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The Origins Of 2018 Corporate FCPA Enforcement Actions

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Yesterday’s post compared corporate FCPA enforcement actions in 2018 to prior years. However, before a Foreign Corrupt Practices Act enforcement action is announced, scrutiny must first arise.

Today’s post highlights the origins of 2018 corporate enforcement actions. (See here for a similar post highlighting the origins of 2017 corporate enforcement actions and here for 2016 corporate enforcement actions).

As highlighted in the post, like prior years, 2018 corporate enforcement actions originated in a variety of ways from voluntary disclosures, to pro-active government investigations and industry sweeps, to foreign law enforcement investigations.

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The Panama Papers Origins Of The Parker FCPA Enforcement Action

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This recent post highlighted the DOJ’s Foreign Corrupt Practices Act enforcement action against Lawrence Parker in connection with a telecommunications bribery scheme in Aruba in which the DOJ alleged that Servicio di Telecommunicacion di Aruba N.V. (SETAR) was an instrumentality of the Aruban government such that Egbert Yvan Ferdinand Koolman (a product manager at SETAR and alleged bribe recepient) was a “foreign official.”

This post highlights that the likely origin of the FCPA enforcement action against Parker was this March 2017 civil complaint filed in U.S. court by SETAR against Koolman, Parker and several other entities and individuals and how the civil complaint originated with the so-called Panama Papers.

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The Origins Of 2017 Corporate FCPA Enforcement Actions

start

Yesterday’s post compared corporate FCPA enforcement actions in 2017 to prior years. However, before a Foreign Corrupt Practices Act enforcement action is announced, scrutiny must first arise.

Today’s post highlights the origins of 2017 corporate enforcement actions. (See here for a similar post highlighting the origins of 2016 corporate enforcement actions).

As highlighted in the post, like prior years, 2017 corporate enforcement actions originated in a variety of ways from voluntary disclosures, to foreign media reporting and foreign law enforcement investigations, to pro-active SEC investigations, to civil litigation.

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Issues To Consider From The Keppel Offshore & Marine Enforcement Action

Issues

This previous post went in-depth into the net $105.5 million Foreign Corrupt Practices Act enforcement action against Keppel Offshore & Marine (and a related entity) regarding various bribery schemes in Brazil. This post continues the analysis by highlighting additional issues to consider.

FCPA First

The enforcement action against Keppel Offshore & Marine is believed to be the first FCPA enforcement action ever against a company based in Singapore.

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Issues To Consider From The Louis Berger Enforcement Action

Issues

This recent post highlighted the DOJ FCPA enforcement action against Louis Berger International (LBI) and two former employees.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

Not The First Time

Last week’s Foreign Corrupt Practices Act enforcement action against LBI was not the only recent enforcement action against the company or related entities.

As highlighted here, in November 2010 the company reached a global settlement with the DOJ related to an investigation of its cost allocating methodologies for overseas U.S. federal contracts. As part of the settlement, the company paid a total of $65 million and the settlement was composed of three separate agreements:

  • A two-year deferred prosecution agreement with the DOJ in which an independent monitor was appointed.
  • A related civil settlement agreement with the DOJ and the relator of a whistleblower lawsuit. In accordance with the agreement, the company accepted responsibility for the actions of former employees who violated the U.S. False Claims Act.
  • An Administrative Agreement with the company’s lead federal agency, the U.S. Agency for International Development.

As highlighted here, in December 2014 Derish Wolff (the former President, CEO and Chairman of the company) pleaded guilty to conspiring to defraud the U.S. Agency for International Development with respect to billions of dollars in contracts for reconstructive work in Iraq and Afghanistan.

As highlighted here, in November 2010 Salvatore Pepe (a former controller and the former CFO of the company) and Precy Pellettieri (a former controller of the company) also pleaded guilty to criminal informations charging them with conspiring to defraud the government with respect to the above conduct.

Government Contracts

Despite the prior enforcement action and the company’s FCPA scrutiny, Louis Berger has raked in numerous government contracts.

For instance, in just the past 9 months the company has been awarded the following government contracts.
  • A $14.8 million operations and maintenance fuels contract by the Defense Logistics Agency Energy for Fort Knox, Kentucky (see here).
  • A $21.6 million operations and maintenance fuels contract by the Defense Logistics Agency Energy at Fort Bliss, Texas (see here).
  • A $20 million contract with Florida’s Turnpike Enterprise to provide facility maintenance and repair services for toll plaza buildings along turnpike roadways in South Florida (see here).
  • A contract to provide air terminal and ground handling services at Kunsan Air base and Gimhae Republic of Korea air base in South Korea under a five-year contract with the United States Transportation Command (see here).
  • A contract from the U.S. Army, Europe to provide transient aircraft services at Stuttgart Army Airfield, Stuttgart Germany, a U.S. Army Airfield operated and maintained by the U.S. Army (see here).
  • A $95 million contract to assist the U.S. Army Corps of Engineers Pittsburgh District in responding to natural disasters and emergencies by providing temporary emergency power (see here).

World Bank Sanction

In February 2015, the company announced that it had accepted a World Bank Sanction based on the Vietnam conduct alleged in last week’s FCPA enforcement action. As noted in the company’s release:

“Louis Berger Group, the U.S.-based operating company within Louis Berger, has been barred from working on World Bank-funded projects for 12 months, subject to compliance with certain conditions. In addition, the Louis Berger parent has accepted terms of a conditional non-debarment for the same period. The sanctions are based on findings of misconduct under the World Bank standards by former employees on two 2007/08 World Bank-funded contracts in Vietnam that Louis Berger self-identified and self-reported to the U.S. government and World Bank.”

Rogue Employees?

Notwithstanding the above prior enforcement action, in relation to last week’s FCPA enforcement action it is fair to pose the question of whether the conduct at issue was engaged in by rogue employees (Richard Hirsch – an employed located in the Philippines, who at times oversaw the Company’s overseas operations in Indonesia and Vietnam and James McClung an employee located in India, who at times oversaw the Company’s overseas operations in Vietnam and India).

For instance, the DPA makes several references to the employees concealing conduct and otherwise creating false documents. Moreover, the DPA twice mentions the “nature and scope of the conduct” as a presumed mitigating factor, something not often found in FCPA resolution documents.

Moreover, compared to most corporate FCPA enforcement actions, there is little mention in the LBI action regarding the company’s control environment or compliance policies and procedures.

Was That Really a Voluntary Disclosure?

The DPA states that LBI voluntarily disclosed the conduct at issue and the Sentencing Guidelines calculation in the DPA credits the company for voluntarily disclosing.

Yet, is it really a voluntary disclosure when the company only took action after – in the words of the DPA – “the government had made LBI … aware of a False Claim Act investigation …”?

Did the Company Need a Compliance Monitor?

The DPA requires that LBI engage a compliance monitor for a three-year period.

Notwithstanding LBI’s prior troubles, query whether the compliance monitor was truly necessary or a government required transfer of shareholder wealth to FCPA Inc. (see here for the prior post).

For instance, in the DPA the DOJ stated that the company “has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all Company contracts.”

Moreover, LBI’s press release (which the company had to clear with the DOJ pursuant to the DPA) states:

“Since 2010, Louis Berger has undergone a massive $25+ million reform effort that resulted in new internal controls, new policies and procedures, and comprehensive systems investments, including a new global accounting system. The company has actively supported the government in its investigation of the culpable individuals and their activities. In addition to separating these former managers from the company, the firm also has added new managers to key positions, including chief financial officer and controller, and regional management teams throughout Asia and the Middle East. Additionally, the company implemented a new corporate operational model to ensure greater centralized oversight and control of overseas business activities. Moreover, the company has reformed its ownership structure by implementing an Employee Stock Ownership Program. The company established an independent compliance and ethics department under the oversight of an independent audit committee, introduced a global helpline through which employees can report potentially non-compliant activities, and implemented a global code of business conduct. Investments also have funded annual worldwide compliance, ethics and anti-corruption training for all employees.”

Timeline

Regardless of the merits of the voluntary disclosure, according to LBI’s press release the company self-reported the conduct at issue to the U.S. government starting in 2010.

Thus, LBI’s FCPA scrutiny lasted 5 years.

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