Last Friday, the DOJ announced  the second corporate Foreign Corrupt Practices Act enforcement action of 2015.
It was against Louis Berger International Inc.  (LBI, a New Jersey-based infrastructure and development company) and focused on the conduct of two former employees (one located in the Philippines, the other located in India) that allegedly occurred approximately 5 – 17 years ago in connection with projects in Indonesia, Vietnam, India and Kuwait.
The former employees are described as:
- Richard Hirsch  was a high-level executive at the Company, located in the Philippines, who at times oversaw the Company’s overseas operations in, inter alia, Indonesia and Vietnam.
- James McClung was a high-level executive at the Company, located in India, who at times oversaw the Company’s overseas operations in Vietnam and India.
According to the DOJ, LBI directly and indirectly made payments totaling approximately $3.9 million to foreign government officials in India, Indonesia, Kuwait, Vietnam and elsewhere. To resolve the enforcement action, LBI agreed to pay $17.1 million pursuant to a deferred prosecution agreement and to engage a compliance monitor for a three year period.
The criminal complaint charges LBI with conspiracy to violate the FCPA’s anti-bribery provisions.
According to the criminal compliant, the purpose of the conspiracy “was to make and conceal corrupt payments to foreign officials in India, Indonesia, Kuwait, Vietnam and elsewhere in order to obtain and retain contracts with government entities in those countries and, thus, to enrich the Company and the co-conspirators with the full economic benefits anticipated from such contracts.” In addition, the criminal complaint alleges that “terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee,’ and ‘field operation expenses’ [were used] as code words to conceal the true nature of the bribe payments” and that “cash disbursement forms and invoices [were utilized] which did not truthfully describe the services provided or the purpose of the payment.” Moreover, the complaint alleges that members of the conspiracy created “ostensibly legitimate but ultimately illicit accounts, or “slush funds,” for the payment of bribes through third parties.”
Deferred Prosecution Agreement
The criminal charges were resolved via a deferred prosecution agreement .
The Statement of Facts in the DPA state, under the heading “Overview of the Bribery Scheme” as follows.
“From in or about 1998 until in or about 2010, the Company, through its employees and agents, engaged in a scheme to pay bribes to various foreign officials in Indonesia, Vietnam, India and Kuwait to secure contracts with government agencies and instrumentalities in those countries on behalf of the Company and its subsidiaries and affiliates. The Company, through its employees and agents, together with others, discussed making the bribe payments to the foreign officials and the ways in which they intended to conceal the corrupt payments. For example, the Company, through its employees and agents, together with others, used terms like ‘commitment fee,’ ‘counterpart per diem,’ ‘marketing fee’ and ‘field operation expenses’ as code words to conceal the true nature of the bribe payments and utilized cash disbursement forms and invoices which did not truthfully describe the services provided or the purpose of the payment.
In order to effectuate the payments, the Company, through its employees and agents, utilized various methods. In many instances, employees and agents of the Company submitted inflated and fictitious invoices to generate cash that was then used later for the payment of bribes through intermediaries. The Company, through its employees and agents, would then wire certain funds from bank accounts of the Company in New Jersey to bank accounts in various other countries for the purpose of making payments to foreign officials. In Vietnam, the Company, through its employees and agents, used the Foundation – which was in part a local labor pool – as a conduit for the payment of bribes to foreign government officials in Vietnam to conceal the bribe payments.
In total, the Company, through its employees and agents, together with others, made payments directly and indirectly to foreign officials, including in Indonesia, Vietnam, India and Kuwait, totaling approximately $3,934,431.”
Under the heading “Corrupt Conduct in Indonesia,” the DPA states that “beginning in approximately 2005, the Company sought contracts with the Indonesian government as a subcontractor by interposing a one-man consulting company as the prime contractor in order to avoid directly paying bribes to foreign officials even though the Company was well aware that the prime contractor was paying bribes.” According to the DPA, in 2008 “when the law firm handling the Company’s internal review directed scrutiny [at a citizen and national of Indonesia employed by the Company in Jakarta] Richard Hirsch and others attempted to discourage [the employee] from speaking with the Company’s review team.” According to the DPA, Hirsch also communicated with co-conspirators on his personal e-mail account to avoid detection by the company.
Under the heading “Corrupt Conduct in Vietnam,” the DPA states that “the Company began its operations in Vietnam during the early 1990s and secured numerous public contracts across the county. In order to obtain and maintain these contracts, the Company through its employees and agents paid bribes to Vietnamese officials through the Foundation [a non-governmental organization which the Company engaged as a local sponsor, and which served as a key source for local labor and operational support in Vietnam.] Sometimes the bribe money was disguised as ‘donations’ to the Foundation paid from the Company’s bank accounts in New Jersey to a bank account jointly held by the Company and the Foundation in Vietnam. On other occasions the bribe money was masked by invoices from the Foundation that were paid from the Company’s New Jersey account to a joint account.” The DPA further states that beginning in “approximately 2005, when James McClung assumed responsibility for the Company’s Vietnam operations, the Company through its employees and agents generated bribe money by paying vendors for services that had never actually been rendered; those vendors would then serve as conduits for the payment of bribe money to foreign officials.”
Under the heading “Corrupt Conduct in India,” the DPA states: “Along with several consortium partners, the Company won two water development projects in Goa and Guwhati. The Company paid bribes to win both of those contracts. The bribe money was disguised as payments to vendors for services that had never actually been rendered. The Company through its employees and agents and its consortium partner kept track of the bribe payments by circulating a spreadsheet amongst themselves showing the proportionate share of each bribe that they had paid to the foreign officials overseeing their work on the Goa and Guwhati projects.”
Under the heading “Corrupt Conduct in Kuwait,” the DPA states: “In approximately 2005, the Company won a $66 million road construction project with the Kuwait Ministry of Public Works. In order to secure that contract, the Company through its employees and agents and its joint venture partner made a series of corrupt payments [totaling approximately $71,000) to an official with the Ministry of Public Works. Some of the payments were made upfront under the guise of ‘proposal’ costs. Other payments were made through a purported contract for ‘business development’ with another firm.”
In the 3-year DPA, LBI admitted, accepted and acknowledged responsibility for the conduct as described above.
Under the heading “relevant considerations,” the DPA states:
“[The DOJ enters] into this Agreement based on the individual facts and circumstances presented by this case and by LBI … Among the factors considered were the following: (a) after the government had made LBI … aware of a False Claim Act investigation, [the Company] conducted an internal investigation, discovered potential FCPA violations, and voluntarily self-reported to the [DOJ] the misconduct …; (b) [the Company’s] cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, collecting analyzing, and organizing voluminous evidence and information for [the DOJ] and providing updates to the [DOJ] as the conduct and results of the internal investigation; (c) [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; (d) [the Company’s] improvements to date to its compliance program and internal controls, as well as its commitment to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements [set forth in the DPA]; (e) the nature and scope of the offense conduct; and (f) [the Company’s] agreement to continue to cooperate [with the DOJ] in any ongoing investigation.”
The Sentencing Guidelines calculation in the DPA sets forth an advisory fine range of $17.1 million – $34.2 million. The DPA states that the ultimate $17.1 million fine “is appropriate given the facts and circumstances of this case, including the cooperation in this matter and the nature and scope of the offense conduct.” As indicated in the DPA, $7.1 million of the fine amount is payable immediately with the remaining amount payable within 12 months.
Pursuant to the DPA, LBI is required to retain an independent compliance monitor for a three year period.
Typical of most corporate FCPA enforcement actions, the DPA contains a “muzzle clause ” in which LBI agreed that it shall not directly or indirectly make any public statement contradicting the information set forth in the DPA.
As noted in the DOJ’s release, Hirsch (61, of Makaati, Philippines) and McClung (59, of Dubai, United Arab Emirates) each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. The sentencing hearings for Hirsch and McClung are scheduled for Nov. 5, 2015.
Louis Berger issued this  release which states:
“Louis Berger International, has agreed to a three-year deferred prosecution agreement and $17.1 million fine with the U.S. Department of Justice for self-reported improper business activities principally conducted overseas by former managers between 1998 and 2010. All of the managers associated with these improper business activities were separated from the company following the early findings of Louis Berger’s internal investigations.
“The DOJ has acknowledged the extensive global reforms undertaken at Louis Berger since 2010,” said Nicholas J. Masucci, Louis Berger chairman. “2010 was a pivotal year in our company’s history. It marked a clear departure from the past as we assumed new management, new processes and comprehensive system reforms that are the core of our global operations today. Today’s settlement is the critical final milestone in our reform, as it was important for us to take responsibility for the historic actions of former managers and close the chapter on the company’s pre-2010 era.”
Prior to Louis Berger’s 2010 settlement with the U.S. Department of Justice for improper billing on U.S. government overhead accounts, the company undertook a thorough review of past practices of former managers, including improper overseas business activities. The company self-discovered and self-reported potential Foreign Corrupt Practices Act infractions to the U.S. government starting in 2010 and has been working with the government to resolve these issues since that time. In total, the company self-identified and self-reported findings of misconduct in Vietnam, Indonesia, India and Kuwait between 1998 and 2010 totaling $3.9 million in bribes.
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.
Under the terms of the deferred prosecution agreement, the company will work with a government-appointed monitor to test and report on its internal processes and controls as well as its compliance and ethics policies and training for three years.
“Transparency and accountability are the hallmarks of a sustainable business, and we are a much more efficient, responsible and transparent company today than we were five years ago,” said Masucci. “We will continue to monitor and improve our existing compliance system while delivering quality work to our clients with a level of integrity they expect.”