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Meaningless Settlement Language?

Previous posts (here and here) have discussed scrutiny of SEC resolution procedures in the SEC v. Citigroup case.  Although not an FCPA enforcement action, the SEC policies (such as settlement via neither admit nor deny language) being questioned by Judge Jed Rakoff (S.D.N.Y.) are the same in SEC FCPA enforcement actions.  Thus, Judge Rakoff’s questions are relevant to SEC FCPA enforcement.

A typical SEC FCPA enforcement action involves a permanent injunction prohibiting future FCPA violations – see here for the recent Comverse SEC FCPA enforcement action containing such language.  In this prior post regarding Diebold’s FCPA disclosure, I noted that Diebhold was already subject to an injunction prohibiting future FCPA violations (as a result of a non-FCPA FCPA enforcement action) and  I asked whether Diebold was in jeopardy of violating that injunction. 

If Diebold does indeed become a repeat offender, it will have company.  For instance, in 2004 ABB Ltd. resolved an FCPA enforcement action (see here) and “consented to the entry of a final judgment enjoining it from future FCPA violations.”  In 2010, ABB Ltd. again agreed to resolve an FCPA enforcement action – see here for the prior post.  So much for that permanent injunction thing.   Likewise, in 2001 Baker Hughes resolved an FCPA enforcement action (see here) and was ordered to cease and desist from any future FCPA violations.   In 2007, Baker Hughes again agreed to resolve an FCPA enforcement action – see here.  So much for that cease and desist thing.

Thus, Judge Rakoff’s question in the Citigroup action – whether SEC injunctions against future violations have any meaning is a good question.  Specifically, Judge Rakoff requested an answer to the following question.  “The proposed judgment imposes injunctive relief against future violations.  What does the SEC do to maintain compliance?  How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of a prior consent judgment?”

In its Citigroup brief the SEC responded as follows.

“Civil contempt is a remedy available to the SEC in the event either (1) that a defendant is engaging in an ongoing violation of an injunction, or (2) compensation is due the SEC as a result of a defendant’s violation of an injunction.  Because alternative effective remedies often are available, including the filing of an independent action with corresponding legal and equitable relief, the Commission has not frequently pursued civil contempt proceedings and does not appear to have initiated such proceedings against a ‘large financial entity’ in the last ten years.  However, prior unlawful conduct by a corporate entity is considered in determining the appropriate penalty in any subsequent enforcement action.”

For additional information see this recent New York Times article from Edward Wyatt.


More On ABB

Deferred prosecution agreements (DPAs) tend to be interesting reads. Often times, a DPA raises more questions than it answers.

The recent ABB Ltd. DPA (here) is no exception.

The DOJ and SEC recently announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. – Jordan (see here for the prior post).

This post discusses the ABB Ltd. DPA as well as the ABB Inc. plea agreement.

The short summary is as follows: the DOJ resolution concerns Iraq Oil-for-Food conduct as well as conduct in Mexico. However, the DPA is clear that there was “other misconduct” as well and that “corrupt payments” were made by ABB sudsidiaries “in various countries around the world.” ABB Ltd. agrees to pay a total monetary penalty of $30.4 million – the “bottom of the applicable combined Sentencing Guidelines fine range for ABB Inc. [Mexico conduct] and ABB Ltd – Jordan [Iraqi Oil for Food conduct].” As is common in DPA’s, ABB Ltd. agrees to forever say silent about any issues contradicting the facts of the settlement in exchange for the DOJ agreeing to defer prosecution of the criminal charges. In exchange, the DOJ “agrees to cooperate with ABB Ltd.” and tell any “governmental and other debarment authority” about how “extraordinary” ABB Ltd’s “cooperation and remediation” was in the enforcement action.

No wonder DPAs are controversial.

ABB Ltd. Deferred Prosecution Agreement

The DPA has a term of three years. [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 ABB abides by its obligations under the DPA, the criminal charges (see below) will be dismissed when the DPA’s term expires.

Those obligations include a corporate compliance program meeting certain common elements as set forth in Attachment C of the DPA as well as “Enhanced Corporate Compliance and Reporting Obligations and Condition of Corporate Probation” as set forth in Attachment D of the DPA (described more fully below).

The DPA term, however, may be terminated early “in the event the Fraud Section finds, in its sole discretion, that there exists a change in circumstances sufficient to eliminate the need for the enhanced compliance obligations” set forth in the agreement.

Pursuant to the DPA, ABB “accepted and acknowledged that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth in the ABB Inc. and ABB Ltd. Jordan criminal informations (see here and here).

According to the DPA, the DOJ agreed to enter into the agreement with ABB based on the following factors: “(a) following discovery of the bribery, ABB Ltd. and ABB Inc. voluntarily and timely disclosed to the Fraud Section and the [SEC] the misconduct” set forth in the informations; “(b) ABB Ltd. conducted a thorough internal investigation of that and other misconduct; (c) ABB Ltd. regularly reported all of its findings to the Fraud Section and SEC; (d) ABB Ltd. cooperated in the Fraud Section’s investigation of this matter, as well as the related SEC investigation; (e) ABB Ltd. undertook substantial remedial measures, including those recommended by the independent compliance consultant engaged after ABB Vetco Gray Inc. and ABB Vetco Gray UK Ltd. settlement in 2004 with the Fraud Section and SEC and the implementation of an enhanced compliance program, and agreed to undertake further remedial measures as contemplated by this Agreement; and (f) ABB Ltd. agreed to continue to cooperate with the Fraud Section subject to applicable law and regulation in any ongoing investigation of the conduct of ABB Ltd. and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.” (emphasis added).

The DPA further notes that “ABB Ltd’s cooperation during this investigation has been extraordinary.”

According to the ABB Inc. plea agreement (here), “the extraordinary cooperation” of ABB Ltd. and ABB Inc. “had lead, in part, to the guilty plea by ABB Inc. agent Fernando Maya Basurto […] and the indictment of former ABB Inc. General Manager John Joseph O’Shea …” (see here for more).

According to the DPA, the fine range under the advisory U.S. Sentencing Guidelines for ABB Inc’s conduct was $28.5 million – $57 million; for ABB Ltd. – Jordan’s conduct $1.92 million – $3.2 million. The combined fine range was thus $30.42 million – $60.2 million.

ABB Ltd. agreed to pay a total monetary penalty of $30.42 million “or the bottom of the applicable combined Sentencing Guidelines fine range for ABB Inc. and ABB Ltd – Jordan.”

The DPA states that “the Fraud Section and ABB Ltd. further agree that a fine at the bottom of the applicable combined Sentencing Guidelines fine range is appropriate given the nature and extent of ABB Ltd’s extraordinary cooperation in this matter, including sharing information with the Fraud Section regarding evidence obtained as a result of ABB Ltd’s extensive investigation of corrupt payments made by ABB subsidiaries in various countries around the world.” (emphasis added).

Paragraph 22 of the DPA contains this clause:

“With respect to ABB Ltd’s present reliability and responsibility as a government contractor, the Fraud Section agrees to cooperate with ABB Ltd., in a form and manner to be agreed, in bringing facts relating to the nature of the conduct underlying this Agreement and to ABB Ltd’s and ABB Inc’s extraordinary cooperation and remediation to the attention of governmental and other debarment authorities, including the [Multilateral Development Banks] or other entities, as requested.” The ABB Inc. plea agreement contains the same provision.

The DPA, as most commonly do, forever muzzles ABB or “its attorneys, directors, employees, agents, or any other person authorized to speak for ABB” for making any public statement contradicting the acceptance of responsibility by ABB.” Similarly, the ABB Inc. plea agreement contains this clause: “the defendant agrees that if it or its parent corporation issues a press release in connection with this Agreement, the defendant shall first consult the Fraud Section to determine whether the text of the release is acceptable, and shall only issue a release that has been deemed acceptable to the Fraud Section.” In the U.K. Serious Fraud Office enforcement action against Innospec, Lord Justice Thomas specifically criticized this feature of settlement (see here) and Richard Alderman recently stated in my Q&A with him (see here) that that the “SFO will not be doing this again.”

Attachment D of the DPA is titled “Enhanced Corporate Compliance and Reporting Obligations and Condition of Corporate Probation”

It begins by stating:

“AB will continue to implement and adhere to the 101 compliance program elements recommended by the Independent Compliance Consultant in the Report of the Independent Consultant to ABB Ltd, Securities and Exchange Commission v. ABB Ltd, Civ. Action No. 04-1141 (D.D.C. July 23, 2007) (revised in December 2007), except where not possible because of local law.”

It then contains an extensive list of things ABB will continue to implement relating, but not limited to: risk assessments and audits; acquisitions; business model modification such as “eliminat[ing] the use of ABB Representatives whenever possible;” relationships with third parties; gift, travel, and entertainment; complaints, reports, and compliance issues; training; and certification.


A future post will highlight how the above FCPA enforcement actions against ABB Ltd. and certain of its subsidiaries was not the first time ABB Ltd. and those within its corporate hierachy have settled FCPA enforcement actions.


Earlier this week the DOJ and SEC announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. – Jordan.

Swiss-based ABB Ltd. (here) is a provider of power and automation technologies with American Depositary Shares publicly traded on the New York Stock Exchange.

This post summarizes the various aspects of the enforcement action in which ABB Ltd. and ABB Inc. agreed to pay a total of $58.3 million ($19 million in DOJ criminal penalties and $39.3 million in SEC disgorgement and civil penalties).


ABB Ltd. Deferred Prosecution Agreement

As noted in this DOJ release, ABB Ltd. agreed to enter into a deferred prosecution agreement (DPA). ABB’s press release (here) states that the DPA “includes provisions related to the involvement of a subsidiary in Jordan in the Oil for Food Program” and that “in lieu of an external compliance monitor, the DOJ and SEC have agreed to allow ABB to report on its continuing compliance efforts and the results of the review of its internal processes for a three-year period going forward.”

In other words, the DPA appears limited to the conduct of ABB Ltd. – Jordan (summarized below) and not the conduct of ABB Inc. (summarized below).

[Note – to my knowledge the DPA has yet to be publicly released. Here is a request for DOJ readers of this blog. Under the DOJ’s “old” website, the charging documents were released and linked along with the press release. With the revamped website, the charging documents are nowhere to be found requiring interested persons to go to Pacer or other sources. The charging documents ultimately end up on the DOJ’s FCPA specific website, but in many cases it takes weeks. DOJ may want to consider the old system which provided real-time access to these important charging documents]

ABB Ltd. – Jordan Criminal Information

The information charges ABB Ltd. – Jordan (“ABB-Jordan”) with one count of conspiracy to commit wire fraud and to violate the FCPA’s books and records provisions.

According to the information (here), ABB-Jordan was a wholly-owned subsidiary of ABB Ltd. ABB-Jordan, through its 95% owned subsidiary ABB Near East Trading Ltd. (“ABB Near East”) provided equipment and services to electrical utilities, including control measurement and protection systems, transducers, and metering equipment.

The information charges that ABB Near East “had three principle customers under the United Nations Oil-for-Food Program (“OFFP”) … the General Company for Electricity Energy Production, the Baghdad Mayoralty, and State Company Baghdad Electricity Distribution all of which were regional companies of the Iraqi Electricity Commission, an Iraqi government agency” (collectively the “Iraqi Electricity Companies”).

The information charges that “from in or about April 2000 through in or about April 2004, ABB Near East, received eleven purchase orders for electrical equipment and services worth over $5.9 million with the Iraqi Electricity Companies, pursuant to the OFFP.” According to the information, “to obtain these purchase orders, ABB Near East caused over $300,000 in kickbacks to be paid to the government of Iraq” and that “in order to generate the funds to pay the kickbacks to the Iraqi government and conceal those payments, ABB Near East would inflate the price of its contracts with the Iraqi government by approximately 10% before submitting the contracts to the U.N. for approval.”

According to the information, the kickback payments were falsely characterized on ABB-Jordan’s or ABB Near East’s books and records which were “incorporated into the books and records of ABB Ltd. for purposes of preparing ABB Ltd’s year-end financial statements.”

According to the DOJ release, “ABB Ltd. admitted that [ABB-Jordan] agreed to pay kickback payments to the former Iraqi government” in connection with OFFP contracts and “agreed to pay a criminal penalty of $1.9 million.”

ABB Inc. Criminal Information

According to the information (here) ABB Inc. is an “indirect subsidiary” of ABB Ltd. incorporated under Delaware law. The information charges that ABB Inc. “conducted business, in part, through a business unit called ABB Network Management (“ABB NM”) that had its principal place of business in Sugar Land, Texas and was acquired by ABB Inc. in or around January 1999.”

According to the information, “ABB NM’s primary business was to provide products and services to electrical utilities for network management in power generation, transmission, and distribution.” The information charges that “many of ABB NM’s clients were foreign state-owned utilities” and that “ABB NM conducted business in a number of its foreign markets through sales representatives.”

The information largely centers on the conduct of John Joseph O’Shea and Fernando Maya Basurto and business with Comision Federal de Electricidad (“CFE”) – a Mexican electrical company. According to the information, O’Shea was the “General Manager of ABB NM” who “oversaw its operations both before and after its acquisition by ABB Inc.” and was “responsible for approving payments to sales representatives.” According to the information, Basurto was a “citizen of Mexico” who “performed work for ABB NM on its contracts with CFE.”

O’Shea was criminally charged in November 2009 (see here). Basurto has pleaded guilty (see here). For more, see this prior post.

For additional FCPA enforcements involving CFE see this recent post.

The information details an elaborate scheme that is summarized in the DOJ release as the payment of bribes “from 1997 to 2004 that totaled approximately $1.9 million” to various officials at CFE and that “in exchange for the bribe payments … ABB NM received contracts worth more than $81 million in revenue.”

As noted in the DOJ release, “ABB Inc. pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violating these provisions of the FCPA.” According to the release, the court “imposed a sentence that included a criminal fine of $17.1 million.”

The information specifically states that “ABB Inc. terminated O’Shea in November 2004 and thereafter conducted a thorough internal investigation of the improper payments. It voluntarily disclosed the conduct to the DOJ and the SEC in April 2005.”


The SEC’s civil complaint against ABB Ltd. (see here) picks up both the Iraq and Mexico conduct mentioned above and charges ABB Ltd. with violating the FCPA’s anti-bribery, books and records, and internal control provisions.

The complaint alleges in summary fashion as follows:

“From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB’s subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB.”

The complaint describes numerous payments, including payments to “pay for the Mediteranean cruise vacation for two CFE officials and their wives” and “tuition for the son of a CFE official” at a “private military school in Wisconsin.”

As to the “Mexican bribery scheme”, the SEC alleges that “ABB, which failed to conduct any due diligence on the use or payments to [a Mexican agent] and other companies, improperly recorded the illicit payments on its books as payments for commission and services on the projects.”

As to the OFFP, the complaint alleges that “from approximately 2000 to 2004, ABB participated in the Oil for Food program through six of its subsidiaries” and that the “six subsidiaries developed various schemes to pay secret kickbacks to Iraq in order to obtain contracts. The kickbacks were characterized as after sales service fees but in reality they were nothing more than bribes paid to the Iraqi regime.” According to the SEC, “kickbacks of approximately $810,793 were paid in connection with the subsidiaries’ sales of goods on twenty-seven contracts with promises to pay additional kickbacks of $239,501 on three other contracts. The total revenues on the contracts were approximately $13,577,727 and profits were $3,801,367. ABB improperly disguised the [after sales service fees] on its books and records by mischaracterizing them as legitimate after sales services, consultation costs or commissions.”

Further the SEC alleged as follows:

“as evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB’s knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB’s books and records, ABB’s failure to detect these irregularities, and ABB’s failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.”

In an SEC release (see here) SEC officials stated: “as the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials” and that “multi-national companies that make illicit payments through layers of subsidiaries will be held accountable.”

Without admitting or denying the SEC’s allegations, ABB Ltd. consented to the entry of a final judgment that permanently enjoins the company from future FCPA violations, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. According to the SEC release, “the order also requires the company to comply with certain undertakings regarding its FCPA compliance program.”

In a press release (here), ABB noted that it “initiated these matters in a voluntary disclosure to the DOJ and SEC beginning in 2005.” The company stated that it “cooperated fully with the DOJ and SEC and has put in place a global comprehensive compliance and integrity program the DOJ has said ‘may become a benchmark for the industry.'”

Laurence Urgenson (here) and others from Kirkland & Ellis LLP represent the ABB entities.

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