If you were scoring at home, the last few weeks of the Obama administration were quite active for Foreign Corrupt Practices Act enforcement. But then again this was expected.
First it was the $13 million joke of an enforcement action against Mondelēz International, Inc. on January 9th. Then it was the $30.4 million Biomet became an FCPA repeat offender enforcement action on January 12th. Then it was no U.S. nexus, no problem $30.5 million enforcement action against Sociedad Quimica y Minera de Chile S.A on January 13th. Then it was the DOJ’s announcement (summarized in this post) on January 17th that U.K. based Rolls-Royce plc agreed to pay the U.S. net approximate $170 million (including an unusual component never before seen in FCPA enforcement) to resolve an FCPA enforcement action concerning conduct in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola and Iraq. Then it was $6 million Orthofix Int’l also became an FCPA repeat offender enforcement action on January 18th. Then in the finals hours of the Obama administration it was unusual $7 million enforcement action against Las Vegas Sands (headed by major Republican donor Sheldon Adelson who was front and center at Trump’s inauguration) based on the same core conduct as the SEC’s enforcement action against the company nine months earlier. Individual FCPA enforcement actions (here and here) were sprinkled in as well.
As noted in the DOJ release about the Rolls-Royce action, the FCPA enforcement action against the company was part of a broader $800 million global resolution that also included a U.K. Serious Fraud Office component (to be highlighted in a future post) as well as Brazil law enforcement action.
This is not the first time a Rolls-Royce entity has resolved an FCPA enforcement action. As highlighted here, in 2012 Data Systems & Solutions, a wholly-owned subsidiary, agreed to pay $8.8 million to resolve a DOJ FCPA enforcement action concerning conduct in Lithuania.
Last week’s enforcement action involved this criminal information (actually filed on December 20, 2016) charging conspiracy to violate the FCPA’s anti-bribery provisions which was resolved through this deferred prosecution agreement (also actually filed on December 20, 2016).
Under the heading “Overview of the Bribery Scheme” the information alleges:
“From in or around 2000 to in or around 2013, Rolls-Royce, Rolls-Royce Energy Systems [RRESI an indirect subsidiary of Rolls-Royce headquartered in Mount Vernon Ohio that produced and supplied gas turbines, compressors, and aftermarket product and services for oil and gas and power generation projects worldwide, including in Angola, Azerbaijian, Brazil, Indonesia, Iraq, Kazakhstan, Nigeria, Russia, Thailand, and elsewhere] Executive [a U.K. national and high-level executive at Rolls-Royce with substantial decision-making authority within the energy division of Rolls-Rocye], Employee 1 [a U.S. citizen and employee of RRESI], Employee 2 [a U.K. national and employee of Rolls-Royce] and Employee 3 [a U.S. citizen and employee of RRESI and other Rolls-Royce entities] conspired with each other and others … to cause RRESI to make over $35 million in commission payments to commercial advisors and others, knowing that the commission payments would be used to bribe foreign officials on behalf of Rolls-Royce and RRESI in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola, Iraq and elsewhere, in exchange for foreign officials’ assistance in providing confidential information and awarding contracts to Rolls-Royce, RRESI, and affiliated entities. Rolls-Royce, RRESI, Executive, Employee 1 and other … knew that certain commission payments would be used by RRESI intermediaries and commercial advisors to bribe foreign officials and others on behalf of Rolls-Royce and RRESI, and they caused other corrupt benefits to be conveyed upon foreign officials and others, in order to influence the foreign officials in their official capacity, and to secure an improper advantage for Rolls-Royce, RRESI, and affiliated entities and assist them in obtaining and retaining business with foreign governments, and agencies and instrumentalities thereof.
In Thailand, Rolls-Royce, RRESI, Executive, Employee 1, Employee 2, Employee 3 and others … engaged an intermediary, knowing that the intermediary’s commission payments would be used to bribe foreign officials at PTT Public Company Ltd. [a Thai state-owned and state-controlled oil and gas company, which owned extensive submarine gas pipelines in the Gulf of Thailand, and was controlled by the Thai government and performed government functions that the Thai government treated as its own] and its subsidiary PTT Exploration and Production Public Company (PTTEP) in return for contract awards for equipment and aftermarket products and services. From in or around 2003 through in or around 2013, RRESI made over $11 million in corrupt commission payments, and Rolls-Royce and RRESI understood that the payments would assist with contract awards, which RRESI ultimately won …
In Brazil, Rolls-Royce, RRESI, Executive and others … caused RRESI to make corrupt commission payments to an intermediary, knowing that portions of the commission payments would be paid to officials at Petrobras [a corporation in which the Brazilian government directly owned a majority of common shares with voting rights, while additional shares were controlled by the Brazilian Development Bank and Brazil’s Sovereign Wealth Fund] in order to obtain lucrative contracts for equipment and long-term service agreements. Between 2003 and 20013, RRESI paid the intermediary approximately $9.32 million in commission payments, and the intermediary made approximately $1.6 million in corrupt bribery payments to a Brazilian foreign official. In return, the foreign official helped RRESI win contracts from Petrobras on numerous projects.
In Kazakhstan, Rolls-Royce and RRESI sold RRESI gas turbines and aftermarket products and services to Asia Gas Pipeline [AGP a joint venture between Kazakh and Chinese state-owned and state-controlled entities that was designed to transport gas through a pipeline between Kazakhstan and China. AGP was controlled by the Kazakh and Chinese governments and performed government functions for Kazakhstan and China]. First, Roll-Royce, RRESI, Executive, and Employee 1 knowingly conspired with each other and others … to make corrupt commission payments to Intermediary 3 [a U.K.-incorporated oil and gas services intermediary], knowing that Intermediary 3 intended to use at least a portion of the commission payments to bribe foreign officials in order to win contracts to supply turbines on AGP Lines A and B in 2009. Later, in 2012, RRESI corruptly engaged a local distributor of parts and services, knowing that the distributor was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-ROyce’s ability to continue operating in the Kazakh market and win contract awards to supply turbines for AGP Line C. In total, RRESI made $5.44 million in corrupt commissions to multiple advisors and conveyed additional benefits upon the high-ranking government official who was the beneficial owner of RRESI’s local distributor.
In Azerbaijan, Rolls-Royce, RRESI, Executive, Employee 1, and others … engaged Intermediary 1 [a Monaco-incorporated oil and gas services intermediary that owned and operated a number of subsidiaries and affiliates, including a U.S.-based subsidiary], knowing that Intermediary 1’s commission payments would be used to bribe foreign officials at SOCAR [the Azeri state-owned and state-controlled oil and gas company]. From in or around 2000 through in or around 2009, RRESI made over $7.8 million in corrupt commission payments to Intermediary 1, and Rolls-Royce and RRESI understood that the payments would assist with contract awards, which RRESI ultimately won to supply approximately 45 turbines on multiple projects, resulting in total profits of over $50 million.
In Iraq, Rolls-Royce, RRESI, Executive, Employee 1 and others … engaged Intermediary 1, knowing that Intermediary 1 was paying bribes to officials at SOC [South Oil Company, an Iraqi state-owned and state-controlled oil company]. From in or around 2006 through in or around 2009, RRESI received a contract award to supply gas generators to SOC. Sometime thereafter, RRESI learned that certain SOC officials had concerns about the turbines that had been supplied. Intermediary 1 paid bribes to foreign officials at SOC in order to persuade officials to accept the turbines and keep SOC from ‘blacklisting’ Rolls-Royce and RRESI from doing future business in Iraq. As a result of the corrupt bribery payments by Intermediary 1, Rolls-Royce and RRESI made a profit of over $1.5 million on the gas generator deal.
In Angola, Rolls-Royce, RRESI, Executive, Employee 1 and others, engaged Intermediary 2 [a Madeira-incorporated, Angola-based, oil and gas services intermediary that was created as a joint venture between Intermediary 1 and another company], knowing that Intermediary’s 2’s commission payments would be used to bribe foreign officials at Sonangol [an Angolan state-owned and state-controlled oil company]. From in or around 2008 through in or around 2012, RRESI made approximately $1.2 million in corrupt commission payments to Intermediary 2, knowing that Intermediary 2’s commission payments would be used to bribe foreign officials at Sonangol in order to obtain confidential information and win contracts for Rolls-Royce and RRESI. Ultimately, three Sonangol projects were awarded to Rolls-Royce and RRESI, resulting in approximately $30 million in profits in Angola.
In furtherance of the scheme, Rolls-Royce employees and agents took corrupt acts while in the territory of the United States. In addition, Rolls-Royce and its employees and agents conspired with and aided and abetted domestic concerns, including conspiring to send, and aiding and abetting, wire transfers, and e-mails to and through the United States.”
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The criminal charge of conspiracy to violate the FCPA’s anti-bribery provisions was resolved through a three year deferred prosecution agreement based on the following “facts and circumstances” of the case:
a. the Company did not voluntarily or timely disclose [to the DOJ], as the Company’s disclosures occurred only after media reports first alleging corruption by the Company and the U.K. Serious Fraud Office initiated an inquiry into the Company’s misconduct, and as a result the Company was not eligible for voluntary disclosure credit;
b. the Company received full credit for its cooperation [with the DOJ’s] investigation, which included: (i) conducting a thorough internal investigation; (ii) making numerous factual presentations to the [DOJ]; (iii) facilitating witness interviews of current and former employees, including foreign-based employees, as well as former commercial advisors, and covering the cost of representation and travel; (iv) producing documents to [the DOJ] proactively and in a timely fashion; (v) collecting, analyzing, and organizing voluminous evidence and information for the [DOJ]; and (vi) providing facts learned during witness interviews conducted by the Company;
c. by the conclusion of the investigation, the Company had provided to the [DOJ] all relevant facts known to it, including information about individuals involved in the misconduct;
d. the Company engaged in significant remedial measures, including: (i) terminating 6 employees and accepting resignations from 11 other employees who were the subject of internal disciplinary investigations, where all 17 employees were implicated in the corrupt schemes described [in the DPA] or in other conduct that the Company disclosed to the [DOJ] prior to signing the [DPA]; (ii) terminating the Company’s business relationships with all third-party intermediaries involved in the corrupt schemes …; (iii) enhancing compliance procedures the Company used to review and approve third-party intermediaries, and changing business marketing practices to materially reduce the number of intermediaries the Company uses; (iv) engaging an outside advisor to serve as a compliance advisor responsible for reviewing the Company’s compliance programs and making recommendations for improvement, and having the Board of Director’s Safety and Ethics Committee monitor the implementation of the recommendations; (v) implementing new enhanced internal controls to address and mitigate corruption and compliance risks;
e. The company has committed to continue to enhance its compliance program and internal controls, including ensuring that they satisfy the minimum elements of the corporate compliance program set forth in Attachment C [to the DPA];
f. Based on the Company’s remediation and state of its compliance program, and the Company’s agreement to report to the [DOJ] … the [DOJ] determined that an independent compliance monitor was unnecessary;
g. The nature and seriousness of the offense, including: the high-dollar value of the bribes paid to foreign officials and the resulting illicit gains; the involvement of high level Company officials; the use of intermediaries to conceal the bribery schemes; the broad geographic scope of the corrupt schemes; and the length of time that Company employees engaged in the corrupt schemes;
h. the Company has no prior criminal history
i. The Company has agreed to continue to cooperate with the [DOJ] …
j. The Company has agreed to pay a penalty to the U.K. Serious Fraud Office of 497,252,645 in connection with corrupt payments the Company made in connection with the Company’s Civil Aerospace, Defense Aerospace, and Energy business operations in Indonesia, Thailand, China, Malaysia, Nigeria, Russia, and India; and a penalty to the Brazilian Public Prosecutor of approximately $25,579,19 in connection with certain conduct described in [the DPA] concerning corrupt payments the Company made in Brazil; and
k. Accordingly, after considering (a) through (j) above, the Company received an aggregate discount of 25% off of the bottom of the U.S. Sentencing Guidelines fine range.
The advisory fine range set forth in the DPA is $260.6 million to $521.3 million and the DPA states that the “Company agrees to pay a monetary penalty in the amount of $169,917,710 … of which $30 million will be paid to the Consumer Financial Fraud Fund.”
This unusual aspect of the DPA caught my eye and I e-mailed the DOJ press office as follows.
Q: Can you please explain what the Consumer Financial Fraud Fund is, why $30 million is going to this fund, and whether this has been ever been done before in an FCPA enforcement action?
Here is the answer I received back.
The fund is administered by the U.S. Postal Inspection Service and can be used for costs related to the prevention, education and investigation of consumer fraud. This is the first time it’s been used in an FCPA case, but below are some recent Fraud Section cases where it has been used:
- AIG (2006)
- BP North America (2007)
- Ronald Ferguson (2008)
- Health South (2009)
- General Reinsurance (2010)
- Univision Services (2010)
- Convergex (2014)
The DPA further states that the monetary penalty reflects a discount of 25% off of the bottom of the U.S. Sentencing Guidelines range, and a credit of $25,579,179 in recognition of the company’s payment of the same amount in connection with its settlement of an administrative proceeding based in part on the same conduct as set forth in the DPA with the Brazilian Public Prosecutor’s Office.”
In the DOJ release, U.S. Attorney Benjamin Glassman (S.D. of Ohio) stated:
“Bribery of government officials undermines the integrity of a free and fair market. This multinational resolution imposes significant criminal penalties on Rolls-Royce for its multinational corruption.”
Andrew Weissmann (Chief of the DOJ’s Fraud Section) stated:
“For more than a decade, Rolls-Royce repeatedly resorted to bribes to secure contracts and get a competitive edge in countries throughout the world. The global nature of this crime requires a global response, and this case is yet another example of the strong relationship between the United States and U.K. Serious Fraud Office and Brazilian Ministério Público Federal, and the collective efforts to ensure that ethical companies can compete on an even playing field anywhere in the world.”
Stephen Richardson (Assistant Director of the FBI’s Criminal Investigative Division) stated:
“Rolls-Royce knowingly acted outside the law by conspiring to bribe foreign officials to gain an unfair advantage. No company is above the law. This resolution will stand as a warning to big and small companies all across the world that the FBI will not tolerate the foreign corruption that threatens our fair and competitive markets.”
Paul Abbate (Assistant Director in Charge of the FBI’s Washington Field Office) stated:
“This successful parallel investigation is a tremendous example of the central importance of working cooperatively alongside our international partners to achieve a fair and meaningful resolution. This outcome is a reflection of the immense reach and capabilities of the FBI’s Washington Field Office international corruption squad and the global impact of the anti-corruption program.”
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