Companies doing business in the global marketplace engage all types of third parties. Generally, Foreign Corrupt Practices Act compliance tends to focus, with good reason, on third parties such as agents, representatives, distributors and others that assist a company in obtaining or retaining business.
However, given the DOJ and SEC’s broad interpretation of that element of the FCPA’s anti-bribery provisions, any third party that has a point of contact with foreign officials – even if outside the context of foreign government procurement – can potentially expose a business organization to scrutiny and enforcement.
In the Quad/Graphics enforcement action, the SEC stated as follows regarding the conduct in Peru.
“In April 2010, Quad Peru retained a local Peruvian law firm to serve as outside counsel on the SUNAT [a Peruvian tax authority] litigation. Quad Peru paid the law firm a monthly fee of approximately $1,000 to $1,200 for routine services related to the litigation.
Sometime around 2011, after setbacks in the litigation and at the law firm’s suggestion, Quad Peru’s management agreed to use the law firm to facilitate the payment of bribes to Peruvian judges to try to influence their decisions on the SUNAT litigation. Quad Peru’s management obtained approval from the Operations Executive, based in the United States, to engage in the judicial bribery scheme.” (Emphasis added).
The Quad/Graphics enforcement action was certainly not the first FCPA enforcement action to involve problematic foreign lawyers.
In the recent DOJ enforcement action against Robin Longoria regarding a bribery scheme to facilitate adoptions of Ugandan children (see here), the DOJ alleged:
“In or around 2013, Adoption Agency entered into an agreement with Ugandan Agent 1 [described as a Ugandan citizen and attorney who served as Adoption Agency’s foreign supervised provider of adoption services in Uganda], an attorney based in Kampala, Uganda, to provide adoption-related services to Adoption Agency. From in or around 2013 to in or around 2016, Adoption Agency directed its clients in its Uganda program to hire Ugandan Agent 1 as their attorney for adoption-related proceedings. Ugandan Agent 1, among other things, identified children for potential adoption by Adoption Agency’s clients; represented Adoption Agency’s clients in Ugandan court proceedings, including guardianship proceedings in the High Court of Uganda; and assisted Adoption Agency’s clients in applying to the United States Department of State (the “State Department”) for visas for the children they intended to adopt.
From in or around 2013 through in or around 2016, Ugandan Agent 1 caused bribes to be paid to Ugandan Government Officials [described as including certain Justices of the High Court of Uganda who acted in their official capacities on behalf of a foreign government in exercising responsibilities related to the care of orphan children] for the purpose of influencing them to misuse their official positions by taking actions that assisted Ugandan Agent 1 and Adoption Agency in facilitating adoptions. These bribes included, but were not limited to: (1) bribes to probation officers to influence them to issue favorable probation reports recommending that a particular child be placed into an orphanage; (2) bribes to court registrars to influence them to assign particular cases to “adoption-friendly” Ugandan Judges; and (3) bribes to Ugandan Judges to influence them to issue favorable guardianship orders to Adoption Agency’s clients.
Ugandan Agent 1 and her staff regularly sent emails to Defendant and Adoption Agency Manager 1 requesting payment for their services. These emails at times included requests for money to fund bribes to Ugandan government officials. Bribe payments were not explicitly described as bribes but, rather, as “fees” or other types of costs. For example, Ugandan Agent 1 at times described bribes to court registrars as “court filing fees” and bribes to Ugandan Judges as “judge’s fees.” Individual bribes were in the amount of hundreds of U.S dollars or more. Defendant and others caused Adoption Agency to wire funds to Ugandan Agent 1 knowing that the funds would be used, at least in part, to pay bribes to Ugandan government officials.”
Foreign lawyers also were prominently mentioned in the recent Walmart enforcement action (see here). As stated in the DOJ’s NPA:
“From at least in or around 1999 to in or around 2004, Mexico Subsidiary obtained certain real estate permits and licenses required to open and operate stores by using TPIs. On or about September 21, 2005, Mexico Subsidiary Attorney, who was responsible for obtaining real estate licenses and permits for Mexico Subsidiary, contacted Walmart and said that when he worked at Mexico Subsidiary he had overseen a scheme for several prior years in which TPIs made improper payments to government officials to obtain permits and licenses for Mexico Subsidiary. He also said that Mexico Subsidiary had paid approximately $6,000,000 to TPIs, some of which was paid in improper payments to government officials and that in some cases, Mexico Subsidiary Attorney made the payments himself. In most cases, however, Mexico Subsidiary Attorney explained that Mexico Subsidiary made improper payments to government officials through TPIs called “gestores,” who were attorneys and ostensibly provided legal services but in reality did nothing for Mexico Subsidiary other than make improper payments. Although Mexico Subsidiary was permitted to use only law firms that were authorized to represent it and had 11 such law firms, Mexico Subsidiary Attorney said that he used the gestores, who were not authorized to work for Mexico Subsidiary, to obtain permits and licenses. Unlike the authorized law firms, the gestores did not have contracts with Mexico Subsidiary, were not subject to any anti-corruption due diligence, did not include anti-corruption clauses in their contracts, and did not send Mexico Subsidiary detailed bills or other documents showing the work they had done. Mexico Subsidiary Attorney stated that several Mexico Subsidiary executives, including Mexico Subsidiary Executive #1 and Senior Mexico Subsidiary Attorney, knew about and approved of the scheme, but that he was the only employee of Mexico Subsidiary who had any contact with the gestores.
In or around October 2005, Mexico Subsidiary Attorney explained that the gestores scheme worked as follows:
a. Mexico Subsidiary would determine which government officials needed to receive an improper payment to obtain a permit or license. Mexico Subsidiary Attorney would then tell one of the gestores which official to make an improper payment to.
b. The gestores would send Mexico Subsidiary Attorney an invoice with a false justification for the payment, which was usually identified as legal services.
c. Mexico Subsidiary recorded the gestores’ payments in each store’s budget as line items for “external services” or “contract services.”
d. Most of the gestores’ invoices included a numeric or alphabetic code developed by Mexico Subsidiary Attorney and another Mexico Subsidiary employee specifying why Mexico Subsidiary had made an improper payment to the official. The codes, referred to as “clave” codes, indicated the improper advantage that Mexico Subsidiary received in exchange for the improper payment, including: (1) avoiding a requirement; (2) influence, control, or knowledge of privileged information known by the government official; and (3) payments to eliminate fines. Mexico Subsidiary Attorney said that the meanings of the codes were known only to the gestores, himself, Mexico Subsidiary Executive #1, and two other Mexico Subsidiary executives.
e. After Mexico Subsidiary Attorney received the invoice from the gestor, it paid the gestor with a manual check. The gestores kept between 6 to 8 percent of the payment and used the rest of the money to make an improper payment to the government official.
f. The government official then issued the permit or license for Mexico Subsidiary.”
Foreign lawyers also were prominently mentioned in the 2014 enforcement action against Layne Christensen Co. concerning conduct in various African countries:
In terms of Guinea, the SEC’s order stated:
“In 2006, WADS [an affiliated entity] reduced its tax liability by paying bribes through two lawyers retained at the suggestion of the tax authorities but who provided no services.
On June 26 and 27, 2008, the lawyers submitted invoices to WADS totaling approximately $273,000 purportedly for rendering assistance with the tax audit. Neither lawyer participated in negotiating the settlement of the tax audit. WADS paid the lawyers’ invoices on July 22, 2008.
[W]ithout engagement letters or the approval of Layne Christensen’s management, WADS retained both lawyers on a success-fee basis that tied their compensation to the amount by which the assessment was reduced.”
In terms of the Democratic Republic of Congo, the SEC’s order stated:
“In July 2009, Layne Drilling DRC made an improper payment of more than $50,000 to tax officials in the Democratic Republic of the Congo (“DRC”) through an agent in order to reduce its liability for unpaid taxes and penalties.
After receiving a multi-million dollar tax assessment in June 2009, Layne Drilling DRC’s local tax agent recommended that it engage a specialized lawyer to negotiate a reduction in the assessment. On June 19, 2009, the MinEx CFO sought the approval of the MinEx President to retain the lawyer as Layne Drilling DRC’s agent. Emphasizing that there was “a lot at stake, potentially $millions,” the MinEx CFO explained that he had spoken to the country manager and knew “more than can be written down.” However, he wrote that the transaction would entail paying $30,000 in taxes and $50,000 in legal commissions in an arrangement similar to the arrangement made with the lawyers in Guinea the previous year. The MinEx CFO also stated that all payments to the tax authorities would be made through the lawyer. Without questioning either the need to retain an agent or the suspicious proposed arrangement, the MinEx President approved Layne Drilling DRC’s retention of the lawyer.
On July 9, 2009, Layne Drilling DRC paid the lawyer $57,200 and falsely recorded the payment as legal expense.
The next day, the DRC tax authority issued a revised final tax assessment to Layne Drilling DRC. The amount of the revised tax assessment was substantially lower than the assessment issued to Layne Drilling DRC in June 2009.”
Foreign lawyers also were prominently mentioned in the 2013 enforcement action against Parker Drilling concerning conduct in Nigeria – specifically temporary importation permits and interactions with the Nigerian “Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000” (the “TI Panel”)(see here).
As alleged by the DOJ, the company engaged Nigeria Outside Counsel (a Nigerian citizen based in Nigeria who advised Parker Drilling on customs and other matters in Nigeria) and a Nigeria Agent (a Nigerian and British citizen based in the U.K. to assist Parker Drilling in connection with customs matters in Nigeria) who represented Parker Drilling before the TI Panel.
The information alleges that in 2004 “the TI Panel concluded that Parker Drilling had violated [Nigerian law] with respect to several of its TIPS” and that the “TI Panel assessed a fine of $3.8 million against Parker Drilling.” The information then outlines a “bribery scheme,” that resulted in the TI Panel reducing Parking Drilling’s fine “to just $750,000.”
In addition to the above FCPA enforcement actions in which foreign lawyers were problematic third parties, some FCPA enforcement actions against business organizations have been based on the conduct of in-house counsel. (See here for the enforcement action against Jeffrey Chow (associated with Keppel Offshore & Marine) and here for the enforcement action against Greg Weissman (associated with PetroTiger).
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