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Oracle – Another World’s Most Ethical FCPA Violator?

It surprises most people to learn that a company with pre-existing FCPA compliance policies and procedures – and a company otherwise making good faith efforts to comply with the FCPA –  can still face legal liability when a non-executive employee or agent nevertheless acts contrary to the company’s pre-existing FCPA compliance and procedures.  

And rightfully so.  Yet because of respondeat superior principles, the company is exposed to FCPA liability.   Such pre-existing policies and procedures are relevant to charging decisions under the Principles of Prosecution as well as to the ultimate fine amount under the Sentencing Guidelines, but not relevant to liability as a matter of law.

It is even possible for a company to earn designation as one of the “World’s Most Ethical Companies”  yet still, during the same general time period, resolve an FCPA enforcement action.  Ethisphere’s “World’s Most Ethical Companies” designation (see here) “recognizes companies that truly go beyond making statements about doing business ‘ethically’ and translate those words into action.”  As stated by Ethisphere, the designation is “awarded to those companies that have leading ethics and compliance programs, particularly as compared to their industry peers.”  A company only earns the designation after a “methodology committee of leading attorneys, professors, government officials and organization leaders” assist Ethisphere in creating the scoring methodology and after Ethisphere conducts an “in-depth analysis” of the company.  Companies that have earned “World’s Most Ethical Company” designation during the same general time period as also resolving FCPA enforcement actions or being under FCPA scrutiny include the following:  General Electric, Statoil, Deere & Company, Hewlett-Packard, Rockwell Automation, AstraZeneca, Novo Nordisk, and Sempra Energy.

Add Oracle Corporation, a recipient of  “World’s Most Ethical Company” designation more than once, to the list.

Yesterday, Joe Palazzolo and Samuel Rubenfeld broke the story in the Wall Street Journal, “U.S. Probes Oracle Dealings,” that “U.S. authorities are investigating whether Oracle Corp., one of the world’s largest software companies by sales, violated federal antibribery laws in its dealings abroad …”.  According to the report, “agents in the FBI’s Washington field office and fraud prosecutors in the Justice Department’s Criminal Division are handling a criminal investigation, which has been underway for at least a year.”  Palazzolo and Rubenfeld also report that the SEC is also investigating for possible civil violations.  According to the report, “the agencies are examining whether Oracle employees or agents acting on the company’s behalf made improper payments in Africa in order to land sales of database and applications software.”

Time will tell whether the Oracle investigation will lead to an FCPA enforcement action and, if so, the nature and extent of the improper conduct.  If the investigation follows a pattern often seen in FCPA enforcement actions, the improper conduct will have been engaged in by non-executive employees or agents who acted contrary to the company’s FCPA policies and procedures and the company’s otherwise good faith efforts to comply with the FCPA.

While I have no unique insight or knowledge of Oracle’s FCPA compliance policies and procedures, one has got to assume it has been doing the right things to earn, on  more than one occasion, Ethisphere’s highest honor.  Oracle’s “Code of Ethics and Business Conduct” (here) contains a separate section on the FCPA in a Q&A format.  Granted words on paper do not establish much, but the Code also refers to Oracle’s “Anti-Corruption Policy” located on the company’s non-public Compliance and Ethics Program Web Site and indeed what a company’s public website contains as to FCPA compliance is usually just the tip of the iceberg.  Furthermore,  among other things, Oracle has an “Anti-Corruption Training Course” (here) for its partners available in ten languages.

If an FCPA enforcement action against Oracle is indeed forthcoming, such an enforcement action, like previous ones involving other “World’s Most Ethical Companies” highlight the need for an FCPA compliance defense.  As I have highlighted on previous occasions, in the mid-1980’s numerous FCPA reform bills included a specific defense under which a company would not be held liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents.  Such a compliance defense passed the U.S. House, but was never made part of the FCPA’s 1988 amendments.  However, it is likely that an FCPA reform bill will soon be introduced and that it will contain a similar compliance defense.  As I highlighted in this previous post, many of the 38 signatory countries to the OECD Anti-Bribery Convention have compliance-like defenses in their domestic “FCPA-like” legislation.

Nevertheless, Assistant Attorney General Lanny Breuer has, in the past, flatly rejected the need for a compliance defense.  Speaking last March at the Dow Jones Global Compliance Symposium, he said,  “we can’t engage in some sort of formalistic solution from a script that says if you check the following six boxes you’re guaranteed this outcome.” 

More recently, during the June House FCPA Hearing, Greg Andres, testifying on behalf of the DOJ, stated that a potential FCPA compliance defense was “novel and risky” and that the “time is not right to consider it.” 

With another “World’s Most Ethical Company” facing FCPA exposure, the time is right to consider amending the FCPA to include a compliance defense.

Foreign Enforcement Action Roundup

The U.S., of course, is not the only country with an FCPA-like law. Canada’s version is the Corruption of Foreign Public Officials Act (“CFPOA”).  Australia’s version is part of its general Criminal Code.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI’s] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.


Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA – in 2005 against Hydro Kleen – resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”


Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”


Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  “to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the ” procedure based on the guidance contained within [the SFO’s] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

A Focus On Sub-Saharan Africa

An article recently caught my eye by Herbert Igbanugo (here) and Raymond Gwenigale (here) of the U.S. based Igbanugo Partners International Law Firm titled “Assessing and Minimizing Customs-Related Corruption Risk in Sub-Saharan Africa’s Ports” (see here).

In this guest post, Igbanugo and Gwenigale provide an overview of their article.


“In Assessing and Minimizing Customs-Related Corruption Risk in Sub-Saharan Africa’s Ports, we examine the complex maze of Sub-Saharan Africa (“SSA”) ports and maritime commerce, shedding light on the ever present contagion of corruption and bribery in SSA ports and its effect on the region’s economic development. We also touch on methods for reducing corruption and bribery in SSA ports and how companies doing business in the region can protect themselves through the implementation of risk assessment and due diligence programs.”

“The increase in both containerized and general cargo in SSA Ports over the past decade has served to highlight the issues of corruption and bribery in the region and the need for a more efficient, regulated system to combat corruption. An important contributor to the corruption and inefficiency of SSA ports are the improper and antiquated regulation systems in place. Moving toward modern port-management structures such as the landlord port system and independent port regulator structures, as well as improving automation systems in Customs will help combat corruption at SSA ports.”

“A key element in minimizing customs-related corruption risks of companies doing business in SSA is the development of an in-depth understanding of the unique characteristics of the SSA countries in which they operate. Businesses must also understand and abide by the legal and regulatory regime in place in each country’s ports and create customs compliance strategies that reflect an understanding of the Customs clearance processes in specific countries. In discussing customs-related corruption in SSA ports, one must also keep in mind the impact of the African tradition of patronage. Customs reform must address these traditions and work to reduce the negative impacts of patronage if anti-corruption efforts are to be successful.”

“To protect themselves from FCPA prosecution companies need to adopt and enforce clear policies prohibiting all those who act on their behalf from engaging in bribery. Developing a mandatory exhaustive questionnaire for use by all agents is a good starting point for any risk mitigation effort. When retaining foreign customs clearance agents, firms or consultants, companies must minimize risk by meticulously scrutinizing the background of the consultant and securing a written agreement regarding FCPA compliance. The use of reputable culturally competent auditors and close supervisor of local compliance counsel or general counsel are also paramount.”

“The article is one in a series of African Counsel articles dedicated to eradicating corruption and improving corporate social responsibility in SSA. As a culturally competent SSA focused firm with the in depth knowledge of Africa that only those who call Africa home would possess, we are committed to becoming one of the best information sources for US organizations intent on operating in an SSA environment free of corruption. We are proud of our strong African heritage, SSA focus, and we are quite delighted to share our knowledge of Africa with everyone to whom it matters. Links to our African Counsel newsletter and SSA Practice Brochure can be found here and here.”

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