A few hours after the DOJ announced  a net $293 million Foreign Corrupt Practices Act enforcement action against Société Générale S.A concerning conduct in Libya that occurred 9-14 years ago (see here  for the prior post), the DOJ also announced  that investment management firm Legg Mason also agreed to pony up $64 million to resolve a related enforcement action.
Pursuant to a three-year NPA , Legg Mason agreed to pay $64 million based on the conduct of “only two mid-to-lower level employees of a subsidiary of the company” (specifically Permal Group Ltd.). According to the DOJ: “Permal’s financial statements were consolidated into Legg Mason’s financial statements and they participated in a net revenue sharing arrangement, and all employees of Permal were subject to Legg Mason’s code of conduct.”
Under the heading “Overview of the Scheme,” the NPA states:
“Between in or about 2005 and in or about 2011, following the lifting of broad economic sanctions, the Libyan State Agencies sought to place substantial funds with financial institutions for investment purposes. These placements were heavily sought after by a number of financial institutions, including Permal and Societe Generale, as well as at least eight U.S.-based financial institutions. By at least 2006, two Permal employees and several Societe Generale employees, together with their co-conspirators, knew that the Libyan Intermediary [described as a dual Libyan and Italian national who resided in Dubai and London during the relevant time period and who traveled to the U.S.] was paying bribes and providing other improper financial benefits to Libyan government officials in order to secure financial investments for Societe Generale, and willfully agreed to continue to use the Libyan Intermediary despite that knowledge. In providing bribes and other improper benefits on behalf of Permal and Societe Generale, and taking other acts in furtherance thereof, the Libyan Intermediary acted as an “agent” of Permal and Societe Generale as that term is understood under U.S. law. Societe Generale employees also concealed the bribes through payments to the Libyan Intermediary for purported “introduction” services. During this time period, Societe Generale sold the Libyan State Agencies seven structured notes that were linked to funds managed in whole, or in part, by Permal. The total value of these notes was approximately $950 million. Permal earned net revenues of approximately $31.6 million in connection with these transactions. For each of these seven transactions, Societe Generale, on behalf of itself and Permal, paid the Libyan Intermediary’s Panamanian Company a commission of between one and a half and three percent of the nominal amount of the investments made by the Libyan State Agencies. In connection with these seven transactions, from approximately 2005 to 2008, Societe Generale paid the Libyan Intermediary approximately $26.25 million for supposed “introductory” services. Societe Generale engaged in six other transactions with the Libyan State Agencies that did not involve Permal.
During the course of the scheme, two Permal employees and several Societe Generale employees, including Permal Employee 1 [described as the head of Permal’s four-person Dubai office from 2005 to 2008], Societe Generale Employee 1, Societe Generale Employee 2, and another Societe Generale employee, discussed their belief and understanding that, in order to secure deals for Permal and Societe Generale, the Libyan Intermediary was using some portion of the commissions from Societe Generale to pay Libyan officials, including Libyan Official 1, and was providing smaller payments and improper benefits, such as free travel and entertainment, to Libyan Official 2, Libyan Official 3, and other Libyan officials.
[Libyan Official 1 is described as “a close relative of then-Libyan dictator Muammar Gaddafi. Although Libyan Official 1 did not hold a formal title within the Libyan government, Libyan Official 1 possessed and used a Libyan diplomatic passport and conducted high-profile foreign and domestic affairs for, and on behalf of, the Libyan government. Libyan Official 1 made administrative and investment decisions for the LIA, including through proxies. Libyan Official 1 was a “foreign official” within the meaning of the FCPA.” The LIA (The Libyan Investment Authority) is described as a Libyan government entity formed in 2006 to serve as a Libyan sovereign wealth fund, with a focus on investing and managing oil revenues on behalf of the Libyan government. The LIA was overseen by senior Libyan government officials, was controlled by the Libyan government, and performed a government function on behalf of Libya. The LIA was an investor in Societe Generale structured financial products for which Permal managed certain assets. The LIA was an “agency” and “instrumentality” of a foreign government, as those terms are used in the FCPA.”
Libyan Official 2 is described as “an individual whose identity is known to the United States and the Company, was an official at several of the Libyan State Agencies, including the LAFB, the ESDF, and the LIA. Libyan Official 2 was a “foreign official” within the meaning of the FCPA. LAFB (Libyan Foreign Bank) is described as a Libyan bank that was owned and controlled by the CBL (the Central Bank of Libya) which is described as a Libyan state-owned financial and regulatory institution responsible for, among other things, managing the country’s official monetary and foreign reserves and regulating its financial system. The CBL performed a government function on behalf of Libya and was an investor in Societe Generale structured financial products for which Permal managed certain assets. The CBL was an “agency” and “instrumentality” of a foreign government, as those terms are used in the FCPA). The LAFB performed a government function on behalf of Libya and was an investor in Societe Generale structured financial products for which Permal managed certain assets. The LAFB was an “agency” and “instrumentality” of a foreign government, as those terms are used in the FCPA. ESDF (The Economic and Social Development Fund) is described as a Libyan state-owned financial institution that managed assets in Libya for the purpose of investing in major economic projects that supported the overall development of Libya and the distribution of its wealth. The ESDF performed a state government function on behalf of Libya and was an investor in Societe Generale structured financial products for which Permal managed certain assets. The ESDF was an “agency” and “instrumentality” of a foreign government, as those terms are used in the FCPA.”
Libyan Official 3 is describe as a senior official at the LIA and was a “foreign official” within the meaning of the FCPA].
Some employees of Permal and Societe Generale also used coded language in furtherance of the scheme, including discussing when the Libyan Intermediary had “cooked” various Libyan officials, which was used to connote that the Libyan Intermediary had established control over the official, whether through bribery or other means.
Several Societe Generale employees, including Societe Generale Employee 1 and Societe Generale Employee 2, also undertook to hide the commission payments to the Libyan Intermediary’s Panamanian Company from certain officials of the Libyan State Agencies who were either unaware of or unconnected to the bribery scheme. Permal Employee 1 was aware that Societe Generale employees were taking steps to hide the Libyan Intermediary’s commission payments from the Libyan State Agencies.
Societe Generale partnered with Permal and others to issue, market, and sell structured notes to the Libyan State Agencies. In these transactions, Societe Generale acted as the “structuring bank,” receiving the money invested by the Libyan State Agencies in consideration for the issuance of the structured notes. The structured notes were issued by Societe Generale subsidiaries. Societe Generale agreed with Permal that, for certain of the products, the money invested by the Libyan State Agencies would be placed in funds managed by Permal. As the structuring bank, however, Societe Generale made the ultimate determination over how investments from the Libyan State Agencies would be allocated among several potential underlying funds. Permal recognized these investments as part of its assets under management and earned fees on the amount of funds received.
Permal and Societe Generale, together with their employees and agents, took a number of acts in the United States in furtherance of the scheme. This included, but was not limited to, Permal Employee 1 and Societe Generale Employee 2 accompanying Libyan Official 2 on at least two trips to New York, where they discussed and planned the corrupt scheme. There, Societe Generale Employee 2, at the direction of the Libyan Intermediary and Societe Generale Employee 1, sought to prevent competitors of Societe Generale and Permal from soliciting business from Libyan Official 2. Societe Generale Employee 2 also paid for Libyan Official 2 to enjoy multiple days of entertainment in the United States, including paying for stays at expensive hotels, expensive meals, nightlife excursions, and gifts of luxury goods. In addition, Societe Generale, in connection with transactions it pursued with Permal, made a series of commission payments to the Libyan Intermediary totaling approximately $26.25 million, each of which cleared through Societe Generale’s New York branch. Two Permal employees and several Societe Generale employees believed that the Libyan Intermediary was using some portion of the commissions for corrupt purposes.”
The NPA makes several references to recorded phone calls between Societe Generale employees, Permal Employees and/or the Libyan Intermediary. As to the things of value provided to alleged Libyan “foreign officials,” the NPA references that “Permal provided Libyan Official 2 with a course in negotiations at a university.”
Although the NPA technically does not charge anything, it makes generic reference to “corrupt payments, false books and records, failure to implement adequate internal accounting controls, and circumvention of internal controls.”
Based on the above, the NPA states:
“The Company agrees to pay a monetary penalty in the amount of $32,625,000.00 to the United States Treasury no later than five business days after the Agreement is fully executed, and to pay $31,617,891.90 in disgorgement of profits no later than one year after the Agreement is fully executed. The monetary penalty is based upon profits of at least $31,617,891.90 as a result of the offense conduct, and reflects a discount of 25% off of the bottom of the U.S. Sentencing Guidelines fine range. The Offices will credit any disgorgement paid by the Company to another law enforcement authority in connection with the resolution of this matter, so long as such disgorgement is paid within one year of the execution of this Agreement.”
As stated in the NPA, the DOJ entered into the agreement based on the individual facts and circumstances presented including:
“(a) the Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose;
(b) the Company received full credit for its cooperation with the Offices’ investigation, including credit for conducting a thorough and robust internal investigation; proactively bringing information to the Offices’ attention; making factual presentations to the Offices; timely and fully producing all requested documents; voluntarily making foreign-based employees available for interviews in the United States and facilitating their occurrence; entering into agreements tolling relevant statutes of limitations; and collecting, analyzing, and organizing voluminous evidence and information for the Offices;
(c) the Company provided to the Offices all relevant facts known to it, including information about the individuals involved in the conduct described in [the enforcement action] and conduct disclosed to the Offices prior to the Agreement;
(d) the Company implemented remedial measures, including adding full-time legal and compliance employees, along with a designated anti-corruption officer; initiating internal audit reviews of its policies in this area; enhancing and regularizing employee training, including routine in-person training handled and quarterly external training; and instituting compliance oversight across a broad category of business expenditures;
(e) the Company has enhanced and committed to continuing to enhance its compliance program and internal controls, including by ensuring that its compliance programs satisfy the minimum elements set forth in [an Attachment to the NPA);
(f) the mitigating factors present in this case, including that the misconduct … involved only two mid-to-lower level employees of a subsidiary of the Company and was not pervasive throughout the Company; that the employees are no longer employed by the subsidiary and have not been for at least four years; that the Company’s co-conspirator — and not the Company itself— maintained the relationship with the intermediary and was responsible for originating and leading the scheme; that the profits earned by the Company in connection with the corrupt transactions … were less than one-tenth of the profits earned by the Company’s co-conspirator; and that the Company has no history of similar misconduct;
(g) the nature and seriousness of the offense conduct, including that the Company, through the actions of employees of its subsidiary, participated in a scheme to pass on bribes to high-level Libyan officials to secure lucrative placements with various Libyan-owned and controlled sovereign wealth funds; and
(h) the Company (on behalf of itself and any of its legacy subsidiaries and affiliates that were involved in the actions described … (including any current subsidiary or affiliate whose predecessor entity was involved in such actions) (the “Covered Subsidiaries and Affiliates”)) has agreed to continue to cooperate with the Offices in any ongoing investigation of the conduct of the Company, its subsidiaries and affiliates and their respective officers, directors, employees, agents, business partners, and consultants related to corrupt payments, false books and records, failure to implement adequate internal accounting controls, and circumvention of internal controls;
(i) accordingly, after considering (a) through (h) above, the Offices believe that the appropriate resolution of this case is a non-prosecution agreement with the Company, a criminal penalty with an aggregate discount of 25% off of the bottom of the U.S. Sentencing Guidelines fine range, and disgorgement of the illicit gains. Based on the Company’s remediation and the state of its compliance program, and the Company’s agreement to report to the Offices as set forth in [the agreement] (Corporate Compliance Reporting), the Offices determined that an independent compliance monitor was unnecessary.”
Pursuant to the NPA, Legg Mason agreed to report to the DOJ annually during the three-year term of the NPA regarding “remediation and implementation of the compliance program and internal controls, policies and procedures” mandated by the NPA.
In this release  (which pursuant to the NPA the DOJ needed to approve), Legg Mason stated:
“The resolution with the Department of Justice involved its findings concerning the actions of two foreign based mid-to-lower level employees of our legacy Permal affiliate who left the firm four or more years ago. The resolution described an illegal scheme to bribe Libyan government officials or their family members in return for Libyan government funds investing in an unaffiliated third party financial institution’s structured investment products in which the former Permal business provided investment advisory services to the underlying funds within the structure. No bribes to such Libyan officials were ever paid by the former affiliate itself. Rather, they were paid by an intermediary – someone who passed along money that was received from the unaffiliated financial institution – in order to obtain the business for the third party financial institution and the former Permal affiliate.
At that time, the former Permal affiliate was a sub-adviser of several of the structured products marketed by the unaffiliated financial institution. The investments in question were made in calendar years 2005 to 2007 and were closed no later than 2012. In fact, only 3% of the former affiliate’s total business during the period came from Libya. No payments were ever made by the former affiliate to the intermediary who was the one who paid the bribes, and no payments from the former Permal business were otherwise used as bribes. EnTrustPermal is a new entity, formed years after the activities in question, and is not at all involved in this matter.
Other than this one unfortunate matter, neither Legg Mason nor the former Permal business have ever engaged in any misconduct similar to that involved in this case. Over the past decade, Legg Mason has significantly enhanced its oversight compliance policies and procedures and put in place a robust set of policies, training programs, and employee notifications and reminders that reinforce the principles underlying our anti-corruption program. An Anti-Corruption Officer has been named and is responsible for implementing our anti-corruption program throughout the organization. Recently, Legg Mason’s anti-corruption program was certified by the Professional Evaluation and Certification Board as being in compliance with the standards released in October 2016 by the International Organization for Standardization with respect to anti-bribery management systems. We note with pride that Legg Mason was the first company globally to be certified as meeting these standards.”
FCPA Institute - Houston (March 26-27, 2020)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.