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BAE – U.K. Court to SFO … Not So Fast!

Yesterday’s post concerned the final act in the BAE circus in the U.S. (see here). As promised, today we venture across the Atlantic to the U.K., a country which has played host to many acts in the BAE bribery, yet no bribery circus.

Yesterday, a U.K. High Court prohibited (see here) the Serious Fraud Office (“SFO”) “from taking any steps in its prosecution of BAE” “until the determination of the application for permission to apply for judicial review or further order.” For press coverage (see here).

Here is the relevant background.

In mid-February, Corner House Research and Campaign Against Arms Trade, two British non-profits, wrote to Richard Alderman, the Director of the SFO, asking him to revoke the plea bargain agreement it had entered into with BAE. (See here and here).

The groups argue “that the Director of the SFO has acted unlawfully as the guidance under which the Director must operate makes clear that once the decision to prosecute has been taken, the charges agreed in any plea agreement must reflect the seriousness of the offending concerned.”

The letter details the SFO’s statements leading up to its February 5th settlement with BAE as well as SFO guidance “specifically designed to apply to plea discussions of the type engaged in by the SFO with BAE” and argues that the SFO’s decision to resolve the BAE matter in the way it did was both “unlawful” and “irrational.”

The SFO guidance relevant to plea negotiations identified in the letter is similar to the factors U.S. prosecutors are to consider in resolving corporate criminal issues pursuant to the Principles of Federal Prosecution of Business Organizations found in the U.S. Attorneys’ Manual (see here).

The SFO refused to reconsider its decision and on February 26th, the groups (see here) “lodged papers at the High Court asking for an injunction (see here) to delay the [SFO] from seeking court approval for its controversial plea bargain settlement with BAE Systems pending the outcome of a Judicial Review.” The groups also “lodged papers requesting the Judicial Review (see here) at the same time.”

By way of summary, the groups:

“contend that the proposed settlement is unlawful because the SFO did not follow the correct prosecution guidance (including its own guidance) on plea bargain;”

“argue that the agreement does not reflect the seriousness and extent of BAE’s alleged corruption, and does not provide the court with adequate sentencing powers; and

“hold that the SFO unlawfully concluded that the factors weighing against prosecuting BAE on bribery and corruption charges outweighted those in favor of prosecution.”

The groups also requested judicial review of the “SFO’s decision to discontinue its prosecution of [BAE’s agent] Count Alfons-Mensdorff-Pouilly.”

As indicated in a prior post (here), the SFO withdrew its filed criminal charges against BAE’s agent days after criminally charging him (presumably based on evidence that the following did indeed occur) with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

The Statement of Facts and Grounds in support of the request for judicial review is substantively similar to the above referenced initial letter in that it details the SFO’s statements leading up to its February 5th settlement as well as the SFO guidance “specifically designed to apply to plea discussions of the type engaged in by the SFO with BAE” and argues that the SFO’s decision to resolve the BAE matter in the way it did was both “unlawful” and “irrational.”

According to this release, “[t]he injunction is in force until the Court has decided whether or not to give permission to Campaign Against Arms Trade and The Corner House to apply for a judicial review of the settlement. It will make this decision by March 20, 2010.”

Clearly the “standing” requirements for challenging an agency action in the U.K. are different than in the U.S. Under U.S. law, mere taxpayer status is generally not enough to challenge an agency action, rather a plaintiff must allege unique, personal injury fairly traceable to the conduct at issue. If anyone is conversant on the U.K. standing rules relevant to the SFO challenge, please consider this an invitation for a guest post.

Tetraethyl Lead v. Fighter Jets

The folks at Innospec Inc. may be wishing it sold things like fighter jets in places like Saudi Arabia than what it actually sells – things like Tetraethyl Lead in places like Indonesia. When bribery and corruption take place in the former instance, there is no exposure for bribery and corruption (see here), but when it takes place in the later instance, there is exposure for bribery and corruption.
Today, the U.K. SFO announced (here) that “Innospec Limited, a UK subsidiary of Innospec Inc., a U.S. NASDAQ listed company, has appeared before [a City of Westminster Magistrates’ Court] in response to a summons from the court on application from the Serious Fraud Office alleging conspiracy to corrupt …”. According to the release, the case “concerns bribery on a significant scale by Innospec and its agents in Indonesia” and the charges relate to Innospec Limited conspiring “with certain of its directors, executives, employees and agents to give or agree to give corrupt payments … to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Tetraethyl Lead …” According to the release, “details of the alleged offense” will be available on March 4, 2010.

This is perhaps just the first of many hammers to drop on Innospec. See here for its recent disclosure.

Friday Roundup

Some FCPA news to pass along on this Friday.

SFO Defends BAE Settlement

Richard Alderman, the Director of the U.K. Serious Fraud Office (“SFO”) recently defended the SFO settlement with BAE (see here).

Among other things, Alderman argued that any suggestion BAE “got off lightly” ignores “London’s contribution in enabling the U.S. to impose a $400 million fine.”

Point taken.

Alderman then says that the DOJ “would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ].”

Point not taken.

What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?

What is achieved when you charge BAE’s agent (presumably based on evidence that the following did occur) for “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc” and then a few days later withdraw the charges and state “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

As to this issue, Alderman stated that “the public interet lay in drawing a line under the whole investigation.”

The article notes that “two campaigning groups said they would launch a legal challenge to Mr. Alderman’s decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE’s network of hundreds of agents on four continents.” If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.

For prior posts on BAE, includng the DOJ’s non-bribery, bribery allegations see here.

Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.

The Pipes May Soon Burst

Ocassionaly, I have covered “cases” reportedly in the FCPA pipeline (see here). Set forth below is some “pre-news” about some coming attractions.

Given the above, it seems fitting to start with KBR, Inc.

KBR, Inc.

Here’s what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.

Pride International Inc.

Earlier this week, Pride disclosed (here) that:

“it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {…] The accrual in the fourth quarter 2009 represents the company’s best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual.”

For prior posts about Pride see here.

Innospec, Inc.

Here is what Innospec had to say about its on-going FCPA matter:

“”We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings.”

Alcatel-Lucent

Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:

“As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent’s internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term.”

For the trials and tribulations on both sides of this corporate hyphen see here and here.

Thirsty for more? OK, here is the last one.

Maxwell Technologies Inc.

Here is what the company’s CEO had to say about its $9.3 million accural for a potential FCPA settlement:

“Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department.”

See also here.

*****

A good weekend to all.

Friday Roundup

Some FCPA news to pass along on this Friday.

SFO Defends BAE Settlement

Richard Alderman, the Director of the U.K. Serious Fraud Office (“SFO”) recently defended the SFO settlement with BAE (see here).

Among other things, Alderman argued that any suggestion BAE “got off lightly” ignores “London’s contribution in enabling the U.S. to impose a $400 million fine.”

Point taken.

Alderman then says that the DOJ “would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ].”

Point not taken.

What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?

What is achieved when you charge BAE’s agent (presumably based on evidence that the following did occur) for “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc” and then a few days later withdraw the charges and state “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

As to this issue, Alderman stated that “the public interet lay in drawing a line under the whole investigation.”

The article notes that “two campaigning groups said they would launch a legal challenge to Mr. Alderman’s decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE’s network of hundreds of agents on four continents.” If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.

For prior posts on BAE, includng the DOJ’s non-bribery, bribery allegations see here.

Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.

The Pipes May Soon Burst

Ocassionaly, I have covered “cases” reportedly in the FCPA pipeline (see here). Set forth below is some “pre-news” about some coming attractions.

Given the above, it seems fitting to start with KBR, Inc.

KBR, Inc.

Here’s what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.

Pride International Inc.

Earlier this week, Pride disclosed (here) that:

“it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {…] The accrual in the fourth quarter 2009 represents the company’s best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual.”

For prior posts about Pride see here.

Innospec, Inc.

Here is what Innospec had to say about its on-going FCPA matter:

“”We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings.”

Alcatel-Lucent

Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:

“As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent’s internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term.”

For the trials and tribulations on both sides of this corporate hyphen see here and here.

Thirsty for more? OK, here is the last one.

Maxwell Technologies Inc.

Here is what the company’s CEO had to say about its $9.3 million accural for a potential FCPA settlement:

“Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department.”

See also here.

*****

A good weekend to all.

BAE

In a joint enforcement action that is sure to generate much discussion and controversy, the U.K. Serious Fraud Office (SFO) and the U.S. DOJ announced today resolution of an enforcement action against BAE Systems.

The SFO announced (here) that it has “reached an agreement with BAE systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.”

BAE’s press release (here) notes that “[i]n connection with the sale of a radar system by the Company to Tanzania in 1999, the Company made commission payments to a marketing adviser and failed to accurately record such payments in its accounting records. The Company failed to scrutinise these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected. The Company very much regrets and accepts full responsibility for these past shortcomings.”

The SFO and company release note that BAE will pay a £30 million penalty “comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.”

In a strange turn of events, the SFO also announced (here) that it has withdrawn charges filed last week (see here) against a former agent charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

The SFO release notes that “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

So what happened to the charges and allegations involving certain Eastern and Central European governments, including the Czech Republic, Hungary, and Austria?

Good question.

Much like the wave of magician’s wand, they have simply disappeared.

Closer to home, the DOJ announced that it:

“filed a criminal charge (here) in the U.S. District Court for the District of Columbia against BAE Systems plc charging that the multinational defense contractor conspired to impede the lawful functions of the Departments of Defense and State, made false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act and paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control laws.”

The DOJ and BAE release note that the company “will pay a fine of $400 million and make additional commitments concerning its ongoing compliance.”

According to the DOJ release (which is available through the DOJ Office of Public Affairs, but not yet publicly posted on DOJ’s website) “BAE Systems is charged with intentionally failing to put appropriate, anti-bribery preventative measures in place, contrary to the representations it made to the United States government, and then making hundreds of millions of dollars in payments to third parties, while knowing of a high probability that money would be passed on to foreign government decision makers to favor BAE in the award of defense contracts. BAE Systems allegedly failed to disclose these payments to the State Department, as it was required to do so under U.S. laws and regulations in order to get necessary export licenses.”

The bold language above would expose most companies to an FCPA enforcement action, but BAE is no ordinary company. It is a major defense contractor on both sides of the Atlantic (as noted in the criminal information “in 2008, BAE was the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales”).

You can bet that these charges were the subject of much negotiation so as to not upset current or future government contracts as well as foreign policy issues and concerns.

The BAE charges and thus similar to those against Siemens in December 2008. In that case, despite the company engaging in bribery “unprecedented in scale and geographic scope” and despite the company being one in which “bribery was nothing less than standard operating procedure” (both direct DOJ quotes), the company avoided FCPA antibribery charges. (See here for prior posts about Siemens).

These two cases seriously raise the issue of whether certain companies in certain industries are simply “above” the FCPA.

Can the enforcement agencies on both sides of the Atlantic say with a straight face that this case was merely about improper record keeping, making false statements to the government, and export licenses?

Transparency, corporate accountability, and indeed a criminal justice system all suffered setbacks today.

The FCPA suffered a black-eye as well and one would be right to ask, “what the heck is going on here!”

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