Yesterday, the DOJ and SEC (see here and here) announced a parallel Foreign Corrupt Practices Act enforcement action against Gol Linhas Aereas Inteligentes S.a. (GOL) – an airline headquartered in Sao Paulo, Brazil with shares traded on the New York Stock Exchange.
The DOJ component involved a criminal information against GOL charging conspiracy to violate the FCPA’s anti-bribery and books and records provisions resolved through a deferred prosecution agreement in which the company agreed to pay net $15.3 million. The SEC component involved an administrative order against GOL finding violations of the FCPA’s anti-bribery, books and records, and internal controls provisions pursuant to which the company is expected to pay net $22.8 million.
DOJ
The September 9th criminal information (which was originally filed under seal) alleges under the heading “Overview of the Bribery Scheme” as follows.
“Between in or about 2012 and in or about 2013, GOL, together with others, including GOL Director [described as a Brazilian citizen and member of GOL’s Board of Directors] and Intermediary [described as Brazilian businessman who was a close associate of Brazilian Official 1 – described as high-ranking official in the legislative branch of the Brazilian government and a member of Brazilian Political Party] knowingly and willfully conspired and agreed with others to corruptly offer and pay approximately $3.8 million in bribes to Brazilian government officials, including Brazilian Official 1 and Brazilian Official 2 [described as a high-ranking official in the government of the Federal District of Brasilia and a member of Brazilian Political Party], to secure an improper advantage in order to obtain or retain business for GOL, specifically, to ensure the passage of two pieces of legislation by the National Congress of Brazil and the Legislative Chamber of the Federal District of Brasilia, respectively. These pieces of legislation involved certain payroll tax and fuel reductions that financially benefited GOL, along with other airlines.”
The only U.S. jurisdiction allegations in the 17 page information are that: (1) “Intermediary … discussed the bribe scheme with Brazilian Official 1 in person, by phone, and via an ephemeral U.S.-based messaging platform that transmitted messages using servers located in the U.S.” (2) “GOL Directors caused a bribe payment of $350,000 to be made from a shell company, incorporated in the Bahamas owned and controlled by GOL Director through the United States to a Swiss bank account of Intermediary Company 3” and (3) GOL filed a Form 20-F with the SEC that “falsely included payments made to the Brazilian Official Companies as purported ‘sales and marketing expenses’ when a portion of those payments were, in fact, corrupt bribe payments made to Brazilian Official 1 and Brazilian Political Party.”
In terms of relevant background, the information alleges in pertinent part:
- In 2010 GOL Director attempted to obtain financing from a Brazilian state-owned financial services institution for the benefit of a highway concession in which GOL Director’s family had a financial interest;
- To assist with that endeavor, GOL Director was introduced to Intermediary by a mutual acquaintance. Intermediary told GOL Director that he could assist GOL Director in obtaining the financing in exchange for a fee paid to Intermediary. GOL Director agreed and ultimately paid approximately $2.2 million to obtain the financing. Soon after agreeing to make the payment, GOL Director learned that a portion of the fee would be paid as a bribe to officials at the state-owned financial services institution and others.
- Subsequently, Intermediary informed GOL Director that he was looking for people to donate approximately $5.4 million to a Sao Paulo mayoral candidate who was a member of Brazilian Political Party. GOL Director understood that such a payment would be a bribe for the benefit of Brazilian Political Party and Brazilian Official 1. GOL Director further understood that the $2.2 million GOL Director had already committed to paying through intermediary to the state-owned financial services institution would count toward the $5.4 million bribe payment.
- In exchange for the bribe payments, GOL Director asked Intermediary and Brazilian Official 1 for assistance in passing legislation that would benefit GOL – in particular legislation that would add the air and road transportation industries to Brazil’s alternative payroll tax program, a national economic stimulus program that would result in a significant reduction of payroll taxes that GOL and GOL Director’s road transportation company would be required to pay.
- In addition, in exchange for the bribes discussed above, as well as additional bribes promised to Brazilian Official 2, GOL Director asked Intermediary, Brazilian Official 1, and Brazilian Official 2 for assistance in passing legislation that would reduce the aviation fuel tax in the Federal District of Brasilia for the air transport industry, including GOL.
- Intermediary facilitated the bulk of the bribe payments relative to the alternative payroll tax legislation and the aviation fuel tax legislation. For these services, Intermediary retained one-third of the bribes as a fee. Intermediary passed the other two-thirds to Brazilian Official 1, usually in cash using a Brazilian ‘doleiro” – an individual who served as a professional money launderer and black market money exchanger. Brazilian Official 1, in turn, distributed a portion of the bribes to other members of Brazilian Political Party.
According to the information:
- GOL corruptly obtained tax savings of at least the approximate equivalent of $39.7 million from the air transport industry’s inclusion in the alternative payroll tax program.
- GOL received a tax savings of at least the approximate equivalent of $12.4 from the corruptly obtained fuel tax legislation.
The criminal charges against GOL were resolved through a three-year deferred prosecution agreement. The DPA mentions the following relevant considerations:
“a. the Company did not receive voluntary disclosure credit pursuant to the FCPA Corporate Enforcement Policy in the Department of Justice Manual …, or pursuant to U.S. Sentencing Guidelines (“U.S.S.G.” or “Sentencing Guidelines”) … because it did not voluntarily and timely self-disclose to the Fraud Section and the Office the conduct described in the Statement of Facts …;
b. the Company received full credit for cooperation … because it cooperated with the Fraud Section’s and Office’s investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the Company also received credit for its cooperation pursuant to the FCPA Corporate Enforcement Policy, … by, including: (i) timely providing the facts obtained through the Company’s internal investigation-which included reviewing voluminous documents, interviewing witnesses, conducting background checks, and testing over two thousand transactions-which allowed the government to preserve and obtain evidence as part of its own independent investigation; (ii) making several factual presentations to the Fraud Section and the Office to share findings; (iii) translating key documents as needed; (iv) identifying information previously unknown to the Fraud Section and the Office; (v) making the Company’s current management and employees available to the Fraud Section and the Office, including several who traveled to the United States; and (vi) collecting, analyzing, and organizing voluminous evidence and information that it provided to the Fraud Section and the Office;
c. the Company provided to the Fraud Section and the Office all relevant facts known to it, including information about the individuals involved in the conduct described in the … Statement of Facts;
d. the Company promptly engaged in remedial measures, including: (i) conducting a comprehensive risk assessment; (ii) redesigning its entire anti-corruption compliance program; (iii) forming a compliance department and hiring a new chief compliance officer to lead it; (iv) re-evaluating and supplementing its anti-corruption policies and procedures, such as its relationship with third-party vendors and suppliers; and (v) terminating its relationships with third parties involved in the misconduct; in addition, the GOL Director involved in the scheme resigned from his position and has had no role at the Company since;
e. the Company has enhanced and has committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this Agreement (Corporate Compliance Program);
f. the nature and seriousness of the offense conduct, as described in the Statement of Facts, including the involvement of a now former member of GOL’s Board of Directors in a scheme to pay bribes to Brazilian government officials in exchange for assistance in passing two pieces of legislation;
g. the Company has some history of prior civil and regulatory actions, including tax and customs matters, but no prior criminal history;
h. the Company’s agreement to resolve concurrently an investigation by the U.S. Securities and Exchange Commission (“SEC”) relating to the conduct described in the Statement of Facts through a cease-and-desist proceeding, and agreeing to pay $24.5 million in disgorgement and prejudgment interest;
i. the Company’s agreement to resolve concurrently an investigation with authorities in Brazil relating to the same conduct described in the Statement of Facts, which the Fraud Section and the Office are crediting in connection with the penalty in this Agreement;
j. the Company has agreed to continue to cooperate with the Fraud Section and the Office in any ongoing investigation …; and
k. the Company met its burden of establishing an inability to pay the criminal penalty sought by the Fraud Section and the Office, despite agreeing that the proposed amount was otherwise appropriate based on the law and the facts, and fully cooperated by providing information and documents, and access to appropriate Company personnel to respond to prosecutors’ inquiries. The Fraud Section and the Office, with the assistance of a forensic accounting expert, conducted an independent ability to pay analysis, considering a range of factors outlined in the Justice Department’s Inability to Pay Guidance (see October 8,2019 Memorandum from Assistant Attorney General Brian Benczkowski to All Criminal Division Personnel re: Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty), including but not limited to: (i) the factors outlined in 18 U.S.C . 5 3572 and the United States Sentencing Guidelines 8C3.3(b); (ii) the Company’s current financial condition; and (iii) the Company’s alternative sources of capital. Based on that independent analysis, the Fraud Section and the Office determined that paying a criminal penalty greater than $ 17,000,000 within 90 days of the beginning of the Term would substantially threaten the continued viability of the Company;
l. accordingly, after considering (a) through (k) above, the Fraud Section and the Office have determined that a deferred prosecution agreement and a penalty of $ 17,000,000 is sufficient but not greater than necessary to achieve the purposes described in 18 U.S.C. 3553.
m. Based on the Company’s remediation and the state of its compliance program, and the Company’s agreement to report to the Fraud Section and the Office as set forth in Attachment D to this Agreement (Corporate Compliance Reporting), the Fraud Section and the Office determined that an independent compliance monitor was unnecessary.”
The DPA sets forth an advisory Sentencing Guidelines fine range of $116 million to $232 million and states:
“The Fraud Section and the Office and the Company agree, based on the application of the Sentencing Guidelines, that the appropriate criminal penalty is $87,000,000. This reflects a 25 percent discount off the bottom of the applicable Sentencing Guidelines fine range.
The Company has made representations to the Fraud Section and the Office, and provided supporting evidence, that the Company has an inability to pay an $87,000,000 criminal penalty. Based on those representations, and an independent analysis verifying the accuracy of those representations conducted by the Fraud Section and the Office (with the assistance of a forensic accounting expert), the parties agree that a criminal penalty of $17,000,000 (“Total Criminal Penalty”) is appropriate.
The Fraud Section, the Office and the Company agree that the Company will pay a monetary penalty to the United States Treasury of $7,650,000 within ten business days of the beginning of the Term, and an additional $7,650,000 within 90 days of the beginning of the Term. The Fraud Section and the Office further agree that the Fraud Section and the Office will credit the amount the Company pays to [law enforcement authorities] in Brazil, up to a maximum of $1,700,000. Due to the Company’s inability to pay, the Company’s payment obligations to the United States will be complete upon the Company’s two payments totaling $ 15,300,000, so long as the Company pays the remaining amount of the Total Criminal Penalty to authorities in Brazil pursuant to their agreement.”
Pursuant to the DPA, 30 days prior to the expiration of the three-year DPA, “the Company, by the Chief Executive Officer and Chief Compliance Officer, will certify to the Fraud Section and the Office …. that the Company has met its compliance obligations” pursuant to the DPA (Attachment F).
In addition, pursuant to the DPA, when the DPA expires “the Company, by the Chief Executive Officer of the Company and the Chief Financial Officer of the Company (the two most senior individuals at the Company), will certify to the Fraud Section and the Office … that the Company has met its disclosure obligations pursuant” to the DPA (Attachment E).
In the DOJ’s release, Assistant Attorney General Kenneth Polite Jr. stated:
“GOL paid millions of dollars in bribes to foreign officials in Brazil in exchange for the passage of legislation that was beneficial to the airline. The company entered into fraudulent contracts with third-party vendors for the purpose of generating and concealing the funds necessary to perpetrate this criminal conduct, and then falsely recorded the sham payments in their own books. [This] resolution demonstrates the Department of Justice’s commitment to holding accountable companies that corrupt the functions of government for their own financial gain.”
U.S. Attorney Erek Barron for the District of Maryland stated:
“Our office’s strong working relationship with the Department of Justice’s Fraud Section demonstrates our commitment to weed out corruption by companies that operate throughout Maryland. I am committed to ensuring that any company operating in this District does so lawfully and ethically without corrupt conduct.”
Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division stated:
“Companies bribing their way to profits will ultimately pay the price for their crimes. GOL paid off foreign officials to pass favorable legislation and then tried to conceal its bribes as legitimate transactions. Today’s settlement is proof that the FBI and our law enforcement partners will work to eliminate corruption anywhere it occurs, whether at home or abroad.”
SEC
The SEC enforcement action was based on the same core conduct alleged in the DOJ enforcement action.
This SEC administrative order states in summary fashion:
“These proceedings arise out of a scheme to bribe government officials in Brazil in exchange for certain payroll tax and fuel tax reductions that financially benefited Gol, along with other airlines. The bribe scheme took place against a backdrop of insufficient internal accounting controls and Gol’s books and records characterized the bribes as legitimate business expenses. As a result, Gol violated the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”).”
As to GOL’s internal controls, the order finds:
“Gol failed to devise and maintain an adequate system of internal accounting controls in 2012 and 2013. Among other weaknesses, while corporate policy required that Gol select all vendors based on competitive pricing, a lack of sufficient internal accounting controls resulted in the payment of vendors who were given sole source contracts outside of the supply department. Additionally, Gol paid the vendors involved in this bribe scheme even though most of these vendors’ purported services were never rendered. Moreover, the procurement process did not include an effective review of the documentation submitted before or after the disbursement of funds to monitor compliance with Gol’s purchase policy. The insufficiency and ineffectiveness of the internal accounting controls resulted in a procurement process that relied primarily on the Gol Director for authorization and verification of these services with little oversight or review. Gol’s internal accounting controls were also not adequately designed to reflect its corporate policy against making improper payments to government officials.”
Based on the above findings, the order finds that GOL violated the FCPA’s anti-bribery, books and records, and internal controls provisions. As to the later, the order states that GOL’s failed “to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were executed in accordance with management’s general or specific authorizations with regard to third parties, including selection and due diligence, monitoring of how services were rendered, and prohibition of bribe transactions with respect to advertising.”
The order states:
“[Gol] represented its financial condition as reflected by documents and information submitted to the Commission and its inability to fully pay disgorgement plus prejudgment interest.
Gol acknowledges that the Commission is not imposing a civil penalty based upon the imposition of an $87,000,000 criminal fine as part of Gol’s resolution with the U.S. Department of Justice.”
Under the heading “Gol’s Remedial Efforts,” the order states:
“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by [Gol] and cooperation afforded the Commission staff. Gol’s cooperation included voluntarily summarizing and providing facts developed during its own internal investigation, translating certain documents, and making its current management available to the Commission staff, including those who needed to travel to the United States.
Gol’s remediation included conducting a comprehensive risk assessment; reevaluating and re-designing its anti-corruption compliance program; creating a risk and compliance department and hiring a new chief compliance officer to lead this new department; and terminating its relationships with third parties involved in the misconduct.”
Pursuant to the order, GOL agreed to “pay disgorgement of $51,940,000 and prejudgment interest of $18,060,000, for a total of $70,000,000 to the SEC, but payment of such amount, except for $24,500,000 is waived based upon [GOL’s] represented financial condition.” The $24.5 million is to be paid in installments over a two year period.
Pursuant to the order, GOL is to receive a further “offset up to $1.7 million based on the U.S. dollar value of any disgorgement or restitution paid to the Brazilian Government …”.
In the SEC release, Charles Cain (Chief of the SEC’s FCPA Unit) stated:
“This case highlights the need for internal accounting controls that are effective for transactions initiated at all levels of an organization. Here, Gol’s internal accounting controls were particularly ineffective for transactions initiated by those at its highest levels.”
In a release, GOL stated:
“GOL has previously disclosed in its securities filings that: (a) its external independent investigation of this matter was concluded in April 2017; (b) the conclusions of its investigation were shared with the relevant authorities; (c) GOL has fully cooperated with all relevant authorities in the United States and Brazil; (d) none of GOL’s current employees or management were aware of any illegal purpose behind any of the identified transactions or of any illicit benefit to GOL arising out of the investigated transactions; and (e) that its external and independent investigation revealed that immaterial payments were made to politically exposed people.”
Paul, Weiss attorneys Loretta Lynch (a former Attorney General) and Mark Mendelsohn (a former DOJ FCPA Unit Chief) represented GOL.
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