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Friday Roundup

Roundup

Consistently damaged, across the pond, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.

“Consistently Damaged”

In this 12 minute video, Neil Bruce (CEO and President of SNC-Lavalin) describes his frustration for how the company is not being offered a remediation agreement (Canada’s term for a deferred prosecution agreement) in connection with its long-standing scrutiny. (See here and here for prior posts).

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Friday Roundup

Roundup

Guilty plea, Petrobras civil settlement, Alstom is done reporting, scrutiny alert, SEC FCPA enforcement, from the docket, checking in up north, and for the reading stack. It’s all here in the Friday roundup.

Guilty Plea

As highlighted in this prior post, in January 2017 the DOJ announced an FCPA and related enforcement action against four individuals for their roles in a scheme to pay $2.5 million in bribes to facilitate the $800 million sale of a commercial building in Vietnam (the so-called Landmark 72) to a Middle Eastern sovereign wealth fund.

Today, the DOJ announced: “Joo Hyun Bahn, aka Dennis Bahn, 39, of Tenafly, New Jersey, pleaded guilty in federal court in Manhattan to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and one count of violating the FCPA.  U.S. District Judge Edgardo Ramos of the Southern District of New York accepted the guilty plea.  Sentencing is scheduled for June 29 …”.

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U.K. Serious Fraud Office Announces Corruption Charges Against Individual Well-Known In The Compliance Community

Surprise

Talk about a head-scratching moment.

If you are even an occasional attendee or participant of anti-bribery and corruption conferences you likely know or recognize Jean-Daniel Lainé who, prior to his retirement in April 2013, was Senior Vice President Ethics & Compliance, and a director of Alstom International Limited.  Laine currently runs jdl.ethiconsult.

As highlighted in this 2010 article, “since 2006, Laine has overseen the rapid development of Alstom’s compliance and ethics programmes, as the threat of corruption investigations has risen up the agenda for companies around the world.”

The article quotes him as follows. “I know a lot of my peers in the compliance community. I participate in a lot of conferences on the anti-corruption subject. I have the opportunity to review all these topics and issues, and I consider that we are among the best in class.”

Among other things, Laine co-authored the Risk Assessment Chapter of the International Chamber of Commerce’s Ethics and Compliance Training Handbook (see here for a video interview) and Laine was a frequent writer on compliance topics, see here for instance “How Do You Manage Third Party Relationship Risks?”

Against this backdrop, it comes as a shocker to say the least that yesterday the U.K. Serious Fraud Office announced:

“Mr Lainé, 68, … a French national … attended court to answer two charges of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.”

As noted in the SFO release, also charged was Michael John Anderson and named as a co-conspirator with Mr Anderson and Mr Lainé is Altan Cledwyn-Davies, director and company secretary of Alstom International Ltd. Mr Cledwyn-Davies died in 2010 before charges were brought.

As further noted in the SFO release:

“In July 2014 the SFO charged Alstom Network UK Ltd, and British nationals Graham Hill and Robert Hallett with corruption in India, Poland and Tunisia. That matter awaits trial in May 2016. In addition, the SFO charged Alstom Power Ltd, Nicholas Reynolds and Johanes Venskus with corruption in Lithuania. That matter awaits trial in January 2017.”

See prior posts here and here for recent Alstom-related enforcement actions in the U.S.

Friday Roundup

Roundup2

In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article – “local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[…]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[…]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[…]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[…]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil’s  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

*****

Miller & Chevalier’s FCPA Spring Review 2015 is here.

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A good weekend to all.

Have FCPA Settlement Amounts Increased … Just Because?

question marks2

This post returns to an issue previously highlighted in this prior post –  “FCPA Settlements Have Come a Long Way In a Short Amount of Time.”

Again, the question is posed: have FCPA settlement amounts increased … just because?

Under the advisory Sentencing Guidelines, the following general formula is used to calculate an advisory fine range in an FCPA enforcement action.

  • The starting point under the Guidelines is the base offense level relevant to the conduct at issue.
  • This base offense level can be increased based on the value of the benefit received from the improper conduct.  This results in a total offense level and a base fine amount under the Guidelines.
  • From there, a business organization’s culpability score is calculated based on a number of factors including: the number of employees in the organization; whether high-level personnel were involved in or condoned the improper conduct; prior criminal history; whether the organization had a pre-existing compliance and ethics program; voluntary disclosure; cooperation; and acceptance of responsibility.
  • A business organization’s culpability score then yields a multiplier ratio (such as 1.4 to 2.8), that is then applied to the base fine amount, which then yields an advisory fine range.
  • The DOJ then selects a number based on that fine range (and often times below the fine range) that the business organization then agrees to pay to resolve its alleged FCPA scrutiny.

Set forth below is a comparison between the DOJ enforcement action against Siemens in 2008 (which set a record for the largest total FCPA settlement of all time $800 million ($450 million DOJ component and a $350 million SEC component)) and the DOJ enforcement action against Alstom in 2014 (the largest DOJ only FCPA settlement of all-time).

Siemens

(2008)

 

Alstom

(2014)

Gross Pecuniary Gain

$843.5 million

$296 million

Culpability Score

8

(the only substantive difference here is that Siemens received a -1 for “full cooperation” whereas Alstom did not)

9

Sentencing Guidelines Range

$1.35 billion to $2.70 billion

$532.8 million to $1.065 billion

Penalty Amount

$450 million

$772 million

As highlighted by the above DOJ calculations, the Siemens enforcement action yielded a much higher sentencing guidelines range compared to the recent Alstom action.

Yet, the recent Alstom action yielded a much higher criminal fine amount.

DOJ criminal fine amounts ought not be influenced by whether there is a related enforcement action by the SEC (which happened in Siemens, but not in Alstom), but even if DOJ criminal fine amounts are so influenced, the fact remains that Alstom was still punished more significantly (compared to the guidelines range) than Siemens even though the conduct at issue was less egregious.

Another variable that could impact DOJ fine amounts is the existence of a foreign law enforcement action and resulting fines and penalties.  Yet, such an occurrence was present in both the Siemens and Alstom actions.

The above comparison between Siemens (2008) and Alstom (2014) once again raises the question of whether FCPA settlement amounts have increased … just because?

Perhaps you have noticed this general trend in other areas as well where billion settlements are seemingly becoming the new norm.

In a 2013 speech SEC Commissioner Daniel Gallagher noted:

“[T]he amounts of the penalties that the SEC imposes against corporations today are eye-popping and likely would have shocked the legislators who voted for the Remedies Act and the Commission that sought penalty authority from Congress.”

As to the 2013 JPMorgan enforcement action ($13 billion), as noted in this Wall Street Journal article, the company’s top lawyer asked at an event “at what point does this [record-setting fines] stop.”  As Professor Peter Henning noted in this New York Times DealBook column regarding the JPMorgan matter:

“A standard part of enforcement actions against companies these days is the multimillion-dollar – or even multibillion-dollar – penalty. What can be perplexing is figuring out how those penalties were determined, and whether they have much if any direct relationship to either the gains realized from the violations or the harm inflicted.”

Indeed, at the same event discussed above, a government official acknowledged that the government’s application of fines in legal settlements “is more art than science.”

Spot-on.

In many cases. even though advisory Sentencing Guidelines ranges are presented, there is little rhyme or reason to how FCPA settlement amounts are calculated. When a NPA is used to resolve an FCPA enforcement action, the ultimate fine amount and how it as calculated is not transparent.  Even with corporate DPAs and plea agreements, there remains little transparency regarding FCPA criminal fine amounts, particularly as to the value of the benefit allegedly received through the improper payment.  The DOJ simply cites a number.

As noted in this prior post, in 2012 the Supreme Court held in Southern Union that any fact that substantially increases a criminal defendant’s fine amount must be provable to a jury beyond a reasonable doubt.  As noted in the prior post however, the Supreme Court’s decision was great in theory, but it is rare for anything connected to a corporate FCPA enforcement action to be provable to a jury beyond a reasonable doubt.

It is only a matter of time before an FCPA settlement amount starts with a “b” as in billion.

If a billion dollar FCPA enforcement action is what the conduct at issue warrants … fine.  But if it is just because, this is a problem and a significant public policy concern as even alleged wrongdoers have due process rights.

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