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DOJ Argues That Esquenazi’s “Foreign Official” Challenge is Premature

The DOJ filed its response brief (here) in the Joel Esquenazi enforcement action – an action which, as described in this prior post, the defendant is challenging the DOJ’s “foreign official” interpretation.

As it did in the Nguyen / Nexus Technologies case (see here – middle of the post) the DOJ asserts as follows. “Although styled as a “motion to dismiss,” the defendants’ submission is instead a premature request for a ruling on the sufficiency of the government’s evidence concerning the status of officers of Telecommunications D’Haiti (“Haiti Teleco”) as a foreign officials of a government instrumentality before the evidence regarding that issue has been presented to the jury. The defendants’ arguments, which are premised on misstatements of both the law and the facts and are premature at best, will be moot after presentation of the government’s case. Therefore the defendants’ motion should be denied.”

The response brief contains a separate section on “the Nature of Haiti Teleco” and states as follows. “At the times relevant to the Indictment, between 2001 and 2004, Haiti Teleco held a state granted monopoly over land line telephone service in Haiti. During that time, Haiti Teleco was 97% state-owned by the Central Bank of Haiti, the Banque de la Republic of Haiti (“BRH”), which held 97% of Haiti Teleco’s shares. No one knows who owned the remaining 3% of Haiti Teleco’s shares, as no records still exist concerning their ownership, yet no person or company has claimed them in institutional memory. Therefore, effectively and functionally, during this period, Haiti Teleco operated with 100% state-ownership. Also during this period, Haiti Teleco was 100% state-controlled.”

The response brief asserts as follows. “… the defendants seek to circumvent the trial process and have the Court determine, before the presentation of any evidence, that the government has not met its burden of proving that Haiti Teleco was a instrumentality of a foreign government as defined by the FCPA. As will be demonstrated in the government’s case-in-chief, whether Haiti Teleco was an instrumentality of the Republic of Haiti is not a close case, a fact the defendants likely understand and therefore attempt to raise this issue before the evidence has been presented. Taken as true, the Indictment is more than sufficient to meet the Hagner standard and the precedent of this Circuit. Therefore, the motion should be denied.”

Under the heading, “Interpretation of the Term Government Instrumentality” the DOJ’s brief states in full as follows.

“The bulk of the defendants’ Motion focuses on suggesting that the Court adopt an insupportably narrow interpretation of government instrumentality that is contradicted by the statute on its face, case law, legislative history, and international treaties. The defendants’ proffered arguments are, in any event, arguments for jury instructions or for the Court after the government’s
case-in-chief pursuant to Federal Rule of Criminal Procedure 29. However, if the Court would like supplemental briefing on the meaning of “foreign official,” the government is more than willing to elaborate on how the FCPA’s plain text, its current interpretation by courts, its legislative history, and U.S. treaty obligations provide no support for the defendants’ novel and confusing definition. These sources confirm that the definition of “foreign official” includes officials of state-owned and state-controlled companies. Further, it is not limited to the narrow and ambiguous restriction that it applies only to “officials performing a public function.” DE 283 at 2. This tortured formulation finds no support, even in the sources the defendants themselves cite. The government stands prepared to brief and argue this issue again, should the defendants raise it, upon a Rule 29 motion or in the context of formulating jury instructions.”

The DOJ response brief also contains a section which argues that the term “foreign official” is not unconstitutionally vague.

Guiding Words

FCPA reform proposals circulating on what seems like a weekly basis.

Claims that the FCPA is bad for business.

Questions about how the FCPA enforcement agencies resolve matters.

In some circles these valid and legitimate questions or calls for reform are being met with claims that some want to weaken the FCPA and pave the way for corporations to go on a bribery binge.

Within days of the U.S. Chamber of Commerce sponsored piece (here – I will do a separate post on this in the near future) various commentators assailed mere discussion of reforming the FCPA as being pro-bribery.

For instance, Keith Olbermann began his October 27th MSNBC Countdown program as follows: “The plot to buy America. U.S. Chamber of Commerce job one: It wants the Congress it thinks it‘s going to buy to roll back enforcement of the anti-bribery Foreign Corrupt Practices Act.” Later in the program Olbermann noted: “The Chamber of Commerce—the U.S. Chamber of Commerce, the biggest secret right-wing ad buyer, today released a report calling for weakening the FCPA. What the hell‘s that? The Foreign Corrupt Practices Act, which punishes American businesses for bribing officials overseas. Quote, “Unfortunately for the business community, an active FCPA enforcement environment appears likely to continue.” The chamber wants to make it easier for American companies to do business with corrupt officials, even, quote, “in countries where many companies are state owned, e.g., China.” Later in the program, Olbermann stated as follows: “I mentioned the U.S. Chamber of Commerce and this call on the new Congress to make it easier for rich Americans to bribe officials overseas and then get away with it if they‘re caught—which seems to sort of represent part of the American spirit, in a bizarre way.”

It is unfortunate that any discussion of examining and perhaps reforming the FCPA, or more importantly FCPA enforcement, is met in some circles with naive and reactionary claims of being “pro-bribery.”

In many ways, we are back to the 1980’s.

In 1980, Congress set about amending the FCPA. The FCPA, at that time: contained a broad “reason to know” knowledge standard as to indirect payments to “foreign officials;” no affirmative defenses; and no express facilitating payment exception.

It took Congress eight years to wrestle with the issues and the FCPA was finally amended in 1988.

In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill “provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”

In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: “We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”

During the hearing, Senator Chafee further stated as follows: “Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”

During Senate hearings, Senator D’Amato noted as follows: “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”

Senator D’Amato further stated as follows. “I think it is very important that in the committee’s work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any ‘gray area’ by clearly spelling out the limits of the law.”

During Senate hearings, Senator John Heinz stated as follows. “… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”

During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: “Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption.”

The interesting thing about these representative comments is that they occurred during an era when the FCPA was, for all practical purposes, not even enforced!

As noted in yesterday’s post, we are, in the words of Assistant Attorney General Breuer, in a new era of FCPA enforcement.

Part of this new era should be a renewed effort to examine the FCPA and more importantly FCPA enforcement.

The above comments from the 1980’s should serve as useful guiding words.

“We Are In a New Era of FCPA Enforcement; and We Are Here to Stay”

These were the words of Assistant Attorney General Lanny Breuer yesterday at ACI’s signature FCPA conference (see here).

This post contains excerpts of Breuer’s speech (see here) and contains my comments in italics.

Breuer’s speech begins as follows:

“… I’m proud to say that our FCPA enforcement is stronger than it’s ever been – and getting stronger. To give you just one metric, in the past year, we’ve imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion.

I am aware that, for some of you, as we have become more aggressive, you have become more worried.

On one hand, I want to tell you this afternoon that you are right to be more concerned. As our track record over the last year makes clear, we are in a new era of FCPA enforcement; and we are here to stay. On the other hand, I want to impress upon you that you should not wait in worry for us to come knocking on your door. There are many steps that you can be taking that would put your organization in a better position for the day we do come knocking, or that could prevent us from coming at all.

Perhaps it’s no surprise that in the last 19 months, as we’ve stepped up our FCPA investigations and prosecutions, there are some who have stepped up their criticism of the Act itself. No doubt, some of the criticisms and suggestions out there are worth debating, and you should know that we do take serious commentary into account. For example, I am aware that some practitioners and others would like to see, in the FCPA area, an amnesty program similar to the one that exists in the realm of antitrust. Although I think there are significant differences between foreign bribery and antitrust violations, I can at least tell you that we listen to considered suggestions of this kind.

I am also aware, however, of much less thoughtful commentary. For example, there are some who have suggested recently that FCPA enforcement is “bad for business.” To me, this is a little like saying that our public corruption prosecutions are “bad for government.” It’s exactly upside down. As Attorney General Holder explained to an audience earlier this year, bribery in international business transactions weakens economic development; it undermines confidence in the marketplace; and it distorts competition.”

I agree, we are in a new era of FCPA enforcement. See here for my recent piece “The Foreign Corrupt Practices Act in the Ultimate Year of its Decade of Resurgence.”

But the question needs to be asked – why are we in a new era?

Has the FCPA changed?


Has a court opinion legitimized certain enforcement theories that yield the highest quantity of enforcement actions?

No. (If your answer was yes, U.S. v. Kay, 359 F.3d 738 (5th Cir. 2004), I suggest you carefully analyze the opinion).

So why are we in a new era of FCPA enforcement?

Because enforcement theories have changed.

Who says so.

Let’s start with Mark Mendelsohn (here) the DOJ’s top FCPA prosecutor from 2005 to 2010 and the individual “responsible for overseeing all DOJ investigations and prosecutions under the FCPA” during his tenure.

In this recent interview with “The Boardroom Channel” (3 minute mark approximately), Mendelsohn candidly states that “What’s really changed is not so much the legislation, but the enforcement and approach to enforcement by U.S. authorities.”

Is this enforcement that defines this new era taking place within the context of the judicial system?

By and large no, as I demonstrate in my recent “Facade of FCPA Enforcement” article (see here).

Against this backdrop, there has been increased criticism of FCPA enforcement and rightfully so.

Who are the critics?

For starters, how about former DOJ and SEC FCPA enforcement attorneys.

In a recent interview with the Corporate Crime Reporter (Sept. 10th), Mendelsohn stated that “some of the factors” the DOJ uses to resolve FCPA cases are transparent, but “there are other factors less easy to see from the outside.” Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements that the “danger” “is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”

Philip Urofsky (here) used to enforce the FCPA while at the DOJ. In this piece, and others he has written, he has questioned certain FCPA enforcement theories.

Martin Weinstein (here) used to enforce the FCPA while at the DOJ. In this Q&A, he agrees that FCPA enforcement has morphed and he proposes his own revisions to the law.

Richard Grime (here) used to be an FCPA enforcement attorney while at the SEC. He recently questioned (here) several aspects and theories of FCPA enforcement.

Kenneth Winer (here) is a former SEC enforcement attorney. In this piece he asks “are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?”

These are only a few representative samples of former enforcement officials criticizing the enforcement policies that define this “new era of FCPA enforcement” that Breuer speaks of.

Who else is asking questions?

Congress (see here and here) and it should ask many more questions about this new era of FCPA enforcement.

I agree with Breuer that simply saying FCPA enforcement is “bad for business” is not very effective or persuasive.

However, as I point out in the “Facade of FCPA Enforcement” the facade matters and not just because it breeds overcompliance and creates uncertainty for business.

The facade of FCPA enforcement matters because it is troubling when any area of law largely develops outside of the judicial process. The facade of FCPA enforcement matters because when any law develops through an opaque process, public confidence in that law suffers.

So deep is the facade of FCPA enforcement that when the House passes a bill that is supposed to be triggered by a company violating the FCPA’s anti-bribery provisions, the bill will be impotent because very few companies are actually found to have violated the FCPA’s anti-bribery provisions. See here.

The facade of FCPA enforcement is not just a business issue, it is a rule of law issue, and having a discussion about the facade of FCPA enforcement is a valid and legitimate discussion to be having.

Breuer continues:

“So let me be perfectly clear about the Justice Department’s views on that topic: FCPA enforcement is not bad for business; it is, instead, vital to ensuring the integrity of our markets. Our FCPA enforcement program serves not only to hold accountable those who corrupt foreign officials, but in doing so it also serves to make the international business climate more transparent and fair for everyone. FCPA enforcement both roots out foreign corruption and deters it from taking hold in the first place.”

The government’s FCPA enforcement program “holds accountable those who corrupt foreign officials?” If accountability means the company pays an eye-popping multi-million dollar fine, then yes there is accountability – even if the fine paid, in most instances, is less than the amount of the bribes paid and less than the amount of business allegedly obtained or retained because of the bribe payments.

However, where is the accountability when the most egregious instances of corporate bribery (per the government’s own evidence) are resolved without FCPA anti-bribery charges as in the Siemens and BAE prosecutions?

Where is the accountability when, within a year of charging Siemens with bribery “unprecedented in scale and geographic scope” where “bribery was nothing less than standard operating procedure,” the U.S. government turns around and awards the company multi-million dollar contracts? (See here for the prior post).

Where is the accountability when the same government agency (the FBI) that assisted in the investigation of BAE’s improper conduct awards a $40 million dollar contract to the company? See here for the prior post.

Breuer continues:

“… the United States, through its FCPA enforcement efforts, leads by example; and other countries are following. For instance, the United Kingdom passed a landmark anti-bribery law earlier this year, sending a clear message to the British business community that the U.K will not tolerate bribery in international commerce.”

True, the U.S. government’s enforcement of the FCPA is held up as a model for other nations. That’s precisely why the facade of FCPA enforcement matters. Because other nations are modeling enforcement of their own anti-bribery laws on U.S. enforcement of the FCPA.

Leading by example?

What example is set by the Giffen Gaffe (see here)? This enforcement action began with allegations that Giffen ” made more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan.” It abruptly ended this past summer with Giffen agreeing to resolve the enforcement action via a one-paragraph superseding information charging a misdemeanor tax violation. Part of Giffen’s defense was that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House.

For more see this prior post “As We Say, Not Necessarily As We Do.”

Breuer then mentions the recent OECD and states that “while the OECD had some constructive suggestions, it strongly commended us for our exemplary enforcement actions – and for the extraordinary commitment of the United States to combating bribery.”

As I noted in this previous post, quantity of enforcement does not always mean quality of enforcement.

Lost in the coverage of the OECD report is the salient fact that while loudly praising the U.S. for its “high level” of enforcement, the OECD quitely criticizes and questions many of the policies and enforcement theories which yield the “high level” of enforcement. For instance, the OECD Report notes that the FCPA’s language “does not specifically convey” that cases concerning “an operating license or permit to operate a business, or a reduction in tax or import duty” are in violation of the statute. Yet, many FCPA enforcement actions are based on this theory – such as the entire line of Panalpina related enforcement actions earlier this month (see here). Further, the OECD Report notes that “due to an absence of explicit language in the definition of foreign official” it is an open question whether employees of so-called state-owned or state controlled enterprises are “foreign officials” under the FCPA. Yet, numerous FCPA enforcement actions are based on this theory.

Breuer’s speech ends as follows:

“In a climate in which FCPA enforcement matters; in which the United States is pursuing foreign bribery vigorously, both here and abroad; and in which the government stands ready to reward sincere cooperation, what should you and your clients be doing? Let me offer you three suggestions.

First, take a hard look at your organization’s FCPA compliance practices. It is never too early to undertake such a review. You will rest easier if you satisfy yourselves that your company is behaving responsibly and in full compliance with the law. Or, if you discover problems before we do, and then work to fix them, you will receive a benefit for having done so.

Second, if your compliance program is lacking, strengthen it. This includes finding ways to tighten internal controls and encouraging a culture of compliance. The OECD’s recently adopted “Good Practice Guidance on Internal Controls, Ethics, and Compliance” is an excellent place to start. Establishing a top-notch compliance program will not only help to prevent misconduct from occurring, but it will also improve your position with us in any eventual investigation.

Finally, voluntarily disclose wrongdoing if you discover it. As a former defense lawyer, I understand that the question of whether to self-report is a difficult one. But I can assure you that if you do not voluntarily disclose your organization’s conduct, and we discover it on our own, or through a competitor or a customer of yours, the result will not be the same. Of course, voluntary disclosure is not the only factor we consider in deciding how to resolve a particular case. We take into account all the factors set forth in the Principles of Federal Prosecution of Business Organizations, and we consider the particular facts and circumstances of each individual case. But there is no doubt that a company that comes forward on its own will see a more favorable resolution than one that doesn’t.

Foreign bribery has a severe, negative impact on international democratic institutions, the worldwide marketplace, and American businesses. The Justice Department is firmly committed to investigating and prosecuting foreign bribery wherever it occurs – because rooting out foreign bribery matters. It matters for the health of democratic institutions across the globe and it matters for the strength of international commerce. At the same time, we are also determined to reward responsible behavior. If you are equally committed to conducting business transparently and free of foreign corruption, we can be strong partners in this fight. I hope you will join us in the months and years ahead.”

Azeri Tax Officials and More On Nigeria TIPs

Next up in the analysis of CustomsGate enforcement actions is Tidewater.

See here for the prior post on the Noble Corporation enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Tidewater enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $15.7 million ($7.35 million criminal fine via a DOJ deferred prosecution agreement; $8.3 million in disgorgement and a civil penalty via a SEC complaint).


The DOJ enforcement action included a criminal information (here) filed against Tidewater Marine International Inc. (“TMII), a wholly-owned subsidiary of Tidewater Inc. (“TDW”) and the primary international operating entity for TDW.

TDW (see here) operates offshore service and supply vessels designed to support all phases of offshore energy exploration, development and production throughout the world. TDW is headquartered in New Orleans and has publicly traded shares on the New York Stock Exchange.

The criminal charges against TMII were resolved via a deferred prosecution agreement (here) between the DOJ and TMII and TDW “on behalf of its wholly-owned subsidiary TMII.”

Criminal Information

According to the criminal information, TMII “had managerial and administrative operations in the United States, and it exercised contractual rights and control over Tidewater’s vessel operations in Nigeria and Azerbaijan, among other areas.”

The criminal information concerns: (1) “bribes paid to Azeri tax inspectors”, and (2) “payment of bribes to Nigerian customs officials through the freight fowarding agent [Panalpina].”


According to the information, “in 2001, 2003, and 2005, the Azeri Tax Authority [a government entity responsible for administering and collecting tax assessments and duties for the Republic of Azerbaijan] initiated tax audits of TMII’s business operations in Azerbaijan.”

The information states that TMII employed the “Consulting Firm” [a U.S. consulting company incorporated in Texas and headquartered in Baku, Azerbaijan to provide a broad range of services including accounting services and tax advice and assistance] including the “Azerbaijan Agent” [the Managing Director of the Consulting Firm] to assit with the audits.

The information charges that “in 2001, 2003, and 2005, TMII, through its employees and agents, paid bribes to Azeri tax inspectors to improperly secure favorable tax assessments.”

According to the information, TMII “caused approximately $160,000 to be paid to the Dubai Entity [an entity associated with the Consulting Firm], while knowing that some or all of the money would be paid, with the assistance of the Azerbaijan Agent to Azeri tax inspectors.”

The information states that “the benefit received and the potential tax liability avoided by TMII as a result of the payment of the bribes was approximately $820,000.”


According to the information, between January 2002 through March 2007, Tidex Nigeria Limited (“Tidex”) [a Nigerian company 60% majority owned by Tidewater Marine” that “provided agency and operational support, at the direction of TMII, for all vessels that Tidewater operated in Nigeria during the relevant period”], through its employees, affiliates, and agents, authorized the payment of approximately $1.6 million to [Panalpina] as reimbursements for bribes paid by [Panalpina], made on Tidex’s behalf, to Nigeria Customs Service (“NCS”) employees to induce the officials to disregard certain regulatory requirements in Nigeria relating to the temporary importation of Tidewater vessles into Nigerian waters.” The information charges that by August 2004, “TMII managers and employees were aware of and condoned the payments.”

The regulatory requirements set forth in the information concern Nigeria’s rules and regulations relating to temporarily importing vessels and the “temporary importation permit” (“TIP”). For more on the TIP process see here.

According to the information, between August 2004 and 2007, TMII employees and other Tidewater employees authorized the payment of approximately $1,089,000 to [Panalpina], on Tidex’s behalf, knowing that some or all of the monies had been paid by [Panalpina] to NCS officials to induce them to disregard Nigerian regulations, to not impose fines and penalties, and to allow Tidewater vessels to operate in Nigerian waters without a valid TIP.”

The information states that the “total benefit in avoided costs, duties, and penalties received by TMII in exchange for these payments was approximately $5,800,000.”

Based on the above information, the information charges TMII with conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records (in connection with both the Azeri and Nigeria payments) and knowing falsification of books, records, and accounts in connection with “129 payments totaling approximately $1,089,00, as [Panalpina] costs when, in fact, the payments were, in whole or in part, paid to NCS officials.”

According to the information, the following individuals “authorized the payment of bribes” or “know, or were aware of a high probability” that bribes were being paid:

Director of Tax [a U.S. citizen located in New Orleans], the Dubai Area Controller[a U.S. citizen], the Regional Finance Director [a British citizen, but described as a “employee and agent of a domestic concern], the Azerbaijan General Manager A [a U.S. citizen] and the Azerbaijan General Manager B [a U.S. citizen] (as to Azeri payments); and

the Vice President of Operations [an Australian citizen who supervised, at various times, both Azerbaijan and Nigerian operations and described as an employee an agent of a domestic concern] and the Nigeria Area Manager [a British citizen] (as to Nigeria payments).

In addition, the information charges that certain money in furtherance of the bribe payments were wired from accounts located in the U.S.

Deferred Prosecution Agreement

Pursuant to the DPA, TMII admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and TMII. Among the factors stated are the following.

“TMII and TDW promptly commenced an internal investigation into its dealings with [Panalpina] after becoming aware of information indicating potential issues with [Panalpina];”

“promptly after commencing its internal investigation, TMII and TDW voluntarily disclosed the conduct described in the Information to the Deparment;”

“TMII and TDW voluntarily expanded their internal investigation to numerous operations and areas of the world outside Nigeria where no misconduct had been reported or suspected, and reported all relevant findings to the Department;”

“TMII and TDW hired a General Counsel with substantial international compliance experience, appointed him the Chief Compliance Offcer, and established a Corporate Compliance Committee;”

“TMII and TDW issued an enhanced, stand-alone FCPA compliance policy, substantially revised its Code of Conduct, as well as additional relevant policies and procedures, including a vetting and approval process for third part service providers and business parners upon implementation of that policy, and instituted a worldwide training program for employees;”

“TMII and TDW expanded their internal investigation to cover additional countries and business activities;”

“TMII and TDW cooperated with the Department’s investigation, including sharing all relevant investigation findings and making available numerous current and former employees;”

“TMII and TDW exhibited leadership in the oil and gas industry by leading an oil and gas industry initiative, both in the United States and abroad, to address the [Nigeria TIPs conduct];”

“TMII and TDW implemented an enhanced compliance program and have agreed to undertake further remedial measures as contemplated by this Agreement …;”

“TDW, on behalf of TMII, agreed to provide a written report to the Deparment on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures …;” and

“TMII and TDW agreed to continue to cooperate with the Deparment in any ongoing investigation of the conduct of TMI and its directors, employees, agents, consultants, contractors, subcontractors, subsidiaries, affiliates,
and others relating to violations of the FCPA.”

As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $10.5 million – $21 million. Pursuant to the DPA, TMII and TDW agreed that TMII shall pay a monetary penalty of $7.35 million – 30% below the minimum guideline amount.

As is standard in FCPA DPAs, TMII and TDW agreed not to make any public statement “contradicting the acceptance of responsibility by TMII as set forth” in the DPA and TMII and TDW further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.


The SEC’s complaint (here) concerns the same core set of facts as set forth in the DOJ’s DPA.

In summary fashion, the SEC alleges as to Azerbaijan conduct that “between August 2001 and November 2005, Tidewater Inc. […] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA’s anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor.”

According to the SEC, “these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments.”

The SEC complaint alleges that the payments included: (i) “on or about August 14, 2001, Tidewater authorized and paid $50,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; (ii) “in July 2003, Tidewater authorized and paid $40,000 to a third party in two installments that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; and (iii) “on or about November 11, 2005, a Tidewater subsidiary authorized and paid $70,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan.”

The SEC’s complaint provides additional detail regarding the Azeri tax audits than the DOJ’s criminal information. The SEC’s allegations seem to suggest that the payments to the Azeri tax officials were the result of extortionate demands communicated to Tidewater entities through the Azerbaijan Agent. For instance, in connection with the 2001 tax audit, the complaint states that “Executive A [Tidewater’s CFO during the relevant period] believed that the 2001 Audit was sort of a ‘shakedown’ that the Azerbaijan Agent created in order to collect a fee.” As to this audit, the complaint further alleges that “Executive A and [another company employee] learned that the Azeri tax auditors threatened to use an accounting method that would result in a higher tax assessment because the tax auditors did not feel ‘respected.'” In connection with the 2002 tax audit, the complaint alleges that the Azerbaijan Agent informed Tidewater personnel “that the Azeri tax auditors had verbally identified a potential figure of up to $600,000 to resolve the 2003 audit” but that this “amount bore no relation to any actual tax assessment or penalty.”

As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that “from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters.”

According to the SEC, both the Azeri and Nigerian payments:

“[W]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials.”

Based on the above conduct, the SEC charged Tidewater with violating the FCPA’s anti-bribery and books and records and internal control provisions.

As to the company’s internal controls, the SEC specifically alleged as follows.

“Tidewater’s controls over the engagement and activities of agents operating in high-risk jurisdictions outside of the marketing and sales area were inadequate. For example, the Company’s compliance program, including training provided to its employees, did not adequately address the applicability of the FCPA to customs, tax, and similar regulatory issues in its foreign subsidiary operations until March 2007. Moreover, employees in Azerbaijan easily circumvented the Company’s internal controls by setting up small cash reserves for contingencies, dividing the improper payments into increments below their discretional financial authority and processing a payment through a Company affiliate. Some of the payments for invoices that the Nigerian Agent submitted to Tidex were authorized, processed and funded without the work order or supporting documentation necessary to verify that the service was requested and rendered. Tidewater also conducted internal audits in 2001 and 2003 of its Nigerian operations that failed to detect the improper payments even though weaknesses with invoices from, and payments to, agents and consultants were identified.”

Without admitting or denying the SEC’s allegations, Tidewater agreed to an injunction and the payment of $8,104,362 in disgorgement and a $217,000 penalty.

Lucinda Low (here) (Steptoe & Johnson) represented Tidewater.

Yet Another Noisy Exit

Rodolfo Michelon was the Director & Controller – Mexico of Sempra Global. Michelon was also the legal representative of various Sempra subsidiary companies located in Mexico and served as a member of the board of directors of the Mexican subsidiaries.

That is until March 10, when Michelon was terminated by Sempra.

In a lawsuit (here) recently filed in California state court, Michelon claims that his termination was wrongful for many reasons, including the following:

“Sempra regularly required Michelon to transfer funds, and account for illegitimate expenditures that boiled down to bribes of government officials – everything from fraudulent trusts ostensibly to purchase fire fighting equipment for Mexican governments, to paying off local fisherman to move their operations away from Sempra facilities, to demanding remediation of accounting that falsely stated Sepmpra’s assets, to the outright wiring of huge amounts of money to ‘consultants’ throughout Mexico. As with his other attempts to ensure he was complying with his ethical requirements as a CPA, Michelon’s repeated questioning and protests of the miscellaneous frauds and bribes was met with open hostility and threats of termination. The termination of the Controller employment was not only in retaliation for Michelon’s complaints, but it was also meant to keep Michelon from reporting the frauds and bribes to governmental, law enforcement officials.”

Sempra Global is described (here) as “the umbrella for Sempra Energy’s businesses operating in competitive energy markets. Sempra Global companies acquire, develop and operate infrastructure assets related to the production and distribution of energy, including power plants, natural gas pipelines and liquefied natural gas (LNG) receipt terminals.”

Various Sempra entities are publicly traded issuers (see here).

In this San Diego Union Tribune report Sempra officials “called Michelon a disgruntled ex-employee attempting to cash in by making ‘outlandishly false claims and misrepresentations’ after being let go in a routine reorganization.” A Sempra spokesperson said that the “company first became aware of Mr. Michelon’s claims several months ago” and that “Sempra’s board of directors ordered an independent investigation, which found Mr. Michelon’s allegations to be completely without merit.”

Michelon’s “noisy exit” is the fourth such exit publicly reported over the past three months that may implicate the FCPA. See here and here for the prior posts.

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