Top Menu

The First Enforcement Action To Involve CFE

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

There have been several repeat offenders in the FCPA’s history (see here for a prior post involving a few examples).  What about repeat bribe recipients (at least at the entity level)?  The entities at issue in the Bonny Island Bribery cases (see here) come to mind, but those separate enforcement actions were all based on the same core set of conduct.

This post discusses the first time, but not last, the Mexican entity Comision Federal de Electricidad (“CFE”) was at the center of an FCPA enforcement action.

In 1985, Silicon Contractors, Inc. (a Texas company engaged in the manufacture, sale and installation of radiation and fire-stop penetration seals for use in nuclear power plants) was charged in a criminal information with FCPA anti-bribery violations.  According to the two-paragraph information, in June 1980 an officer of Silicon made a $132,000 payment to a person “knowing or having reason to know that said money would be offered, given or promised, directly or indirectly, to one of more officials of [CFE] to induce said officials to use their influence to affect an act of CFE, to wit, the awarding of a certain contract to manufacture and install radiation and fire-stop prevention seals for a nuclear power plant in Laguna Verde, Mexico.”  The information alleged that CFE “was an instrumentality of a foreign government, to wit, an agency of the Republic of Mexico.”  Silicon Contractors agreed to plead guilty and was ordered to pay a $150,000 criminal fine.

CFE – the entity at the center of the Silicon Contractors enforcement actions – is the same entity that was at issue in the Lindsey Manufacturing enforcement action and is at issue in the ongoing John Joseph O’Shea FCPA enforcement actions.

In addition to the criminal information, the DOJ also filed a civil injunction against Silicon, Diversified Group Inc. (a company that acquired the stock ownership of Silicon Contractors after the conduct at issue), Herbert Hughes (Chairman and President of Diversified Group), Ronald Richardson (Executive Vice President of Diversified Group), Richard Noble (former President of Silicon), and John Sherman.  Silicon, Diversified, and the named individuals consented to an injunction permanently enjoining future FCPA violations.

See here for original source documents of the Silicon Contractors enforcement actions.

Bribery At The Racetrack

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

The FCPA enforcement action against Sam Wallace Company Inc. (“Wallace”) was a first in several regards.  It was the first FCPA enforcement action involving both a DOJ and SEC component (all prior enforcement actions were either SEC only or DOJ only) and it was the first FCPA enforcement action involving criminal FCPA books and records charges.

In 1981, the SEC filed a complaint against Wallace (a Texas based construction company), Robert Buckner (Chairman of the Board of Wallace, CEO of Wallace, and a Director of Wallace) and Alfonso Rodriguez (Executive Vice President of Wallace, Regional Manager of various Wallace subsidiaries, and a Director of Wallace).  The conduct at issue focused on “payments from Wallace bank accounts totaling at least $1.391 million to a certain foreign official to aid Wallace in procuring and maintaining certain contracts and billings with a certain foreign government.”  According to the SEC complaint, the defendants “disguised and concealed such payments on Wallace’s books and records by utilizing, or causing to be utilized, certain false accounting entries which did not reflect the true nature and purpose of, and falsely described the expenditures used in the making of these payments to a certain foreign official.”  The SEC complaint for permanent injunction and certain ancillary relief charged FCPA anti-bribery violations as well as a variety of other securities law violations such as Section 10b-5 and filing false reports and proxy statements with the SEC.  Without admitting or denying the SEC’s allegations, Wallace agreed to establish a Special Committee of its Board to investigate the matters alleged in the SEC’s complaint and to file the report with the Court and the SEC.

In 1983, the DOJ filed a criminal information against Wallace containing more detail than the SEC’s complaint.  According to the DOJ, the recipient of the bribe payments was “John H. O’Halloran, then chairman of the Trinidad and Tobago Racing authority” and the payments were made “in order to obtain and retain a contract to construct the grandstand and receiving building portion of the Caroni Racetrack Project in Trinidad.”  The information charges that Wallace, aided and abetted by certain of its officers and employees, caused the Sam P. Wallace & Co. of P.R. Inc. (a wholly owned subsidiary of Wallace whose earnings were consolidated with the financial reports of Wallace) to “create fictitious purchase orders to purported suppliers for the purpose of concealing the withdrawal of corporate funds in order” to pay bribes to O’Halloran.  Among other charges, the information charges violations of the FCPA’s books and records provisions.  Wallace pleaded guilty and was ordered to pay a criminal fine of $530,000.

In 1983, the DOJ also filed a criminal information against Rodriguez.  In the information, the DOJ alleged that the “Trinidad and Tobago Racing Authority was an agency of the government of the Republic of Trinidad and Tobago and was an instrumentality of the Trinidad and Tobago government.”  The information charged FCPA anti-bribery violations and Rodriguez pleaded guilty.  His sentence was suspended and he was placed on probation for two years and ordered to pay a $10,000 fine.

See here for original source documents from the SEC’s and DOJ’s enforcement action.

For more on the “foreign official” – Johnny O – see here; for recent news regarding the Caroni racetrack, see here.

The 80’s Began With A Focus On “Finders”

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

Having left the 1970’s, lets start a new decade, the 1980’s.  The FCPA began to mature and enforcement, while still measured, began to increase.  The 1980’s witnessed nine “core” FCPA enforcement actions (including one involving several distinct companies)  and this post starts off the decade by highlighting the SEC’s enforcement action against Tesoro Petroleum Corporation.

In 1980, the SEC filed a civil injunctive action against Tesoro Petroleum Corporation.  In pertinent part, the SEC complaint alleged (as to conduct that occurred prior to 1977 – the year the FCPA was enacted) as follows.  “Since at least the time Tesoro became a public company, Tesoro and others have engaged in a course of business in connection with acquiring material foreign assets, attempting to acquire material foreign assets, or conducting foreign business whereby they made or caused to be made substantial payments to ‘finders’ and ‘consultants’ where such payments, with respect to multi-million dollar contracts, were disproportionate to the business obtained or the services rendered, were not usual or customary and were made under circumstances such that Tesoro was and continues to be unable to account for or satisfy itself as to the final disposition of such corporate funds.  In certain instances involving payments made in connection with foreign business activities, the circumstances of the payments indicate that the funds, in whole or in part, may have been directly or indirectly transferred to foreign government officials or political leaders.”

The SEC alleged that Tesoro:  “(1) made and kept books, records and accounts which failed in reasonable detail to accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (2) made transfers and disbursements without adequate records and controls sufficient to ensure that such transfers and disbursements were actually made for the purposes indicated and without adequate records and controls to document whether the services provided therefore, if any, were commensurate with the amounts paid.”

Specifically, the SEC alleged that Tesoro, through the participation of the Chairman of its Board, Robert West, caused approximately $450,000 in payments to be made to James Morgan, a “finder/consultant who assisted Tesoro in obtaining certain foreign oil and gas concessions from a foreign government.”  According to the SEC, “these payments were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been transferred directly or indirectly to foreign government officials.”  In one instance, the SEC alleged that Tesoro made a payment to Morgan’s home “where an official of the national oil company of the country involved was waiting.”

In another instance, the SEC alleged that Tesoro paid $120,000 to another consultant “in connection with an application to do business in another foreign country, and in connection with subsequent applications by Tesoro to do business in that country and a refinery joint venture.”  According to the SEC, the payments ($10,000 monthly for a year) “were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been passed on to government officials.   The SEC alleged that “during the period when Tesoro’s application to do business was pending” the company transferred money to the consultant’s bank account and that the consultant paid, at various times, a director of the national oil company.  According to the SEC, Tesoro’s application to purchase oil was denied by the national oil company.

Based on the above conduct, the SEC charged Tesoro with filing materially false and misleading reports with the SEC.  Without admitting or denying the SEC’s allegations, Tesoro consented to entry of a final judgment requiring, among other things,  Tesoro: (i) to make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (ii) to disclose in an SEC filing the amount and circumstances of all material “finders,” “consultants” or other fees similar to those described above, paid in the future in connection with the acquisition or disposition of foreign assets or the conduct of foreign business.

Original source documents from the Tesoro enforcement action can be found here.

Closing Out The 70’s

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

Previous posts (here and here) detailed FCPA enforcement actions from the 1970’s against:  (i) Page Airways, Inc. (and six officers and/or directors of the company); and (ii) Kenny International Corporation and Finbar Kenny (Chairman of the Board, President and majority shareholder of Kenny International).

The 1970’s also witnessed:  (i) a SEC civil complaint against Katy Industries, Inc. and its executives Wallace Carroll and Melvan Jones; and (ii) a DOJ civil complaint against Roy Carver and R. Eugene Holley; and (iii) a SEC civil complaint against International Systems & Controls Corporation and its executives J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein.

These enforcement actions are summarized below.

Katy Industries, Wallace Carroll and Melvan Jacobs

In August 1978, the SEC alleged in a civil complaint for permanent injunction that Katy Industries, Inc. (“Katy”), Wallace Carroll (Chairman of the Board and CEO of Katy) and Melvan Jacobs (Director and Member of Katy’s Executive Committee and also an attorney who acted as counsel to Katy as to the conduct at issue)  “have engaged, are engaged and are about to engage in acts and practices” which constitute violations of various securities law provisions including the FCPA’s anti-bribery provisions.

According to the SEC complaint, Katy was interested in obtaining an oil exploration concession in Indonesia and retained a consultant who was a “close personal friend of a high level Indonesian government official.”  The complaint alleges that Katy representatives and the consultant met with the official and his representative and during the meeting “the official agreed to assist Katy in obtaining an oil production sharing contract.”  Katy agreed to compensate the consultant if it received the contract and the SEC alleged that Katy representatives were “told that the consultant would give a portion of such compensation to the official and the official’s representative.”  According to the SEC, Katy entered into various agreements with the consultant and the official’s representative and thereafter “Katy entered into a thirty year Production Sharing Contract with Pertamina, the Indonesian Government-owned oil and gas enterprise.”  The SEC alleged that “Katy, Carroll and Jacobs knew or had reason to know that the official and the official’s representative would directly or indirectly share in the payments to the consultant for the duration of the thirty year Contract.”  In addition, the SEC alleged that Katy’s books and records did not reflect the true nature and purpose of the payments and that a “substantial portion” of the money paid by Katy to the consultant and the official’s representative “was expected by Katy to be given by the recipient to the official.”

Without admitting or denying the SEC’s allegations, Katy, Carroll and Jacobs consented to entry of final judgment of permanent injunction prohibiting future violations.  Katy also agreed to establish a Special Committee of its Board “to review the matters alleged in the complaint and to conduct such further investigation as it deems appropriate into these and other similar matters” and to file the Special Committee’s findings publicly with the SEC.

See here for original source documents.

Roy Carver and R. Eugene Holley

In April 1979, the DOJ alleged in a civil complaint for permanent injunction that Roy Carver (Chairman of the Board and President of Holcar Oil Corporation) and R. Eugene Holley (Vice President of Holcar Oil Corporation) “have engaged, are engaged and are about to engage in acts and practices which constitute violations” of the FCPA’s anti-bribery provisions.  The complaint alleges that on a trip to Doha, Qatar, Carver and Holley learned of “the possibility of engaging in the business of petroleum exploration in that country” if a “substantial payment of money were to be made to Ali Jaidah [an official of the government of Qatar – specifically the Director of Petroleum Affairs) for his official approval of a concession agreement.”

According to the complaint, the defendants agreed to proceed with the project by forming Holcar in the Cayman Islands “as a vehicle for the purpose of exploiting the concession.”  The complaint alleges that the defendants further agreed “that an appropriate payment would be paid to Ali Jaidah to secure the necessary approval of the Government of Qatar.”  During a subsequent meeting in Doha, the complaint alleges that Carver and Holley met with Ali Jaidah who requested a $1.5 million payment “into the account of his brother, Kasim Jaidah, at the Swiss Credit Bank of Geneva, Switzerland.”  The complaint alleges that the defendants made the payment “knowing or having reason to know that all or a portion of such funds would be transferred to Ali Jaidah.”  According to the complaint, thereafter, “as a result of the cooperation, influence and approval of Ali Jaidah, the government of Qatar entered into an oil drilling concession agreement with Holcar.”  In addition, the complaint alleges that the defendants were willing to make additional payments to a new Director of Petroleum Affairs (Abdullah Sallat) when Holcar’s original concession agreement was under threat of termination given the company’s financing difficulties.  However, the complaint asserts that “neither Director Sallat nor any other official of the government of Qatar has directly or indirectly received or solicited or been offered any payment in connection with renewal of Holcar’s oil concession.”  Based on the above conduct, the DOJ charged that defendants “violated and may continue to violate” the FCPA’s anti-bribery provisions.

Both Carver and Holley consented to the entry of a final judgment of permanent injunction enjoining future FCPA violations.  See here for original source documents.

International Systems & Controls Corp., J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein

In July 1979, the SEC filed a complaint against International Systems & Controls Corporation (“ISC”) and J. Thomas Kenneally (a director of ISC and its fomer CEO and Chairman of the Board), Herman Frietsch (Senior Vice President), Raymond Hofker (former General Counsel), Albert Angulo (former Treasurer) and Harlan Stein (Chief Engineer).  The complaint alleged, among other things, that ISC “paid more than $23 million through one or more subsidiaries to certain foreign persons and entities in order to assist the company in securing certain contracts.”  The complaint alleged that “in furtherance of this scheme, ISC disguised such payments on its books and records as consulting fees, consulting services, agent’s fees and commissions.”  The complaint also alleged that “ISC violated the internal accounting controls provisions by failing to devise an adequate system of internal controls because it failed to require vouchers, expense statements, or similar documentation for the activities or services for which certain expenditures were made.”

According to various media reports, the payments at issue were made to government officials and members of ruling families in Iran, Saudi Arabia, Nicaragua, Ivory Coast, Algeria, Chile and Iraq in connection with contracts for engineering and construction projects.

The SEC’s complaint charged violations of the FCPA’s books and records and internal controls provisions, as well as antifraud, proxy, and reporting violations.  In December 1979, ISC, Kenneally and Frietsch, without admitting or denying the SEC’s allegations,  consented to the entry of a final order enjoining future violations.   In addition, the final order directed ISC to, among other things, “appoint a special agent … who shall investigate and report on certain specific transactions.”  Furthermore,  Kenneally and Frietsch (for periods of four and two years respectively) agreed to be employed as an officer or director of an issuer only if that company “has a committee with duties and functions to those required of the ISC Audit Committee” as required by the consent degree.

See here for original source documents plus this packet of materials sent to me by a loyal reader.

*****

What are the take-away points from FCPA enforcement in the 1970’s?  Clearly, the enforcement agencies were getting their feet wet enforcing an infant statute and, in many of the enforcement actions, the agencies were confronted with conduct that actually pre-dated enactment of the FCPA in December 1977.  Thus, little can – or should be – taken away from the actual charging decisions in these early FCPA cases.

However, one meaningful take-away point is this.  While one can question how the enforcement agencies held company employees accountable (i.e. criminal v. civil charges), one can not question that the enforcement agencies did hold company employees accountable.  All five FCPA enforcement actions from the 1970’s involved company employees – a figure that stands in stark contrast to 2010 FCPA enforcement in which approximately 70% of corporate FCPA enforcement actions have not resulted (at least yet) in any DOJ charges against company employees.  See here for the prior post.

The FCPA’s First Compliance Monitor

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

A previous post (here) detailed the DOJ’ first criminal Foreign Corrupt Practices Act enforcement action against Kenny International in 1979. However, that action was not the first FCPA enforcement action.  

In April 1978, the SEC filed a civil injunctive action against Page Airways, Inc. (“Page”) (a New York based company engaged in the sale and service of aircraft and traded on the over-the-counter market) and six officers and/or directors of the company:  James Wilmot (Chairman); Gerald Wilmot (President); Douglas Juston (Executive Vice President); Ross Chapin (Vice President); James Lawler (Vice President) and Richard Olney (Vice President).  The SEC’s complaint alleged that Page and the individual defendants “engaged in a scheme to sell Gulfstream II aircraft and other aircraft, products and services by, directly and indirectly, making payments to foreign government officials and employees and other corrupt, illegal, improper or unaccountable payments.”

The SEC complaint specifically references payments to: (i) “Albert Bongo, President of the Republic of Gabon;” (ii) “Gaya House Sendirian Berhad” and entity controlled by “Datuk Harris bin Mohammad Salleh” who, during the relevant time period, was “State Minister of Industrial Development” for the “State Government of Sabah, Malaysia;” (iii) “the Washington D.C. bank account of Societe Ivoirienne de Development et de Financement” in which “Timothee Ahoua, the Ambassador to the United States of the Republic of the Ivory Coast” was secretary and signatory on the bank account; (iv) “foreign entities as conduits for the payment of funds to third parties in order to disguise the true recipients and amounts” in connection with sales of aircraft to Saudi International Airlines and Morocco; (v) the “Chief of State” of Uganda (who received a Cadillac Eldorado convertible).  Based on the above payments, as well as allegations that the company and the individuals misrecorded and otherwise attemtped to disguise the payments, the SEC charged Page and the individuals defendants with FCPA books and records and internal control violations as well as violations of Sections 10(b) (antifraud) and 13(a) (reporting) of the Securities Exchange Act and Rules thereunder.

The SEC news digest indicates that a permanent injunction was entered enjoining the defendants from future securities law violations and that “in connection with the settlement, Page has undertaken to internally investigate matters alleged in the Commission’s complaint and retain a Review Person to evaluate the methods and procedures followed in this investigation.”  For those of you scoring at home, the Page enforcement action would seem to be the first use of an FCPA compliance monitor.  The SEC news digest also contains this interesting statement.  “In reaching settlement of this action, the Commission and Page considered concerns raised by another agency of the United States Government regarding matters of national interest.”

Original source documents from the Page FCPA enforcement can be found here.

 

Powered by WordPress. Designed by WooThemes