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Russian FCPA: The Law Has Been Signed, Will The Culture Change Result?

Last month, Russian President Dimitri Medvedev signed legislation that criminalizes foreign bribery, with monetary sanctions for companies and individuals who bribe foreign public officials. Soon thereafter, the OECD formally invited Russia to join the OECD’s Working Group on Bribery and to accede to the OECD’s Anti-Bribery Convention (see here for the OECD release).

Max Chester (Senior Counsel at Foley & Lardner – see here) takes the stage today with this guest post. Chester, a native speaker of Russian with significant experience representing U.S. clients in commercial transactions in Russia, provides an overview and analysis of the new Russian “FCPA-like” law.

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Russian FCPA: The Law Has Been Signed, Will The Culture Change As A Result?

On May 4, 2011, Russian President Dmitriy Medvedev signed into law a measure that significantly increases fines for bribery in Russia and now specifically applies to bribery of foreign government officials. The new federal law (here) is entitled “Federal Law dated May 4, 2011 No. 97-FZ On inclusion of changes to the Criminal Code of Russian Federation and to the Code of Administrative Offences in Connection with the Improvement of Government Administration in the Area of Fighting Corruption.” While the Russian title of the new law is not easy to understand even for a native Russian speaker, its objective is clear: it is intended to fight corruption in Russia, one of President Medvedev’s highest stated priorities, and to support Russia’s bid to accede to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Because the new law specifically prohibits offering or acceptance of a bribe by a foreign government official, we’ll refer to the new law as the “Russian FCPA.” Because the Russian FCPA prohibits commercial bribery and both receiving and offering corrupt payments to foreign government officials, the new law appears to resemble the UK Bribery Act and can be said to have even further reach than the US FCPA.

With respect to commercial bribery, the new law changes art. 46 of the Criminal Code and imposes the maximum fine for bribery in the amount of 100 times the amount of the bribe not to exceed 500 million rubles) (approximately $17.8 million). Prior to the amendment, the maximum monetary fine for acceptance of a bribe was 1 million rubles or an amount equaling salary/other income for the previous 5 year period and the maximum monetary fine for offering a bribe was 500,000 rubles or an amount equaling salary/other income for the previous 3 year period. The monetary fines for commercial grease payments (подкуп “podkup” in Russian) were even lower: the offeror could face a maximum fine of only 300,000 rubles or an amount equaling salary/other income for the previous 2 year period, and the acceptor could face a maximum fine of only 1 million rubles or an amount equaling salary/other income for a 5 year period.

While incarceration up to 12 years for bribery/grease payments was possible prior to the amendment, according Larisa Brycheva, the chair of the Office of Legal Affairs to the President of Russian Federation, only 26% of those convicted for bribery-related offenses were incarcerated. Furthermore, most of those convicted were offering/accepting small bribes (from 500 rubles to 10,000 rubles), making it difficult for Russian judges to impose sentences of up to 12 years in prison resulting from bribes equaling the cost of an average dinner for two at a Moscow restaurant.

Given this unimpressive to-date enforcement regime, the Russian lawmakers have decided that a significantly higher monetary fine would be more effective than a possibility of a lengthy prison sentence. While the anti-corruption professionals should welcome this change in the Russian law, a big question still remains exactly how aggressively Russian authorities will enforce the new law. It may not be palatable to impose a 500 million ruble fine on a Russian bureaucrat whose official government salary is 40,000 rubles and whose only official assets are his apartment (where his family lives and thus is not subject to forfeiture) and his dacha, the title to which is likely held by his relatives. The same can not be said of foreign businesses, however, on whom it would be much easier for Russian authorities to impose and collect fines equaling 100 times the bribe. There is no indication in the Russian FCPA that it would not apply to US companies doing business in Russia. In other words, if a US company or its constituents engage in commercial or foreign government official bribery in Russia, the offenders would be subject to fines and potential incarceration in Russia.

The Specific Provisions of the New Law

Acceptance of a Bribe

The Russian FCPA now specifically prohibits bribery involving foreign government officials. Thus, art. 290 of the Criminal Code (which prohibits acceptance of bribes directly or through intermediaries) as amended applies to government officials, foreign government officials or officials of public international organizations. The new law breaks down the fines into several categories depending on the conduct at issue and the amount of the bribe. In every case, however, in addition to the monetary penalty or a prison sentence with a monetary penalty, the offender may be restricted from occupying certain positions in government or commercial entities. For example, part 1 of art. 290 of the Criminal Code now imposes a penalty between 25-50 times the bribe amount or incarceration up to 3 years with a fine equaling 20 times the bribe amount if the bribe is under 25,000 rubles and was used to have an official perform an act (or refrain from performing an act) which falls within the official’s duties and responsibilities. Part 2 of article 290 states further that if the bribe amount is between 25,000 and 150,000 rubles, then the maximum penalty for a violation is a fine between 30-60 times the bribe amount or incarceration up to 6 years with a fine equaling 30 times the bribe.

If the actions (inactions) of government officials, foreign government officials or officials of public international organizations for which they accept a bribe are considered illegal, Part 3 of art. 290 of the Criminal Code now imposes a penalty equaling 40-70 times the bribe amount or incarceration for a period of 3-7 years with a fine equaling 40 times the bribe amount.

Even stiffer penalties (60-80 times the bribe amount or incarceration for a period of 5-10 years with a fine equaling 50 times the bribe amount) apply if the bribe is accepted by a federal Russian government official or an official of an equivalent body of local government administration. Art. 290, Part 4.

If the actions prohibited by parts 1-3 above involve a conspiracy, or a threat or the amount at issue is over 150,000 rubles, the penalty is 70-90 times the bribe or incarceration for a period of 7-12 years. Art. 290, Part 5

If the actions prohibited by parts 1-4 involve an amount greater than 1 million rubles, then the penalty is 80-100 times the bribe amount or incarceration for a period of 8-15 years with a penalty equaling 70 times the bribe amount.

Giving of a Bribe

The Russian FCPA similarly amends art. 291 of the Criminal Code, which now prohibits giving of a bribe (directly or through an intermediary) to a government official, foreign government official or an official of a public international organization. The giving of a bribe in the amount less than 25,000 rubles is punishable by a fine equaling 15-30 times the bribe amount or incarceration of up to 2 years with a fine equaling 10 times the bribe amount. Art. 291, Part 1.

The giving of a bribe in the amount between 25,000 rubles and 150,000 rubles is punishable by a fine equaling 20-40 times the bribe amount or incarceration of up to 3 years with a fine equaling 15 times the bribe amount. Art. 291, Part. 2.

If the actions prohibited by parts 1-3 above involve a conspiracy or the amount at issue is over 150,000 rubles, the penalty is 60-80 times the bribe or incarceration for a period of 5-8 years with a fine equaling 30 times the bribe amount. Art. 291, Part 4.

The giving of a bribe in the amount exceeding 1 million rubles is punishable by a fine equaling 70-90 times the bribe amount or incarceration for a period between 7 and 12 years with a fine equaling 70 times the bribe amount. Art. 291, Part. 2.

Giving of a bribe to a government official, foreign government official or an official of a public international organization to secure an action/inaction which is itself deemed illegal is punishable by a fine equaling 30-60 times the bribe amount or incarceration of up to 8 years with a fine equaling 30 times the bribe amount. Art. 291, Part 3.

Aiding and Abetting Bribery

The Russian FCPA also introduces new article 2911 to the Criminal Code, which prohibits aiding and abetting bribery if the amount of the bribe exceeds 25,000 rubles. In such circumstances, the Russian FCPA imposes a fine equaling 20-40 times the bribe or incarceration for a period of up to 5 years with a fine equaling 20 times the bribe amount.

If an aider assists with a bribery for an official’s act that itself is considered illegal or if an aider uses his official position in aiding the bribery, the penalty is 30-60 times the bribe or incarceration for a period of time between 3-7 years with a fine equaling 30 times the bribe amount.

If the aiding is committed by an organized group or pursuant to a conspiracy, or the amount of the bribe exceeds 150,000 rubles, the penalty is 60-80 times the bribe amount or incarceration for a period of time between 7-12 years with a fine equaling 60 times the bribe amount.

The penalty for aiding bribery in the amount exceeding 1 million rubles is 70-90 times the bribe amount or incarceration for a period of time between 7-12 years with a fine equaling 70 times the bribe amount.

A promise or an offer to aid in the bribery is also punishable by a penalty equaling 15-70 times the bribe or incarceration for a period of up to 7 years with a fine equaling 10-60 times the bribe amount.

Definition of Foreign Government Official

The Russian FCPA defines a “foreign government official” as any appointed or elected official who has a position in any legislative, executive, administrative, or judicial branch of a foreign country or an individual who serves any public function for a foreign country or a public agency or a public enterprise. This definition seems to suggest that Russian lawmakers embrace the position taken by the DOJ that employees of government owned enterprises are “foreign government officials” for purposes of the FCPA. It would be interesting to see if Russian authorities deem employees of General Motors, AIG or other large US companies where the US government has a substantial equity position, “foreign government officials” for purposes of the Russian FCPA.

Amendments to the Code of Administrative Offences of Russian Federation

The Russian FCPA also amends several provisions of the Code of Administrative Offences of Russian Federation. Among those is amendment to article 19.28, which imposes penalties on legal entities for commercial bribery or bribery of foreign government officials if a payment of a bribe or an offer of a bribe was made on a legal entity’s behalf. In such circumstances, the penalty is 3 times the amount of the bribe but not less than 1 million rubles. If the amount of the bribe at issue is greater than 1 million rubles, then the penalty is up to 30 times the bribe amount but not less than 20 million rubles. If the amount of the bribe at issue is over 20 million rubles, then the penalty is up to 100 times the bribe amount but not less than 100 million rubles.

In addition, the Russian FCPA introduces several new protocols for Russian authorities to seek information from their foreign counterparts in connection with the investigation by Russian authorities of violations set forth above as well as protocols for Russian authorities to respond to inquiries from foreign law enforcement agencies in connection with foreign law enforcement agencies’ investigation of crimes. These provisions will undoubtedly strengthen the level of cooperation between Russian and foreign law enforcement agencies in implementing anti-corruption measures. Such efforts are already underway, as evidenced by the recent meetings between Alexander Yakovenko, the Russian Ambassador to the United Kingdom in London, with Richard Alderman, Director of the Serious Fraud Office.

Conclusion

No law by itself can change overnight or even within a short period of time the “threatening” level of corruption that exists in Russia, as acknowledged by the Russian President himself. The current state of affairs in Russia is a product of 70+ years of socialist dictatorship and the resulting mindset of many government officials. This state of affairs will change, undoubtedly, and the passing of the Russian FCPA is the step in the right direction for Russia. It is up to the Russian authorities to follow through on the provisions of the new law.

A Focus on Russia

In this guest post, I am pleased to turn it over to Robert Wieck (a high school classmate – Elkhart Lake (WI) Class of ’93 – Go Resorters!).

Robert is currently the Forensic Audit Senior Manager (Europe, Middle East and Africa) for Oracle Corporation and is based in Bucharest, Romania. He has thirteen years of experience in both “Big 4” and US listed multi-national companies. Twelve of these years have been focused on emerging markets including countries in the former Soviet Union, former Yugoslavia, and the Balkan region.

Robert participated as a panelist at the “3rd Annual Anti-Corruption Summit for Russia & CIS” held on March 16-17th in Moscow. See here for the prior post regarding Assistant Attorney General Lanny Breuer’s comments at the event.

Below is Robert’s guest post and the opinions expressed below are his own and do not necessarily reflect the opinion of his employer, Oracle Corporation.

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“I think it is clear to most people that the current business climate in Russia is troublesome for multi-national companies trying to do business legitimately. Presentations and discussions held at the conference seemed to confirm that companies are becoming increasingly concerned about being able to do business successfully in Russia and at the same time maintaining compliance with the FCPA.

One interesting point which I believe set the tone for the conference was that while the DoJ accepted the invitation for two senior officials (Mr. Breuer and Mr. Andres) to travel to Moscow to address the conference attendees, there were no Russian counterparts from the Russian Ministry of Justice present to advise on what they are doing to address the corruption problems on the ground in Russia.

While the transcript for Mr. Breuer’s speech is linked above, Mr. Andres’s comments are summarized below:

• Russia is clearly not the only place in the world where corruption is a problem. There have been a considerable number of prosecutions of US Citizens under the FCPA.

• There have been a record number of prosecutions under the FCPA in 2010, and more than 1 Billion USD in fines collected as a result. According to Mr. Andres, none of these cases involved a single, low level act of corruption or bribery, but systematic corruption involving hundreds of thousands of dollars, and involving dozens of people.

• While there were a record number of prosecutions in 2010, there were also a record number of cases that the DoJ declined to prosecute. Decisions to decline to prosecute a case were made based on a company’s ability to demonstrate that they have sound internal procedures and compliance programs. Andres believed this also highlights the benefits of companies self-reporting potential FCPA violations, and further mentioned that self-disclosure was an important factor in how many of those cases were resolved.

• There has been an uptick in the number of individuals being prosecuted under the FCPA, which totaled 50 for 2009 and 2010. This is up from 2 individuals prosecuted in 2004.

• In terms of FCPA trends for the future, Andres noted that it appears more companies are cooperating with the DoJ. More industry-wide prosecutions are being undertaken where they find that activities that violate the FCPA are not confined to one company within an industry, but represent an industry practice that multiple companies within the industry are all engaging in. The DoJ has noted increased cooperation with national law enforcement agencies and international organizations (including the OECD).

• Companies continue to criticize the DoJ for not providing enough guidance regarding their approach to FCPA prosecutions. However, Mr. Andres stated that the DoJ does a good job in maintaining the FCPA compliance website where a wealth of case information is published and available for review.

• Currently there is much debate ongoing about the definition of a public sector official, and the DOJ continues to see an increasing number of litigations surrounding the interpretation of who is a “foreign official” under the provisions of the FCPA.

• Andres believes the trend of increasing prosecutions under the FCPA will continue, and that the DoJ has added resources to address this trend.

Among the most interesting comments made by Mr. Andres, from my point of view, were his final comments in which he stated that the DoJ is demanding the same level of compliance with the FCPA from Russia as it does from other countries. He further stated that there would not be any “Russia-specific exception” when pursuing prosecutions under the FCPA.

One other interesting presentation was delivered by the General Director for Transparency International, Ms. Elena Panfilova. In what I consider a brutally honest way, she confirmed that based on research conducted by her team on the ground in Moscow, the fraud and corruptions problems in Russia are indeed getting worse, despite information that might suggest otherwise. The schemes used by these perpetrators are becoming more and more complex and they no longer appear to be shy about engaging in corruption. This has resulted in a diminished sense of public trust and led to a very cynical environment in Russia in regards to corruption. Ms. Panfilova believes that one of the barriers to reversing this trend is the lack of whistleblower protection for people reporting alleged cases of corruption. Whistleblowers currently have no guarantees of support from anyone when they raise concerns. And usually when people do report instances, whistleblowers become targets of unfounded prosecution. To demonstrate her point, she made reference to statistics which suggest that while corruption is on the rise, the number of whistleblowers making claims is decreasing. It is understood that the role of the whistleblower is critical in the fight against corruption. Thus, legal protection from prosecution (both civil and criminal), protection of property and labor rights (anti-retaliation legislation) is required in order to allow whistleblowers to come forward and voice their concerns regarding corrupt activities they might have witnessed or been a victim of.

My participation in the panel discussion covered best practices in conducting investigations in Russia. Over my twelve years of experience working in emerging markets in Europe (including Russia and CIS), I have noted common themes that should be considered while trying to conduct an audit or investigate potential misconduct in Russia (and any emerging market, for that matter). One aspect would be the high risk of document falsification in the Russian environment. In Russia, a “form over substance” approach is taking to maintain supporting documentation for transactions. Thus, in the context of an audit or investigation, the audit objectives should be managed carefully in order to ensure documentation is not “custom” prepared. Another aspect is the sometimes difficult task of getting complete/honest answers to questions or queries. It is common to receive conflicting stories and different versions of answers to the same question, sometimes for no apparent reason. A Russian celebrity summed it up in a Russian newspaper article I read recently by saying “For some reason, it’s not the custom to tell the truth in our country, even when it is clear to everyone”. Lastly, I would say that securing full cooperation from auditees can be a tedious and exhausting process. It can only be recommended that companies use legal resources (both internal and external) when necessary, in order to ensure that they receive cooperation which might be required in the form of an employment agreement, internal code of conduct or other type of contract (in the case of third parties).”

All About Panalpina

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

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

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

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

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

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

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

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

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

DOJ

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

PWT Criminal Information

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

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

The subsidiaries are:

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

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

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

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

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

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

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

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

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

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

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

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

The information states as follows:

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

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

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

Nigeria

According to the information:

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

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

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

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

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

Pancourier

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

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

Special and Other Improper Payments

The information states as follows:

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

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

Temporary Import Permits Payments

The information states as follows:

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

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

Payment of Bribes to Secure a Contract

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

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

Recurring Payments to Government Officials

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

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

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

Angola

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

Customs and Immigration Payments

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

Payments to Secure Contracts

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

Azerbaijan

The information states as follows.

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

Brazil

The information states as follows.

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

Kazakhstan

The information states as follows.

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

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

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

Russia

The information states as follows.

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

Turkmenistan

The information states as follows.

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

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

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

PWT DPA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Panalpina U.S. Criminal Information

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

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

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

Panalpina U.S. Plea Agreement

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

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

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

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

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

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

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

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

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

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

SEC

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

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

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

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

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

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

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

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

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

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

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

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

A Favor … Plus The Friday Roundup

A Favor

Each year, LexisNexis honors a select group of blogs that set the online standard for a given industry.

I am pleased to share that FCPA Professor is one of the nominated blogs for the LexisNexis Top 25 Business Law Blogs of 2010.

LexisNexis invites the business law community to comment on the list of nominees so that it can narrow the field to the Top 25.

The link to submit comments is here.

To submit a comment, you must register, but registration is free and does not result in sales contacts. The comment box is at the very bottom of the page and the comment period ends on October 8, 2010.

Many of the other blogs nominated are the work of multiple bloggers and/or for-profit entities. Thus, as a single blogger, I am honored to be included on this list. My mission remains the same since I launched FCPA Professor in July 2009. That is to inject a much needed scholarly voice into FCPA and related issues, to explore the more analytical “why” questions increasingly present in this current era of aggressive enforcement, and to foster a forum for critical analysis and discussion of the FCPA and related topics among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.

I hope you value the content delivered to you each day on FCPA Professor and I thank you for your consideration.

Friday Roundup

HP speaks, checking in with the Africa Sting case, Smith & Wesson’s reduced international shipments, BAE news, The Bribery Centre, and the International Anti-Corruption Academy … it’s all here in the Friday roundup.

HP Speaks

In April (see here) it was reported that German and Russian authorities were investigating whether Hewlett-Packard Co. (HP) executives paid millions of dollars in bribes to win a contract in Russia with the office of the prosecutor general of the Russian Federation. U.S. authorities then launched an investigation, something HP publicly acknowledged (see here). Yesterday, for the first time, HP “talked” about the investigation(s) in an SEC filing. In its 10-Q filing (see here) the company disclosed as follows:

“Russia GPO and Related Investigations

The German Public Prosecutor’s Office (“German PPO”) has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett−Packard ISE GmbH in Germany, a former subsidiary of HP, and the Chief Public Prosecutor’s Office of the Russian Federation. The €35 million transaction, which was referred to as the Russia GPO deal, spanned 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO has recently requested information on several non−public sector transactions entered into by HP and its subsidiaries on or around 2006 involving one or more persons also involved in the Russia GPO deal.

The U.S. Department of Justice and the SEC have also been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). Under the FCPA, a person or an entity could be subject to fines, civil penalties of up to $500,000 per violation and equitable remedies, including disgorgement and other injunctive relief. In addition, criminal penalties could range from the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation. The U.S. enforcement authorities have recently requested information from HP relating to certain governmental and quasi−governmental transactions in Russia and in the Commonwealth of Independent States subregion dating back to 2000.

HP is cooperating with these investigating agencies.”

Africa Sting

It’s been a while since I posted on the Africa Sting case (see here for numerous prior posts). You’ll recall that the 20+ defendants were snared in an undercover operation in which FBI agents posed as a Gabon “foreign official.” Entrapment is sure to be a legal issue the defendants will formally raise – and indeed it has been an issue defense lawyers have already publicly stated. As noted in this Blog of Legal Times post, during a hearing earlier this week, defense counsel “are demanding access to internal Justice Department and FBI manuals that govern the planning and execution of undercover operations.” According to the post, defense counsel have already claimed violations of DOJ/FBI policy in connection with the sting operation.

Smith & Wesson’s Reduced Shipments

Speaking of the Africa Sting case, one of the company’s indirectly, at least at this point, implicated in the matter is Smith & Wesson, the employer of Amaro Goncalves – one of the indicted individuals. In July (see here), the company disclosed the existence of a DOJ/SEC investigation and yesterday’s 10-Q filing (see here) does not seem to add much from the previous filing. However, this sentence from pg. 26 of the filing caught my eye: “Pistol sales decreased 25.3%, driven by the reduction in consumer demand as well as reduced international shipments related to our investigation of the FCPA matter.”

BAE News

The BAE bribery, yet no bribery enforcement action (see here) may be over in the U.S. and the U.K. Serious Fraud Office – BAE plea agreement may be waiting judicial approval in the U.K. (see here), but that does not mean that BAE’s potential exposure in other jurisdictions is over. For instance, this recent Businessweek article suggests that South African authorities remain interested in corruption allegations concerning the purchase of fighter jets from BAE. In addition, according to this recent story in The Prague Post “the Czech Republic has asked the United States for help in its inquiry into alleged corruption in a 2002 deal to buy 24 fighter jets from … BAE Systems.” The DOJ’s non-FCPA criminal information against BAE (see here) included allegations regarding the sale of fighter jets to the Czech Republic.

The Bribery Centre

The U.S. is not the only country with a vibrant and aggressively marketed anti-bribery sector. With implementation of the U.K. Bribery Act expected in April 2011, an industry is developing on the other side of the Atlantic as well. The Bribery Centre (here) seeks to provide a “unique resource to manage compliance to the Bribery Act 2010.” Described as a “collaboration between Ten Alps plc and Venalitas Ltd” the Centre “aims to become the predominant online resource for those companies who need assistance to become compliant with this new landmark piece of legislation.” Contributors include Clifford Chance and KPMG. As noted near the top of the site, you only have “29 weeks to implement adequate procedures.”

International Anti-Corruption Academy

The IAAC as it is known (see here) recently had its coming out party. As described on its website, the IAAC is “a joint initiative by the United Nations Office on Drugs and Crime, the Republic of Austria, the European Anti-Fraud Office, and other stakeholders” and it “is a pioneering institution that aims to overcome current shortcomings in knowledge and practice in the field of anti-corruption.”

Located near Vienna, Austria, the academy “will function as an independent centre of excellence in the field of anti-corruption education, training, networking and cooperation, as well as academic research.”

*****

A good weekend to all.

Friday Roundup

A company in jeopardy of violating an existing SEC injunction, a leading supplier of communication devices to the federal government in the midst of an FCPA inquiry, an FCPA enforcement action nearing the finish line, Attorney General Eric Holder’s announcement of the Kleptocracy Asset Recovery Initiative, more on multilateral development banks, and the U.K. Serious Fraud Office’s annual report … it’s all here in the Friday roundup.

Diebold’s Disclosure

Last month, Diebold, Inc., a Ohio based security services company, settled an SEC accounting fraud enforcement action by paying a $25 million civil penalty (see here). The SEC charged Diebold with, among other charges, violations of the FCPA’s books and records and internal control provisions (i.e. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934). However, you likely never heard about this because the enforcement action was what I call “a non-FCPA, FCPA enforcement action.” In other words, the FCPA’s books and records and internal control provisions are generic and are not just implicated by overseas business conduct. As part of the settlement, Diebold, as in common, consented to a final judgment permanently enjoining the company from future violations.

Diebold appears to be in jeopardy of violating that injunction.

Why?

Yesterday in an 8-K filing (see here) Diebold disclosed as follows:

Voluntary disclosure related to Foreign Corrupt Practices Act

“While conducting due diligence in connection with a potential acquisition in Russia, Diebold identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that potentially implicate the Foreign Corrupt Practices Act (FCPA), particularly the books and records provisions of the FCPA. While the company’s current assessment indicates that the transactions and payments in question do not materially impact or alter the company’s financial statements, the company continues to collect information and is conducting an internal review of its global FCPA compliance. At this time, Diebold cannot predict the outcome or impact of this global review. In addition, the company has voluntarily self-reported its findings to the U.S. Department of Justice and the Securities and Exchange Commission and intends to fully cooperate with these agencies in their review.”

The day of the disclosure, the company’s shares lost approximately 5%.

Here is what Diebold had to say about the FCPA in its most recent 10-Q filing in May:

“We are subject to compliance with various laws and regulations, including the FCPA and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our commitment to legal compliance and corporate ethics, we cannot assure you that our internal control policies and procedures always will protect us from reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our business and operations.” (emphasis added).

The Latest on Digi International

According to its website (here), Digi International Inc. is “the leading supplier of multifunction communication devices to the U.S. Federal Government.”

It is also in the midst of an FCPA investigation, one which implicates its Chief Financial Officer who is no longer with the company.

Here is what the company disclosed in a recent 8-K filing (see here):

“As previously reported, after receiving allegations regarding possible violations of our gifts, travel and entertainment policy for activities in the Asia Pacific region by a few employees, we initiated an investigation of these policy and corresponding internal control issues, and any possible related violations of applicable law, including the Foreign Corrupt Practices Act (FCPA). We voluntarily disclosed the allegations to the United States Department of Justice (DOJ) and the United States Securities and Exchange Commission (SEC). The investigation has been under the direction of the Audit Committee, comprised solely of independent directors, utilizing outside counsel, and focused on the APAC region. For completeness purposes, the investigation reviewed certain other foreign regions where no allegations have been made. We believe the investigation is substantially complete, pending the input from the DOJ and SEC. We have been providing the DOJ and SEC with updates and our proposed remediation plan. We will continue to cooperate fully with the SEC and DOJ process, which could include additional investigative procedures. This investigation found violations of company policy and internal controls that primarily involved three individuals in Hong Kong and our Chief Financial Officer. All four individuals have either been terminated or resigned from the company. The investigation also identified certain books and records and related internal controls issues under the FCPA. The ultimate impact and outcome of the DOJ and SEC process is unknown at this time. The Company is unable to estimate the potential costs relating to this matter, including any penalties that might be assessed for any FCPA violations, and accordingly, no provision has been made in our consolidated financial statements other than with respect to expenses incurred prior to June 30, 2010. In the Digi International Reports Third Fiscal Quarter 2010 Results quarter and nine months ended June 30, 2010, we incurred additional general and administrative expense of $1.0 million related to the cost of the investigation. Based upon what we have learned from the investigation, we are strengthening our monitoring controls over foreign locations and other operational and regulatory compliance procedures, including third party assistance in implementation of our remediation plan. Based on the results of our investigation to date, we are not aware of any material impacts to our reported consolidated financial statements that would require restatement, and no issues were detected outside of the Asia Pacific region. We are also evaluating any impact of this matter on our Internal Controls over Financial Reporting. The timing and final outcome of the DOJ and SEC process cannot be predicted, and it may have a materially adverse impact on our business prospects and our consolidated financial condition, results of operations or cash flow.”

I’ve noted in a prior post (see here) that one factor companies need to be mindful of when analyzing the important voluntary disclosure decision is the high likelihood of the enforcement agencies asking the “where else” question (i.e. if conduct occurred in country x, convince us that the conduct also did not occur in countries y and z). Digi’s disclosure highlights this issue when it states: “[f]or completeness purposes, the investigation reviewed certain other foreign regions where no allegations have been made.”

Maxwell Technologies Inc. Nears Settlement

In a 8-K filing yesterday, Maxwell Technologies (here), a manufacturer of energy storage and power delivery products, stated as follows:

“As previously disclosed in its public filings, the company has engaged in settlement discussions with the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) with regard to the ongoing FCPA investigations involving Maxwell’s Swiss subsidiary, Maxwell S.A. The company has negotiated an agreement in principle with the SEC to resolve the ongoing FCPA investigation for a payment of approximately $6.35 million, with half to be paid upon signing and the remaining half on the one year anniversary of signing, as well as certain other non-financial settlement terms. The settlement with the SEC remains subject to final approval of the Commission. Settlement discussions with the DOJ are ongoing, and the company is awaiting a response to its offer to the DOJ to settle the ongoing investigation for $6.35 million. Prior discussions with the DOJ have indicated that they would accept a settlement offer of $8.0 million, but as indicated earlier, we are continuing our discussions with the DOJ and are awaiting a response to our most recent offer. The DOJ has also previously indicated that settlement terms could include a payment plan over a period of up to three years. The company anticipates that it will have to pay interest on any deferred amounts due in both the SEC and DOJ settlement agreements. In Q409, the company accrued $9.3 million for a potential settlement, and has accrued an additional $3.4 million in Q210 to reflect the full amount of its pending settlement offers to the SEC and DOJ. However, there can be no assurance that the settlement with the SEC will be approved or that the company will be able to settle with the DOJ for $6.35 million.”

The day of the disclosure, the company’s shares lost approximately 4%.

Kleptocracy Asset Recovery Initiative

In a recent speech (see here) before the African Union Summit in Uganda, Attorney General Eric Holder announced a new Kleptocracy Asset Recovery Initiative.

In the speech Holder said that “the United States will act in partnership and in common cause to help the African Union achieve its goals and fulfill its mission.”

Among other things, Holder said that the U.S. “will strengthen current efforts to promote good governance and to combat and prevent the costs and consequences of public corruption.”

He stated as follows:

“Today, when the World Bank estimates that more than one trillion dollars in bribes are paid each year out of a world economy of 30 trillion dollars, this problem cannot be ignored. And this practice must never be condoned. As many here have learned – often in painful and devastating ways – corruption imperils development, stability, competition, and economic investment. It also undermines the promise of democracy.

As my nation’s Attorney General, I have made combating corruption, generally and in the United States, a top priority. And, today, I’m pleased to announce that the U.S. Department of Justice is launching a new Kleptocracy Asset Recovery Initiative aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations. We’re assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.

And although I look forward to everything this new initiative will accomplish, I also know that prosecution is not the only effective way to curb global corruption. We will continue to work with your governments to strengthen the entire judicial sector, a powerful institution in our democracy which depends on the integrity of our laws, our courts, and our judges. We must also work with business leaders to encourage, ensure, and enforce sound corporate governance. We should not, and must not settle for anything less.”

For other speeches by Holder on this subject, see here.

More On Multilateral Development Banks

A prior post (see here) discussed how five multilateral development banks (MDB’s) – the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank Group – signed an agreement to cross-debar firms and individuals found to have engaged in wrongdoing in MDB-financed development projects.

To learn more about sanctions investigations by the World Bank and other MDB’s see this piece from Freshfields Bruckhaus Deringer LLP.

The SFO Annual Report

The U.K. Serious Fraud Office recently issued its annual report (see here).

Among the highlights noted by SFO Director Richard Alderman:

“In the first prosecution brought in the UK against a company for breaching UN sanctions, Mabey and Johnson Ltd admitted offences of overseas corruption and breaching UN sanctions. The company was ordered to pay a fine of £3.5 million and restitution of £3.1 million.

Currently one third of our work concerns overseas corruption. This will continue to be an important part of our work, with the introduction of the new law on bribery which we believe will place a greater emphasis on UK companies to maintain high levels of business ethics and integrity. It is also notable that the Act allows me as Director of the SFO to prosecute non-UK companies that carry on business in the UK if they use bribes in any country as a way of doing business.”

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