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In-Depth – General Cable Resolves $75.8 Million FCPA Enforcement Action, Former Senior VP Also Resolves SEC Action

generalcable

Don’t yet close the books on 2016 Foreign Corrupt Practices Act enforcement.

Yesterday, the DOJ and SEC announced (here and here) an FCPA (and related) enforcement action against Kentucky-based General Cable Corporation (a manufacturer and distributor of cable and wire). The conduct at issue occurred in Angola, Bangladesh, Indonesia, Thailand, China, and Egypt.

The $75.8 million enforcement action involved a DOJ non-prosecution agreement in which the company agreed to pay an approximate $20.5 million penalty and an SEC administrative cease and desist order in which the company agreed to pay approximately $55.3 million in disgorgement and prejudgment interest.

In addition, the SEC also announced that Karl Zimmer, General Cable’s former Senior Vice President responsible for sales in Angola, agreed to pay a $20,000 civil penalty without admitting or denying the SEC’s findings that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved certain improper payments.

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All About The Alstom Enforcement Action

Alstom

As mentioned in this previous post, last week the DOJ announced a $772 million FCPA enforcement action against Alstom and related entities.

While the Alstom enforcement action is the largest DOJ FCPA enforcement action of all-time, it is the second largest overall FCPA enforcement action of all-time behind the 2008 Siemens enforcement action ($450 million DOJ component and a $350 million SEC component).  To see the current FCPA top-ten settlement list, click here.

The Alstom resolution documents total approximately 400 pages and this post summarizes these documents.

At its core, the Alstom enforcement action involved alleged conduct in Indonesia, Saudi Arabia, Egypt, the Bahamas, and Taiwan. All of this conduct is alleged in the Alstom S.A. information as the basis for the company’s FCPA books and records and internal controls violations between 1998 and 2004.  The charges were resolved through a plea agreement.  (A future post will explore, among other issues, the irony of Alstom pleading guilty in 2014 to substantive legal provisions that last applied to the company in 2004 when it ceased to be an “issuer.”).  From there the conduct was apportioned to the following Alstom-related entities in related enforcement actions.

  • Alstom Network Schweiz AG (conspiracy to violate the FCPA’s anti-bribery provisions based on the Indonesia, Saudi Arabia, Egypt and Bahamas conduct and resolved through a plea agreement);
  • Alstom Power Inc. (conspiracy to violate the FCPA’s anti-bribery provisions based on the Indonesia, Saudi Arabia and Egypt conduct and resolved through a DPA);
  • Alstom Grid Inc. (conspiracy to violate the FCPA’s anti-bribery provisions based on the Egypt conduct and resolved through a DPA)

Alstom S.A. Information

According to the information, during the relevant time period, Alstom employed approximately 110,000 employees in over 70 countries.  The information contains specific allegations as to 9 individuals associated with Alstom and 9 consultants associated with Alstom.  As highlighted below, at its core, the Alstom enforcement action involved inadequate controls concerning the engagement, monitoring and supervision of the consultants.

The information alleges that “Alstom had direct and indirect subsidiaries in various countries around the world through which it bid on projects to secure contracts to perform power-related, grid-related, and transportation-related services, including for state-owned entities.”  According to the information, “Alstom’s subsidiaries worked exclusively on behalf of Alstom and for its benefit” and that Alstom “maintained a department called International Network that supported its subsidiaries’ efforts to secure contracts around the world.”  In addition, the information alleges that “within Alstom’s power sector, the company also maintained a department called Global Power Sales (“GPS”), which performed functions similar to International Network, in that GPS assisted Alstom entities or businesses in their efforts to secure contracts.”

The information contains a section titled “Overview of the Unlawful Scheme” that has two substantive sections “False Books and Records” and “Internal Accounting Controls.”

Under the heading “False Books and Records,” the information states.

“Alstom, acting through executives, employees, and others, disguised on its books and records millions of dollars in payments and other things of value given to foreign officials in exchange for those officials’ assistance in securing projects, keeping projects, and otherwise gaining other improper advantages in various countries around the world for Alstom and its subsidiaries.

In a number of instances, Alstom hired consultants to conceal and disguise improper payments to foreign officials. Alstom paid the consultants purportedly for performing legitimate services in connection with bidding on and executing various projects.  In reality, the Alstom personnel knew that the consultants were not performing legitimate services and that all or a portion of the payments were to be used to bribe foreign officials.  Alstom executives and employees falsely recorded these payments in its books and records as “commissions” or “consultancy fees.”

Alstom also created, and caused to be created, false records to further conceal these improper payments.  Alstom created consultancy agreements that provided for legitimate services to be rendered by the consultant, and included a provision prohibiting unlawful payments, even though the Alstom executives and employees involved knew that at times the consultants were using all or a portion of their consultancy fees to bribe foreign officials.  Moreover certain Alstom employees instructed the consultants to submit false invoices and other back-up documentation reflecting purported legitimate services rendered that those employees knew were not actually performed, so that Alstom could justify the payments to the consultants.

In other instances, Alstom paid bribes directly to foreign officials by providing gifts and petty cash, by hiring their family members, and in one instance by paying over two million dollars to a charity associated with a foreign official, all in exchange for those officials’ assistance in obtaining or retaining business in connection with projects for Alstom and its subsidiaries.  As with the consultant payments, Alstom knowingly and falsely recorded these payments in its books and records as consultant expenses, as “donations,” or other purportedly legitimate expenses.

Alstom employees, some of whom were located in Connecticut, knowingly falsified Alstom’s books and records in order to conceal the bribe payments that they knew were illegal and were contrary to Alstom’s written policy.  Alstom also submitted false certifications to USAID and other regulatory entities, falsely asserting that Alstom was not using consultants on particular projects when, in fact, consultants were being used, and asserting that no unlawful payments were being made in connection with projects when, in fact, they were.  Various other acts, including e-mail communications, passed through Connecticut.”

Under the heading “Internal Accounting Controls,” the information states:

 “Although Alstom had policies in place prohibiting unlawful payments to foreign officials, including through consultants, Alstom knowingly failed to implement and maintain adequate controls to ensure compliance with those policies.

Alstom knowingly failed to implement and maintain adequate controls to ensure meaningful due diligence for the retention of third-party consultants. A number of consultants that Alstom hired raised a number of “red flags” under Alstom’s own internal policies.  Certain consultants proposed for retention had no expertise or experience in the industry sector in which Alstom was attempting to secure or execute the project.  Other consultants were located in a country different than the project country.  At other times, the consultants asked to be paid in a currency or in a bank account located in a country different than where the consultant and the project were located.  In multiple instances, more than one consultant was retained on the same project, ostensibly to perform the very same services.  Despite, these “red flags,” the consultants were nevertheless retained without meaningful scrutiny.  To the contrary, those submitting consultants for possible retention at times did not make explicit the true reason for the consultants’ retention, as well as other relevant facts.  And certain executives who had the ability to ensure appropriate controls surrounding the due diligence process themselves know, or knowingly failed to take action that would have allowed them to discover, that the purpose of hiring the consultant was to conceal payments to foreign officials in connection with securing projects and other favorable treatment in various countries around the world for Alstom and its subsidiaries.

Alstom also knowingly failed to implement and maintain adequate controls for the approval of consultancy agreements.  During the relevant time period, Alstom’s consultancy agreements provided that payments to the consultants would only be made on a pro rata basis tied to project milestones or as Alstom was paid by the customer.  In certain instances, Alstom employees changed the amount and terms of payment for the consultants, in violation of the company’s own internal policies, so that Alstom could pay the consultants more money and make the payment sooner in order to generate cash available to bribe the foreign officials.  The Alstom executives and employees responsible for approving consultancy agreements did not adequately scrutinize these changes, and in certain instances were copied on e-mails in which the true purpose for the change was discussed.  During the relevant time period, Alstom also maintained an unwritten policy to discourage, where possible, consultancy agreements that would subject Alstom to the jurisdiction of the United States. To effectuate this policy, Alstom typically used consultants who were not based in the United States, and intentionally paid consultants in bank accounts outside of the United States and in currencies other than U.S. dollars.  The Alstom executives and employees responsible for approving consultancy agreements attempted to enforce this unwritten policy even when it meant that the consultant had to open an offshore bank account solely for the purpose of receiving payments from Alstom.

Alstom also knowingly failed to implement and maintain adequate controls for payments to consultants. In multiple instances, Alstom paid the consultants without adequate, or timely, documentation of the services they purported to perform.  At times, consultants sought help from Alstom to create false documentation necessary for payment approval.  In other instances, the consultants created false “proofs of service” long after the purported services were rendered.  In certain cases … a consultant sought assistance from an Alstom employee responsible for approving payment because, as the consultant explained to the Alstom employee, he did not want to include on his invoices the fact that his services included making unlawful payments.  During the relevant time period, Alstom did not engage in auditing or testing of consultant invoices or payments.  In many instances, requests for payments to consultants were approved without adequate review by Alstom knowing that the payments were being used, at least in part, to bribe foreign officials to obtain or retain business in connection with projects in various countries around the world for Alstom and its subsidiaries.”

Next, the information contains the following summary allegation.

“Alstom paid approximately $75 million in consultancy fees knowing that this money would be used, in whole or in part, to bribe or provide something of value to foreign officials to secure approximately $4 billion in projects in multiple countries, with a gain to Alstom of approximately $296 million.”

The information next contains specific allegations regarding Indonesia, Saudi Arabia, Egypt, the Bahamas, and Taiwan.

Indonesia

As to Indonesia, the information concerns various power projects in Indonesia through Indonesia’s state-owned and state-controlled electricity company, Perusahann Listrik Negara (“PLN”).  One such project was the Tarahan Project, a project to provide power-related services to the citizens of Indonesia at approximately $118 million and another such project was the Muara Tawar Block 5 Project, a project to expand the existing Muara Tawar power plant and provide additional power-related services to the citizens of Indonesia at approximately $260 million.  According to the information, Alstom subsidiaries bid on but were not awarded contracts related to other expansions of the Muara Tawar power plant.  In summary fashion, the information alleges as follows.

“In connection with these projects, Alstom disguised on its books and records millions of dollars and other things of value provided to Indonesian officials in exchange for those officials’ assistance in securing the power projects for Alstom and its subsidiaries.  Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made through consultants to foreign officials in connection with these projects.”

The Indonesia allegations in the Alstom information are substantively similar to the allegations in the prior FCPA enforcement action against various individuals associated with Alstom Power.  (See here for the prior post and summary).

Saudi Arabia

As to Saudi Arabia, the information concerns bids for power projects with Saudi Electric Company (“SEC”), Saudi Arabia’s state-owned and state-controlled electricity company, and its predecessor entities.  According to the information, in connection with one project:

“Alstom disguised on its books and records tens of millions of dollars in payments and other things of value provided to Saudi officials to obtain or retain business in connection with the projects.  Alstom knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.  The arrangements for these consulting agreements originated with [a separate international power company with which Alstom operated as a joint venture in 1999 and acquired in 2000]. Subsequently, Alstom honored, continued, and in certain instances renewed these consulting agreements without adequate diligence on what services were ostensibly being provided by these consultants, whether the consultants were capable of providing such services, whether the agreed upon consultancy fees were commensurate with such legitimate services, and despite the lack of documentation regarding what legitimate services were provided.”

In one instance, the information alleges that a consultant “was the brother of a high-level official at the SEC who had the ability to influence the award” of a project, “which certain Alstom employees knew.”  According to the information, this consultant was paid “approximately $5 million, with no documentation of any legitimate services having been performed [by the Consultant] commensurate with a $5 million fee and with no documentation of any technical or other expertise to justify such a fee.”  In another instance, the information alleges that another consultant “was a close relative of another high-level official at SEC who had the ability to influence the aware” of a project” which certain Alstom employees knew.”  According to the information, this consultant was paid at least $4 million under similar circumstances to those referenced above.

The information states as follows.

“In addition to paying consultants as a means of bribing key decision makers at the SEC, Alstom and its subsidiaries paid $2.2 million to a U.S.-based Islamic education foundation associated with [an SEC official believed to have 70% of the decision-making responsibility for SEC matters].  The payments were made in three installments, and internal records at Alstom reflect that these payments were included as expenses related [to the projects] rather than as a separate and independent charitable contribution.”

Egypt

As to Egypt, the information concerns bidding on various projects with the Egyptian Electricity Holding Company (“EEHC”), the state-owned and state-controlled electricity company in Egypt.  According to the information, “EEHC was not itself responsible for conducting the bidding [on projects], and instead relied on Power Generation Engineering & Services Co. (“PGESCo”), which was controlled by an acted on behalf of EEHC.”  According to the information, in connection with various projects, “Alstom disguised on its books and records millions of dollars and other things of value provided to Egyptian officials to obtain or retain business in connection with power projects for Alstom and its subsidiaries.  Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.  According to the information, Alstom used a consultant whose primary purpose “was not to provide legitimate consulting services to Alstom and its subsidiaries but was instead to make payments to Egyptian officials, including Asem Elgawhary who oversaw the bidding process.”  (See here for the prior post regarding the Elgawhary enforcement action).

The information also contains allegations concerning bidding on various grid projects with EEHC and the Egyptian Electricity Transmission Company (“EETC”), the state-owned and state-controlled electricity transmission company in Egypt.  According to the information, certain of these projects were “funded, at least in part, by the United States Agency for International Development (“USAID”).  According to the information:

“In connection with [these projects], Alstom disguised on its books and records payments and other things of value it provided to Egyptian officials in exchange for those officials’ assistance in securing and executing the transmission and distribution projects for Alstom and its subsidiaries.  Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.”

According to the information, an Alstom entity “repeatedly submitted false certifications to USAID in connection with these projects, and did not disclose that consultants were being used, that commissions were being paid, or that unlawful payments were being made.”

According to the information, “in addition to falsifying records in connection with the retention of consultants and their commission payments,” Alstom employees also “paid for entertainment and travel for [a high-level official] and other key decision-makers at EETC and EEHC, and provided those officials with envelopes of cash and other gifts during such travel.”

Bahamas

As to the Bahamas, the information concerns power projects with the Bahamas Electricity Corporation (“BEC”), the state-owned and state-controlled power company.  According to the information, “Alstom disguised in its books and records payments to Bahamian officials to obtain or retain business in connection with power projects for Alstom and its subsidiaries.  Alstom also knowingly failed to implement and maintain adequate controls to ensure that no unlawful payments were being made to these officials.

According to the information, Alstom retained a consultant “who, as certain Alstom employees knew, was a close personal friend” of a board member of BEC and that the primary purpose of the consultant was not to provide legitimate consulting services but instead to pay bribes to the official who had the ability to influence the award of the power contracts.  According to the information, Alstom did not perform any due diligence on the consultant even though the consultant had no knowledge about, or experience in, the power industry.  Rather, the information alleges, the consultant “sold furniture and leather products, and exported chemical products and spare parts.”

Taiwan

As to Taiwan, the information alleges that between 2001 and 2008, Alstom and its subsidiaries “began bidding on transport-related projects with various entities responsible for the construction and operation of the metro-rail system in Taipei, Taiwan, including Taipei’s Department of Rapid Transit System, known as “DORTS.”  According to the information, an Alstom entity formally retained a consultant on a DORTS project even thought the consultant did not have the requisite expertise in the transport sector.  According to the information, the consultant’s expertise was as a “wholesaler of cigarettes, wines and pianos.”

According to the information, “Alstom’s system of internal controls was inadequate as they related to the Taiwan projects.  Despite numerous red flags, Alstom personnel knowingly failed to conduct further diligence to ensure that payments to its consultants in Taiwan could not be used to make improper payments to Taiwanese officials after the projects were secured.”

Based on the above allegations, Alstom was charged with one count of violating the FCPA’s books and records provisions from 1998 to 2004 and one count of violating the FCPA’s internal controls provisions from 1998 to 2004.

Alstom S.A. Plea Agreement

In the plea agreement, Alstom admitted that it was an “issuer” during the relevant time period and admitted, agreed, and stipulated that the factual allegations set forth in the information were true and correct.

In the plea agreement, the parties agreed that the gross pecuniary gain resulting from the offense was $296 million.  The plea agreement sets forth an advisory sentencing guidelines range of $532.8 million to $1.065 billion.

Under the heading “failure to self-report,” the plea agreement states:

“The Defendant failed to voluntarily disclose the conduct even though it was aware of related misconduct at Alstom Power, Inc., a U.S. subsidiary, which entered into a resolution for corrupt conduct in connection with a power project in Italy several years prior to the Department reaching out to Alstom regarding its investigation.”

Under the heading “cooperation,” the plea agreement states:

“The Defendant initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoenas to the Defendant’s subsidiaries.  Approximately one year into the investigation, the Defendant provided limited cooperation, but still did not fully cooperate with the Department’s investigation.  The Defendant’s initial failure to cooperate impeded the Department’s investigation of individuals involved in the bribery scheme.  At a later stage in the investigation, the Defendant began providing thorough cooperation, including assisting in the Department’s investigation and prosecution of individuals and other companies that had partnered with the Defendant on certain projects.  The Defendant’s thorough cooperation did not occur until after the Department had publicly charged multiple Alstom executives and employees.”

Under the heading, “compliance and remediation,” the plea agreement states:

“The Defendant lacked an effective compliance and ethics program at the time of the offense.  Since that time, the Defendant has undertaken substantial efforts to enhance its compliance program and to remediate the prior inadequacies, including complying with undertakings contained in resolutions with the World Bank (including an ongoing monitorship) and the government of Switzerland, substantially increasing its compliance staff, improving its alert procedures, increasing training and auditing/testing, and cease the use of external success fee-based consultants.”

In the plea agreement, Alstom agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.

Pursuant to the plea agreement, Alstom agreed to a corporate compliance program with elements typically part of other FCPA settlements.

Pursuant to the plea agreement, Alstom agreed to report to the DOJ, at no less than 12 month intervals, for a three-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures.  The plea agreement references that Alstom is already subject to monitoring requirements pursuant to a February 2012 World Bank Resolution but states that “in the event that the Integrity Compliance Office [of the World Bank] does not certify that the Company has satisfied the monitoring requirements contained in the World Bank Resolution, the Company shall be required to retain an Independent Compliance Monitor.”

Alstom Network Schweiz AG Information

The information against Alstom Network Schweiz AG (formerly known as Alstom Prom AG), a subsidiary of Alstom headquartered in Switzerland and responsible for overseeing compliance as it related to Alstom’s consultancy agreements for many of Alstom’s power sector subsidiaries, is based upon the same Indonesia, Saudi Arabia, Egypt, and Bahamas conduct alleged in the Alstom information.

The Alstom entity is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-3 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Indonesia, Saudi Arabia, Egypt, and the Bahamas in order to obtain and retain business related to power projects in those countries for and on behalf of Alstom and its subsidiaries.”

Alstom Network Schweiz AG Plea Agreement

In the plea agreement, the Alstom entity admitted, agreed, and stipulated that the factual allegations set forth in the information were true and correct.

Pursuant to the plea agreement, “the parties agree[d] that any monetary penalty in this case will be paid pursuant to the plea agreement between the DOJ and Alstom, S.A., the parent company of the Defendant, relating to the same conduct …”.

In the plea agreement, the Alstom entity agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.

The plea agreement contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.

Alstom Power Inc. Information

The information against Alstom Power Inc., a subsidiary of Alstom headquartered in Connecticut in the business of providing power generation-related services around the world, is based upon the same Indonesia, Saudi Arabia, and Egypt conduct alleged in the Alstom information.

Alstom Power is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-2 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Indonesia, Saudi Arabia, and Egypt in order to obtain and retain business related to power projects in those countries for and on behalf of Alstom Power and its subsidiaries.”

Alstom Power Inc. DPA

In the DPA, Alstom Power admitted, accepted, and acknowledged that it was responsible for the conduct charged in the information.

The DPA has a term of three years and under the heading “relevant considerations” states as follows.

“The [DOJ] enters into this Agreement based on the individual facts and circumstances presented by this case and the Company.  Among the factors considered were the following:  (a) the company failed to voluntarily disclosed the conduct even though it had previously entered into a resolution for corrupt conduct in connection with a power project in Italy several years prior to the [DOJ] reaching out to Alstom regarding their investigation; (b) the Company and its parent initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoena.  Approximately one year into the investigation, the Company and its parent provided limited cooperation, but still did not fully cooperate with the Department’s investigation. The Company’s and its parent’s initial failure to cooperate impeded the Department’s investigation of individuals involved in the bribery scheme.  At a later stage in the investigation, the Company and its parent began providing thorough cooperation, including assisting in the Department’s investigation and prosecution of individuals and other companies that had partnered with the Company and its parent on certain projects.  The Company’s and its parent’s thorough cooperation did not occur until after the Department had publicly charged multiple current and former Alstom executives and employees; (c) the Company and its parent have undertaken substantial efforts to enhance its compliance program as part of the significant compliance and remediation improvements to Alstom S.A’s program, and has committed to continue to enhance their compliance program and internal controls, ensuring that its program satisfies the minimum elements set forth [in the DPA]; (d) General Electric Company, which intends to acquire the Company, has represented that it will implement its compliance program and internal controls at the Company within a reasonable time after the acquisition closes; and (e) the Company has agreed to continue to cooperate with the [DOJ] in any ongoing investigation …”.

In the DPA, the DOJ and the Company agreed that no monetary penalty will be paid by the Company because Alstom S.A., the parent company of the Company, has agreed to pay a fine of $772,290,000 related to the same underlying conduct.

In the DPA, Alstom Power agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.

The DPA contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.

Alstom Grid Inc. Information

The information against Alstom Grid, Inc. (formerly known as Alstom T&D, Inc.), a subsidiary of Alstom headquartered in New Jersey in the business of providing power grid-related services around the world, is based upon the same Egypt conduct alleged in the Alstom information.

Alstom Grid is charged with conspiracy to violate the FCPA’s anti-bribery provisions under the dd-2 prong of the statute. According to the information, the “purpose of the conspiracy was to make corrupt payments to foreign officials in Egypt in order to obtain and retain business related to power grid projects for and on behalf of Alstom Grid and Alstom and its subsidiaries.”

Alstom Grid Inc. DPA

In the DPA, Alstom Grid admitted, accepted, and acknowledged that it was responsible for the conduct charged in the information.

The DPA has a term of three years and contains the same relevant considerations described in the Alstom Power DPA above.

In the DPA, the DOJ and the Company agreed that no monetary penalty will be paid by the Company because Alstom S.A., the parent company of the Company, has agreed to pay a fine of $772,290,000 related to the same underlying conduct.

In the DPA, Alstom Power agreed to a so-called “muzzle clause” in which it agreed not, directly or indirectly through others, to make any public statement contradicting the acceptance of responsibility set forth in the plea agreement.

The DPA contains the same corporate compliance program, reporting obligations, and monitor conditions as described in the Alstom plea agreement above.

In this DOJ release, Deputy Attorney General James Cole stated:

“Alstom’s corruption scheme was sustained over more than a decade and across several continents. It was astounding in its breadth, its brazenness and its worldwide consequences. And it is both my expectation – and my intention – that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world: that this Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution.”

Assistant Attorney General Leslie Caldwell stated:

“This case is emblematic of how the Department of Justice will investigate and prosecute FCPA cases – and other corporate crimes. We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly. With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”

First Assistant U.S. Attorney Michael Gustafson of the District of Connecticut stated:

“Today’s historic resolution is an important reminder that our moral and legal mandate to stamp out corruption does not stop at any border, whether city, state or national. A significant part of this illicit work was unfortunately carried out from Alstom Power’s offices in Windsor, Connecticut. I am hopeful that this resolution, and in particular the deferred prosecution agreement with Alstom Power, will provide the company an opportunity to reshape its culture and restore its place as a respected corporate citizen.”

FBI Executive Assistant Director Robert Anderson Jr. stated:

“This investigation spanned years and crossed continents, as agents from the FBI Washington and New Haven field offices conducted interviews and collected evidence in every corner of the globe. The record dollar amount of the fine is a clear deterrent to companies who would engage in foreign bribery, but an even better deterrent is that we are sending executives who commit these crimes to prison.”

As noted in the DOJ release:

“To date, the department has announced charges against five individuals, including four corporate executives of Alstom and its subsidiaries, for alleged corrupt conduct involving Alstom. Frederic Pierucci, Alstom’s former vice president of global boiler sales, pleaded guilty on July 29, 2013, to conspiring to violate the FCPA and a charge of violating the FCPA for his role in the Indonesia bribery scheme. David Rothschild, Alstom Power’s former vice president of regional sales, pleaded guilty on Nov. 2, 2012, to conspiracy to violate the FCPA. William Pomponi, Alstom Power’s former vice president of regional sales, pleaded guilty on July 17, 2014, to conspiracy to violate the FCPA. Lawrence Hoskins, Alstom’s former senior vice president for the Asia region, was charged in a second superseding indictment on July 30, 2013, and is pending trial in the District of Connecticut in June 2015. The charges against Hoskins are merely allegations, and he is presumed innocent unless and until proven guilty. The high-ranking member of Indonesian Parliament was also convicted in Indonesia of accepting bribes from Alstom, and is currently serving a three-year term of imprisonment.

In connection with a corrupt scheme in Egypt, Asem Elgawhary, the general manager of an entity working on behalf of the Egyptian Electricity Holding Company, a state-owned electricity company, pleaded guilty on Dec. 4, 2014, in federal court in the District of Maryland to mail fraud, conspiring to launder money, and tax fraud for accepting kickbacks from Alstom and other companies. In his plea agreement, Elgawhary agreed to serve 42 months in prison and forfeit approximately $5.2 million in proceeds.”

In addition to the above DOJ press release, the DOJ also held a press conference, a rare event in connection with an FCPA enforcement action.  In this speech, Cole stated:

“We are here to announce a historic law enforcement action that marks the end of a decade-long transnational bribery scheme – a scheme that was both concocted and concealed by Alstom, a multinational French company, and its subsidiaries in Switzerland, Connecticut, and New Jersey.

Today, those companies admit that, from at least 2000 to 2011, they bribed government officials and falsified accounting records in connection with lucrative power and transportation projects for state-owned entities across the globe.  They used bribes to secure contracts in Indonesia, Egypt, Saudi Arabia, and the Bahamas.  Altogether, Alstom paid tens of millions of dollars in bribes to win $4 billion in projects – and to secure approximately $300 million in profit for themselves.

Such rampant and flagrant wrongdoing demands an appropriately strong law enforcement response.  Today, I can announce that the Justice Department has filed a two-count criminal information in the U.S. District Court for the District of Connecticut, charging Alstom with violating the Foreign Corrupt Practices Act, or FCPA, by falsifying its books and records and failing to implement adequate internal controls.  Alstom has agreed to plead guilty to these charges, to admit its criminal conduct, and to pay a criminal penalty of more than $772 million.  If approved by the court next year, this will be the largest foreign bribery penalty in the history of the United States Department of Justice.

In addition, I can announce that Alstom’s Swiss subsidiary is pleading guilty to conspiring to violate the FCPA.  And the company’s two American subsidiaries have entered into deferred prosecution agreements and admitted that they conspired to violate the FCPA.

Alstom’s corruption scheme was sustained over more than a decade and across several continents.  It was breathtaking in its breadth, its brazenness, and its worldwide consequences.  And it is both my expectation – and my intention – that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world: that this Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution.  Let me be very clear: corruption has no place in the global marketplace.  And today’s resolution signals that the United States will continue to play a leading role in its eradication.

The investigation and prosecution of Alstom and its subsidiaries have been exceedingly complex – and they have required the utmost skill and tenacity on the part of a wide consortium of law enforcement officials throughout the country and across the globe.  I want to thank the Criminal Division’s Fraud Section and Office of International Affairs; the U.S. Attorney’s Offices in Connecticut, Maryland, and New Jersey; the FBI’s Washington Field Office and its Resident Agency in Meriden, Connecticut; the Corruption Eradication Commission in Indonesia; the Office of the Attorney General in Switzerland; the Serious Fraud Office in the United Kingdom; as well as authorities in Germany, Italy, Singapore, Saudi Arabia, Cyprus, and Taiwan, for their tireless efforts to advance this matter.  The remarkable cross-border collaboration that these agencies made possible has led directly to today’s historic resolution.  And this outcome demonstrates our unwavering commitment to ending corporate bribery and international corruption.  Our hope is that this announcement will serve as an inspiration – and a model – for future efforts.”

In this speech at the press conference, Caldwell stated:

“Today represents a significant milestone in the global fight against corruption.  It demonstrates the Department of Justice’s strong commitment to fighting foreign bribery and ensuring that both companies and individuals are held accountable when they violate the FCPA.  The guilty pleas and resolutions announced today also highlight what can happen when corporations refuse to disclose wrongdoing and refuse to cooperate with the department’s efforts to identify and prosecute culpable individuals.

Let me first explain how the scheme worked.  To conceal that it was the source of payments to government officials, Alstom funneled the bribes through third-party consultants who did little more than serve as conduits for corruption.  Alstom then dummied up its books and records to cover up the scheme.

Alstom’s corruption spanned the globe, and was its way of winning business.  For example, in Indonesia, Alstom and certain of its subsidiaries used consultants to bribe government officials – including high-ranking members of the Indonesian Parliament and the state-owned and state-controlled electricity company – to win several contracts to provide power-related services.  According to internal documents, when certain officials expressed displeasure that a particular consultant had provided only “pocket money,” Alstom retained a second consultant to ensure that the officials were satisfied.

In Saudi Arabia, Alstom retained at least six consultants, including two close family members of high-ranking government officials, to bribe officials at a state-owned and state-controlled electricity company to win two projects valued at approximately $3 billion.  As evidence that Alstom employees recognized that their conduct was criminal, internal company documents refer to the consultants only by code name.

Alstom similarly used consultants to bribe officials in Egypt and the Bahamas, and again Alstom employees clearly knew that the conduct violated the law.  In connection with a project in Egypt, a member of Alstom’s finance department sent an email questioning an invoice for consultant services and, in response, was advised that her inquiry could have “several people put in jail” and was further instructed to delete all prior emails regarding the consultant.

If approved by the court, Alstom’s criminal penalty of $772 million represents the largest penalty ever assessed by department in a FCPA case.  Through Alstom’s parent-level guilty plea and record-breaking criminal penalty, Alstom is paying a historic price for its criminal conduct — and for its efforts to insulate culpable corporate employees and other corporate entities.  Alstom did not voluntarily disclose the misconduct to law enforcement authorities, and Alstom refused to cooperate in a meaningful way during the first several years of the investigation.  Indeed, it was only after the department publicly charged several Alstom executives – three years after the investigation began – that the company finally cooperated.

One important message of this case is this:  While we hope that companies that find themselves in these situations will cooperate with the Department of Justice, we do not wait for or depend on that cooperation. When Alstom refused to cooperate with the investigation, we persisted with our own investigation.  We built cases against the various corporate entities and against culpable individuals.  To date, the department publicly has charged four Alstom corporate executives in connection with the corrupt scheme in Indonesia, which also chose not to cooperate, and another company’s executive in connection with the scheme in Egypt.  Four of these individuals already have pleaded guilty.  In addition, Marubeni Corporation, a Japanese trading company that partnered with Alstom in Indonesia, pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA and substantive violations of the FCPA, and paid an $88 million criminal penalty.

Another important message from this case is that the U.S. increasingly is not alone in the fight against transnational corruption.  Earlier this year, Indonesia’s Corruption Eradication Commission, the KPK, assisted the department in its investigation.  And, in turn, the department shared with the KPK information that federal investigators had obtained, which the KPK used in its prosecution of a former member of the Indonesian Parliament for accepting bribes from Alstom-funded consultants.  This past spring, that Indonesian official was found guilty and sentenced to three years in an Indonesian prison.  Our partnership with Indonesian law enforcement authorities in this case means that both the bribe payors and bribe takers have been prosecuted.  And our investigation is not over yet.

This case is emblematic of how the Department of Justice will investigate and prosecute FCPA cases – and other corporate crimes.  We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation.  But we will not wait for companies to act responsibly.  With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”

See here for an additional DOJ statement at the press conference.

In this Alstom release, Alstom CEO Patrick Kron stated:

“There were a number of problems in the past and we deeply regret that. However, this resolution with the DOJ allows Alstom to put this issue behind us and to continue our efforts to ensure that business is conducted in a responsible way, consistent with the highest ethical standards.”

The release further states:

“Alstom has made significant progress in the area of compliance over the last several years. The conduct referred to in the agreement mainly arose from the use of external success fee based Sales Consultants hired by Alstom to support its commercial teams. In order to ensure that Alstom strives for the best compliance procedures, Alstom has discontinued the hiring of such Sales Consultants. Further, pursuant to a negotiated resolution agreement with the World Bank, Alstom committed in Feb 2012 to continue to improve its internal compliance programme, including by retaining a monitor to oversee its efforts in this regard. To date, the work of the Monitor has confirmed that Alstom has put in place a Corporate Compliance Programme that reflects the principles embedded in the WBG’s Integrity Compliance Guidelines.”

[…]

“The DOJ has also stipulated that no part of the fine can be passed on to General Electric as part of the projected sale of Alstom’s energy businesses.”

Robert Luskin and Jay Darden of Squire Patton Boggs represented the Alstom entities.

The First Travel And Entertainment Enforcement Action

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

In 1999, the DOJ brought this civil complaint for a permanent injunction against Metcalf & Eddy Inc., the successor by merger of Metcalf & Eddy International Inc. (M&E International – a U.S. environmental engineering firm).  It was a notable case – the first Foreign Corrupt Practices Act enforcement action based solely on travel and entertainment issues.

The conduct at issue focused on sewage and wastewater treatment facility projects in Alexandria, Egypt sponsored by the United States Agency for International Development (“USAID”) for the benefit of the Alexandria General Organization for Sanitary Drainage (“AGOSD”), an alleged instrumentality of the Government of Egypt.

The complaint alleged that Metcalf & Eddy and M&E International provided excessive travel and entertainment expenses to the Chairman of AGOSD “to induce the official to use his influence to effect and influence an act of the Government of Egypt” in connection with two contracts (1) an approximate $11 million wastewater treatment facility project and (2) an approximate $25 million architectural and engineering services project.

The complaint alleged:

“Although the [contracts] were awarded by USAID, the prospective contractors and their bids were subject to review by a Technical Review Board comprised of five voting members.  AGOSD held a voting position on each of the boards, which position was shared by two AGOSD representatives.  As members of the Technical Review Boards, the AGOSD representatives participated in the evaluation and scoring of bidders.  Although the AGOSD Chairman himself did not participate in the evaluation and scoring of bidders in the selection process, officials at M&E International knew that we was capable of exerting influence upon his subordinates, including the AGOSD officials who sat on the Technical Review Boards.  […]  In addition, M&E International officers knew that the Chairman could influence the selection process through direct communications with USAID regarding his preferences and that he could directly or indirectly impede the ability of M&E International to successfully complete its obligations under the contracts.”

The complaint focused on two trips the AGOSD Chairman made to the United States at the invitation of M&E International during time periods in which the awarding of the contracts were under consideration by USAID.  According to the complaint “the Chairman’s wife and two children accompanied him on both trips at M&E International’s expense.”

According to the complaint, the first trip (approximately 20 days) included travel to Boston, Washington, D.C., Chicago and Orlando.  The complaint stated that during this trip “the AGOSD Chairman was invited to a water conference in Chicago.” According to the complaint, the second trip (approximately 13 days) involved travel to Paris, Boston and San Diego.

The complaint alleged that both of the contracts at issue required that travel associated with the contracts be in accord with Federal Travel Regulations (FTRs) and that under the regulations the Chairman was entitled to receive, in advance, a cash per diem payment to cover certain travel-related expenses.  The complaint alleged that the Chairman received 150% of his estimated per diem expenses and that USAID authorized the amount based upon M&E International’s representation that no accommodations were available within the per diem amount.

The complaint alleged:

“In each case, the payment of 150% of per diem was not a necessary expense, and in neither case was the payment of the extra 50% justified or documented by M&E International as required by the FTRs.”

The complaint also alleged that once the Chairman and his family were in the U.S. “M&E International paid for most of the travel and entertainment expenses incurred by and on behalf of the Chairman and his family, despite the fact that the Chairman had already received funds for his own per diem expenses.”  According to the complaint, “under these circumstances, the advance per diem payments were, in effect, unrestricted cash payments to the Chairman.”

The complaint also alleged that M&E International “paid to upgrade the Chairman’s airline tickets to first class for both of his trips to the United States” and that “M&E International’s provision of the first class tickets was a payment of a thing of value to the Chairman.”  The complaint also alleged that M&E International’s payment of the first class tickets for the Chairman’s wife and children were also “a payment of a thing of value to the Chairman.”

The complaint also alleged that during the relevant time period, “M&E International failed to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the payment of money and things of value to or for the benefit of the Chairman.”  It is interesting to note that the complaint contains these allegations even though Metcalf & Eddy and M&E International were “domestic concerns” under the FCPA and thus the books and records and internal controls provisions did not even apply.

Finally, the complaint stated that M&E International did not “have any training or compliance program that educated its employees concerning the conduct prescribed by the FCPA.”

It is further interesting to note that the “means and instrumentality of interstate commerce” alleged in the complaint was a “commercial aircraft.”

Without admitting or denying the allegations in the DOJ’s civil complaint, in this Consent and Undertaking M&E agreed to “maintain a compliance and ethics program designed to detect and prevent violations of the FCPA and other applicable foreign bribery laws.”  The consent and undertaken set forth the minimum standards of such a program.  In the consent and undertaking M&E also agreed to implement various financial and accounting procedures consistent with the FCPA’s books and records and internal controls provisions.

Finally, in the consent and undertaking, M&E agreed to pay a civil fine in the amount of $400,000 and reimburse the U.S. for the costs of the investigation in the amount of $50,000.

In Depth On The Tyco Enforcement Action

Earlier this week, the DOJ and SEC announced a Foreign Corrupt Practices Act enforcement action against Tyco International Ltd. (“Tyco”) and a subsidiary company.  Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action).

This post goes long and deep as to the DOJ’s and SEC’s allegations and resolution documents (approximately 85 pages in total).  Tomorrow’s post will discuss various items of note from the enforcement actions.

DOJ

The DOJ enforcement action involved a criminal information (here) against Tyco Valves & Controls Middle East Inc., (an indirect subsidiary of Tyco) resolved through a plea agreement (here) and a non-prosecution agreement (here) entered into between the DOJ and Tyco.

Criminal Information

The criminal information begins by identifying Tyco Valves & Controls Middle East Inc. (TVC ME) as a Delaware company headquartered in Dubai that “sells and markets valves and actuators manufactured by other entities throughout the Middle East for the oil, gas, petrochemical, commercial construction, water treatment,and desalination industries.”

According to the information, Tyco Flow Control Inc. (“TFC) was TVC ME’s direct parent company and TFC was a wholly-owned indirect subsidiary of Tyco.  According to the information, “TVC ME’s financials were consolidated into the books and records of TFC for the purposes of preparing TFC’s year-end financial statements, and in turn, TFC’s financials were consolidated into the books and records of Tyco for the purposes of preparing Tyco’s year-end financial results.”

The information alleges a conspiracy as follows.

Between 2003 and 2006 TVC ME conspired with others to “obtain and retain business from foreign government customers, including Aramco, ENOC, Vopak, NIGC, and other customers by paying bribes to foreign officials employed by such customers.”

The information alleges: that Saudi Aramco (“Aramco”) was a Saudi Arabian oil and gas company that was wholly-owned, controlled, and managed by the government, and an “agency” and “instrumentality” of a foreign government; that Emirates National Oil Company (“ENOC”) was a state-owned entity in Dubai and an “agency” and “instrumentality” of a foreign government; that Vopak Horizon Fujairah (“Vopak”) was a subsidiary of ENOC based in the U.A.E. and an “agency” and “instrumentality” of a foreign government; and that the National Iranian Gas Company (“NIGC”) was a state-owned entity in Iran and an “agency” and “instrumentality” of a foreign government.

Under the heading “manner and means of the conspiracy” the information alleges in pertinent part as follows.

“TVC ME, together with others, decided to pay bribes to employees of end-customers in Saudi Arabia, the U.A.E., and Iran, including to employees at Aramco, ENOC, Vopak, and NIGC, in order to obtain or retain business.  TVE ME, together with others, found ways to obtain cash in order to make the bribe payments.  TVE ME, together with others, made payments through Local Sponsor [a company in Saudi Arabia that acted as a distributor for TVC ME in Saudi Arabia].  Local Sponsor provided TVC ME with false documentation, such as fictitious invoices for consultancy costs, bills for fictitious commissions, or ‘unanticipated costs for equipment,’ to justify the payments to Local Sponsor that were intended to be used for bribes.  TVE ME, together with others, approved and made payments to Local Sponsor for the purpose of paying bribes.  TVC ME, together with others, paid bribes to employees of foreign government customers in order to remove TVC manufacturing plans from various Aramco ‘blacklists’ or ‘holds’; win specific bids; and/or obtain specific product approval.  TVC ME, together with others, improperly recorded the bribe payments in TVC ME’s books, records, and accounts, and instead falsely described the payments, including as consultancy costs, commissions, or equipment costs.  TVC ME earned approximately $1.153,500 in gross margin as a result of the bribe payments.”

Based on the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions.

Plea Agreement

The plea agreements sets forth a Sentencing Guidelines range of $2.1 million – $4.2 million.  In the plea agreement, the parties agreed that $2.1 million was “appropriate.”  Pursuant to the plea agreement, TVC ME agreed “to work with its parent company in fulfilling the obligations” described in Corporate Compliance Program attached to the plea agreement.

NPA

The DOJ also entered into an NPA with Tyco in which the DOJ agreed “not to criminally prosecute [Tyco] related to violations of the books and records provisions of the FCPA … arising from and related to the knowing and willful falsification of books, records, and accounts by a number of the Company’s subsidiaries and affiliates …”.

The NPA contains a Statement of Facts.

Under the heading, “details of the illegal conduct” the NPA states as follows.

“[From 1999 through 2009] certain Tyco subsidiaries falsified books, records, and accounts in connection with transactions involving customers of Tyco’s subsidiaries, including government customers, in order to secure business in various countries, including China, India, Thailand, Laos, Indonesia, Bosnia, Croatia, Serbia, Slovenia, Slovakia, Iran, Saudia Arabia, Libya, Syria, the United Arab Emirates, Mauritania, Congo, Niger, Madagascar, and Turkey.  During that time period, certain Tyco subsidiaries made payments, both directly and indirectly, to government officials and falsely described the payments to government officials in Tyco’s corporate books, records, and accounts as legitimate charges, including as ‘consulting fees,’ ‘commissions,’ ‘unanticipated costs for equipment,’ ‘technical consultation and marketing promotion expenses,’ ‘conveyance expenses,’ ‘cost of goods sold,’ ‘promotional expenses,’ and ‘sales development’ expenses.  As early as 2004, Tyco alerted the Securities and Exchange Commission to payments at certain of Tyco’s subsidiaries that could violate the FCPA.  In 2006, Tyco acknowledged that ‘prior to 2003 Tyco did not have a uniform, company-wide FCPA compliance program in place or a system of internal controls sufficient to detect and prevent FCPA misconduct at is globally dispersed business units’ and that ’employees at two Tyco subsidiaries in Brazil and South Korea did not receive adequate instruction regarding compliance with the FCPA, despite Tyco’s knowledge and awareness that illicit payments to government officials were a common practice in the Brazilian and South Korean construction and contracting industries.’  However, despite Tyco’s knowing of a high probability of the existence of improper payments and false books, records, and accounts, the improper payments and falsification of books, records, and accounts continued until 2009.”

As to Thailand, the Statement of Facts states a follows.

“[Between 2004 and 2005] ET Thailand [Earth Tech (Thailand) Ltd. – a Thai corporation that was approximately 49% indirectly owned by Tyco] made payments in the amount of approximately $292,286 to a consultant and recorded those amounts as fictitious disbursements related to the NBIA project [New Bangkok International Airport].  In connection with these improper payments, ET Thailand earned approximately $879,258 in gross profit.”

“[Between 2000 to 2006] ADT Thailand [ADT Sensormatic Thailand an indirect wholly owned subsidiary of Tyco] recorded payments in the amount of approximately $78,000 to one of its subcontractors as payments for site surveys for a government traffic project in Laos, but the payments instead were channeled to other recipients in connection with ADT Thailand’s business in Laos.  During the same time period, ADT Thailand made payments to one of its consultants related to a contract for the installation of a CCTV system in the Thai Parliament House, and ADT Thailand and the consultant created invoices that stated that the payments were for ‘renovation work’ when no renovation work was actually performed.  During that same time period, ADT Thailand made three payments in connection with a design and traffic survey that ADT Thailand provided from the city of Pattaya, in Southern Thailand, but the payments were issued pursuant to falsified invoices without any evidence that work was ever performed.  In connection with these improper transactions, ADT Thailand earned approximately $473,262 in gross profit.”

As to China, the Statement of Facts state as follows.

“[Between 2003 and 2005] TTC Huzhou [Tyco Thermal Controls (Shanghai) Co. Ltd. an indirect wholly owned subsidiary of Tyco] authorized approximately 112 payments in the amount of $196,267 to designers at design institutes owned or controlled by the Chinese government, and falsely described the payments in company books, records, and accounts as ‘technical consultation’ or ‘marketing promotion’ expenses.  In 2005, in connection with a contract with China’s Ministry of Public Security, TTC Huzhou paid a commission to one of its sales agents that was used, in part, to pay the ‘site project team’ of a state-owned corporation, and that was improperly recorded in the company’s books and records.  In connection with these improper transactions, TTC Huzhou earned approximately $3,470,180 in gross profit.”

“TFCT Shanghai [Tyco Flow Control Trading (Shanghai) Ltd. an indirect wholly owned subsidiary of Tyco] made approximately eleven payments in the amount of approximately $24,000 to employees of design institutes, engineering companies, subcontractors and distributors which were inaccurately described in its books and records.  In connection with these improper transaction, TFCT Shanghai earned approximately $59,412 in gross profit.”

“[Between 2005 and 2006] TFC HK  [Tyco Flow Control Hong Kong Limited] and Keystone [Beijing Valve Co. Ltd.] [both indirect wholly owned subsidiaries of Tyco] made payments in the amount of approximately $137,000 to agencies owned by approximately eight Keystone employees, who in turn gave cash or gifts to employees of design institutes or commercial customers, and then improperly recorded these payments.  [From 2005 to 2006] Keystone made payments to one of its sales agents in connection with sales to Sinopec, for which no legitimate services were actually provided, and then improperly recorded the payments as ‘commissions.’  In connection with these improper transactions, Keystone earned approximately $378,088 in gross profits.”

“[Between 2001 to 2002] THC China [Tyco Healthcare International Trading (Shanghai) Co. Ltd. an indirect wholly owned subsidiary of Tyco] gave publicly-employed healthcare professionals (HCPs) approximately $250,00o in meals, entertainment, domestic travel, gifts and sponsorships.  [Between 2004 to 2007] employees of THC China submitted expenses claims related to entertaining HCPs that were supported by fictitious receipts, including references to a non-existent company, in order to circumvent Tyco’s internal guidelines.  In connection with medical conferences involving HCPs, THC China employees submitted false itineraries and other documentation that did not properly identify trip expenses in order to circumvent internal controls and policies.  Approximately $353,800 in expenses was improperly recorded as a result of the false documentation relating to these improper expenditures.”

As to Slovakia, the Statement of Facts state as follows.

“[Between 2004 to 2006] Tatra [a Slovakian joint venture that was approximately 90 percent indirectly owned by Tyco] made payments in the amount of approximately $96,000 to one of its sales agents in exchange for the sale agent’s attempt to have Tatra products included in the specifications for tenders to a government customer, while at the same time the sales agent was getting paid by the government customer to draw up the technical specifications for the tenders.  Tatra improperly recorded the payments to the sales agent as ‘commissions’ in Tatra’s books and records.  In connection with these improper transactions, Tatra earned approximately $226,863 in gross profit.”

As to Indonesia, the Statement of Facts state as follows.

“[Between 2003 and 2005] Eurapipe [Tyco Eurapipe Indonesia Pt. an indirect wholly owned subsidiary of Tyco] made approximately eleven payments in the amount of approximately $358,000 to a former employee of Banjarmasin provincial level public water company (PDAM) and two payments to the project manager for PDAM Banjarmasin in connection with the Banjarmasin Project.  During the same time period, Eurapipe made payments in the amount of approximately $23,000 to sales agents who then passed some or all of the payments on to employees of government entities in connection withe projects other than the Banjarmasin Project.  Eurapipe improperly recorded the payments as ‘commissions payable’ in Eurapipe’s books and records. In connection with these improper transactions, Eurapipe earned approximately $1,298,453 in gross profit.”

“[Between 2002 and 2005] PT Dulmision Indonesia [an Indonesia corporation 99% indirectly owned by Tyco] made payments to third parties, a portion of which went to employees of PLN [a state-owned electricity company in Indonesia], including approximately seven payments one of PT Dulmison’s sales agents, who in turn passed money on to the PLN employees.  PT Dulmison Indonesia improperly recorded the payments in PT Dulmison Indonesia’s books, records and accounts.  In addition, PT Dulmison Indonesia improperly recorded travel expenses in company books and records, including payments for non-business entertainment in connection with visits by PLN employees to TE Dulmision Thailand’s factory and paid hotel costs incurred as part of a social trip to Paris for PLN employees following a factory visit to Germany, as ‘cost of goods sold’ in PT Dulmison Indonesia’s and TE Dulmison Thailand’s records.  In connection with these improper transactions, PT Dulmision Indonesia and TE Dulmison Thailand earned approximately $109,259 in gross profit.”

As to Vietnam, the Statement of Facts state as follows.

“[Between 2001 and 2005] TE Dulmison Thailand [a Thai corporation approximately 66% indirectly owned by Tyco] made nine payments in the amount of approximately $68,426, either directly or through intermediaries, to employees of a public utility owned by the Government of Vietnam and recorded these payments in the books and records of the relevant subsidiaries as ‘cost of goods sold.'”

As to Mauritania, Congo, Niger and Madagascar, the Statement of Facts state as follows.

“[Between 2002 to 2007] Isogard [a branch of Tyco Fire & Integrated Solutions France (TFIS France0, an indrect wholly owned subsidiary of Tyco] made payments to a security officer employed by a government-owned mining company in Mauritania involved in the technical aspects of sales projects for the purpose of introducing Isogard to local buyers in Africa.  Isogard made the payments to the security officer’s personal bank account in France without any written contract or invoice and improperly recorded the payments in Isogard’s books and records.  Isogard paid sham ‘commissions’ to approximately twelve other intermediaries in Mauritania, Congo, Niger and Madagascar, half of which were to employees, or family members of employees, of Isogard customers.  In total, TFIS France made paments in the amount of approximately $363,839 since 2005.”

As to Saudi Arabia, in addition to the conduct at issue in TVC ME’s criminal information, the Statement of Facts state as follows.

“[Between 2004 through 2006] Saudi Distributor maintained a ‘control account’ from which a number of payments were made at THC Saudi Arabia’s [an operational entity within Tyco Healthcare AG, a indirect wholly owned subsidiary of Tyco] direction to Saudi hospitals and doctors, some of whom were publicly employed HCPs.  Several expenses from the control account were booked improperly as ‘promotional expenses’ and ‘sales development’ expenses.  In connection with these improper transactions, THC Saudi earned approximately $1,960,000 in gross profit.”

As to Turkey, the Statement of Facts state as follows.

“[Between 2001 and 2006] SigInt [a division of M/A-Com, an indirect, wholly owned subsidiary of Tyco] products were sold through a sales representative to government entities in Turkey.  The sales representatives sold the SigInt equipment in Turkey at an approximately twelve to forty percent mark-up over the price at which he purchased the equipment from M/A-Com and also received a commission on one of the sales.  The sales representative transferred part of his commission and part of his mark-up to a government official in Turkey to obtain orders.  In connection with these improper transactions, M/A-Com earned approximately $71,770 in gross proft.”

The Statement of Facts also states as follows.

“[Between 2004 and 2009] Erhard [a subsidiary of Tyco Waterworks Deutschland GmBH (TWW Germany), an indirect wholly owned subsidiary of Tyco] made payments in the amount of approximately $2,371,094 to at least thirteen of its sales agents in China, Croatia, India, Libya, Saudi Arabia, Serbia, Syria, and the United Arab Emirates for the purpose of making payments to employees of government customers, and improperly booked the payments as ‘commissions.’  In connection with these improper transactions, TWW Germany earned approximately $4,684,966 in gross profits.”

In the NPA, Tyco admitted, accepted and acknowledged responsiblity for the above conduct and agreed not to make any public statement contradicting the above conduct.

The NPA has a term of three years and states as follows.

“The Department enters into this Non-Prosecution Agreement based, in part, on the following factors:  (a) the Company’s timely, voluntary, and complete disclosure of the conduct; (b) the Company’s global internal investigation concerning bribery and related misconduct; (c) the Company’s extensive remediation, including the implementation of an enhanced compliance program, the termination of employees responsible for the improper payments and falsification of books and records, severing contracts with the responsible third-party agents, the closing of subsidiaries due to compliance failures, and the agreement to undertake further compliance enhancements ….; and (d) the Company’s agreement to provide annual, written reports to the Department on its progress and experience in monitoring and enhancing its compliance policies and procedures …”.

Pursuant to the NPA, the company agreed to pay a penalty of $13.68 million (the $2.1 million TVC ME agreed to pay pursuant to the plea agreement is included in this figure).  Pursuant to the NPA, Tyco also agreed to a host of compliance undertakings and agreed to report to the DOJ (at no less than 12 month intervals) during the three year term of the NPA regarding “remediation and implementation of the compliance program and internal controls, policies, and procedures” required pursuant to the NPA.

In this DOJ release, Assistant Attorney General Lanny Breuer stated as follows.  “Together with the SEC, we are leading a fight against corruption around the globe.”

SEC

In a related enforcement action, the SEC brought a civil complaint (here) against Tyco.

The introductory paragraph of the complaint states as follows.  “This matter concerns violations by Tyco of the books and records, internal controls, and anti-bribery provisions of the FCPA.”

The complaint then states as follows.

“In April 2006, the Commission filed a settled accounting fraud, disclosure, and FCPA injunctive action against Tyco, pursuant to which the company consented to entry of a final judgment enjoining it from violations of the anti-fraud, periodic reporting, books and records, internal controls, proxy disclosure, and anti-bribery provisions of the federal securities laws and ordering it to pay $1 in disgorgement and a $50 million civil penalty. The U.S. District Court for the Southern District of New York entered the settled Final Judgment against Tyco on May 1, 2006. At the time of settlement, Tyco had already committed to and commenced a review of its FCPA compliance and a global, comprehensive internal investigation of possible additional FCPA violations. As a result of that review and investigation, certain FCPA violations have come to light for which the misconduct occurred, or the benefit to Tyco continued, after the 2006 injunction. Those are the violations that are alleged in this Complaint.  […]  The FCPA misconduct reported by Tyco showed that Tyco’s books and records were misstated as a result of at least twelve different, post-injunction illicit payment schemes occurring at Tyco subsidiaries across the globe. The schemes frequently entailed illicit payments to foreign officials that were inaccurately recorded so as to conceal the nature of the payments. Those inaccurate entries were incorporated into Tyco’ s books and records.   Tyco also failed to devise and maintain internal controls sufficient to provide reasonable assurances that all transactions were properly recorded in the company’s books, records, and accounts. […] As reflected in this Complaint, numerous Tyco subsidiaries engaged in violative conduct, the conduct was carried out by several different methods, and the conduct occurred over a lengthy period of time and continued even after the 2006 injunction.  Through one of the illicit payment schemes, Tyco violated the FCPA anti-bribery provisions. Specifically, through the acts of its then-subsidiary and agent, TE M/A-Com, Inc. Tyco violated [the FCPA’s anti-bribery provisions] by corruptly making illicit payments to foreign government officials to obtain or retain business.”

As to the SEC’s anti-bribery charge based on the conduct of TE M/A-Com, Inc. the complaint alleges that M/A Com retained a New York sales agent who made illicit payments in connection with a 2006 sale of microwave equipment to an instrumentality of the Turkish government.  The complaint alleges that “employees of M/A-Com were aware that the agent was paying foreign government customers to obtain orders” and cites an internal e-mail which states as follows – “hell, everyone knows you have to bribe somebody to do business in Turkey.”  The complaint then alleges as follows.  “Tyco exerted control over M/A-COM in part by utilizing dual roles for its officers. At the time of the September 2006 transaction, four high-level Tyco officers were also officers of M/A-COM, including one who was M/A-COM’s president. Additionally, one of those Tyco officers served as one of five members of M/A-COM’s board of directors. While there is no indication that any of these individuals knew of the illegal conduct described herein, through the corporate structure used to hold M/ A-COM and through the dual roles of these officers, Tyco controlled M/A-COM. As a result, M/A-COM was Tyco’s agent for purposes of the September 2006 transaction, and the transaction was squarely within the scope of M/ACOM’s agency.  The benefit obtained by Tyco as a result of the September 2006 deal was $44,513.”

The SEC’s complaint contains substantially similar allegations compared to the NPA Statement of Facts.  In addition, the SEC complaint alleges additional improper conduct in Malaysia, Egypt, and Poland.

As to Malaysia, the complaint alleges as follows.

“[Between 2000 to 2007] TFS Malaysia [an indirect wholly owned subsidiary of Tyco] used intermediaries to pay the employees of its customers when bidding on contracts.  Payments were made to approximately twenty-six employees of customers, and one of those payees was an employee of a government-controlled entity.  TFS Malaysia inaccurately described these expenses as ‘commissions’ and failed to maintain policies sufficient to prohibit such payments.  As a result, Tyco’s books and records were misstated.  Tyco’s benefit as a result of these illicit payments was $45,972.”

As to Egypt, the complaint alleges as follows.

“[Between 2004 to 2008] an Egyptian agent of TFIS UK [a indirect wholly owned subsidiary] wired approximately $282,022 to a former employee’s personal bank account with the understanding that the money would be used in connection with entertainment expenses for representatives of a company majority-owned by the Egyptian government.  A portion of the funds was used to pay for lodging, meals, transportation, spending money, and entertainment expenses for that company’s officials on two trips to the United Kingdom and two trips to the U.S.  TFIS UK made payments pursuant to inflated invoices submitted by the company’s Egyptian agent, who wired funds to the former employees to be used to entertain foreign officials.  TFIS U.K. books and records did not accurately reflect TFIS’s U.K.’s understanding that the funds would be used for entertainment of government officials, and TFIS UK did not maintain sufficient internal controls over its payments to agents.  As a result, Tyco’s books and records were misstated.  Tyco’s benefits as a result of these illicit payments was $1,589,374.”

As to Poland, the complaint alleges as follows.

“[Between 2005 to 2007] THC Polska [an indirect wholly owned subsidiary] used ‘service contracts’ to hire public healthcare professionals in Poland for various purposes, including conducting training sessions, performing clinical studies, and distributing marketing materials.  Approximately five such service contracts involved falsified records and approximately twenty-six other service contracts involved incomplete and inaccurate records, including some related expenses paid by THC Polska to family members of healthcare professionals.  As a result, Tyco’s books and records were misstated.  In connection with the transactions related to these inaccurate books and records, Tyco’s benefit was approximately $14,673.

As to the SEC’s internal controls charge, the complaint contains the following allegation.  “Tyco failed to devise and maintain … a system of internal controls and was therefore unable to detect the violations …  Numerous Tyco subsidiaries engaged in violative conduct, the conduct was carried out by several different methods, and the conduct occurred over a lengthy period of time, and it continued even after the 2006 injunction.”

The SEC complaint contains the following paragraph.

“As its global review and investigation progressed, Tyco voluntarily disclosed this conduct to the Commission and took significant, broad-spectrum remedial measures. Those remedial measures include: the initial FCPA review of every Tyco legal operating entity ultimately including 454 entities in 50 separate countries; active monitoring and evaluation of all of Tyco’s agents and other relevant third-party relationships; quarterly ethics and compliance training by over 4,000 middle-managers; FCPA-focused on-site reviews of higher risk entities; creation of a corporate Ombudsman’s office and numerous segment-specific compliance counsel positions; exit from several business operations in high-risk areas; and the termination of over 90 employees, including supervisors, because of FCPA compliance concerns.”

As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest.  Tyco also agreed to be permanently enjoined from violating the FCPA.

In this release, SEC Associate Director of Enforcement Scott Friestad stated as follows.  “Tyco’s subsidiaries operating in Asia and the Middle East saw illicit payment schemes as a typical way of doing business in some countries, and the company illictly reaped substantial financial benefits as a result.”

Martin Weinstin (Willkie Farr & Gallagher – here) represented the Tyco entities.

The FCPA Meets Insurance – Aon Resolves Enforcement Action

This post analyzes the DOJ and SEC enforcement actions against Aon Corporation (one of the largest insurance brokerage firms in the world) announced yesterday.  Total fines and penalties are approximately $16.3 million ($1.8 million via a DOJ non-prosecution agreement and $14.5 million via a settled SEC civil complaint).

DOJ

The NPA (here) begins as follows.  The DOJ will not criminally prosecute Aon Corporation or its subsidiaries for any crimes “related to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions of the FCPA .. arising from and related to the making of improper payments to government officials in Consta Rica in order to assist Aon in obtaining and retaining business” or “for the conduct related to improper payments and associated recordkeeping […] relating to Aon’s improper payments in Bangladesh, Bulgaria, Egypt, Indonesia, Myanmar, Panama, the United Arab Emirates, and Vietnam that it discovered during its thorough investigation of its global operations.”

The NPA has a term of two years.  As is typical in FCPA NPAs or DPAs, Aon agreed “not to make any public statement” contradicting the below facts.

According to the NPA, the DOJ agreed to resolve the action via an NPA based, in part, on the following factors:

(a) Aon’s extraordinary cooperation with the DOJ and SEC;

(b) Aon’s timely and complete disclosure of facts relating to the above payments; [unlike many corporate FCPA enforcement actions, the Aon action does not appear to be the result of a voluntary disclosure; as stated in Aon’s most recent quarterly SEC filing, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”]

(c) the early and extensive remedial efforts undertaken by Aon, including the substantial improvements the company has made to its anti-corruption compliance procedures;

(d) the prior financial penalty of 5.25 million paid to the U.K. Financial Services Authority (“FSA”) [see here] by Aon Limited, a U.K. subsidiary of Aon, in 2009 concerning certain of the conduct at issue; and

(e) the FSA’s close and continuous supervisory oversight over Aon Limited.

The NPA’s Statement of Facts begin by detailing the business of reinsurance – that is insurance for insurance companies.  Specifically, the NPA states as follows.  “Reinsurance involves the transfer of all or part of the risk of paying claims under a policy from the insurance company that issued the policy to a reinsurance company.  A reinsurance broker arranges this transfer of risk, which takes place under a contract of reinsurance.  The insurance company is the reinsurance broker’s client and the broker acts on behalf of the insurance company.  The broker collects the premium due from the insurance company under the contract of reinsurance, and is typically paid for its services by retaining a portion of the premium for its own account.  The portion of premium retained by the broker is known as ‘brokerage.'”

The conduct at issue focuses on the Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company” (here) that “had a monopoly over the Costa Rican insurance industry.”  The NPA states as follows.  “INS was created by Act No. 12 of October 30, 1924, with the aim of meeting the protection needs of Costa Rican society.  All insurance agreements in Costa Rica, including the reinsurance contracts that Aon Limited [a subsidiary of Aon Corporation based in and organized under U.K. law that “reported financially through a series of intermediary entities into its U.S.-based issuer parent] assisted in obtaining to insure Costa Rican entities, were required to be issued through INS.  The head of INS was appointed by the President of Costa Rica.”

According to the NPA, a company Aon Limited acquired established a “Training and Education Fund” or “Brokerage Fund” for the benefit of INS “to sponsor training and education trips for INS officials.”  The NPA states that the “Brokerage Fund eventually became used for a wide variety of purported ‘training’ purposes, as well as to pay for client renewal trips to European insurers.”  The NPA also states that a second training account (the so-called 3% Fund) was funded by premiums to reinsurers and that “INS required that Aon Limited manage the fund, handle the paperwork, and provide reimbursement for the expenses incurred by INS officials.”

According to the NPA, “the supposed purpose of both the Brokerage Fund and the 3% Fund was to provide education and training for INS officials.”  However, the NPA states, “Aon Limited used a significant portion of the funds to reimburse for non-training related activity or for uses that could not be determined from Aon’s books and records.”

The NPA cites an e-mail from a former Aon Limited executive which stated as follows.  “INS started telling [another brokerage company] how [various reinsurers] were inviting their managers to seminars and were contributing positively to INS’s technological improvement with all expenses paid by the reinsurers.  The message was clear to both [the other brokerage company] and ourselves that unless we did the same we would see the gradual process of disintermediation and a continued erosion of our orders.”

The NPA then states as follows.  “Aon Limited disbursed nearly all of the $215,000 in the Brokerage Fund from 1997 until 2002, approximately $650,000 of the money in the 3% Fund from 1999 until 2002, and made a small number of additional disbursements from these funds between 2003 and 2005 to pay for the third-party services used by INS officials. These services often included travel related expenses, such as airfare and hotel accommodations, as well as conference fees, meals,  and other related expenses for INS officials and their relatives. It was common for INS to hire a
travel agency or tourism company to arrange for the particulars of the travel and educational conferences attended by its officials.  The majority of the money paid from the two funds was disbursed to a tourism company in Costa Rica. The director of INS’ reinsurance department, who played an active role in setting up the training funds, served on the board of directors of tourism company.  The director of INS’ reinsurance department himself took fourteen trips from 1996 to 2001 with expenses totaling approximately $44,000 that Aon Limited paid from the two funds. The funds also covered the official’s wife’s attendance on at least five of the trips.  On several occasions, Aon Limited reimbursed the official directly for expenses that were invoiced for his various trips, sometimes with cash payments.  The director of INS took six trips from 1998-2001 with expenses totaling approximately $20,000 that Aon Limited paid from the two funds. The director’s spouse accompanied him on four of these trips. The director of INS, the director of reinsurance at INS, their wives, and another INS official and her husband traveled to Europe in 1998 and charged their expenses of approximately $15,160 to the Brokerage Fund. While these trips had a small business-related component, a significant portion of the funds expended on the trips were used for the personal benefit of the officials and their wives.  A  substantial number of the trips taken by INS offcials were in connection with conferences and seminars in tourist destinations, including London, Paris, Monte Carlo, Zurich, Munich, Cologne, and Cairo. Many of the invoices and other records for these trips do not provide the business purpose of the expenditures, if any, or showed that the expenses were clearly not related to a legitimate business purpose. In addition, the subject matters of some of the better documented conferences and trainings, such as a literary conference and a Mexican information technology conference, had no logical connection to the insurance industry.  INS officials traveled to the United States for approximately twenty-five training events.  Aon Limited paid approximately $115,000 out of the funds in connection with these events in the United States.  In some instances, Aon Limited paid third parties at INS’s direction where the business purpose of the travel or expenses could not be discerned from the documentation, or where the purpose of the travel and expenses appeared to be improper, such as those pertaining to literary conferences, holiday expenses, and pure entertainment. Aon Limited paid large expenses for hotels, without any indication that the stays were business related. Aon Limited’s employees did not question the requests for payment or reimbursement from the funds.  While virtually all payments made in connection with the funds originated in London, Aon Limited made at least forty payments via, or that terminated in, the United States.  From 1995 to 2002, Aon Limited [and the company it acquired] earned profits of approximately $1.840,200 in connection with reinsurance brokerage business with INS.”

As to statute of limitation issues, Aon’s recent quarterly filing states as follows.  Aon “has agreed with the U.S. agencies to toll any applicable statute of limitations pending completion of the investigations.”

Under the heading “Books and Records/Internal Controls,” the NPA states as follows.  “The books and records of Aon Limited were consolidated into those of Aon Corporation. With respect to the Costa Rican training funds, although Aon Limited maintained accounting records for the payments that it made from both the Brokerage Fund and the 3% Fund, these records did not accurately and fairly reflect, in reasonable detail, the purpose for which the expenses were incurred. A significant portion of the records associated with payments made through tourist agencies gave the name of the tourist agency with only generic descriptions such as “various airfares and hotel.”  Additionally, to the extent that the accounting records did provide the location or purported educational seminar associated with travel expenses, in many instances they did not disclose or itemize the disproportionate amount of leisure and non-business related activities that were also included in the costs.  As a result, during the relevant time period, Aon failed to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its assets and failed to devise and maintain an adequate system of internal accounting controls with respect to foreign sales activities sufficient to ensure compliance with the FCPA.”

Pursuant to the NPA, “Aon admits, and accepts and acknowledges responsibility” for the above conduct; however, there is no suggestion or implication in the NPA that anyone at Aon Corporation  knew of, participated in, or authorized the conduct at issue.

See here for the DOJ’s release.

Pursuant to the NPA, Aon agreed to pay a monetary penalty in the amount of $1.76 million.  The NPA states as follows.  “This substantially reduced monetary penalty reflects the Department’s determination to credit meaningfully Aon for its extraordinary cooperation with the Department, including its thorough investigation of its global operations and complete disclosure of facts to the Department, and its early and extensive remediation.  In agreeing to this monetary penalty, the Department also took into account the penalty paid to the FSA relating to Aon Limited’s systems and controls in countries other than Costa Rica.”  Pursuant to the NPA, Aon also agreed to “continue to strengthen its compliance, bookkeeping, and internal controls standards and procedures” as set forth in “Corporate Compliance Program” appendix to the NPA.

SEC

The SEC’s settled civil complaint (here) begins as follows.  “From as early as 1983 until as recent as 2007, subsidiaries of Aon Corporation in numerous countries made improper payments to various parties as a means of obtaining or retaining insurance business in those countries.  During this period, over $3.6 million in such payments were made, including some directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the Company’s interest.  These payments were not accurately reflected in Aon’s books and records.  During this period, Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent these payments.”

According to the SEC complaint, “the improper payments made by Aon’s subsidiaries fall into two general categories:  (i) training, travel and entertainment provided to employees of foreign-government owned clients and third parties and (ii) payments made to third-party facilitators.”

As to the first category of payments, the SEC complaint is largely focused on the same Costa Rica / INS payments described in the DOJ’s NPA.  Additional payments concern Egypt and the complaint alleges that from 1983 to 2009 Aon (or its predecessor) “served as insurance broker for an Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”).  According to the complaint, delegation trips for EAA and EPO officials to various U.S. destinations “had some business component” but also “included a disproportionate amount of leisure activities and lasted longer than the business component would justify.”  According to the SEC, the company’s “books and records did not fairly and accurately reflect the true nature of the payments made in connection with the delegation trips.”

As to the second category of payments, under the heading “Payments to Third-Party Facilitators” the complaint alleges as follows.  “Aon’s subsidiaries also made payments to third parties that were retained to assist in obtaining accounts in several countries.  In some instances, the subsidiaries made payments to the third parties without taking steps to assure that they would not be passed to foreign government officials.  The subsidiaries made some payments under circumstances in which the third parties appeared to have performed no legitimate services relating to the prospective accounts, thereby suggesting that they were simply conduits for improper payments to government officials in order to obtain or retain business for Aon.”

In Vietnam, the complaint alleges that “Aon Limited served as a co-broker on an insurance policy for Vietnam Airlines, a Vietnamese government-owned entity, since 2003.”   According to the complaint, a third-party facilitator assisted in securing the account and “company record indicate that the third-party facilitator did not provide legitimate services, but instead transferred some of the money that Aon Limited paid under its consultancy agreement to unidentified individuals referred to as ‘related people.'”

In Indonesia, the complaint alleges that “Aon Limited served as a broker on reinsurance contracts with BP Migas and Pertamina, two Indonesian state-owned entities in the oil and gas industry.”    The complaint alleges that “several former Aon Limited employees authorized improper payments to government officials in Indonesia to secure the Pertamina and BP Migas accounts for Aon Limited.”

In the United Arab Emirates, the complaint alleges that “Aon Limited provided brokerage services to a privately-held insurance company” and that payments were made “to the general manager of the insurance company as inducements to secure and retain the account for Aon Limited.”

In Myanmar, the complaint alleges that “Aon Limited retained an introducer in Myanmar to assist Aon Limited in connection with its account with Myanmar Airways and Myanmar Insurance, two government-owned entities.”  According to the complaint, “company records indicate that the introducer likely used a portion of his commission to improperly influence a government official on Aon Limited’s behalf in connection with the Myanmar account.”

In Bangladesh, the complaint alleges that “Aon Limited made approximately $1.07 million in payments to secure its account with Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities.”

Based on the above allegations, the SEC complaint alleges FCPA books and records and internal controls violations – but not FCPA anti-bribery violations – notwithstanding the fact that the DOJ’s NPA refers to “Aon’s knowing violation of the anti-bribery, books and records, and internal controls.”

As stated in the SEC’s release (here), without admitting or denying the allegations in the SEC’s complaint, Aon consented to entry of a final judgment permanently enjoining it from future FCPA books and records and internal controls violations and ordering the company to pay “disgorgement of $11,416,814 in profits together with prejudgement interest thereon of $3,128,206 for a total of $14,545,020.”

In a release (here) Aon stated as follows.  “Since beginning an internal review of these issues in 2007, Aon has put in place a comprehensive, global and robust anti-corruption program designed to prevent and detect improper conduct.”  Greg Case, Aon’s President and Chief Executive Officer stated as follows.  “Acting with integrity is Aon’s core value and we embody this in our commitment to the highest professional standards for our clients, markets and colleagues.  Aon has invested a significant amount of time and resources in anti-corruption compliance and transparency to greatly enhance our controls and processes.”

Kirkland & Ellis attorneys Laurence Urgenson (here) and Craig Primis (here) represented Aon.

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