NORDAM Group Resolves Enforcement Action Through A Non-Prosecution Agreement
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.
BizJet FCPA Enforcement Action Involves Executive Conduct
Yesterday the DOJ announced (see here) that BizJet International Sales and Support Inc. (see here – a Tulsa, OK based provider of aircraft maintenance, repair and overhaul services (MRO)) agreed to pay an $11.8 million criminal penalty “for bribing government officials in Latin America to secure contracts to perform aircraft MRO services for government agencies.”
The enforcement action involved a criminal information (here) against BizJet resolved through a deferred prosecution agreement (here). The DOJ release states that BizJet’s “indirect parent company, Lufthansa Technik AG” (see here – a German provider of aircraft-related services) also “entered into an agreement with the DOJ in connection with the unlawful payments by BizJet and its directors, officers, employees and agents.” The release states as follows. “The DOJ has agreed not to prosecute Lufthansa Technik provides that Lufthansa Technik satisfies its obligations under the agreement for a period of three years. Those obligations include ongoing cooperation and the continued implementation of rigorous internal controls.” There is no mention of Lufthansa Technik in the below described BizJet information.
Criminal Information
The information alleges that between 2004 – 2010 BizJet and others conspired “to obtain and retain MRO service contracts and other business for BizJet from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet [the air fleet for the President of Mexico], Sinaola [the air fleet for the Governor of the Mexican State of Sinaloa], the Panama Aviation Authority, and other customers, by paying bribes to foreign officials employed by such customers.
The foreign officials included: Official 1 – “a Captain in the Mexican Federal Police,” Official 2 – “a Colonel in the Mexican President’s Fleet,” Official 3 – “a Captain in the Mexican President’s Fleet,” Official 4 – “employed by the Mexican President’s Fleet,” Official 5 – “a Director of Air Services at Sinaloa,” and Official 6 – “a chief mechanic at the Panama Aviation Authority.” According to the information, all of the above officials “had broad decision-making authority and influence over the award of contracts to MRO service providers.”
The information alleges conduct by several executives including: Executive A (a senior executive at BizJet from 2004 to 2010 who “was responsible for the operations and finances of BizJet”); Executive B (a senior executive at BizJet from 2005 to 2010 whose duties included “oversight of BizJet’s efforts to obtain business from new customers and to maintain and increase business with existing customers”); Executive C (a senior finance executive at BizJet from 2004 to 2010 who “was responsible for overseeing BizJet’s accounts and finances and the approval of payment of invoices and of wire and check requests”); and Sales Manager A (a regional sales manager at BizJet from 2004 to 2010 who “interacted with potential and existing customers and was responsible for obtaining business from new customers and maintaining and increasing business with existing customers”).
The information alleges that the purpose of the conspiracy – which BizJet accomplished through its employees including Executive A, Executive B, Executive C, and Sales Manager A – was to make bribe payments “which they called ‘commissions,’ ‘incentives’ or ‘referral fees’ to employees of customers, including foreign government customers, in order to obtain and retain for BizJet contracts to perform MRO services.” The information further alleges that these individuals attempted to conceal the payments to foreign officials by using Shell Company A (owned by Sales Manager A and run out of this personal residence) to funnel the payments from BizJet to the foreign officials and by making payments in cash delivered by hand to the foreign officials.
The overt acts section of the information begins as follows. In November 2005, “at a Board of Directors meeting of the BizJet Board, Executive A and Executive B discussed with the Board that the decision of where an aircraft is sent for maintenance work is generally made by the potential customer’s director of maintenance or chief pilot, that these individuals are demanding $30,000 to $40,000 in commissions, and that BizJet would pay referral fees in order to gain market share.”
The information then alleges various payments made to the above officials in return for the official’s help in securing contracts.
Based on the above conduct, the information charges one count of conspiracy to violate the FCPA.
DPA
The DOJ’s charges against BizJet were resolved via a deferred prosecution agreement. Pursuant to the DPA, BizJet admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees and agents as charged in the Information.
The term of the DPA is three years and its states that the DOJ entered into the agreement based on the following facts: “(a) following discovery of the FCPA violations during the course of an internal audit of the implementation of enhanced compliance related to third-party consultants, BizJet initiated an internal investigation and voluntarily disclosed to the DOJ the misconduct …; (b) BizJet’s cooperation has been extraordinary, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ; (c) BizJet has engaged in extensive remediation, including terminating the 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 BizJet contracts; (d) BizJet has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in the” corporate compliance program set forth in an attachment to the DPA; and (e) “BizJet has agreed to continue to cooperate with the DOJ in any ongoing investigation of the conduct of BizJet and its officers, directors, employees, agents, and consultants relating to violations of the FCPA.” With so many executives generically identified in the information as being involved in the improper conduct, it will be interesting to see whether individual FCPA prosecutions are forthcoming.
As detailed in the DPA, the advisory Sentencing Guidelines range for the criminal charge was $17.1 million – $34.2 million. Pursuant to the DPA, BizJet agreed to pay $11.8 million (30% below the minimum amount suggested by the Guidelines). The DPA states as follows. “BizJet and the DOJ agree that this fine is appropriate given the facts and circumstances of this case, including the nature and extent of BizJet’s voluntary disclosure, extraordinary cooperation, and extensive remediation in this matter.”
Interestingly, the DPA was signed by the DOJ, BizJet and BizJet’s counsel – Jay Holtmeier (here – Wilmer Cutler Pickering Hale and Dorr) in late December 2011, but only made public yesterday.
The FCPA Looks South
Many foreign companies (most with shares traded on a U.S. exchange) have previously resolved FCPA enforcement actions. A few companies (JGC Corp. and Bridgestone) have been from Japan, but the vast majority of foreign companies resolving FCPA enforcement actions have been from Europe (Diageo, Tenaris, Royal Dutch Shell, Panalpina, Daimler, ABB, Siemens, Technip … to name a few).
I do not believe that a company based in the Southern Hemisphere has ever resolved an FCPA enforcement action. That could change.
Brazil based Embraer (here), one of the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange, last week disclosed (here) as follows.
“In response to a subpoena issued in an investigation by the U.S. Securities and Exchange Commission (“SEC”) relating to possible violations of the U.S. Foreign Corrupt Practices Act, the Company retained outside counsel to conduct an internal investigation into transactions in three specific countries. That internal investigation is ongoing, and the Company is fully cooperating with the SEC and the U.S. Department of Justice (“DOJ”). The Company’s outside counsel has been in regular contact with the SEC and the DOJ and has provided both agencies with documents and other information. The Company’s outside counsel recently met with both agencies to brief them on the status of its investigation. The Company and its outside counsel expect to continue to have discussions with the SEC and the DOJ. The Company is unable to predict duration, scope or results of the investigation.”
Words matter in an SEC filing, and based on the above language, it is reasonable to conclude that the SEC’s investigation is not the result of a voluntary disclosure. For instance, it is unusual for a company that voluntarily discloses to receive a subpoena. Whether the SEC’s investigation was prompted by a whistleblower, a competitor’s complaint, or as Joe Palazzolo at the Wall Street Journal (here) asks another industry sweep, remains to be seen. As Palazzolo noted, over the summer Reuters reported (here) that the “FBI briefed other government agencies … about a project focused on possible corruption associated with sales and maintenance contracts between aerospace companies and state-owned airlines.” According to the report, the new project focuses on “sales and maintenance contracts on the commercial side, not in defense.”
According to media reports, Embraer is currently trying to sell Super Tucano aircraft to the U.S. Military. During an investor conference call last week Embraer CEO Frederico Curado was “confident” that the current FCPA scrutiny of the company would not prevent it from participating in any bidding process.
The FCPA’s First Compliance Monitor
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
A previous post (here) detailed the DOJ’ first criminal Foreign Corrupt Practices Act enforcement action against Kenny International in 1979. However, that action was not the first FCPA enforcement action.
In April 1978, the SEC filed a civil injunctive action against Page Airways, Inc. (“Page”) (a New York based company engaged in the sale and service of aircraft and traded on the over-the-counter market) and six officers and/or directors of the company: James Wilmot (Chairman); Gerald Wilmot (President); Douglas Juston (Executive Vice President); Ross Chapin (Vice President); James Lawler (Vice President) and Richard Olney (Vice President). The SEC’s complaint alleged that Page and the individual defendants “engaged in a scheme to sell Gulfstream II aircraft and other aircraft, products and services by, directly and indirectly, making payments to foreign government officials and employees and other corrupt, illegal, improper or unaccountable payments.”
The SEC complaint specifically references payments to: (i) “Albert Bongo, President of the Republic of Gabon;” (ii) “Gaya House Sendirian Berhad” and entity controlled by “Datuk Harris bin Mohammad Salleh” who, during the relevant time period, was “State Minister of Industrial Development” for the “State Government of Sabah, Malaysia;” (iii) “the Washington D.C. bank account of Societe Ivoirienne de Development et de Financement” in which “Timothee Ahoua, the Ambassador to the United States of the Republic of the Ivory Coast” was secretary and signatory on the bank account; (iv) “foreign entities as conduits for the payment of funds to third parties in order to disguise the true recipients and amounts” in connection with sales of aircraft to Saudi International Airlines and Morocco; (v) the “Chief of State” of Uganda (who received a Cadillac Eldorado convertible). Based on the above payments, as well as allegations that the company and the individuals misrecorded and otherwise attemtped to disguise the payments, the SEC charged Page and the individuals defendants with FCPA books and records and internal control violations as well as violations of Sections 10(b) (antifraud) and 13(a) (reporting) of the Securities Exchange Act and Rules thereunder.
The SEC news digest indicates that a permanent injunction was entered enjoining the defendants from future securities law violations and that “in connection with the settlement, Page has undertaken to internally investigate matters alleged in the Commission’s complaint and retain a Review Person to evaluate the methods and procedures followed in this investigation.” For those of you scoring at home, the Page enforcement action would seem to be the first use of an FCPA compliance monitor. The SEC news digest also contains this interesting statement. “In reaching settlement of this action, the Commission and Page considered concerns raised by another agency of the United States Government regarding matters of national interest.”
Original source documents from the Page FCPA enforcement can be found here.