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Bribery Involving World Bank Officials

world bank

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

As noted in this post, one interesting aspect of the recently announced Foreign Corrupt Practices Act enforcement action against Joseph Baptiste is he previously entered into a plea agreement but does not intended to honor the plea agreement.

As highlighted below, the FCPA enforcement action against Ramendra Basu (a former World Bank official) for, among other things, alleged bribery in Kenya involved a similar dynamic and this post summarizes the enforcement action as well as a related enforcement action against Gautam Sengupta (a former World Bank Task Manager).

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DOJ Quietly Releases Another “Declination With Disgorgement” – This One $4 Million Regarding CDM Smith Inc.

cdmsmith

Those who were predicting that FCPA enforcement would wane in a Trump administration were encouraged to take a deep breath. (See here for the prior post). Among other things, it was noted that “if you believe that FCPA enforcement will decline in a Trump administration then you presumably must think that the DOJ and the SEC will start refusing to “process” corporate voluntary disclosures” (the single largest source of corporate FCPA enforcement actions).

Here is a fact to contemplate. The number of DOJ corporate FCPA enforcement actions in the first five months of the Trump administration (2 – both originating from corporate voluntary disclosures) equals the number of DOJ corporate FCPA enforcement actions in 2015 (2).

Yesterday, the DOJ once again quietly updated its FCPA Pilot Program “declinations” page to release this June 21st letter agreement addressed to Nathaniel Edmonds (Paul Hastings) counsel for CDM Smith Inc. (“CDM Smith”), a privately held engineering and construction firm incorporated and headquartered in Boston, Massachusetts.

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Issues To Consider From The Louis Berger Enforcement Action

Issues

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

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

Not The First Time

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

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

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

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

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

Government Contracts

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

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

World Bank Sanction

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

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

Rogue Employees?

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

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

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

Was That Really a Voluntary Disclosure?

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

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

Did the Company Need a Compliance Monitor?

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

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

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

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

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

Timeline

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

Thus, LBI’s FCPA scrutiny lasted 5 years.

Non-Profits And The FCPA

Non-Profits

A reader recently asked:

“Do you have any information specific to non-profits and NGO’s in regard to FCPA and anti-bribery and corruption statistics?”

To my knowledge, there has never been a Foreign Corrupt Practices Act enforcement action against a non-profit or NGO.

That is not to say that non-profits can not be subject to the FCPA.

In terms of the FCPA’s books and records and internal controls provisions, those are only applicable to issuers (generally speaking companies with shares traded on a U.S. exchange or otherwise required to file certain reports with the SEC) , so that is easy, such provisions do not apply to non-profits.

However, it would be wise for non-profits to otherwise act consistent with such provisions for the simple reason that they represent good governance and adherence to such provisions can reduce the risk of FCPA anti-bribery violations (to which non-profits and those associated with non-profits can be subject to) as well as reduce the risk of other legal violations.

In terms of the FCPA’s anti-bribery provisions, they apply to “issuers,” “domestic concerns,” and “persons other than issuers or domestic concerns.”

The FCPA defines “domestic concern” as follows:

“(A) any individual who is a citizen, national, or resident of the United States; and (B) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”  (“emphasis added).

Not only could a non-profit itself qualify as a “domestic concern,” but U.S. citizens or nationals working for or acting on behalf of a non-profit would independently qualify as a “domestic concern” under the FCPA.

The FCPA defines “person” under the dd-3 prong of the statute applicable to “persons other than issuers or domestic concerns” as follows.

The term “person,” when referring to an offender, means any natural person other than a. national of the United States or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the law of a foreign nation or a political subdivision thereof.” (emphasis added).

Here again, not only could a non-profit itself qualify as a “person,” but any natural person working for or acting on behalf of a non-profit would independently qualify as a “person” under the FCPA and could be subject to liability to the extent a bribery scheme involves a U.S. nexus, as stated in the jurisdictional prong of dd-3.

Just because there has not, to my knowledge, been an FCPA enforcement action against a non-profit, there could be.  For instance, this prior post highlighted an instance in which FCPA anti-bribery charges might perhaps have fit.

Indeed, non-profits have in the past raised concerns about potential FCPA liability in the form of FCPA Opinion Procedure Releases.

As highlighted in this prior post, Release 12-02 involved “19 non-profit adoption agencies headquartered in the U.S.” who sought an opinion “related to their proposal to host 18 government officials from a foreign country during visits to the United States.”  The DOJ did provide clearance as to the proposed conduct, but did find that the requestors were indeed “domestic concerns” and thus subject to the FCPA’s anti-bribery provisions.

Release 12-02 was a near carbon-copy of Release 11-01, which as highlighted in this prior post, also involved  a “U.S. adoption service provider” request regarding a proposal “to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies.”

Any FCPA enforcement action against a non-profit would present an interesting question given the FCPA’s required “obtain or retain business” element.  While the 5th Circuit in U.S. v. Kay did conclude that this element could be more broad than just obtaining contracts, it did nevertheless state as follows.

“There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure profitability of some start-up venture. Indeed, if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting is obtaining or retaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”

Post-Kay there have been numerous FCPA enforcement actions (none subjected to judicial scrutiny) outside the context of procurement involving taxes, customs duties, licenses, permits, certifications and the like.  Yet, all those enforcement actions concerned profit seeking corporations or other business organizations.

That the “obtain or retain business” element might not apply to non-profits was the focus of this interesting press release from Paul Weiss titled “Paul, Weiss Achieves Favorable Resolution in Unique FCPA Investigation of Nonprofit Organization.”  The release stated in full.

“Paul, Weiss recently secured a complete victory for a large nonprofit organization that provides humanitarian relief and assistance overseas. The organization was being investigated by the Fraud Section of the Criminal Division of the Department of Justice (DOJ) for potential violations of the Foreign Corrupt Practices Act, in one of the first FCPA investigations by the DOJ of a nonprofit entity. The investigation had significant implications not only for the organization, but also for other nonprofit entities whose overseas activities could potentially come under scrutiny if the DOJ determined that the FCPA applied to charitable activities in addition to commercial activities.

After a five-month review analyzing conduct in multiple countries, Paul, Weiss presented its findings and legal analysis to the DOJ at the beginning of June, specifically requesting that the DOJ formally close its investigation. The DOJ recently issued an official declination letter, stating that the DOJ was satisfied that the business nexus element of the statute was not met.  Receiving a formal closure letter from the DOJ is unusual and is a significant victory. The organization has not issued a public statement.

The Paul, Weiss team included litigation partner Mark Mendelsohn and counsel Kevin Loftus.”

Mark Mendelsohn is a former head of the DOJ’s FCPA Unit.

Even though there there has never been an FCPA enforcement action against a non-profit, there have been several FCPA enforcement actions against individuals employed by arguably non-corporate entities.

In 2002, Richard Pitchford (the Vice President and Country Manager in Turkmenistan of The Central Asia American Enterprise Fund (“CAAEF”) was criminally charged and pleaded guilty to, among other charges FCPA violations for making improper payments to a United Kingdom “foreign official” with responsibilities for promoting business opportunities for British companies in the Central Asian region. In the DOJ’s criminal information, CAAEF is described as being incorporated under Delaware law and wholly funded by an appropriation of $150 million from the Congress of the United States pursuant to the Support for Eastern European Democracy Act of 1989 (the “SEED Act”) and the Freedom for Russia and Emerging Eurasian Democracies and Open Market Support Act of 1992 (“FREEDOM SUPPORT ACT”).  In the information, CAAEF is alleged to be a “domestic concern” and Pitchford is alleged to be an officer and agent of a “domestic concern,” as well as a “domestic concern” himself as a U.S. citizen.

Also in 2002, Ramendra Basu (an individual employed in the World Bank’s Consultant Trust Funds Office) and Gautam Sengupta (an individual employed at The World Bank as a Task Manager responsible for The World Bank’s Africa Region) were criminally charged and pleaded guilty to, among other charges FCPA violations for conspiring to assist a contractor in bribing a Kenyan “foreign official.”  In the DOJ criminal informations (here and here), Basu and Sengupta are alleged to be “persons” other than an issuer or domestic concern under the dd-3 prong of the FCPA.

In 2005, Richard Novak was criminally charged and pleaded guilty to, among other charges, FCPA violations for making improper payments to various foreign government officials who “held various positions at the Liberian Embassy in Washington, D.C., the Liberian Embassy in Accra, Ghana, and at the Ministry of Education for the Republic of Liberia in Monrovia, Liberia.”  According to the DOJ superseding information, Novak was employed by two individuals  “who owned and operated several internet businesses from their principal places of business in the States of Washington and Idaho and from mail forwarding boxes located in Washington, D.C., and Wilmington, Delaware. These 11 internet businesses used the names “Saint Regis University,” “Robertstown University,” and “James Monroe University.” They were diploma mills in that these “universities” had no legitimate faculty members; offered no legitimate academic curriculum or services; required no course or class work; and were not recognized by the United States Department of Education.”

Friday Roundup

Roundup2

Save the date, scrutiny updates, coming attraction, job alert, and for the reading stack. It’s all here in the Friday roundup.

Save the Date

An event notice for East Coast readers.

On Friday, March 6th, the Fordham Law Review is hosting a free symposium opened to the public titled “Fighting Corruption in American and Abroad.”

To learn more about the event click here.

Preet Bharara (U.S. Attorney for the Southern District of New York) will be delivering a keynote address and symposium panels will explore the following topics.

(i) What is Corruption?—How Should We Define It, and Why Is It Bad?

(ii) Landmark Domestic Bribery Prosecutions

(iii) Corruption Regulation in Practice via the Foreign Corrupt Practices Act; and

(iv) The Political Economy of Global Corruption Regulation

I will be appearing on the third panel along with: Lanny Breuer (Partner, Covington & Burling LLP);  Jay Holtmeier (Partner, Wilmer Cutler Pickering Hale and Dorr LLP); and Lucinda Low (Partner, Steptoe & Johnson LLP).

I have previously written about FCPA enforcement during Mr. Breuer’s tenure as Assistant Chief of the DOJ Criminal Division, but my panel presentation will concern a different topic – my forthcoming article:  “The Uncomfortable Truths and Double Standards of Bribery Enforcement.”  The article explores how the U.S. crusade against bribery suffers from several uncomfortable truths, including a double standard regarding corporate interaction with “foreign officials” under the Foreign Corrupt Practices Act and corporate interaction with U.S. officials under the U.S. laws.

Scrutiny Updates

General Cable Corp.

The company initially disclosed FCPA scrutiny in September 2014 and recently disclosed:

“As we previously reported, we have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected in our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made or directed payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the Foreign Corrupt Practices Act and possibly under the laws of other jurisdictions.

On February 20, 2015, based on the analysis completed at that time with the assistance of our external counsel and forensic accountants, we concluded that we were able to reasonably estimate the amount of profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above, which we believe are likely to ultimately be disgorged. As a result, we have recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. The accrued amount reflects only an estimate of the Angola-related profits reasonably likely to be disgorged, and does not include provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.”

Cobalt

As highlighted in this prior post, the company recently prevailed over the SEC regarding the company’s FCPA scrutiny.  Set forth below is what Cobalt’s CEO (Joe Bryant) said during a recent investor conference call.

ANALYST: [J]ust one additional question for you. Back in January, you mentioned or had a press release that the SEC terminated its investigation; but the Department of Justice was still going forward with its parallel investigation into activities in Angola. Where does that stand now, Joe?

JOE BRYANT: Darn it […]. I was hoping to get through this conference without anybody bringing up any FCPA questions.

ANALYST: Sorry about that.

JOE BRYANT: No, I would — it’s pretty simple, really. Our focus in the past several years has obviously been with the SEC; and we brought the DOJ into the investigation early on to make sure that they could run a parallel investigation, if that was what they wanted. By the way, I will say that throughout this entire period, I can’t say enough about the working relationship we developed with the SEC and trying to make sure they understood what we did and they had everything we had in terms of the issue at question.

So we got the SEC out of the way. The DOJ is an independent agency, and it will run its process according to its measures. But I do think that we consider this issue largely behind us.”

Juniper Networks

The company disclosed FCPA scrutiny in August 2013 (albeit in short fashion – see here) and recently disclosed as follows.

“The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act (FCPA). The Company is cooperating with these agencies regarding these matters. The Company’s Audit Committee, with the assistance of independent advisors, has been investigating and conducting a thorough review of possible violations of the FCPA, and has made recommendations for remedial measures, including employee disciplinary actions in foreign jurisdictions, which the Company has implemented and continues to implement. The Company is unable to predict the duration, scope or outcome of the SEC and DOJ investigations, but believes that an adverse outcome is reasonably possible. However, the Company is not able to estimate a reasonable range of possible loss. The SEC and/or DOJ could take action against us or we could agree to settle. In such event, we could be required to pay substantial fines and sanctions and/or implement additional remedial measures; in addition, it may be determined that we violated the FCPA.”

Mondelez International

Kraft Foods long ago disclosed FCPA scrutiny resulting from its acquisition of Cadbury (see here).  Kraft, currently known as Mondelēz International, Inc., recently disclosed as follows.

“[A]fter we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation.”

Coming Attraction

This recent post highlighted judicial rejection of a deferred prosecution between the DOJ and Fokker Services.

Fokker recently announced:

“After careful review of the Court’s decision, Fokker Services decided to file a Notice of Appeal. Fokker Services has noticed recent press articles which contain highly speculative assumptions and amounts, not based on facts. Fokker cannot run ahead of the outcome of its appeal and will make further announcement only if and when applicable.”

While the case is outside the FCPA context, this appeal will certainly be one to follow as DPAs (as well as NPAs) are a prominent feature of FCPA enforcement.

Job Alert

Avon Calling!  Avon Colombia S.A.S., a subsidiary of Avon Products, Inc., based in Medellin, Colombia, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the Andean Cluster (Colombia, Ecuador, Peru, and Venezuela).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website.

Reading Stack

Third parties are not just a corruption risk in the global marketplace, but the domestic marketplace as well.  See here for the New York Daily News article about so-called “expediters” who assist developers navigate bureaucracy “to speed their projects to approval — getting permits faster, addressing violations and filling out key paperwork. It’s an arrangement critics have long slammed as corrupt.”

The most recent edition of the always information Debevoise & Plimpton FCPA Update is here.  Regarding the recent rejection of a DPA in the Fokker Services action (see here) the Update states:

“In the FCPA context and beyond, the Fokker Services decision is a reminder that increased judicial scrutiny of proposed settlement agreements with law enforcement agencies may be the “new normal.” Although the outcome of Fokker Services’ appeal remains to be seen, Judge Leon’s decision may entice prosecutors in future cases to seek harsher terms in DPAs out of concern for heightened judicial scrutiny of proposed DPAs, or instead shy away from DPAs entirely and attempt to achieve sufficient punishment and deterrence through Non-Prosecution Agreements (“NPAs”). In addition, Judge Leon’s concern that no individuals were charged in Fokker Services may further embolden prosecutors to demand individual accountability as part of proposed settlements or in the lead-up to such settlements.”

Some are still drinking the Kool-Aid regarding Morgan Stanley’s so-called declination.  (See here – “A robust compliance program spared Morgan Stanley from prosecution under the FCPA”).  Just goes to show that once a narrative is cast, nothing else seems to matter.

A recent Q&A in the Wall Street Journal’s Risk & Compliance Journal with Pascale Hélène Dubois (the World Bank’s chief suspension and debarment officer).

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A good weekend to all.

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