This previous post  went in-depth into the $238 million DOJ Foreign Corrupt Practices Act enforcement action against Netherlands-based SBM Offshore for alleged bribery schemes in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq.
This post continues the analysis by highlighting additional issues to consider.
DOJ Explains Its Original “Declination”
As highlighted in the original post, in 2014 SBM Offshore resolved a $240 million Dutch law enforcement action alleging bribery schemes in Equatorial Guinea, Angola and Brazil between 2007 through 2011. In connection with that action, SBM Offshore disclosed: “the United States Department of Justice has informed SBM Offshore that it is not prosecuting the Company and has closed its inquiry into the matter.”
In last week’s enforcement action, the DOJ explained:
“[A]lthough the Fraud Section initially declined to continue investigating the Company, it communicated that this declination was based on the findings of the Company’s investigation and the facts known to the Fraud Section at the time, and that there was no apparent jurisdiction at that point in time, but that the Fraud Section reserved the right to reopen the investigation if it learned of additional information or evidence that established U.S. jurisdiction;
[T]he Fraud Section informed the Company in 2016 that it was reopening the investigation because the Fraud Section learned additional information that was not uncovered during the Company’s investigation, and not known to either the Company or the Fraud Section at the time of the declination; specifically, that a United States-based executive of one of SBM’s wholly-owned domestic concerns managed a significant portion of the corrupt scheme, and engaged in conduct within the jurisdiction of the United States.”
In other words, the DOJ’s original “declination” was due to the lack of a required legal element being satisfied. In any event, the SBM Offshore enforcement action is instructive in that just because the DOJ may originally back off an enforcement action, doesn’t mean that the inquiry can’t be resurrected based on new information.
Related to the above topic, how did the DOJ establish jurisdiction over Netherlands-based SBM Offshore?
As alluded to above, it appears to have been based on the conduct of one individual. Indeed, the “overt acts” portion of the SBM Offshore information contains no explicit U.S. jurisdictional allegations other than the generic statement that “SBM Offshore, by and through SBM USA, and SBM USA’s executives and employees, including Zubiate, agreed that [an intermediary] would pay bribes to Petrobras officials.”
Zubiate of course is Robert Zubiate, a U.S. citizen, who was a former Texas and California-based sales and marketing executive at SBM USA, who was criminally charged last month. (See here  for the prior post).
Lack of TIMELY Voluntary Disclosure
Set forth below is what the DOJ said in the “relevant considerations” portion of the SBM Offshore DPA.
“the Company did not receive voluntary disclosure credit because, although it voluntarily brought the conduct to the attention of the Fraud Section and to Dutch authorities, the disclosure did not occur for approximately one year and thus was not timely.”
The conduct at issue in the SBM Offshore enforcement action was egregious. In the words of the DOJ, the conduct:
“lasted over 16 years, was carried out by employees at the highest level of the organization, including two high-level executives who were at times directors of a wholly-owned U.S. domestic concern, involved large bribe payments, and included deliberate efforts to conceal the scheme.”
Reflective of this egregious conduct, the DPA sets forth an advisory guidelines range of $4.5 billion to $9.02 billion. Yet, the total criminal penalty was a “mere” $238 million. In explaining this, the DOJ stated:
“The Company and the United States agree that this penalty is appropriate given the facts and circumstances of this case … and in consideration of imposing a penalty that will avoid substantially jeopardizing the continued viability of the Company. In determining the appropriate penalty amount, the Offices have credited the company’s disgorgement of $200 million in profits to the Netherlands, payment of a $40 million fine to the Netherlands, and the amount provisioned for by the Company in connection its ongoing efforts to reach resolution in Brazil, because that fine, disgorgement, and payment arise out of some of the conduct [alleged].”
Elsewhere, the DOJ stated that it “determined that a subsidiary guilty plea, a parent-level deferred prosecution agreement, and an aggregate discount of 25% off of the bottom of the the otherwise-applicable U.S. Sentencing Guidelines fine range is sufficient but not greater than necessary …”.
Math has never been my strength, but I fail to see how $238 million represents 25% off of the bottom of the guidelines range ($4.5 billion).
Things of Value
Part of what made the SBM Offshore enforcement action egregious is that it involved “at least $180 million” in alleged corrupt commission payments to intermediaries for the purpose of obtaining or retaining business in various countries.
Yet, the DOJ also alleged a wide variety of other things of value allegedly provided to foreign officials including the following:
- Jewelry and electronics
- Payment “for foreign officials’ travel to sporting events and provided these foreign officials with cash of $1,000 or more as “spending money.””
- The provision of luxury goods like watches and sports memorabilia, and shipping vehicles to Equatorial Guinea. For example … an SBM employee approved an expense report seeking reimbursement for hundreds of Euros in gifts he had purchased. The report included handwritten, coded notes indicating that certain gifts were for Equatorial Guinean officials. […] [An executive and employee] discussed shipping a BMW X5 from Belgium to a GEPetrol official in Equatorial Guinea.”
- Payment for the tuition and living expenses of foreign officials’ relatives, and employed foreign officials’ relatives, including some relatives who did not perform satisfactorily for the positions held or were overpaid for the work performed.
- As to the later, the DOJ alleged: “For example, in or around 2000, SBM hired the daughter of a Sonusa official as a cashier in their Monaco office, and overpaid her for the work she performed, including agreeing to pay her a salary and half of her rent. Later, [SBM executives] agreed to have SBM assist her in purchasing an apartment. Additionally, in 2010, SBM USA hired the son of a Sonangol official as an administrative intern, a position he kept until 2014, despite the fact that he did not satisfactorily perform in that position.”
Statute of Limitations
As egregious as the overall alleged conduct was in the SBM Offshore enforcement action, there is still this thing called statute of limitations that are important bedrock legal principle.
In this regard, it is hard not to notice that the November 2017 enforcement action was based on conduct beyond any conceivable statute of limitations period. For instance, the “overt acts” alleged in the SBM Offshore conspiracy concern conduct between 1996 and January 2012. In other words, nearly approximately 20 years prior to the enforcement action with the bulk of the alleged overt acts taking place approximately 10-15 years ago.
But then again, statute of limitations are of little significance when the company under investigation agrees to waive statute of limitations defenses and/or otherwise toll the statute of limitations.
As highlighted above, the bulk of the alleged improper conduct involved “at least $180 million” in alleged corrupt commission payments to intermediaries for the purpose of obtaining or retaining business in various countries.
It is nearly always a red flag when agents request that their commission payments be split and paid to separate accounts.
In this regard, the information alleges that, at a third-party’s request, SBM “typically split its “commission” payments to [the third party] into two accounts, transferring one portion to bank accounts in Brazil … and another, larger, portion of its “commission” to bank accounts in Switzerland held in the names of [the third party’s] shell companies.” The information further alleges that “SBM USA understood that the purpose of splitting payments [to the third party] was to facilitate the payment of bribes.”
The information alleges that “executives and employees at SBM used personal e-mail accounts to receive this confidential information.” Elsewhere, the information alleges:
“SBM USA, through its executives, employees and agents, and through SBM and SBM’s executives, employees, and agents, and together with others, undertook acts to conceal the bribery scheme, such as using codes to refer to foreign officials who received bribes, communicating using methods of communications, such as personal e-mail accounts and faxes, which would leave no trace on SBM’s servers, and destroying confidential information.”
As highlighted in this recent post  about the DOJ’s new “FCPA Corporate Enforcement Policy,” compared to previous DOJ guidance on timely and appropriate remediation, there is a new business records provision which states:
“Appropriate retention of business records, and prohibiting the improper destruction or deletion of business records, including prohibiting employees from using software that generates but does not appropriately retain business records or communications.”
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