Earlier this week, the DOJ announced (here) that NORDAM Group. Inc. (here) (a Tulsa, OK based privately held provider of aircraft maintenance, repair and overhaul (MRO) services that employs approximately 2,500 people) agreed to enter into a non-prosecution agreement (here) and pay a $2 million penalty “to resolve violations of FCPA.”
The DOJ has previously stated that its DPAs and NPAs benefit the public and industries by “providing guidance on what constitutes improper conduct” (see this GAO report (Appendix III) and that it provides “clear guidance to companies with respect to FCPA enforcement through a variety of means” including “charging documents, plea agreements, deferred prosecution agreements and non-prosecution agreements, press releases, and relevant pleadings and orders” that “are lengthy and detailed.”
If the DOJ wants all to have full confidence in its FCPA enforcement program and if it is genuinely interested in providing transparent guidance through its enforcement actions, the DOJ can do much better than its effort in the NORDAM NPA. It is not as bare-bones as the Lufthansa Technik NPA (see here for the prior post), but close.
The substantive statement of facts (here) (all two pages) state as follows.
“NORDAM’s customers in China include state-owned and -controlled entities, including airlines created, controlled, and exclusively owned by the People’s Republic of China. […] From 1999 until 2008, employees at NSPL [NORDAM Singapore Pte. Ltd., a wholly owned subsidiary of NORDAM that provides MRO services to customers in the Asia Pacific region, including China] and WAAPL [World Aviation Associates Pte. Ltd., an affiliate of NORDAM that performs marketing and sales services for both NORDAM and NPSL in the Asia Pacific region, including in China] paid bribes to employees of state-owned and -controlled entities in China in order to obtain or retain MRO business with those customers. Several NORDAM employees in the United States were made aware of and approved these bribes. The bribes were referred to internally as “commissions” or “facilitator fees.” The facilitator fees were paid to “facilitators” who, in fact, were employees of customers. These facilitators were also referred to internally as “internal guys,” “internal ghosts,” or “our friends inside.” The facilitator fees either were paid directly to the customer’s employee by wire transferring money to the employee’s bank account or were paid indirectly by first depositing the money into the personal bank accounts of WAAPL employees, who would then withdraw all or a portion of these fees to pay the customer employees in cash. In or about 2002, in an effort to further disguise the payments to customer employees, three WAAPL employees created fictitious entities and entered into sales representation agreements with those entities. The commissions that NORDAM paid to these fictitious entities were used, at least in part, to pay employees of customers to assist in securing contracts for NORDAM and NSPL. Although many of the bribe payments were paid out of NORDAM’s and NSPL’s gross profits, in some instances NORDAM, NSPL, and WAAPL artificially inflated the customer invoice to offset the bribes paid to those customers’ employees. As a result, in these instances, NORDAM’s customers were unknowingly reimbursing NORDAM for the bribes that NORDAM paid to customer employees to secure the projects. On or about April 22, 2004, a NORDAM employee sent an e-mail to two WAAPL employees, stating, “[d]o what you have to do to get the business. If that means using an agent, then let’s make sure we are discrete when communicating the information in trip reports. I agree . . . that we should not require an agent at every account, however, I also understand the reality of doing business in Asia. I trust your judgment, it is your call.” On or about December 30, 2004, an agent of WAAPL sent an e-mail to a NORDAM employee and two WAAPL employees, stating, “[o]n this deal we also need to cover our friends inside.” On or about December 30, 2004, the NORDAM employee responded to the email … stating, “I don’t see where our friends have done anything to help us here. If our friends can help us, I will agree to split 50/50 with you any amount we get over $160K.” In all, NORDAM, NSPL, and WAAPL paid as high as $1.5 million in bribes to secure roughly $2.48 million in profits from state-owned and controlled customers in China.”
Who were the state-owned and controlled entities in China? What attributes of those entities made them state-owned or controlled?. As to the employees at NSPL and WAAPL, what types of employees, what was their job function? As to the NORDAM employees in the U.S. “made aware of and approved these bribes” what types of employees, what was their job function? How did they become aware of the bribes? How did they approve the bribes?
Is it asking/expecting too much for the DOJ to set forth such information in its resolution documents?
The NPA (which has a term of three years) states as follows.
“The Department enters into this [NPA] based, in part, on the following factors: (a) the Company’s timely, voluntary, and complete disclosure of the conduct; (b) the Company’s real-time cooperation with the Department, including conducting an internal investigation, voluntarily making employees available for interviews, and collecting and analyzing voluminous documents and information for the Department; (c) the Company’s remedial efforts already undertaken, including enhancing its internal audit function, its compliance program, and its due diligence protocol for third-party agents, and to be undertaken, [pursuant to the NPA]; (d) the Company’s agreement to provide annual, written reports to the Department on its progress and experience in monitoring and enhancing its compliance policies and procedures [pursuant to the NPA]; and (e) the Company has agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of the Company and its officers, directors, employees, agents, and consultants relating to violations of the FCPA.
As noted in the DOJ’s release, the NPA “recognizes that a fine below the standard range under the U.S. Sentencing Guidelines is appropriate because NORDAM fully demonstrated to the department, and an independent accounting expert retained by the department verified, that a fine exceeding $2 million would substantially jeopardize the company’s continued viability.” As to the fine reduction, the NPA further states as follows. “This discount recognizes that, over a period of months, the Company fully cooperated with the Department and with an independent accounting expert that the Department retained to review the Company’s financial condition. Following that review, the Department and its independent expert both concluded that this discount was appropriate under the Sentencing Guidelines.”
What was the discount? There is no information in the NPA or associated documents that shed light on this issue.
This Tulsa World article states as follows.
“NORDAM executives said all but three of the employees involved in the bribery schemes had left the company when the scandal was discovered in 2008. The three employees still with the company were fired, they said. NORDAM officials said three employees of World Aviation Associates created fictitious companies and entered into agreements with the companies under which the companies would be paid commissions for sales of NORDAM products and services to customers. The arrangements made it difficult to trace the money, company executives said.”
The article further states as follows.
“NORDAM CEO Meredith Siegfried said it is “disheartening” for a company that has prided itself on its values and integrity to discover the violations of federal law. “At the same time, our determination and efforts to make sure no such event would ever occur again have given us a significantly higher level of alertness and much improved procedures and processes,” she said. “We are striving to have a robust compliance program which is considered to be an industry benchmark.” In a letter to NORDAM employees, Siegfried said everybody at NORDAM is receiving training to comply with the Foreign Corrupt Practices Act. “Every stakeholder has also signed a statement that the requirements are understood and agreed to, and this statement is required to be signed annually by all of us,” Siegfried said. “We have also revised our policies and procedures regarding our use of agents and conducted a comprehensive review of the agents we use in other countries. These agents have also received training regarding the FCPA. “We also brought in outside counsel to conduct a comprehensive investigation of all the issues connected to these violations. It is important for you to know that the investigation concluded that no individual associated with NORDAM’s leadership or governance since 2008 was ever involved in, or approved of, any of the illegal activities.
Carlos Ortiz (LeClairRyan – here) represented NORDAM.
NORDAM has an active military aircraft business (see here) and has received, including recently and during the time period relevant to the conduct at issue, numerous federal government contracts.