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Another BRIC In The Anti-Corruption Wall: Brazil Considers Foreign Bribery Law Overhaul

This guest post is authored by Matteson Ellis, the founder and Principal of Matteson Ellis Law, PLLC, who also writes the FCPAmericas Blog.

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The Brazilian Congress is now considering Draft Bill 6.826/2010 that would dramatically strengthen its foreign bribery law. This is a significant development – the result of years of effort by Brazilian authorities working closely with their OECD, United States, and other counterparts.  It is also timely. Sophisticated Brazilian-based multinationals are quickly expanding internationally, and encountering corruption risk. At the same time, Brazil is grappling with corruption on the domestic front: the President’s administration has lost six Ministers to corruption allegations since June 2011, and the country consistently ranks high on corruption risk indices.

Brazil’s effort is part of a broader movement. Countries that have adopted the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption and other treaties are working to strengthen their anti-corruption laws. The FCPA Professor summarized Turkey’s recent progress in an earlier post. The Brazilian bill should improve its treaty implementation status with the OECD. (Brazil’s gaps were highlighted in the OECD’s Country Monitoring Reports for Brazil.) Moreover, as a significant effort by a major economy and regional leader, this bill may have impact outside of Brazil.

These provisions constitute dramatic changes in the Brazilian legal system. According to Carlos Henrique da Silva Ayres, one of the attorneys heading the Anti-Corruption and Compliance Committee of the Brazilian Institute for Business Law (Ibrademp):  “The new law still requires some adjustments; however, it should be more easily applied than current laws. It introduces features that are relatively new or non-existent in the Brazilian anti-corruption arena, such as the credits corporations will get for compliance programs, self-disclosure and cooperation with authorities.”

Key Provisions in Brazil’s Draft Legislation

In addition to penalizing domestic bribery, Brazil’s draft bill prohibits bribery of foreign public officials, defining the act in a way that appears consistent with the OECD Anti-Bribery Convention. Some provisions are particularly relevant:

Corporate Liability. The draft bill establishes the direct civil liability of corporations (also known as “legal persons”) for bribery of foreign public officials. It also makes corporations liable for the acts of their directors, officers, employees and agents under the theory of respondeat superior.  These are dramatic developments in a country where the notion of corporate liability has received only limited recognition. 

These changes bring Brazilian law closer to the U.S. Foreign Corrupt Practices Act (FCPA).  Why not extend criminal liability to corporations, like the FCPA does? The answer is reflected in Brazil’s civil law system. Unlike common law jurisdictions, civil law systems generally do not apply criminal liability to legal persons. Civil law typically considers corporations to be abstract, intangible entities that have no capacity for the mens rea (intent) required to establish criminal conduct. 

The OECD Antibribery Convention recognizes this variation in legal systems and compensates for it. Article 3(2) provides:  “In the event that, under the legal system of a Party, criminal responsibility is not applicable to legal persons, that Party shall ensure that legal persons shall be subject to effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions, for bribery of foreign public officials.”

Tightened Sanctions.  The draft bill would establish harsh consequences for bribery of foreign officials. Fines would range between 1% and 30% of the company’s gross revenue.  In addition, the bill would make prosecutions public, potentially creating reputational risk. Companies can be debarred from public contracts based on bribery violations.

These steep penalties appear responsive to the requirement of sanctions that are “effective, proportionate and dissuasive.” If the legislation is enacted, it will be important to watch how Brazilian courts apply these sanctions. The OECD Working Group on application of the Convention is certain to review that question (see a previous review here).

Voluntary Disclosure, Cooperation, and Compliance Programs. The draft bill provides that the government should take into account voluntary disclosure, cooperation with government investigations, the existence of pre-existing and effective compliance programs, and other factors when determining sanctions. Specifically, Article 9 states:

“The following will be taken into consideration at the application of the sanction:  (i) the seriousness of the offense; (ii) the advantage obtained or sought; (iii) the accomplishment or non-accomplishment of the offense; (iv) the extension of the breach or the danger of injury; (v) the negative result caused by the injury; (vi) the economic status of the company; (vii) the cooperation in investigating the facts, through practices such as reporting violations to public authorities before a legal proceeding is initiated and the promptness in providing information in the course of investigations; and (viii) the existence of internal integrity mechanisms and procedures, audits, and incentives to report violations, as well as the effective application of codes of ethics and conduct within the company.”

This also makes the Brazilian approach similar to that of the FCPA. In fact, many of the provisions in the Brazilian bill appear to be directly lifted from the U.S. Department of Justice’s McNulty Memorandum and Chapter 8 (Sentencing of Organizations) of the 2010 United States Federal Sentencing Guidelines. But the bill goes further than the FCPA by incorporating considerations of such factors into the law. Under the FCPA, such factors make up enforcement policy and practice.

The difference, again, flows from Brazil’s civil law system. As a general principle of law, prosecutors and public authorities do not have discretion to seek specific sanctions. Rather, sanctions must be determined in accordance with a written law. Invoking a memorandum on enforcement practice would have little, if any, effect before a Brazilian court. In order to have any relevance, considerations like cooperation and compliance must be written into the law.

Mr. Ayres, along with Bruno Carneiro Maeda (also of Ibrademp), have testified before the Brazilian Congress about the draft legislation. They point out some lingering questions related to Article 9. They seek clarification on whether companies will get credit for their cooperation after proceedings have already begun. They are also concerned that the draft bill does not describe the elements of a credit-worthy compliance program.

Foreign Official. The Brazilian draft bill defines “Foreign Public Administration” and “Foreign Public Official” in a way that is consistent with the OECD and United Nations Conventions. Specifically, Article 6 provides:  “The agencies and government entities or diplomatic representations of a foreign country are considered foreign public administration, no matter their level or sphere of government, as well as companies held directly or indirectly by the government of a foreign country.  For purposes of this law, a foreign government official is any individual who, although momentarily or without payment, holds a public position, employment or function in any public agency or entity or diplomatic representations of foreign country, and also in companies held directly or indirectly by the government of a foreign country or in any international public organization.”

This definition encompasses a broad range of entities, including agents of the state, state-owned enterprises, international public organizations, and other instrumentalities of the state. This definition would make employees at these entities “foreign public officials.” The broad definition appears to stand in contrast with ongoing efforts in the United States to clarify or narrow the meaning of that term.

Accounting Provisions. The Brazilian draft bill does not include any accounting provisions, as required under Article 8 of the OECD Anti-Bribery Convention. However, Brazil’s laws provide similar provisions elsewhere, which work to meet the OECD requirement as noted in the OECD Working Group Phase II Report. The report also notes that, while an advanced framework for accounting requirements exists under other laws, requirements under the law for internal controls have room for development.

All About Panalpina

Last but certainly not least in the analysis of CustomsGate enforcement actions is Panalpina.

See here for the prior post on the Pride International enforcement action, here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Panalpina enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $81.9 million ($70.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $11.3 million in disgorgement via a SEC settled complaint).

This is a long post, but the enforcement action takes up 230 pages.

What you will find in these pages is that Panalpina paid millions of dollars of alleged bribes on behalf of certain of its customers (and in some instances for its own benefit as well), that a majority of the improper payments relate to Nigeria, and that a majority of Nigerian payments relate to temporary importation permits in connection with importing rigs and other vessels into Nigerian waters.

As to a U.S. nexus of these payments (a nexus necessary to find Panalpina, a foreign based non-issuer company, liable under the FCPA) you will find that the information alleges one e-mail and one conference call in which a certain Nigerian payment was discussed.

You will find that Panalpina also engaged in alleged improper conduct in numerous other countries besides Nigeria, but because of how the deferred prosecution agreement is structured, Panalpina ended up paying $0 for this non-Nigeria improper conduct.

You will find how Panalpina, despite an alleged corporate culture of bribery, including at the most senior levels of the company, was offered a deferred prosecution agreement even though it did not disclose the conduct at issue, even though it did not cooperate at all times in the DOJ’s investigation, and even though certain improper payments continued while the company was engaged in discussions with the DOJ.

You will also find how the SEC asserted a rather unique jurisdictional basis against Panalpina. That is Panalpina acted as an agent for certain of its issuer-customers and violated the FCPA by masking the true nature of bribe payments in invoices submitted to its issuer customers that allowed the customers to then violate the FCPA.

DOJ

The DOJ enforcement action involved a criminal information against Panalpina World Transport (Holdings) Ltd. (“PWT”) resolved through a deferred prosecution agreement and a criminal information against Panalpina Inc. resolved through a plea agreement.

PWT Criminal Information

Basel, Switzerland based PWT (here) “is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions.” It operates “a close-knit network with some 500 branches in over 80 countries,” does business in a further 80 countries with partner companies, and employs approximately 15,000 individuals.

The criminal information (here) focuses on a “network of local subsidiaries … each of which was responsible for providing the freight forwarding and logistics services to customers and for coordinating with other Panalpina-affiliated companies with respect to the transportation and shipment of cargo from abroad.” In addition, PWT and its subsidiaries “provided customers with importation, customs clearance and ground shipment services once the shipped goods reached their destination jurisdiction.”

The subsidiaries are:

Panalpina Inc. (“Panalpina U.S”), a wholly-owned subsidiary and agent of PWT located in New Jersey with 38 branches in the U.S. ,including Houston – the office that had the “primary relationship for [Panalpina’s] oil and gas industry customers”;

Panalpina World Transports (Nigeria) Limited (“Panalpina Nigeria), a majority-owned subsidiary and agent of PWT until 2008 located in Lagos, Nigeria that was an “affiliate of Panalpina U.S. and provided a wide variety of services for Panalpina U.S.’s customers”;

Panalpina Transportes Mundiasis, Navegacao e Transitos, SARL (“Panalpina Angola”), a wholly-owned subsidiary and agent of PWT located in Luanda, Angola;

Panalpina Limitada (“Panalpina Brazil”), a wholly-owned subsidiary and agent of PWT located in Sao Paulo, Brazil;

Panalpina Azerbaijan LLC (“Panalpina Azerbaijan”), a wholly-owned subsidiary and agent of PWT located in Baku, Azerbaijan;

Panalpina Kazakhstan LLP (“Panalpina Kazakhstan”), a wholly-owned subsidiary and agent of PWT located in Almaty, Kazakhstan;

Panalpina World Transport Limited (Russia) (“Panalpina Russia”), a wholly-owned subsidiary and agent of PWT located in Moscow, Russia; and

Panalpina World Transport Limited (Turkmenistan) (“Panalpina Turkmenistan”), a wholly-owned subsidiary and agent of PWT located in Turkmenbashi, Turkmenistan.

The information refers to PWT and the above subsidiaries collectively as “Panalpina.”

The criminal information begins with a heading titled “Panalpina’s Culture of Corruption.” This section states as follows.

“Prior to 2007, dozens of employees throughout the Panalpina organization were involved in paying bribes to foreign offcials. Panalpina generally made payments on behalf of customers in order to circumvent the customs process for imports and exports of goods and items. Panalpina paid these bribes for various reasons, such as to cause officials to overlook insufficient, incorrect, or false documentation and to circumvent the local laws and inspections so as to allow the shipment of contraband (mainly unauthorized food and clothing). Panalpina also on occasion paid bribes to secure foreign government contracts for itself or to obtain favorable tax treatment by foreign governments.”

According to the information, “the highest levels of PWT’s leadership, including a former member of PWT’s Board of Directors (“Board Member A”), knew of and tolerated Panalpina’s payments of bribes.”

The information states as follows:

“Panalpina’s longstanding practice of making bribe payments in violation of the FCPA resulted from a variety of factors, including: (1) pressure from Panalpina’s customers to have services performed as quickly as possible, or to receive preferential treatment in obtaining services; (2) an inadequate compliance structure; (3) a corporate culture that tolerated and/or encouraged bribery prior to 2007 as customary and necessary in various markets; (4) the involvement of management in PWT’s Swiss headquarters that tolerated the improper payments prior to 2007; and (5) the involvement of Panalpina management in the U.S. and in other countries that encouraged the improper payments prior to 2007.”

According to the information, between 2002 and 2007 “Panalpina paid bribes to foreign officials valued at approximately $49 million” and “payments paid on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for approximately $27 million of these bribes payments.”

The criminal information (here) alleges bribery schemes in Nigeria, Angola, Brazil, Azerbaijan, Russia, Kazakhstan, and Turkenistan.

Nigeria

According to the information:

“Panalpina had a substantial number of oil and gas customers that shipped items into Nigeria, including customers in the United States. The goods shipped by Panalpina into Nigeria could only be imported into the jurisdiction if they satisfied the local statutory and regulatory requirements, which required product inspection, submission of satisfactory paperwork, and payment of customs duties and other taxes. Furthermore, once the items had been imported, they remained subject to local laws or regulations. Some of Panalpina’s customers, including its U.S. customers, sought to avoid local customs and import laws and processes by seeking to import goods without sufficient documentation, without being inspected, or without paying the required taxes, duties or fees. Panalpina used a portion of the revenue earned from its customers to make bribe payments to local customs officials in exchange for their cooperation in assisting Panalpina in circumventing these local legal or regulatory requirements on behalf of Panalpina’s customers. Panalpina sought reimbursement for these bribe payments through invoices that used false terms to characterize the bribe payments.”

According to the information, Panalpina used “approximately 160 different terms [internally and externally to invoice customers] to falsely describe the bribes it paid in Nigeria relating to the customs process.”

The information alleges that “the bribes paid by Panalpina relating to the customs process were paid to officials in the Nigerian Customer Service (“NCS”), a Nigerian government agency” responsible for “assessing and collecting duties and tariffs on goods imported into Nigeria.”

According to the information, between 2002 and 2007, “Panalpina paid over $30 million in bribes to Nigerian government officials” and “payments made on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for at least $19 million of these bribe payments.”

The information describes four types of “bribery payments” in Nigeria – (1) Pancourier; (2) Temporary Import Permits payments; (3) “special” and other bribe payments; and (4) “recurring payments to government officials.” According to the DPA statement of facts “the overall largest category of payments, accounting for the largest amount of bribes, related to securing Temporary Importation Permits on behalf of its customers” and “those bribes ranged in value from $5,000 to over $75,000 per transaction.”

Pancourier

“Pancourier” was Panalpina’s “express courier service” that certain Panalpina customers used instead of “the normal shipping process” to “import goods or contraband into Nigeria without complying with Nigerian customs law.” According to the information, “Panalpina charged its customers a premium for this service and explained that no government receipt or paperwork would be available from NCS for the goods that were imported.” The information alleges that “Panalpina typically billed its customers for two separate charges” (1) a charge based on the weight of the shipment; and (2) a “special fee” that was a “bribe paid to the NCS officials for the purpose of securing an improper advantage for the customer.”

According to the information, between 2002 and 2007 “Panalpina, through Panalpina Nigeria, paid hundreds of bribes to NCS officials in relation to the Pancourier service.”

Special and Other Improper Payments

The information states as follows:

“In addition to the Pancourier service, Panalpina also offered standard freight forwarding and shipping services. For standard Panalpina freight forwarding and shipping, once the goods arrived at their destination, a Panalpina Nigeria employee would ensure that the goods cleared customs. The clearance process typically required the submission of documents, an inspection of the product being shipped, and the payment of any customs and other fees associated with the importation of that product. The goods shipped by Panalpina frequently encountered delays in clearng customs for various reasons, including insufficient or missing documentation or delays due to the legally-required inspection process. Panalpina customers often sought to avoid local customs and import laws and processes to expedite their shipments into Nigeria. Panalpina made cash bribe payments, through Panalpina Nigeria, to local government officials, including NCS employees, to expedite customs clearance, avoid the required cargo inspections, avoid fines, duty payments, and tax payments, and to circumvent permit requirements and other legal requirements.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina, Nigeria, paid thousands of bribes on behalf of its customers to Nigerian government officials to resolve these types of customs and immigration matters.”

Temporary Import Permits Payments

The information states as follows:

“Another service offered by Panalpina involved obtaining Temporary Import Permits (“TIPs”) required under Nigerian law to import high-value special equipment, such as rigs and other large vessels, into Nigerian water. A TIP could be extended through two six-month extensions (known as “TIP extensions”). Vessels imported under a TIP (and TIP extensions) could not remain in Nigeria longer than the period allowed for by the TIP and/or TIP extensions. Upon expiration, the vessel was required to be exported from Nigeria and, if appropriate, the customer could re-apply for a new TIP. Panalpina, through Panalpina Nigeria, made improper payments to Nigerian government officials to assist some of its customers to circumvent TIP regulations. Specifically, Panalpina Nigeria made payments to NCS officials, on behalf of customers, to extend TIPs without complying with Nigerian TIP regulations. As a result, the customers avoided the time and cost of removing vessels upon the expiration of the TIP, as was otherwise required by Nigerian law.”

According to the information, between 2002 and 2007, “Panalpina, through Panalpina Nigeria, paid over a hundred bribes to Nigerian government officials on behalf of Panalpina’s customers to improperly secure TIPs and TIP extensions.”

Payment of Bribes to Secure a Contract

The information alleges that between November 2003 and August 2005, “Panalpina promised to pay $50,000 to a National Petroleum Investment Management Services official (the “NAPIMS Official) in exchange for the official’s assistance in securing the award by NAPIMS of a logistics contract to Panalpina.” According to the information, “Panalpina was awarded a global framework logistics contract in or around November 2003” and “in or around November 2005, PWT directed the $50,000 bribe payment to be made to the NAPIMS Official in cash.”

The information states that NAPIMS supervised and managed Nigeria’s investment in the oil and gas industry and NAPIMS officials had the authority to approve or disapprove logistics contracts awarded for certain projects.

Recurring Payments to Government Officials

Although referenced in the information, the information does not contain any detail about such payments.

However, the DPA’s statement of facts states as follows.

“Panalpina Nigeria made improper payments to a wide variety of Nigerian officials, including, but not limited to, NCS offcials, Port Authority offcials, Maritime Authority officials, Police officials, Deparment of Petroleum officials, Immigration Authority officials, and National Authority for Food and Drug Control officials. Most of these improper payments were tied to specific transactions, however, Panalpina Nigeria also provided certain officials weekly or monthly allowances to ensure the officials would provide preferential treatment to Panalpina and its customers. Between in or around 2002 and in or around 2007, Panalpina made hundreds of improper weekly and monthly payments to Nigerian government officials.”

Angola

The information charges that between 2002 and 2008 “Panalpina Angola paid approximately $4.5 million in bribes to Angolan government officials.” Two types of payments are described: “Customs and Immigration Payments” and “Payments to Secure Contracts.”

Customs and Immigration Payments

According to the information, the payments were made to “Angolan government officials responsible for customs and immigration matters” and the purpose of the payments was to “cause such officials to: overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina Angola, or its customer, to comply with legal requirements.” According to the information, Panalpina Angola paid “hundreds of bribes” ranging from “de minimus amounts to $25,000 per transaction.”

Payments to Secure Contracts

The information charges that between December 2006 and March 2008, “Panalpina Angola paid over $300,000 to two Angolan government officials responsible for Angolan oil and gas operations to secure two separate logistics contracts.” According to the information, the officials “had the authority to approve or disapprove the retention of logistics companies to provide services for projects that Panalpina sought to secure.” According to the information, in connection with certain of these payments, Panalpina Angola “invoiced an Angolan government-controlled entity for a non-existent employee (referred to as the ‘ghost employee’) who was allegedly dedicated to the Angolan entity to work on the logistics for the particular project.”

Azerbaijan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Azerbaijan paid approximately $900,000 in bribes to Azeri government officials responsible for assessing and collecting duties and tariffs on imported goods. […] The purpose of many of the bribes paid to the Azeri government officials was to cause these officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements. In addition, Panalpina also made bribe payments to Azeri tax officials to secure preferential treatment for Panalpina Azerbaijan.”

Brazil

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Brazil paid over $1 millon in bribes to Brazilian govermnent officials responsible for assessing and collecting duties and tariffs on imported goods on behalf of its customers. […] The purpose of many of these bribes was to expedite the customs clearance process; to avoid the imposition of fines and penalties; to circumvent Brazilian law requirements for customs declaration of courier shipments; to permit shipments to be imported in Brazil without an import license; and to allow exports from Brazil of goods originally imported without accurate and complete documentation. Many of the bribe payments made by Panalpina Brazil on behalf of its customers were in connection with shipments to Brazil originating with Panalpina U.S. from the United States.”

Kazakhstan

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Kazakhstan paid over $4 milion in bribes to Kazakh governent officials, including, for example, payments to Kazakh government officials responsible for assessing and collecting duties and tariffs on imported goods and officials responsible for administering and enforcing Kazakhstan tax policy. […] The purpose of many of the bribes paid to the Kazakh government officials was to cause officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; and avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements.”

According to the information, the payments “ranged from several hundred dollars to $50,000 per transaction.”

The information further states that “Panalpina Kazakhstan paid bribes to Kazakhstan officials responsible for administering Kazkhstan tax policy in conjunction with its annual tax audits to minimize the duration and depth of the audits as well as to reduce proposed fines.”

Russia

The information states as follows.

“Between in or around 2002 and in or around 2007, Panalpina Russia paid over $7 milion in bribes to Russian government officials responsible for assessing and collecting duties on imported goods. […] The purpose of many of the bribes paid to the Russian government officials was to avoid delays, administrative fines, and other legal action as a result of missing, incomplete or erroneous documentation; to avoid problems arising out of the improper use of a TIP; and to bypass the customs process in total.”

Turkmenistan

The information states as follows.

“Between in or around 2002 and in or around 2009, Panalpina Turkmenistan paid over $500,000 in cash bribes to: (i) Turkmen government officials responsible for assessing and collecting duties and tariffs on imported goods in order to expedite the release of shipments and undocumented shipments and to circumvent the official Turkmen customs and immigration regulations; (ii) Turkmen government officials responsible for auditing, assessing, and collecting taxes on economic activity in Turkmenistan to minimize the duration of audits and investigations and to reduce proposed fines; and (iii) Turkmen govermnent officials responsible for enforcing Turkmenistan labor, health, and safcty laws, including through the use of audits and inspections, to minimize the duration of audits and investigations and to reduce the proposed fines.”

Based on all of the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions. In addition, as to the Nigeria conduct, the information charges FCPA anti-bribery violations.

As to a U.S. nexus (a requirement for an entity such as PWT to be in violation of the FCPA’s anti-bribery provisions under 78dd-3), the information merely alleges that in November 2003 “a Panalpina U.S. employee located in Houston, Texas, sent an e-mail to a Panalpina employee based in Switzerland advising that the NAPIMS Official would award a logistics contract with the Nigerian government to Panalpina in exchange for a bribe of $50,000” and that in November 2003 “Panalpina employees based in Switzerland, Panalpina U.S. employees located in Houston, Texas, and others participated in a conference call to discuss the $50,000 payment to the NAPIMS Official.”

PWT DPA

The DOJ’s charges against PWT were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, PWT admitted, accepted and acknowledged that it was responsible for the acts of its directors, officers, employees, subsidiaries, agents and consultants as set forth above.

The DPA’s statement of facts contains a separate section titled “Panalpina U.S.’s Assistance to its Issuer-Customers in Circumventing Books and Records Controls.” This section states that between 2002 and 2007 “Panalpina U.S. provided services to over 40 customers that were issuers” and that “in total, Panalpina paid approximately $27 million in bribes to foreign officials on behalf of these issuer-customers.”

In pertinent part, the statement of facts state as follows.

“Many of Panalpina U.S.’s issuer-customers knew, or were aware of facts indicating a high probability, that Panalpina was paying bribes on their behalf. Further, those issuer-customers with knowledge of the bribe payments failed to properly record the payments in their books and records.”

“Many of Panalpina’s issuer-customers were aware of the bribes paid by Panalpina. Importantly, those issuer-customers with strong compliance programs or rigorous audit standards were either not offered services such as Pancourier, which included improper payments to governent officials, or Panalpina paid bribes on the issuer-customer’s behalf but would not invoice the issuer-customer for the payment.”

“Panalpina US., through the local Panalpina affiiates, knowingly and substantially assisted the issuer-customers in violating the FCPA’s books and records provisions by masking the true nature of the bribe payments in the invoices submitted to the issuer-customers. By providing an invoice to the issuer-customer for what appeared to be a legitimate payment, the customer could use that invoice as support for recording a particular charge as a legitimate service in its corporate books and records when, in fact, the invoice was for a bribe.”

The statement of facts then describe how Panalpina Nigeria specifically assisted Customer A (Shell) and Customer B (Tidwater) in making bribe payments for Pancourier services and TIP payments.

The DPA’s statement of facts provides further information about “Panalpina’s Corporate Culture and Senior Management Knowledge.” According to the statement of facts: “Prior to 2007 a culture of corruption within Panalpina emanated from senior level management in Switzerland who tolerated bribery as business as usual in various markets. This trickled down to other Panalpina employees who accepted bribery as a part of Panalpina’s standard business practice.” According to the statement of facts: “Many employees openly used the terms ‘apples,’ ‘interventions,’ ‘special handling,’ and ‘evacuations’ on a daily basis in conversations, written correspondence, and e-mail exchanges” even though “most employees understood that these terms referred to cash payments provided to government officials in exchange for preferential treatment.”

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and PWT. Among the factors stated are the following.

(a) PWT conducted comprehensive anti-bribery compliance investigations of operations of PWT’s subsidiaries in seven countries, as well as separate investigations related to U.S. and Swiss operations;

(b) PWT conducted a review of certain transactions and operations conducted by its subsidiaries or agents in another 36 countries;

(c) PWT promptly and voluntarily reported its findings from all investigations to the Department, including arranging to provide information from foreign jurisdictions which significantly facilitated the Department’s access to such information;

(d) PWT mandated employee cooperation from the top down and ensured the availabilty of more than 300 employees and former employees for interviews during and following the investigations;

(e) PWT instituted a limited employee amnesty program to encourage employee cooperation with the investigations;

(f) PWT expanded the scope of the investigations where necessary to ensure thorough and effective review of potentially improper practices, and promptly and voluntarily reported any improper payments identified after internal and Department investigations had begun;

(g) After initially not cooperating with the investigation for several months, PWT fully cooperated with the Department’s investigation of this matter, as well as the SEC’s investigation, and on the whole exhibited exemplary
cooperation with the Departent’s investigation;

(h) PWT provided substantial assistance to the Department and the SEC in its investigation of its directors, officers, employees, agents, lawyers, consultants, contractors, subcontractors, subsidiaries and customers relating to violations of the FCPA;

(i) PWT undertook substantial remedial measures [the DPA then lists 10 such measures including “of its own initiative and at a substantial cost, PWT closed down its operations and withdrew from Nigeria to avoid potential ongoing improper conduct”]; and

(j) PWT agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of PWT and its directors, officers, employees, agents, lawyers, consultants, subcontractors, subsidiaries, and customers relating to violations of the FCPA.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the DPA, PWT agreed to pay a monetary penalty of $70.56 million. However, the DOJ and PWT agreed “that any criminal penalty that is imposed by the Court and paid by Panalpina U.S., in connection with its guilty plea and plea agreement entered into simultaneously herewith will be deducted from the $70,560,000 criminal penalty required by this Agreement.” Because the Panalpina Inc. plea agreement (which relates only to Nigeria conduct) contemplates a payment of $70,560,000, the effect of the above clause is that PWT will end up paying $0 for the non-Nigeria conduct described in the DPA.

Also of note, even though the DPA states that PWT did not initially cooperate with the DOJ’s investigation for several months, PWT nevertheless received sentencing credit for “fully cooperating” in the DOJ’s investigation.

Pursuant to the DPA, PWT agreed to a host of compliance undertakings and to report to the DOJ (during the term of the DPA) “on its progress and experience in implementing and, as appropriate, enhancing its compliance policies and procedures.”

The DPA references three tolling agreements agreed to between January 2008 and October 2010.

As is standard in FCPA DPAs, PWT agreed not to make any public statement “contradicting the acceptance of responsibility by PWT as set forth” in the DPA and PWT further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

Panalpina U.S. Criminal Information

The criminal information (here) describes “Panalpina U.S.’s Actions to Conceal Bribes on Behalf of Its Issuer-Customers in Nigeria.” Separate sections concern “Pancourier Express Courier Payments” and “Temporary Importation Payments.”

Count One of the information charges Panalpina U.S., a non-issuer, with conspiring and agreeing with Customer A [Shell] and Customer B [Tidewater] “to knowingly falsify and cause to be falsified books, records, and accounts which were required, in reasonable detail, to accurately and fairly reflect the transactions and dispositions of the assets of Customer A, Customer B, and other issuers” in violation of the FCPA’s books and records provisions.

Count Two of the information charges Panalpina U.S. with aiding and abetting FCPA books and records violations by aiding, abetting, and assisting Customer A [Shell] “in mischaracterizing payments for freight forwarding costs as ‘administration/transport charges’ in Customer A’s books and records when, in truth and in fact, Customer A knew that these payments were bribes, paid through Panalpina Nigeria, intended to be transferred to NCS officials.”

Panalpina U.S. Plea Agreement

The above criminal charges against Panalpina U.S. were resolved via a plea agreement (see here).

As stated in the plea agreement, the fine range for Panalpina U.S.’s conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the plea agreement, Panalpina U.S. agreed to pay a monetary penalty of $70.56 million.

In an “Agreed Motion to Waive the Presentence Report” (here) the DOJ states as follows.

“…Panalpina’s cooperation and remediation in this matter has been exemplary. Panalpina provided substantial assistance to the Deparment in its investigations relating to these matters. In addition, where Panalpina encountered evidence of new violations in the course of its internal investigation, it expanded the scope of the investigation accordingly and reported the new findings to the Department. Panalpina acknowledged and accepted responsibility for misconduct, investigated and identified the nature and extent of the misconduct, and undertook comprehensive global remediation and training during the course of the investigation. Panalpina’s remediation was global and included a dramatic change in its busincss model, paricularly in higher risk countries.”

As to how the DOJ’s investigation of PWT and its related entities began, the Report states as follows. “In approximately 2006, the Department opened an investigation into Panalpina’s business practices based on evidence obtained through several Panalpina customers indicating Panalpina had paid bribes to foreign government officials on behalf of its customers.”

The Report continues as follows. “In total, between in or around 2002 and in or around 2007, Panalpina paid bribes to offcials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan. Approximately $27,000,000 of that total related directly to, and was paid on behalf of, customers that were US. issuers or “domestic concerns” within the meaning of the FCPA.

The Report contains a footnote that states “a small number of improper payments continued into 2008 and 2009.” As to these payments, the Report notes elsewhere as follows. “Despite PWT’s and Panalpina U.S.’s extensive efforts to transform its compliance program, during the course of the investigation, PWT uncovered a few instances in which employees were continuing to pay bribes to foreign officials. This improper conduct, although limited, continued to occur into 2008 and early 2009. Upon discovery, PWT took swift action to stop the payments, to disclose the conduct to the Department, to terminate and/or reprimand the employees implicated in the conduct, and to retrain employees in the relevant countries regarding the importance of adhering to PWT’s compliance rules and regulations.”

As to Panalpina’s “Cooperation and Assistance” the Report states as follows.

“The Department initiated its investigation of Panalpina in or around mid-2006 based on conduct disclosed by Panalpina customers. Panalpina learned of the
investigation in or around late-2006 from its customers. Despite knowledge of the investigation, Panalpina did not voluntarily disclose the conduct to the Department and did not stop the illegal payment of bribes that was occurring on multiple continents. In or about early-2007, the Department requested documents and information from Panalpina; however, at that time, Panalpina exhibited a reluctance to cooperate with the investigation. Thereafter, Panalpina engaged and instructed its legal counsel (“Counsel”) to conduct a comprehensive internal investigation, and ultimately authorized Counsel to report the findings to the Department and SEC. Thereafter, Panalpina exhibited exemplary cooperation with the Department and SEC, and conducted a comprehensive internal investigation that fully supported and paralleled the Department’s investigation. Specifically, Panalpina engaged Counsel to lead investigations encompassing 46 jurisdictions and hired an outside audit firm to perform forensic analysis and other support tasks. Panalpina’s internal investigation included a comprehensive review of operations in nine countries – the United States, Switzerland, Nigeria, Brazil, Angola, Russia, Kazakhstan, Turkmenistan, and Azerbaijan – and a detailed review of 102 additional issues in another 36 countries. Panalpina expanded the scope of its internal investigation where necessary, and promptly and voluntarly reported its findings from all investigations to the Department and SEC in over 60 meetings and calls. When potential issues were identified in countries not subject to a full investigation, Panalpina thoroughly investigated and remediated those issues. Panalpina voluntarily supplied to the Department and the SEC information from interviews and documentary evidence regarding potential violations by Panalpina customers and third parties used as conduits for improper payments and for facilitating improper transactions. Panalpina provided substantial assistance to the Department and SEC in the investigation of its own directors, officers, and employees, mandated employee cooperation from the top down, and made over 300 current and former employees available for interviews to Counsel, the Department, and the SEC during and after the internal investigation. Panalpina also adopted a limited employee amnesty program to encourage employee cooperation with the internal investigation.”

The Report further notes as follows. “On September 30, 2010, in an unelated matter, PWT was charged in a three-count criminal information with fixing prices on surcharges added to air cargo shipments in certain trade lanes, in violation of Title 15, United States Code, Section 1. See United States v. Panalpina World Transport (Holding) Ltd., 10270-RJ (D.D.C.). The Company has agreed to plead guilty and to pay a fine of $11,947,845. No date has yet been set for entry of
the plea or sentencing.”

SEC

The SEC’s civil complaint (here) alleges, in summary, as follows.

“Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.’ s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some
members of Panalpina, Inc.’s management. Although the reasons for the bribes, and the payment schemes themselves, differed from jurisdiction to jurisdiction and transaction by transaction, most shared several similarities. The issuer customers often used Panalpina, Inc. or other Panalpina Group companies to ship goods from the United States, or elsewhere, to another jurisdiction or sought Panalpina, Inc.’s assistance in obtaining customs or logistics services in the country to which the goods were shipped. However, for various reasons including delayed departures, insufficient or incorrect documentation, the nature of the goods being shipped and imported, or the refusal of local government officials to provide services without unofficial payments, Panalpina, Inc.’ s issuer customers sometimes faced delays in importing the goods. In other cases, Panalpina, Inc.’s issuer customers sought to avoid local customs duties or inspection requirements or otherwise sought to import goods in circumvention of local law. In order to secure the importation of goods under these circumstances, Panalpina, Inc.’ s issuer customers often authorized Panalpina, Inc. and the local affiliated Panalpina Group companies (e.g., Panalpina Nigeria) to bribe local government offcials. These cash payments to government officials were typically made by employees of the local affiliated Panalpina Group companies. The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity (“Affiliated Billing Entity”). These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as ‘local processing,’ ‘special intervention,’ ‘special handling,’ and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers.”

By engaging in this conduct, the SEC alleged that Panalpina, “while acting as an agent of its issuer customers” violated the FCPA’s anti-bribery provisions and aided and abetted its issuer customers’ violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions. The SEC complaint specifically states that “neither Panalpina, Inc. nor PWT is an issuer for purposes of the FCPA.”

As to Pancourier payments, the complaint alleges that in order to assist its issuer customers avoid certain Nigerian legal requirements, “Panalpina Inc. would ship the product to Nigeria wrapped in a distinctive manner so that customs officials would recognize it as a Pancourier shipment and not inspect it, require a Form M, or otherwise subject it to normal customs procedures. In order to secure its preferential treatement, Panalpina Nigeria made regular improper cash payments to Nigerian customs officials.”

The SEC complaint also describes “additional bribes paid on behalf of issuer customers in Nigeria, Angola, and Brazil” including temporary importation payments described as “the largest category of customs-related payments made by Panalpina Nigeria on behalf of the issuer customers.” The complaint also describes “pre-release, intervention, evacuation, and special payments” made by Panalpina Nigeria to “Nigerian government officials on behalf of the issuer customers to secure the release of goods from customs prior to the completion of the inspection process” and to “secure improper benefits for the issuer customers.”

The Angola payments related to immigration matters “in order to obtain visas for the issuer customers on an emergency basis, often requesting that the visa be issued same-day, in contravention of Angolan law;” and customs matters “in order to assist the issuer customers to import goods into Angola without complying with Angolan law.” The complaint also describes “other payments” in Angola including “unofficial payments to Angolan military officials on behalf of the issuer customers in order to permit them to use military cargo aircraft to transport their commercial goods.”

The Brazil payments related to “improper payments to Brazilian government officials on behalf of its issuer customers in order to expedite the customs clearance process, and where necessary, to resolve customs and import-related issues.”

The complaint also alleges that between 2002 and 2007 “Panalpina Kazakhstan and Panalpina Russia made or authorized the making of several types of improper payments on behalf of issuer customers to government officials in Russia, Kazakhstan, and other parts of Central Asia, in order to assist the issuer customers improperly import goods into these jurisdictions or to obtain other types of improper benefits.”

According to the SEC, “Panalpina Inc. obtained improper benefits totatling at least $11,329,369 from the illegal conduct” described in the complaint.

Without admitting or denying the SEC’s allegations, Panalpina agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $11,329,369.

In a press release (here), Panalpina CEO, Monika Ribar stated as follows. “The settlement of these claims marks the closing of an extremely burdensome chapter in Panalpina’s history and the end of a very demanding three-year effort to address and eliminate serious concerns. Now it is time for us to look to the future and to build on the strong and sustainable compliance culture we have put in place. We are also looking forward to strengthened relationships with our customers who have ceased or reduced business activities with Panalpina due to the investigation. Based on new leadership and significant enhancements of our compliance systems we are a much stronger company today.”

Richard Dean (here) and Douglas Tween (here) both of Baker & McKenzie represented the Panalpina entities.

More On Alliance One and Universal

Earlier this month (see here) the DOJ and SEC announced FCPA enforcement actions against tobacco companies – Alliance One International, Inc. and Universal Corporation.

Both the DOJ (here) and the SEC (here) issued a consolidated press release – the first time (to my knowledge) the agencies have consolidated an enforcement action against two unrelated companies in such a fashion. Perhaps the reason was, as explained below, a significant part of the improper conduct at both companies involved the same entity – The Thailand Tobacco Monopoly (“TTM”) – an alleged agency and instrumentality of the Thai government.

This is a long post, but then again, at nearly 300 pages, there was much in the DOJ and SEC resolution documents.

For instance, Alliance One’s entire exposure was based, not on anything it did, but rather successor liability theories.

Both the Alliance One and Universal enforcement actions were the product of voluntary disclosure. In fact, the Universal inquiry began when a former employee contacted the company’s internal compliance hotline. Query whether that individual today would do the same thing given Dodd-Frank’s whistlblower provisions – provisions which, if applicable, would make him / her a millionaire.

The Universal enforcement action is an FCPA first, in that it concerns conduct in Mozambique and Malawi.

There are also many remedial measures / compliance nuggets waiting to be digested from these enforcement actions.

The Alliance One enforcement action has already spawned a related individual enforcement action against Bobby Elkins (see here) and the Universal enforcement action may do the same as the DOJ’s Statement of Facts contains an alphabet soup of employees, including U.S. citizens, allegedly involved in the improper conduct.

This post describes the DOJ and SEC’s enforcement actions against Alliance One as well as the DOJ and SEC’s enforcement actions against Universal Corp.

Alliance One

The Alliance One enforcement action included a non-prosecution agreement between the DOJ and Alliance One, criminal pleas by Alliance One International AG and Alliance One Tobacco OSH, LLC, as well as an SEC enforcement action against Alliance One.

Edward Fuhr, Hunton & Williams LLP (see here), represented Alliance One entities. Colleen Mahoney, Skadden (see here), the former Deputy Director of the SEC’s Division of Enforcement, represented Alliance One’s Board of Directors and Audit Committee.

DOJ

Pursuant to a non-prosecution agreement (see here), the DOJ agreed not to prosecute Alliance One related to:

1. “improper payments (or agreements to make improper payments) made by employees and agents of its subsidiary or predecessor corporations in the form of:

a. corrupt payments made to foreign officials in Kyrgyzstan including (i) bribes paid to officials of the Kyrgyz Tamekisi; (ii) bribes paid to Akims; and (iii) bribes paid to Kyrgyz tax officials, which payments were made for the purpose of obtaining and retaining business with Kyrgyzstan government entities; and

b. corrupt payments made to foreign officials in Thailand in the form of
kickbacks paid to officials of the Thailand Tobacco Monopoly, which payments were made for the purpose of obtaining and retaining business with Thailand government entities; and

2. The accounting and record-keeping practices associated with these improper
payments.”

Pursuant to the NPA, Alliance One “admitted, accepted, and acknowledged successor corporate responsibility for the conduct of its corporate predecessors” as set forth in a Statement of Facts attached to the NPA.

In summary fashion, the Statement of Facts are as follows:

Prior to 2005, Dimon, Inc. (“Dimon”) was a publicly traded leaf tobacco merchant subject to the FCPA. Dimon also had an obligation to ensure that its wholly owned subsidiaries, including Dimon International Kyrgyzstan, Inc. (“DIK”) and Dimon International AG (“DIAG”), maintained accurate books and records.

Prior to 2005, Standard Commercial Corp. (“Standard”) was a publicly traded leaf tobacco merchant subject to the FCPA. Standard also had an obligation to ensure that its wholly owned subsidiaries, including Standard Brazil Ltd., maintained accurate books and records.

In 2005, Dimon and Standard merged to form Alliance One.

Kyrgyzstan

Dimon maintained a wholly owned subsidiary, DIK, that was organized under Kyrgyzstan law. During the relevant time period, DIK purchased and processed tobacco grown in Kyrgyzstan and shipped processed tobacco to Dimon’s customers throughout the world.

According to the Statement of Facts, “DIK maintained its principal place of business in Osh, Kyrgyzstan and made regular reports of its business operations and financial accounts to officers of Dimon located at its headquarters in Danville, Virginia. DIK regularly sought approval for management decisions from Dimon managemeut and worked with and communicated with individuals acting as DIK’s agents in Danville, Virginia, and Farmville, North Carolina, who undertook certain acts within the territory of the United States such that DIK was a “person” within the meaning ofthe FCPA.

After the merger of Dimon and Standard in 2005, Alliance changed the name of DIK to Alliance One Tobacco Osh, LLC (“Osh”) which continued to operate in Kyrgyzstan as a wholly owned subsidiary of Alliance One.

According to the Statement of Facts, “Osh is the corporate successor to DIK, and is legally accountable for the criminal acts of its predecessor corporation.

Like the DOJ and SEC’s prior enforcement action against Bobby Elkins (see here and here), the Statement of Facts focus on improper payments to “Kyrgyz Official A,” “the Akims” and the “Kyrgyz Tax Inspection Police.”

Kyrgyz Official A served as the “General Director of the Tamekisi” “an agency and instrumentality of the [Kyrgyz] government [established] to manage and control the government-controlled shares of the tobacco processing facilities throughout Kyrgyzstan.” According to the Statement of Facts, the Tamekisi agreed to issue a license to Dimon to process and export tobacco and that from October 1996 through at least February 2004, DIK delivered approximately $2.6 million in cash payments to the official. According to the Statement of Facts, these payments were intended to “influence acts or decisions” of the official in his official capacity and to secure DIK’s “continued access to the tobacco processing facilities controlled by the Tamekisi.”

According to the Statement of Facts, an Akim is a head of Kyrgyz local government with “authority over the sale of tobacco by the growers” within a specific municipality or geographic area. The Statement of Facts indicate that beginning in 1996 “it became necessary for DIK to obtain permission from local Akims to purchase tobacco from the growers in each area” and “several of the Akims demanded payment of a “commission” from DIK “in order to secure the relevant Akim’s approval” for DIK to purchase tobacco from local growers. According to the Statement of Facts, from January 1996 to at least March 2004 DIK made cash payments “to the Akims of five different municipalities totaling approximately $283,762 in order to influence the acts and decisions of the Akims and to secure DIK’s continued ability to purchase tobacco from growers in the muncipalities controlled by the Akims.”

As to the Kyrgyz Tax Inspection Police, the Statement of Facts indicate that “during periodic audits” of DIK, the police assessed penalties and threatened to shut down DIK. According to the Statement of Facts, from March 2000 to March 2003 DIK “made approximately nine cash payments to officers of the Kyrgyz Tax Inspection Police totaling approximately $82,850 in order to influence the acts and decisions” of the police and to secure DIK’s “continued ability to conduct its business in Kyrgyzstan.”

According to the Statement of Facts, DIK maintained a company bank account in Kyrgyzstan, known as the “special account” to make the above described improper payments and when a DIK employee “needed to replenish money in the special account, he sent requests for funds by electronic mail or facsimile transmission to other employees and officers of Dimon or its affiliates in the U.S.” accompanied by a wire transfer request to Dimon’s Financial Accounting Department in Virginia.

According to the Statement of Facts, “the financial reporting on the special account from DIK and all other Dimon subsidiaries went directly to Dimon’s corporate headquarters in the U.S.” and in July 2002 “an internal audit report to Dimon headquarters stated that DIK management continued to be challenged by a ‘cash environment’ and cited corruption in Kyrgyzstan as a financial risk because of the potential control issue with cash payments.”

According to the Statement of Facts, between January 1996 and December 2004, “the Kyrgyzstan business operations of DIK generated profits of approximately $4.8 million for its parent corporation, Dimon.”

Thailand

Prior to 2005, Dimon maintained a wholly owned subsidiary, DIAG, which was organized under Swiss law and conducted business in the U.K., Brazil, Thailand, the U.S. and elsewhere. According to the Statement of Facts, “during the relevant time period, DIAG provided financial, accounting and management services to other Dimon subsidiaries that purchased tobacco grown in Brazil, and sold it to Dimon’s customers including the [TTM].” According to the Statement of Facts, DIAG, which maintained its principal place of business in the U.K., “made regular reports of its business operations and financial accounts to officers of Dimon located at its headquarters in Danville, Virginia” and DIAG “regularly sought approval for management decisions from Dimon management and worked with and communicated with individuals acting as DIAG’s agents” in Virginia and North Carolina “who undertook certain acts while in the territory of the United States such that DIAG was a “person” within the meaning ofthe FCPA.

Prior to 2005, Standard maintained a wholly owned subsidiary, Standard Brazil Ltd (“Standard Brazil”), which was organized under the laws of the Isle of Jersey, Channel Islands, and conducted business in Brazil, Thailand, and elsewhere. During the relevant period, Standard Brazil provided financial, accounting and management services to other Standard subsidiaries that purchased tobacco grown in Brazil, and sold it to Standard’s customers including the TTM. Standard Brazil regularly sought approval for management decisions from Standard management and worked with and communicated with individuals at Standard, acting as Standard Brazil’s agents in the United States and undertaking certain acts within the territory of the United States such that Standard Brazil was a “person” within the meaning of the FCPA.

The Statement of Facts concern improper payments to TTM (see here) “an agency and instrumentality” of the Thai government established to “manage and control the government-owned tobacco industry in Thailand.” According to the Statement of Facts, the TTM “supervised the cultivation of domestic tobacco crops, purchased imported tobacco and manufactured cigarettes and other tobacco products in Thailand.”

According to the Statement of Facts, the TTM was headed by a Managing Director (“Thai Official A”), appointed by the Finance Ministry, who reported through a Board of Directors directly to the Minister of Finance of Thailand and, as such, was a “foreign official” within the meaning of the FCPA. (See here for TTM’s current organizational chart).

According to the Statement of Facts, during the relevant time period, Dimon purchased tobacco from growers in Brazil and sold the Brazilian tobacco to the TTM through DIAG and Standard sold the Brazilian tobacco to the TTM through Standard Brazil. To help facilitate these sales, Dimon and Standard Brazil retained sales agents in Thailand and the companies paid sales commissions to the agents in varying amounts as a percentage of its tobacco sales to the TTM.

According to the Statement of Facts:

“Beginning in or around 2000 and continuing through at least in or around 2004, Dimon and Standard, through their agents, subsidiaries and affiliates, collaborated together and with a competing tobacco merchant, Company A, [presumably Universal Corp.] to apportion tobacco sales to the TTM among themselves and to coordinate their sales prices in order to ensure that each company would share in the Thai tobacco market. Beginning in or around 2000 and continuing through at least in or around 2004, Dimon, Standard and Company A agreed among themselves to pay bribes to officials of the TTM in exchange for their purchase of tobacco. The three companies agreed to pay ‘special expenses,’ calculated at an agreed rate per kilogram of tobacco sold to the TTM, that were paid as kickbacks to Thai Official A and other TTM officials to induce the TTM to purchase tobacco and to secure an improper advantage for Dimon, Standard and Company A.”

According to the Statement of Facts, between 2000 and 2004 “Dimon realized net profits of approximately $4.3 million from the sale of Brazilian tobacco to the TTM” and paid “special expenses totaling approximately $542,950 as kickbacks to Thai Official A and other TTM officials…” According the Statement of Facts, during the same time period, “Standard realized net profits of approximately $2.7 million from the sale of Brazilian tobacco to the TTM” and paid “special expenses totaling approximately $696,160 as kickbacks to Thai Official A and other TTM officials…”

According to the Statement of Facts, the companies and individuals involved “knew and intended that the corrupt special expenses paid to Thai Official A and other TTM officials” would “secure an improper advantage for Dimon and Standard by influencing the TTM’s decision to purchase Brazilian tobacco from Dimono and Standard.”

According to the Statement of Facts:

“After the merger of Dimon and Standard in 2005, Alliance One consolidated the assets, liabilities, and business affairs of Standard Brazil with DIAG and renamed the subsidiary corporation Alliance One International AG” (“Alliance One AG”). According to the Statement of Facts, as the successor corporation, Alliance One AG “is legally accountable for the criminal acts of both DIAG and Standard Brazil” and Alliance One AG “continued to operate in the U.K. and elsewhere as a wholly owned subsidiary” of Alliance One and accordingly is a “person” within the meaning of the FCPA.”

The Statement of Facts then lists several acts in furtherance of the improper payments that had a U.S. nexus such as e-mail messages and wire transfers to or from the U.S.

According to the DOJ, it agreed to enter into the NPA with Alliance One based, in part, on the following factors: “(a) Alliance’s timely, voluntary and complete disclosure of the conduct and events at issue; (b) Alliance’s thorough, real-time cooperation with the Department and the Securities and Exchange Commission, including its voluntary production of documents; (c) the remedial compliance efforts undertaken and to be undertaken by Alliance; and (d) no further criminal conduct has occurred since the merger that created Alliance.”

During the three-year NPA, Alliance One shall, among other things, cooperate in any related DOJ or SEC investigation. Pursuant the NPA, Alliance One must also strenghen its internal controls and retain an independent corporate monitor.

The criminal informations against Alliance One AG (here) and Osh (here) concern the same core conduct described above.

The criminal information against Alliance One AG concerns Thailand conduct and charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Dimon and Standard; (ii) substantive FCPA anti-bribery violations; and (iii) aiding and abetting FCPA books and records violations.

The Alliance One AG Plea Agreement (here) notes that the benefit received from the improper conduct was approximately $7 million. The company received a “culpability score” credit for “self-reporting, cooperation, acceptance of responsibility.” The fine range, per the U.S. Sentencing Guidelines was $4.2 – $8.4 million. The DOJ and Alliance One AG agreed that the appropriate sentence should be $5.25 million. The plea agreement notes that the plea was “the result of the voluntary disclosure made by [Alliance One AG] and its parent [Alliance One] to the Department beginning in May 2004, and the disclosure of evidence obtained as a result of the extensive investigation subsequently conducted by [Alliance One] into the operations of [Alliance One AG], its parent, affiliates, and subsidiaries.” The agreement states that “at the time of the initial disclosure, the conduct was unknown to the Department.”

The criminal information against Osh concerns Kyrgyzstan conduct and charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Dimon; (ii) substantive FCPA anti-bribery violations; and (iii) aiding and abetting FCPA books and records violations.

The Osh Plea Agreement (here) notes that the benefit received from the improper conduct was approximately $4.8 million. The company received a “culpability score” credit for “self-reporting, cooperation, acceptance of responsibility.” The fine range, per the U.S. Sentencing Guidelines was $4.2 – $8.4 million. The DOJ and Osh agreed that the appropriate sentence should be $4.2 million. The plea agreement notes that the plea was “the result of the voluntary disclosure made by [Osh] and its parent [Alliance One] to the Department beginning in May 2004, and the disclosure of evidence obtained as a result of the extensive investigation subsequently conducted by [Alliance One] into the operations of [Osh], its parent, affiliates, and subsidiaries.” The agreement states that “at the time of the initial disclosure, the conduct was unknown to the Department.”

In the DOJ’s Consolidated Sentencing Memorandum (here), it notes that the “corporations have executed a tolling agreement that provides that the statute of limitations was tolled on May 24, 2004, the date on which the corporation first notified the Department that they were undertaking an internal investigation.”

As to the ultimate fine amounts, the DOJ states that it “and the defendant corporations have negotiated a fine that is at or above the minimum fine in the range.”

As to Osh’s $4.2 million fine, the DOJ states:

“The Department submits that a fine at the low end of the Guidelines range is
appropriate in this case given the company’s prompt and timely self-disclosure of the potentially corrupt payments as soon as they were discovered, the remedial measures taken and the nature and extent of the company’s cooperation throughout the
government’s investigation. The company retained outside counsel to conduct an extensive internal investigation and voluntarily produced thousands of pages of documents and memoranda of witness interviews. The company’s remedial measures, outlined below, included the termination of all employees found to have authorized or participated in the improper payments.”

As to Alliance One AG’s $5.25 million fine, the DOJ states:

“This fine is above the minimum of the range partly to account for the fact
that two subsidiaries (DIAG and Standard Brazil) participated in the commission of the offense, along with a third unrelated company, although they were subsidiaries of different parent corporations at the time. Further, because DIAG, Standard Brazil and Company A collaborated to fix prices and pay bribes to the Thai officials, the conduct was not limited to a few employees or confined to a single business unit.”

The Government’s Sentencing Memorandum concludes as follows:

“Alliance’s cooperation was both timely and thorough. During the course of the government’s investigation, Alliance and its outside counsel fully cooperated in good faith with the Department, and produced thousands of pages of documents and financial records. Alliance tenninated or sought resignations from all employees who were found to have knowledge of or participated in the improper payments. Alliance voluntarily produced memoranda of employee interviews conducted by counsel. Alliance and their counsel have been available to meet with Department attorneys to brief them on the progress and findings of their internal investigation. The agreed dispositions, described above, reflect the Department’s recognition of Alliance’s timely and thorough cooperation.”

“Alliance took remedial actions including enhancement of its corporate compliance program, replacement of responsible management, and discipline or termination of wrongdoers. Specifically, Alliance took the following remedial actions:

• The Special Account maintained in the name of employees was closed.

• On May 24, 2004, the Audit Committee directed management to deliver a “clear and proactive message” that:

o “Illegal acts will not be tolerated in Dimon;”

o “any potentially illegal act should be brought to the attention of the CLO prior to execution of the transaction;” and

o “any individual that believes that an illegal act may have occurred should contact the CLO immediately.”

• Management issued a directive to regional executives and all accounting personnel that any questionable expenses or payments and expenses without adequate
explanation or documentation must be reported to the Corporate Compliance Officer.

• The Audit Committee implemented a new policy requiring CFO or Controller pre-approval of any material payment in cash.

• Management issued a direction to employees that “[n]o payments to public officials or political parties are to be made in any form without the express advance approval of the Corporate Compliance Officer.”

• Compliance Officer required all personnel to re-take an online training course covering the FCPA provided by Integrity Interactive.

• Responsible personnel, including senior management in Europe and Kyrgyzstan were terminated or left company voluntarily. Other employees were reprimanded.

• Corporate Accounting required supporting information for all payments made in cash from any entity where such payments exceed $2500 annually, and issued a directive to minimize cash payments for anything other than incidental expenses.

• All cash accounts must be maintained in the company’s name.

• All cash transactions are required to be documented by receipts and signed by the recipient and they established a periodic review and approval process for all
non-incidental types of expenses paid in cash to ensure payments would comply with Company policy and the law.

A sentencing hearing is scheduled for October 21, 2010.

SEC

The SEC’s settled civil complaint (see here) alleges the same core Kyrgyzstan and Thailand conduct as the DOJ’s enforcement action.

As to books and records and internal controls, the SEC alleges that “Dimon’s Country Manager authorized, directed, and made” the improper payments in Kyrgyzstan through a DIK bank account held under his name (the above mentioned special account), that “Dimon’s Regional Financial Director authorized all fund transfers from a Dimon subsidiary’s bank account to the Special Account” and that “Dimon’s International Controller formalized the accounting methodology used to record the payments made from the Special Account for purposes of internal reporting by Dimon.”

In summary fashion, the SEC also alleged as follows:

“Despite their extensive international operations, Dimon and Standard lacked sufficient internal controls designed to prevent or detect violations of the FCPA. During the 2000-2004 period, Dimon and Standard each had a policy manual prohibiting bribery, but the training and guidance provided to their employees regarding compliance with the FCPA were not adequate or effective. Dimon and Standard each also failed to establish a program to monitor compliance with the FCPA by its employees, agents, and subsidiaries.”

As I’ve indicated in prior posts, before a company settles an FCPA enforcement action, it usually has to answer the enforcement agencies’ “where else” question – as in, if you engaged in improper conduct or had internal control problems in Kyrgyzstan and Thailand, where else did you engage in improper conduct or have internal control problems. To answer this broad question, the company is forced to conduct a world-wide review of its operations and that is why one sees, as in the SEC’s complaint against Alliance One, a laundry list of other alleged improper conduct.

In summary fashion, the SEC’s complaint also alleges as follows:

“By at least May 2005, Standard provided gifts, travel, and entertainment expenses to foreign government officials in the Asian Region, including China and Thailand.” “For example, in 2002 and 2003, contemporaneous documents show that Standard employees provided watches, cameras, laptop computers, and other gifts to Chinese and Thailand tobacco officials. Standard also paid for dinner and sightseeing expenses during non-business related travel to Alaska, Los Angeles, and Las Vegas for Chinese and Thailand government delegations.”

“In 2004, Standard made a $50,000 payment to a political candidate who was also Standard’s agent for tobacco sales in Thailand.” “The $50,000 payment was falsely recorded in Standard’s books as payment for consulting work.”

“In April 2003, Dimon’s subsidiary in Greece made a payment of $96,000 to a Greek tax official in exchange for the tax official’s agreement not to pursue certain irregularities discovered during an audit, thus significantly reducing Greece’s tax liability. Separately, the controller of Dimon’s subsidiary in Indonesia made a $44,000 cash payment to an Indonesian tax official in exchange for receiving a tax refund.”

The SEC complaint charges Alliance One with violations of the FCPA’s anti-bribery provisions, books and records and internal control provisions.

The SEC release (here) notes that Alliance One, without admitting or denying the SEC’s allegations, consented to entry of a permanent injunction enjoining future FCPA violations and agreed to pay a disgorgement penalty of $10 million.

In an Alliance One press release (see here) R. E. Harrison, the Company’s Chairman and Chief Executive Officer, stated:

“Our Company is committed to the highest standards of conduct in all transactions in all jurisdictions where we do business throughout the world. In these cases, although occurring prior to our merger in May, 2005, the conduct by those predecessor companies did not meet our standards and we believe it to be in the best interest of the Company, our shareholders and our other stakeholders to put these issues behind us by means of these negotiated agreements. As indicated in our agreement with the DOJ, we have cooperated fully throughout the course of this investigation and believe that since our merger we have demonstrated our complete commitment to conducting our business in accordance with the highest standards of legal and ethical conduct.”

Universal

The Universal enforcement action included a non-prosecution agreement between the DOJ and Universal, a criminal plea by Universal Leaf Tabacos Ltda. (“Universal Brazil”), as well as an SEC enforcement action against Univeral.

Patrick Hanes, Williams Mullen (see here) represented Univeral.

DOJ

Pursuant to a non-prosecution agreement (see here) the DOJ agreed not to prosecute Univeral Corp. related to:

“the making of improper payments, by employees and agents of Universal and/or its subsidiaries to officials of the Government of Thailand in connection with Universal Brazil’s efforts to secure business, namely, to secure the improper sale of leaf tobacco to the Thailand Tobacco Monopoly, from 2000 to 2004, and the accounting and record-keeping associated with these improper payments.”

Pursuant to the NPA, Universal Corp. “admitted, accepted, and acknowledged responsibility for the conduct of its subsidiaries” as set forth in a Statement of Facts attached to the NPA.

In summary fashion, the Statement of Facts are as follows:

Universal is a publicly traded company headquartered in Richmond, Virginia which, through its subsidiaries, is a worldwide purchaser and supplier of processed leaf tobacco. As an issuer, Universal was required to make and keep accurate books, records and accounts reflecting its transactions and disposition of assets of Universal and its subsidiaries including Universal Brazil.

Universal Brazil, a wholly owned subsidiary of Universal, was a Brazilian corporation, headquartered in Santa Cruz do Sul, Brazil. Universal Brazil was a “person” under the FCPA, and individuals and entities affiliated with and acting on behalf of Universal Brazil while in the territory of the United States, used and caused the use of the mails and means and instrumentalities of interstate commerce and performed other acts in furtherance of an offer, promise, authorization, or payment of money or anything of value to foreign government officials for the purpose of assisting in obtaining or retaining business.

The Statement of Facts refers to the same general kickback scheme involving TTM officials as alleged in the Alliance One enforcement action. The Statement of Facts indicate that “from in or around March 2000 to in or around July 2004, the TTM awarded Universal Brazil five orders for the sale of Brazilian leaf tobacco. To obtain these orders, between June and December 2004, Universal Brazil paid approximately $697,800 in kickbacks to representatives of the TTM through Agent X (a Thai national).”

The Statement of Facts then details the kickback scheme including the involvement of Employee A (a U.S. citizen who was the President of Universal Brazil); Employee B (a Brazilian citizen who was the Commercial Director for Universal Brazil); Employee C (a Brazilian citizen who was a Sales Manager for Universal Brazil); Employee D (a Zimbabwean citizen who was a Sales Director for Universal Brazil); Employee E (a Brazilian citizen who was the Finance Director for Universal Brazil); Employee F (a Brazilian citizen who was the Export Superintendent for Universal Brazil); Employee G (a Brazilian citizen who was a Sales Manager for Universal Brazil); Employee H (a Zimbabwean citizen who was the Sales Director for Universal Leaf Asia); Employee I (a Brazilian citizen who was an account manager in Brazil); Employee J (a U.S. citizen who was a Vice President of Universal Leaf Tobacco – a wholly owned subsidiary of Universal Corp. – who approved wiring instructions for payments to Agent X); Employee K (a U.S. citizen who was the Controller of Universal who approved wiring instructions for payment to Agent X); and Employee L (a U.S. citizen who was the Director of Financial Accounting for Universal Leaf Tobacco who approved wiring instructions for payments to Agent X).

Given the alleged involvement of others, including U.S. citizens, it will be interesting to see if additional DOJ or SEC enforcement actions against such individuals are forthcoming.

According to the Statement of Facts:

“The scheme ended in or about April 2005 when the TTM switched to an ‘electronic auction’ process to award orders. The electronic auction process increased the transparency of all of the bids received by the TTM, allowed for more open competition, and prevented Universal Brazil [and others] from including additional amounts in the price of their tobacco sales, thereby eliminating the ability of the companies to mask kickback payments used to secure sales orders.”

According to the Statement of Facts – “from in or around 2000 through in or around 2004, Employee E and others falsely characterized Universal Brazil’s kickback payments to TTM representatives in Universal Brazil’s books, records and accounts (which were incorporated into the books, records and acconts of Universal Corp. for purposes of preparing year-end financial statements) as “commission payments” to Agent X.”

As to Universal’s internal controls, the Statement of Facts indicates as follows:

“Universal Brazil’s employees, including Employees E and F, directed that
kickback payments be paid through LATCO, a wholly owned Universal subsidiary. The financial records of LATCO were maintained with insufficient oversight or review by Universal’s legal, finance, or compliance departments and were never audited by Universal during the period from 2000 to 2004. Universal Brazil’s Finance Department and executives and employees from either Universal Corp. or Universal Leaf Tobacco, including Employee J, Employee K, and Employee L approved or directed the transfer of the multiple ‘commission’ payments to Agent X even though: (a) some of the payments were described as ‘special expense’ payments; (b) there was no contractual basis for the payment of the additional commission amounts; (c) the payments were to accounts unassociated with the Agent; (d) the instructions that were provided when wiring the money indicated that Universal Corp. should not identify the agent or that the amounts were for ‘special expenses;’ and (e) the payments were above the standard five (5) percent commission typically paid by Universal Brazil to its agents.

The Statement of Facts also indicate that “Universal Brazil did not conduct sufficient due diligence prior to engaging Agent X.”

According to the DOJ, it agreed to enter into the NPA with Universal based, in part, on the following factors: “(a) Universal’s discovery of the violations through its own internal hotline process; (b) timely, voluntary, and complete disclosure of the facts; (c) Universal’s extensive, thorough, real-time cooperation with the Department and the SEC; and (d) the remedial efforts already undertaken and to be undertaken by Universal.”

During the approximate three-year NPA, Universal Corp. shall, among other things, cooperate in any related DOJ or SEC investigation. Pursuant the NPA, Universal Corp. must also strenghen its internal controls and retain an independent corporate monitor.

The criminal informations against Universal Brazil (see here) concerns the same core conduct described above.

The criminal information against Univeral Brazil charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Universal; and (ii) substantive FCPA anti-bribery violations.

The Universal Brazil Plea Agreement (here) notes that the benefit received from the improper conduct was between $1 million – $2.5 million. The company received a “culpability score” credit for “self-reporting, cooperation, and acceptance of responsibility.” The fine range, per the U.S. Sentencing Guidelines was $$6.3 million – $12.6 million. The DOJ and Univeral Brazil agreed that the appropriate sentence should be $4.4 million. The plea agreement states that the fine amount (30% below the bottom of the sentencing guidelines range) “was appropriate” based on the following factors:

“Universal Corporation and Universal Brazil’s extensive cooperation
during the course of the investigation, including the provision of relevant documents and information; Universal Corporation and Universal Brazil’s substantial assistance with other related Department investigations regarding the bribery of foreign government officials; and Universal Corporation and Universal Brazil’s remedial efforts, including enhancing the companies’ compliance resources and compliance policies, procedures, and internal controls.”

The plea agreement further states that the investigation was “a result of the voluntary disclosure made by Universal Brazil and its parent corporation Universal Corporation, through their counsel, to the Department and the disclosure of evidence obtained as a result of the investigation subsequently conducted through their counsel and the extraordinary cooperation by Universal Brazil and its parent Universal Corporation throughout the Department’s investigation” and that “at the time of the initial disclosure, the conduct was unknown to the Department.”

The Agreed Sentencing Memorandum (here) sheds light on how the facts at issue were first uncovered. The memo states:

“The government’s investigation began with a self-disclosure by counsel for Universal in 2006. In 2006, a former Univeral Brazil employee with knowledge of the bribery scheme in Brazil reported the conduct to Universal through Universal’s website. Based on the tip provided by the former employee, Universal’s counsel and outside auditors investigated the matter, identified a series of suspicious payments, and reported this information to the Department. Thereafter, Universal and Univeral Brazil cooperated in the Department’s and the U.S. Securities and Exchange Commission’s joint investigation of this matter.”

In footnotes, the DOJ states as follows:

“The Department encourages companies to disclose evidence of potential FCPA violations promptly. The agreed disposition with Universal Brazil and its parent Universal partly reflect credit given for Universal’s timely self-disclosure, thorough investigation, and ongoing cooperation.”

“Pursuant to Universal’s internal compliance program, Universal maintained on its website an employee ‘hotline’ that allowed current and former employees to report improper conduct. It is because of this useful compliance initiative that the improper conduct came to light. The agreed upon disposition partly reflects credit given for Universal’s pre-existing compliance program.”

According to the sentencing memo, Universal Brazil realized net profits of approximately $2.3 million on four contracts secured through the $697,800 in kickbacks to TTM officials.

As to the $4.4 million fine amount, the DOJ stated “that a fine below the Guidelines range is appropriate in this case given the company’s prompt and timely self-disclosure of the potentially corrupt payments as soon as they were reported, the nature and extent of the company’s cooperation throughout the government’s investigation, and the remedial measures taken.”

The sentencing memo details timely disclosure and cooperation as follows:

“Universal and Univeral Brazil’s cooperation was both timely and thorough. The company retained outside counsel to conduct an extensive internal investigation. Universal, Universal Brazil, and their counsel were consistently available to meet with Department attorneys to brief them on the progress and findings of their internal investigation. During the course of the government’s investigation, Universal and Univeral Brazil and its outside counsel fully cooperated in good faith with the Department and produced thousands of pages of documents and financial records and made employees available for interviews. Further, Universal and Univeral Brazil terminated or reprimanded employees who were determined to have authorized and facilitated the improper payments.”

As to remedial measures, the sentencing memo states:

“The company’s remedial measures, outlined below, included the implementation of an enhanced compliance program. Further, Universal Brazil, pursuant to the plea agreement, and its parent, Universal, pursuant to an Non-Prosecution Agreement (NPA), have agreed to further strengthen their internal controls, implement a rigorous compliance program and engage an independent corporate monitor (“monitor”) who will conduct a comprehensive review of the Universal and Univeral Brazil’s compliance standards and procedures and its internal controls. The monitor will prepare an initial report and two follow-up reports of his or her findings and make recornmendations for improvements in the companies’ compliance programs over the three-year term. Universal and Univeral Brazil took remedial actions including enhancement of the corporate compliance program, replacement of responsible management, and discipline of wrongdoers.

Specifically, Universal and Univeral Brazil took the following remedial
actions:

• Management established a Compliance Committee comprised of the Chief Financial Officer, the General Counsel, the Head of Internal Audit, the Treasurer, the Controller, and the Principle Sales Director. The Compliance Committee meets on a monthly basis to review and evaluate Universal’s compliance programs and training.

• Management established a Chief Compliance Officer who is responsible for the day-today operations of Universal’s compliance program and Chairs the Compliance Committee.

• Management issued a revised and updated Code of Conduct and translated the Code into fourteen (14) languages.

• Management required sales, finance, and executive-level personnel to attend a day long in-person training session devoted to FCPA and local anti-bribery laws.

• Management revised and enhanced its payment approval policy which now requires an ‘approving officer’ to review all supporting documentation for a payment and to understand the purpose of the payment prior to approval. The ‘approving officer’ must certify that he or she has reviewed the existing documentation and obtained an understanding of the legitimate business purpose of the payment. The policy also requires that employees investigate any questionable payments and determine that they
are legal, legitimate, and appropriate prior to approving the payment.

• Management revised and enhanced its due diligence process for agents. Initially, Universal suspended all commission payments to agents worldwide subject to legal department confirmation that each requested payment was adequately supported. Thereafter, Universal instituted a formal and standardized process for the assessment and approval of existing and proposed sales agents, which is coordinated by Universal’s Legal Department. As part of this policy, an officer of Universal, known as a ‘Relationship Officer,’ must complete a ‘Sales Agent Due Diligence Checklist’ for each prospective sales agent. This detailed checklist includes disclosure of relationships with foreign governments by owners, officers, directors and employees of the third-party agent or their family members, reference checks, and a list of potential red flags.

• Management conducted, and has pledged to continue to conduct, compliance and/or FCPA training at every global conference held for Universal employees.

• Management terminated and reprimanded certain employees involved in the improper
conduct.”

SEC

The SEC’s settled civil complaint (see here) alleges the same core Thailand conduct as the DOJ’s enforcement action.

Further to the “where else” issue discussed above, the SEC’s complaint also alleges conduct related to Mozambique and Malawi business.

In summary fashion, the SEC’s complaint alleges:

“From 2000 through 2007, Universal Corporation violated the Foreign Corrupt Practices Act of 1977 (the “FCPA”) by paying, through its subsidiaries, over $900,000 to govemment officials in Thailand and Mozambique to influence acts and decisions by those foreign officials to obtain or retain business for Universal. Those payments were directed by employees at multiple levels of the company, including management in its corporate offices and at its wholly-or majority-owned and controlled foreign subsidiaries. The Company had inadequate internal controls to prevent or detect any of these improper payments, and improperly recorded the payments in its books and records.”

“Between 2000 and 2004, Universal subsidiaries paid approximately $800,000 to bribe officials of the government-owned Thailand Tobacco Monopoly (“TTM”) in exchange for securing approximately $11.5 million in sales contracts for its subsidiaries in Brazil and Europe. From 2004 through 2007, Universal subsidiaries made a series ofpayments in excess of $165,000 to government officials in Mozambique, through corporate subsidiaries in Belgium and Africa. Among other things, the payments were made to secure an exclusive right to purchase tobacco from regional growers and to procure legislation beneficial to the Company’s business.”

“In addition, between 2002 and 2003, Universal, subsidiaries paid $850,000 to high ranking Malawian government officials. Those payments were authorized by, among others, two successive regional heads for Universal’s African operations. Universal did not accurately. record these payments in its books and records.”

As to the Mozambique payments, the complaint alleges:

(i) that two $10,000 payments were made to the “wife of an official in Mozambique’s Ministry of Agriculture and Fisheries” to obtain the official’s “assistance in revising legislation to impose a 20% export tax on unprocessed tobacco” – legislation that would have “benefited Universal over competitors because Universal was building a tobacco processing plant in the country;

(ii) that “Universal Leaf Africa directed that Universal’s Belgian subsidiary pay $50,000 to the brother of an official of in Mozambique’s Ministry of Agriculture and Fisheries” to “enable the Company’s Mozambican subsidiary to avoid incurring an export tax that it otherwise would have incurred for shipping unprocessed tobacco out of Mozambique;”

(iii) that “Univeral Leaf Africa made a series of payments totaling $86,830 from its own account and the account of the Mozambican subsidiary to secure a land concession given the subsidiary exclusive rights to purchase tobacco from growers on that land from the 2006 growing season.” According to the complaint Universal Leaf made “cash payments to a Governor in Mozambique; and gave gifts including supplies for a bathroom renovation, and personal travel on a Company jet.” and

(iv) that “Universal Leaf Africa forgave a debt and directed an additional series of payments from its own accounts and the account of the Mozambican subsidiary totaling $19,061” – according to the complaint the “debt forgiveness and payments were provided to Mozambican government officials and their family members in exchange for continued business favors.”

As to the Malawi payments, the complaint alleges as follows:

“Between approximately October 2002 and November 2003, Universal Leaf Africa made payments totaling $500,000 to one high-ranking Malawian government official; $250,000 to a second high-ranking government official; and $100,000 to a political opposition leader.”

As to Universal’s books and records and internal controls, the SEC alleges in summary fashion that Universal made payments under circumstances in which the Company lacked adequate internal controls to ensure that such payments were not being transmitted to government officials in order to obtain or retain business and that Universal’s books and records falsely characterized the payments.

The SEC complaint charges Universal with violations of the FCPA’s anti-bribery provisions, books and records and internal control provisions.

The SEC release (here) notes that Universal, without admitting or denying the SEC’s allegations, consented to entry of a permanent injunction enjoining future FCPA violations and agreed to pay a disgorgement penalty of approximately $4.6 million.

In a Universal press release (see here) George C. Freeman, III, Universal’s Chairman, President, and Chief Executive Officer, states:

“Universal prides itself on conducting business with honesty and integrity. These past payments were – and are – contrary to the policies and standards of Universal and its subsidiaries. We have absolutely no tolerance for this type of activity. Our Audit Committee conducted a rigorous and thorough investigation, we voluntarily reported this matter to federal authorities, and we have fully cooperated with federal authorities at each step of the investigation. We have since taken steps to strengthen our culture of ethical and legal compliance, and our efforts are supported by our operations around the world. Our regional management is fully committed to our culture.”

Gray Sky Over Nature’s Sunshine As It Settles FCPA Enforcement Action

Companies have varying degrees of FCPA risks. Generally, at the high-end of the spectrum is a resource extraction company operating in a third-world country with an unstable government. At the low-end of the spectrum, it would seem, is a Utah-based company which got its start as a small family business selling encapsulated cayenne and other herbs to health food stores.

Yet, as evidenced by the SEC’s recent FCPA enforcement action against Nature’s Sunshine Products, Inc. (“NSP”), even a company with a relatively low FCPA risk profile can run afoul of the FCPA.

As described in the SEC’s Litigation Release (see here) NSP, without admitting or denying the allegations in an SEC civil complaint, agreed to pay a $600,000 civil penalty to resolve allegations that it violated (among other securities laws – see below) the FCPA’s anti-bribery, books and records, and internal control provisions.

According to the SEC complaint (see here), Brazil was NSP’s largest foreign market, but in approximately 2000, the Brazilian governmental agency responsible for regulating nutritional products reclassified certain of NSP’s products as medicines, thus requiring a registration process prior to import and sale of the products in Brazil. As alleged in the SEC complaint, NSP’s wholly-owned subsidiary in Brazil (“NSP Brazil”) circumvented the registration process by making approximately $1 million in cash payments to customs brokers, some of which was later used to pay Brazilian customs officials so that they would allow NSP Brazil to import unregistered product into Brazil. According to the SEC, these payments were booked by NSP Brazil as “importation advances,” but without supporting documentation. Thereafter, as alleged by the SEC, NSP Brazil purchased fictitious supporting documentation for the payments.

As suggested above, in addition to the FCPA charges, the SEC complaint also charges other securities laws violations not typically found in an FCPA enforcement action such as fraud in connection with the purchase and sale of securities and false filings with the SEC. These other charges appear to be based on the allegation that NSP, in a prior Form 10-K filing with the SEC, stated that NSP Brazil experienced a significant decline in sales “due to import regulations imposed by the Brazilian government” but which failed to disclose any material information related to the above-mentioned cash payments.

Also charged in the SEC complaint were Douglas Faggioli, the current President and Chief Executive Officer of NSP and a member of its board of directors who during the relevant time period was NSP’s Chief Operating Officer, and Craig Huff, NSP’s former CFO. The complaint alleges that Faggioli and Huff, as “control persons” of NSP, violated the FCPA’s books and records and internal control provisions. In language that is sure to induce a cold sweat for any executive, the SEC generally alleged that both Faggioli and Huff had “supervisory responsibilities” over NSP’s senior management and policies, yet as “control persons,” “failed to make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflected the transactions of NSP” and failed to devise and maintain an adequate system of internal accounting controls. Without admitting or denying the SEC’s allegations, Faggioli and Huff each agreed to pay a $25,000 civil penalty.

According to an NSP press release (see here) no “current NSP officers, directors, or employees are alleged to have participated in or had knowledge of any of the improper conduct” alleged in the SEC complaint. The press release also notes that NSP voluntarily disclosed the conduct at issue to both the SEC and the DOJ and fully cooperated in the government’s investigation. The press release also states that NSP “anticipates no action by the DOJ” as to the disclosed conduct.

The NSP FCPA enforcement action, and other such enforcement actions against traditionally low FCPA risk companies, should serve notice to all that no industry is immune from FCPA scrutiny.

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