enforcement.

A Results Based Opinion Procedure Release?

The Department of Justice recently issued (see here) an FCPA opinion procedure release – a meaningful event in the FCPA arena given the general lack of substantive FCPA case law. [To read more about the detailed requirements of the Foreign Corrupt Practices Act Opinion Procedure process (see here and here)]

Reading Opinion Procedure Release 10-02, in which a “non-profit, U.S. based microfinance institution” was the Requestor, I found myself returning to the same question – is this a results-based DOJ opinion?

The big-picture facts are as follows: to get a government-issued license, an entity subject to the FCPA is directed by a government agency to provide something of value to an institution whose board members include a sitting government official and a former government official.

According to the DOJ’s analysis, an analysis that mentions the word “humanitarian” more than once, the contemplated conduct would not cause the DOJ to take any enforcement action.

As explained below, a relevant factor in the DOJ’s opinion is the due diligence the Requestor undertook. Yet, if … say an oil and gas company … undertook similar due diligence steps would such due diligence be viewed as perfuctory or superficial?

Was the humanitarian, non-profit microfinance institution viewed a bit differently than a similarily situated for-profit company?

Was the DOJ’s mindset as to the red flags involving the non-profit along the following lines – this must be legitimate until it is proven that it isn’t?

Conversely, is the DOJ’s mindset as to red flags involving for profit companies, particularly those in high-risk industries, along the following lines – this must be illegal until it is proven that it is legal?

I don’t know the answers to these questions and by posing them I am not drawing any conclusions myself.

Merely interesting questions to ponder while reviewing the facts of Opinion Procedure Release 10-02.

The facts are as follows.

The Requestor is “in the process of converting all of its local operations to commercial entities that are licensed as financial institutions, in order to permit them to attract capital and expand their services to include offerings such as savings accounts, microinsurance and remittances.”

“One of those operations is a wholly-owned subsidiary in a country in Eurasia” which is “currently organized as a limited liability company under the laws of the Eurasian country and operates under a special non-banking financial institution license from the Central Bank of that country” and whose activities are “currently overseen by an agency of the Eurasian country (the ‘Regulating Agency’).”

“As part of its oversight of the Eurasian Subsidiary and [its] proposed transition to commercial status, the Regulating Agency has pressed the Eurasian Subsidiary to take steps to ‘localize’ its grant capital to ensure that it remains in the Eurasian country.”

“Among other things, the Regulating Agency has insisted that the European Subsidiary make a grant to a local microfinance institution [Local MFI] in an amount equal to approximately 33 percent of the Eurasian Subsidiary’s original grant capital.”

“The Regulating Agency has provided a list of Local MFI’s in the Eurasian country and has stated that the Eurasian Subsidiary could not fulfill its localization obligation unless it provided grant funding to one or more of them.”

According to the release, the Requestor “is concerned that compelled grants to an institution on a short list of institutions – without appropriate safeguards – raise red flags under the FCPA.” (emphasis added).

According to the relase, the Regulating Agency rejected the Requestor’s alternative proposals and insisted on the above described arrangement.

The thing of value demanded by the Regulating Agency is not exactly spare change.

According to the release:

“To meet the Regulating Agency’s requirements, the Eurasian Subsidiary proposes to contribute a total of $1.42 million to expand the loan and technical capacity of a Local MFI which previously has received grant funding from the foreign aid community. Of the $1.42 million, $1.07 million would be used to increase the Local MFI’s loan capital – to more than triple its current loan capital. The remaining $350,000 would be used in support of the grant: (a) $50,000 to pay for loan tracking and reporting management system software; (b) $120,000 for capacity-building services and support, including hiring six additional staff members and retaining vendors to provide training and other technical assistance; and (c) $180,000 for the engagement of two independent organizations to monitor and audit the use of the proposed grant (the “Proposed Grant”).”

As referenced above, the Requestor conducted certain due diligence in connection with the “compelled grant.”

According to the release:

“The Eurasian Subsidiary undertook a three-stage due diligence process to vet the potential grant recipients and select the proposed grantee. First, it conducted an initial screening of six potential grant recipients by obtaining publicly available information and information from third-party sources. Based on this review, it ruled out three of the six MFI candidates as generally unqualified to receive the grant funds and put them to effective use. Second, the Eurasian Subsidiary undertook further due diligence on the remaining three potential grant recipients. This due diligence was designed to learn about each organization’s ownership, management structure and operations; it involved requesting and reviewing key operating and assessment documents for each organization, as well as conducting interviews with representatives of each MFI to ask questions about each organization’s relationships with the government and to elicit information about potential corruption risk. Based on the information obtained during this second-stage review, the Eurasian Subsidiary ruled out two of the three remaining potential grant recipients: one for conflict of interest concerns, the other after the discovery of a previously undisclosed ownership change in the entity. As a third round of due diligence, the Eurasian Subsidiary undertook targeted due diligence on the remaining potential grant recipient, the Local MFI. This diligence was designed to identify any ties to specific government officials, determine whether the organization had faced any criminal prosecutions or investigations, and assess the organization’s reputation for integrity.”

The release notes that this “final round of due diligence did not identify information of potential corruption in connection with the Proposed Grant.”

However, it did “uncover that one of the board members of both the Local MFI and the Local MFI’s Parent Organization is a sitting government official in the Eurasian country and that other board members are former government officials.”

According to the release:

“The sitting government official, however, serves in a capacity that is completely unrelated to the microfinancing industry. In addition, under the law of the Eurasian country, sitting government officials may not be compensated for this type of board service, and the Local MFI confirmed that neither its own board members nor the board members of the Local MFI’s Parent Organization receive compensation for their board service. The proposed grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization.”

The release then mentions several “significant controls” proposed by the Requestor as to the Proposed Grant, including “the grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization.”

Based on these core facts, the DOJ’s analysis is:

“the Department does not intend to take any enforcement action with regard to the proposed transaction…”

The DOJ first stated that the Requestor was subject to the FCPA’s anti-bribery provisions and that the Proposed Grant to the Local MFI was indeed “for the purpose of obtaining or retaining business.”

The DOJ framed the question as follows:

“The issue presented is whether the Proposed Grant would amount to the corrupt giving of anything of value to any officials of that country in return for obtaining or retaining business. Based on the due diligence that has been done and with the benefit of the controls that will be put into place, it appears unlikely that the payment will result in the corrupt giving of anything of value to such officials.”

The DOJ stated:

“As an initial matter, it is important to note that the expressed motivation of the Regulating Agency here is to ensure that grant money given to the Eurasian Subsidiary for humanitarian purposes in the Eurasian country continues to be used for humanitarian purposes in that country. The Requestor was concerned, nevertheless, that without due diligence and appropriate controls, such a grant could carry a significant risk that the result might be the transfer of things of value to officials of the Eurasian country.”

The DOJ continued:

“The Department is satisfied, however, that the Requestor has done appropriate due diligence and that the controls that it plans to institute are sufficient to prevent FCPA violations. As noted above, the Requestor conducted three rounds of due diligence. The controls that the Requestor proposes would ensure with reasonable certainty that the grant money from the Eurasian Subsidiary would not be transferred to officials of the Eurasian country. As noted, these controls include the following: the staggered payment of grant funds; ongoing monitoring and auditing; the earmarking of funds for capacity-building; a prohibition on the compensation of board members; and the institution of an anti-corruption compliance program.”

The DOJ then lists three other opinion releases that deal with charitable-type grants or donations and ultimately states that the Proposed Grant “is consistent with the Department’s past approach to grant-related requests.”

This is the curious aspect of the DOJ’s analysis because the Requestor’s Proposed Grant was not charity or a donation, rather it was a “compelled grant” (a term DOJ used earlier in the release) specifically requested by the Regulating Agency as a condition to the Requestor obtaining the desired license.

Results-based opinion?

You be the judge.

For other coverage of Opinion Procedure Release 10-2, see here, here and here.

Whistleblower Provisions … What Others Are Saying

The FCPA bar is an active group of writers.

And quick.

Below is a sample of other views on the whistleblower provisions of the Dodd-Frank financial reform bill signed by President Obama last week.

As noted in this prior post, the whistleblower provisions apply to all securities laws violations and the FCPA is part of the Securities Exchange Act. In the post, I set forth my reasons for why I believe the new whistleblower provisions will have a negligible impact on FCPA enforcement. As demonstrated by the below snippets, I am clearly an outlier, which is not surprising to me.

So if you have an unexplained fascination for law firm client alerts (as I often do) this post is for you.

Foley & Lardner (see here)

“The Act’s broad whistleblower provisions significantly increase the compliance risks companies doing business internationally face. Coupled with the fact that numerous recent FCPA enforcement actions have resulted in companies paying record fines — in many cases in the tens or even hundreds of millions of dollars — to settle enforcement actions, the Act will create enormous financial incentives for individual whistleblowers to report FCPA violations (or even speculative claims of a violation) to the SEC. Given this important legislative development, there is no better time for companies to evaluate their FCPA compliance programs to ensure they are in line with current best practices. An effective FCPA compliance program both minimizes a company’s risk of violations and provides protection to companies by maintaining the components of an effective compliance and ethics program set forth in the U.S. Sentencing Guidelines.”

Morrison & Foerster (see here)

“Although the new provisions apply to all violations of the securities laws, they are likely to have particularly significant impact on enforcement of the Foreign Corrupt Practices Act (“FCPA”), an area in which criminal and civil penalties and enforcement activity have increased sharply in recent years.”

“Although Dodd-Frank’s whistleblower provisions apply to any of the securities laws under which the SEC can bring enforcement actions, the Act will likely have an immediate and outsized impact on FCPA enforcement.”

“Given the large size of recent FCPA settlements and enforcement actions, the ability to aggregate the recoveries from “related judicial and administrative actions” when determining the whistleblower’s award, and the government’s continued focus on and increased resources devoted to FCPA enforcement, the Dodd-Frank whistleblower provisions are likely to result in even more FCPA investigations and enforcement actions.”

“The new whistleblower provisions could lead to more and/or earlier voluntary disclosures of potential securities law violations, as companies hoping to obtain the benefits of voluntary disclosure must move quickly, before the whistleblower makes his or her disclosure. They could also lead to more reports of minor violations previously deemed not significant enough to report.”

Proskauer Rose (see here)

“While the whistleblower bounty exists for all securities violations, the risk companies face is particularly great relative to the Foreign Corrupt Practices Act (“FCPA”), which broadly proscribes corruptly influencing foreign public officials. The remarkable monetary sanctions in FCPA enforcement actions, where SEC settlements in the tens or even hundreds of millions of dollars have become increasingly common, provide a compelling incentive for individuals to contact the SEC about suspected FCPA violations.”

“The dramatic increase in FCPA enforcement efforts, along with the comprehensive press coverage surrounding such efforts and the expected cottage industry of lawyers and others, will ensure that potential whistleblowers are aware of, and take full advantage of, this enticing incentive.”

“The increased possibility that FCPA violators will face substantial sanctions (for violations that may have been “under the radar” previously) also suggests that companies have even greater reason to inhibit bribery and fraud from occurring in the first place. The importance of effective internal controls and compliance programs to detect and prevent FCPA and other securities violations has intensified. With the new bounty, companies will need to adapt to this defining change in the legal landscape.”

Fulbright & Jaworski (see here)

“In light of the current aggressive FCPA enforcement environment, Section[] 922 […] stand to further increase the number of FCPA-related investigations initiated by corporate counsel and U.S. enforcement authorities, as well as the number of civil and criminal enforcement actions brought by the SEC and U.S. Department of Justice (“DOJ”). Before the Act is signed into law, companies doing business overseas—particularly publicly traded companies in the oil, natural gas, or minerals industries—should take the time to review their compliance policies and procedures and determine what, if any, changes must be made to account for the changing enforcement landscape as a result of the Dodd-Frank Act.”

“In light of Section 922 and the financial incentives it provides, companies should expect an increase in whistleblower allegations and associated investigations—particularly in the context of the FCPA, where several recent civil and criminal recoveries have been $100 million or more. This expectation will also affect companies’ determinations regarding self-reporting, should allegations arise, both in terms of whether to self-report the allegations and how quickly to do so (e.g., before an internal investigation has been conducted). At the very least, companies should reassess internal compliance policies and procedures to ensure their adequacy in anticipation of such increased enforcement activity.”

McDermott Will & Emery (see here)

“When combined with recent efforts to step up enforcement, these new provisions significantly alter the incentives for potential whistleblowers, making it more likely that those on the fence will race to government, rather than report to their employer. Take the Foreign Corrupt Practices Act as an example. In the past few years, both the SEC and the U.S. Department of Justice (DOJ) have dramatically increased their enforcement of this statute, resulting in a recent number of groundbreaking settlements, including an $800 million payment by Siemens; a more than $575 million sanction and disgorgement against Kellogg Brown & Root and a $185 million payment by Daimler. With recoveries like this, a potential 30 percent share is akin to winning the lottery for a whistleblower. Under such circumstances, even a loyal employee may find it difficult to turn down such a potential jackpot.”

Holland & Knight (see here)

“The Wall Street Reform and Consumer Protection Act approved by Congress and set to be signed into law by President Obama next week contains a whistleblower provision that will have a significant impact on Securities and Exchange Commission (SEC) enforcement of the Foreign Corrupt Practices Act (FCPA).”

“This new provision increases the likelihood that information regarding improper payments will come to the attention of the SEC. Moreover, when combined with recent enforcement actions by the SEC that have held U.S. parent companies strictly liable for the improper conduct of their foreign subsidiaries, the compliance and enforcement risks for U.S. public companies engaged in overseas business activities cannot be overstated.

We strongly urge U.S. companies to take immediate steps to strengthen their FCPA compliance programs and undertake training of their employees and third parties, including agents and distributors. U.S. companies should also be proactive in conducting compliance audits of their overseas operations.”

Mark Mendelsohn, Paul, Weiss, Rifkind, Wharton & Garrison (former DOJ FCPA top cop) in the American Lawyer

“[Mendelsohn] offered the usual cautionary caveat about it being too soon to know, but he did say the new provisions may create a regulatory backlog because employees now have an incentive to go to the SEC with matters that previously would have been handled internally. ‘As a company, you want to have mechanisms for people to report things up the chain internally,’ Mendelsohn said. ‘The whistleblower legislation cuts against that by incentivizing people to go outside the company with information.'”

It is just not law firms with FCPA practices that have put pen to paper. Below is a sample of what some “whistleblower” law firms are saying.

Finch McCranie (see here)

“Bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute, are the targets of the FCPA. Whistleblowers whose information helps the SEC recover monetary sanctions from those corrupt entities in FCPA cases now have an enforceable right to a monetary award of 10-30%. Based on the increasing number and size of these FCPA cases, the rewards to whistleblowers can be meaningful–as they must be to cause whistleblowers to come forward. Over the past decade, the government has pursued more and more FCPA cases, and some recover hundreds of millions of dollars.”

Pietragallo Gordon Alfano Bosick & Raspanti (see here)

“Some believe that this new provision will have significant impact in the context of the Foreign Corrupt Practices Act, which prohibits companies from engaging in certain practices, including bribery, in foreign countries. Recent settlements by the SEC with international corporations have demonstrated the possibility of FCPA settlements in the hundreds of millions of dollars. Whistleblowers contemplating the new SEC whistleblower provisions of the Wall Street Reform Act will have a huge new financial incentive to come forward with allegations of wrongdoing, in both domestic markets and abroad.”


Staying on the whistleblower topic, last week the SEC announced (see here) the award of $1 million to Glen and Mary Kaiser “who provided information and documents leading to the imposition and collection of civil penalties” in an insider trading case. As noted in the SEC release, “this is the largest award paid by the SEC for information provided in connection with an insider trading case.” The release notes that the award was pursuant to the old insider trading whistleblower program and further notes that this program “has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.”

If indeed the SEC does award whistleblower payments in connection with an FCPA enforcement action, let’s hope that the SEC makes such an award known as in the above example.

Year Two … Plus The Friday Roundup

I missed my own anniversary, the anniversary of FCPA Professor that is.

On July 17, 2009, I formally launched FCPA Professor with this Mission Statement.

Approximately 220 posts later, year two has arrived and the mission remains the same.

It is a pleasure to make frequent deliveries to the marketplace of ideas. FCPA Professor is read worldwide by a diverse group of readers and I thank you for making this space a part of your day.

Now for the Friday roundup.

BAE U.K. Settlement Still Pending

BAE’s bribery, yet no bribery U.S. settlement has long been signed, sealed and delivered. See here and here for more. Yet things are taking a bit longer on the other side of the Atlantic according to this report from a U.K. financial website.

According to the report, Serious Fraud Office director Richard Alderman has admitted “that legal challenges by anti-arms campaigners, and the need to get the case’s extensive documentation in order, have seen the conclusion of the bribery investigation put off until autumn at the earliest.”

With the lashing the SFO took in the Innospec enforcement action (see here), the SFO understandably wants to get this one right.

The BAE U.K. settlement is not the only event that has been delayed. As highlighted in this post from earlier week so too is the new U.K. Bribery Act.

Business is Booming

Furthering the notion that anti-bribery and compliance work is an industry in and of itself, the San Jose Business Journal reports in this recent piece that business is booming – and not just among law firms – as the article profiles Deloitte and KPMG.

The article touches upon certain topics highlighted by others, including Nathan Vardi in this Forbes piece, and Steve Pearlstein in this Washington Post piece.

Noble and Nigeria

A recent post (see here) described Nigeria as a challenging market and highlighted a recent report that found that one in three companies reported paying a bribe to Nigerian public officials in undertaking administrative tasks. The post talked about facilitation payments, which are allowed by the FCPA – at least as written, yet highlighted the many FCPA enforcement actions seemingly based on facilitating payments.

Throw a pending enforcement action against Noble Corporation into that mix.

Here is what the company said in its recent 8-K filing:

“In 2007, we began, and voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”) to advise them of, an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by our Nigerian affiliate to customs agents in Nigeria. The SEC and the DOJ have indicated that they believe that violations of the FCPA occurred and will seek civil and/or criminal sanctions against us, including monetary penalties, and may include additional sanctions against us and/or certain of our employees, as well as additional changes to our business practices and compliance programs. We could also face fines or sanctions in relevant foreign jurisdictions.

We consider the matter relating to the Nigeria investigation to be ongoing and cannot predict (a) when it will conclude, (b) whether either the SEC or the DOJ will open its own proceeding to investigate this matter, or (c) if a proceeding is opened, what potential sanctions, penalties or other remedies these agencies may seek. Based on information obtained to date, we believe it is probable that we will pay an amount to settle this matter with the DOJ and SEC. Given that the matter is not finally resolved, we cannot predict with certainty what amount we will pay in civil and criminal fines and penalties; however, as of June 30, 2010, we accrued approximately $5.1 million relating to this ongoing matter. Any of the sanctions as a result of the Nigerian investigation or any other future violation of the FCPA or similar law could have a material adverse effect on our business or financial condition and could damage our reputation and ability to do business, to attract and retain employees and to access capital markets.

Frontier identified certain payments totaling approximately $35,000 made by one of its former agents to Nigeria immigration officials in 2009 and reported this matter to the DOJ as a possible violation of the FCPA. We reviewed this matter as part of our diligence investigation of Frontier. The DOJ has not indicated what, if any, action it may take with respect to such payments, although the DOJ could seek civil and/or criminal sanctions against Frontier. Upon closing the Frontier acquisition, we would be responsible for such sanctions as well as any other sanctions relating to violations of applicable laws by Frontier, except to the extent that they may be covered by indemnities contained in the merger agreement with Frontier. Any such sanctions could have a material adverse effect on our business or financial condition.”

Schumer Calls For BP Investigation

Senator Charles Schumer (D-NY) has requested a Department of Justice investigation of BP.

It has nothing to do with the Gulf of Mexico, but rather the Foreign Corrupt Practices Act.

BP is British company, but its ADR shares trade on the New York Stock Exchange and BP is thus subject to the FCPA.

In a letter to Attorney General Eric Holder (see here) Schumer requests that the DOJ investigate whether BP violated any of the provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans. [This post is limited to a discussion of the FCPA, and not the above referenced release.]

Why does Schumer think BP may have violated the FCPA?

Because, according to Schumer’s letter – “BP has admitted that it lobbied United Kingdom government officials to wrap up a proposed prisoner transfer agreement (PTA) with the Libyan government amid concerns that a delay in reaching this agreement would harm a deal BP had signed with Libya’s National Oil Company to explore for oil and gas in the Gulf of Sidra and in parts of Libya’s western desert—an agreement which BP estimated could lead to eventual earnings of up to $20 billion.”

Hold the phone and stop the presses … a large corporation has admitted that it lobbied its own government in connection with a business purpose.

This would seem to be yet another example of the FCPA’s double standard in that what is routinely done at home suddenly becomes a potential criminal matter when done in connection with international business. For other examples of the double standard see here and here.

Unless there is a finding that something of value went to a foreign official, the FCPA is not implicated because the law does not apply to giving things of value to a foreign government itself. Strange you say, but that is how the FCPA is written – a fact even the DOJ recognizes. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”

Schumer’s letter also states:

“If BP, or its officials, promised the Libyan Government that it would secure al-Megrahi’s release from detention in exchange for oil exploration rights—or even that it would provide lobbying services for such a release on the Libyan Government’s behalf—BP may have been unlawfully authorizing performance of valuable services to the Libyan Government in exchange for profitable oil exploration rights in express violation of the FCPA. Similarly, if BP promised anything of value to United Kingdom government officials to secure al-Megrahi’s release, this would also violate the FCPA.”

According to Schumer’s press release, he and “Senators Gillibrand, Menendez, and Lautenberg last week requested the British government investigate the circumstances surrounding al-Megrahi’s release and requested that BP and the British government turn over all documents related to the oil companies’ efforts lobbying for a prison-release agreement with Libya. They also called for the US State Department to press the British to investigate BP’s involvement in the incident.”

It is unusual for a U.S. politician to call upon DOJ to investigate a foreign-based company (or any company for that matter) for FCPA violations – particularly when the conduct at issue largely centers on conduct between the company and its own government officials.

Although the U.K. Bribery Act is not yet law (see yesterday’s post here), when enacted, it is expected to have a broad jurisdictional scope and apply to certain U.S. companies, just as the FCPA applies to certain U.K. companies.

Following Schumer’s lead will a British politician request that the U.K. Serious Fraud Office investigate a U.S. company because it lobbied its own government officials in connection with a business purpose? As John Gapper, the associate editor and chief business commentator of the U.K. based Financial Times, stated in an editorial on the subject, “the US has been no stranger to dubious deals with foreign governments that benefit both its strategic interests and US companies.”

For more, see here for Christopher Matthew’s Main Justice story on the topic.

Powered by WordPress. Designed by WooThemes