Rogue Employees Do Exist, Plus A Noticeable Juxtaposition
In the minds of some (see here and here) rogue employees are a myth – a convenient rationalizing for inadequate internal controls and compliance policies and procedures.
The irony of course is that even the DOJ acknowledges the existence and reality of rogue employees. The U.S. Attorneys’ Manual (9-28.800) states that “no compliance program can ever prevent all criminal activity by a corporation’s employees …” and high-ranking DOJ officials have observed that “there will always be rogue employees who decide to take matters into their own hands. They are a fact of life.” As this recent Economist article rightly stated: “fraud by wayward employees, be they high or low, can never be eliminated.”
This post highlights the DOJ’s recent indictment of Asem Elgawhart, the logical relationship this case has to a pending FCPA enforcement action, and how the Elgawhart action further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.
Elgawhart was employed by Bechtel and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”).
According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.”
“In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.”
Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.
Bechtel was not criminally charged and there is a good and obvious reason why. There was no basis to charge Bechtel with any criminal offense.
Indeed, the DOJ alleges that Elgawhart: “defrauded Bechtel,” “concealed material facts from executives at Bechtel,” provided to executives at Bechtel annual Representation Letters containing representations that he “knew to be false,” “concealed and misrepresented material facts to counsel for Bechtel” during interviews, and caused certain evidence to be “deleted and destroyed.”
According to the DOJ, Elgawhart engaged in the above conduct against the following relevant background.
“Bechtel maintained a Code of Business Ethics that imposed on its employees certain standards and duties, including: (a) That employees not misrepresent themselves to anyone; (b) That employees not misuse proprietary, confidential or private information of Bechtel, its customers and suppliers; (c) That employees never give, solicit or accept a gift if that gift may create a payback obligation; and (d) That employees not have a financial interest in an actual or potential supplier, competitor, customer or any other organization that could cause a conflict of interest.
In addition, Bechtel maintained an Ethics and Compliance Policy requiring its employees to fully disclose through a conflict of interest revIew process any activity or transaction that might give rise to a conflict of interest.
During the course of his tenure at Bechtel, Elgawhart acknowledged Bechtel’s policies and agreed to comply with them. In or around 2001, in connection with his continued assignment as General Manager at PGESCo, Elgawhart signed a “Recital of International Employment Conditions” that required Elgawhart to comply with published Bechtel personnel policies and stated that Bechtel could discharge Elgawhart for violations of law, conduct that discredited Bechtel, theft and breach of Bechtel policy.” [The DOJ also made similar allegations as relevant to PGESCO’s internal controls].
Logical Relationship to Pending FCPA Enforcement Action
Although some have inaccurately described the Elgawhart case as a “Foreign Corrupt Practices Act prosecution,” it is not. Nevertheless, it is hard not to notice that at the bottom of the DOJ’s release there is reference to the DOJ’s “FCPA enforcement efforts.”
Indeed, there appears to be a logical relationship between the Elgawhart case and a pending FCPA enforcement action. The Elgawhart indictment specifically alleges that the kickback scheme involved, among other companies, “Power Company A” (a French company engaged in the business of providing power generation and transportation-related services around the world”) including “Power Company A’s subsidiary in Connecticut.”
This is the same exact description of Power Company A (widely known to be Alstom) in the April 2013 FCPA enforcement action against current and former Alstom executives, several of which were employed by Power Company A’s subsidiary in Connecticut.” (See here for the prior post).
A Noticeable Juxtaposition
As discussed above, Bechtel was not criminally charged in connection with the Elgawhart indictment and there was a good and obvious reason why. There was no basis to charge Bechtel with any criminal offense.
Similarly, there was no basis to charge Morgan Stanley with any criminal offense in connection with the April 2012 Garth Peterson enforcement action.
Like in the Elgawhart action, in the Peterson action the DOJ alleged as follows as highlighted in this previous post.
- “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
- A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
- “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
- “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
- “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”
Consistent with these allegations, in its press release the DOJ stated: “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.” Moreover, in sentencing Peterson the judge stated that ”it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct. (See 859 F.Supp.2d 477).
Yet, you all the know the story-line in the Peterson case as it has become part of FCPA religion preached by the DOJ and carried forward at every available opportunity by obedient parishioners. The DOJ declined to prosecute Morgan Stanley because of its pre-existing compliance policies and procedures!
Most everyone was drinking the Kool-Aid, perhaps because taking a sip from the communal cup was convenient in marketing FCPA compliance services and products.
So why the difference in the DOJ’s public statements regarding Peterson / Morgan Stanley and Elgawhart / Bechtel?
Well, the Peterson enforcement action occurred in April 2012 when FCPA reform (including a corporate compliance defense) was still a hot topic and the DOJ was facing pressure to demonstrate something fair about its FCPA enforcement events.
Indeed, as noted in this previous post which highlighted a Morgan Stanley – Davis Polk webinar (Davis Polk represented Morgan Stanley), Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.” Interestingly, the webinar was moderated by a Davis Polk attorney who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.” This same attorney of course was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and is the same person who testified on behalf of the DOJ at the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing and stated (see here and here for the transcripts of the hearings) that a compliance defense was not necessary because the DOJ already considers compliance efforts when making its enforcement decisions.
In short, the juxtaposition between the DOJ’s statements in connection Peterson / Morgan Stanley and Elgawhart / Bechtel further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.
Yet the Kool-Aid continues to be served and enjoyed by many.
Friday Roundup
Wal-Mart’s FCPA expenses, scrutiny alerts and updates, quotable, February 21st, further to the conversation, and for the reading stack. It’s all here in the Friday roundup.
Wal-Mart’s FCPA Expenses
For over a year now, I have been tracking Wal-Mart’s pre-enforcement action professional fees and expenses and calculating what Wal-Mart is spending per working day on its FCPA scrutiny and exposure. (See here for the prior post with embedded links to others). Here is what Wal-Mart executives said yesterday in its earnings conference call for the fourth quarter of FY 2014.
“Core corporate expenses [for the fourth quarter of FY 2014] increased 5.8 percent. FCPA and compliance-related expenses were approximately $58 million, which was below our guidance of $75 to $80 million for the quarter. Approximately $38 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $20 million was related to our global compliance program and organizational enhancements.”
[…]
“Corporate & support expenses [for the fiscal year 2014] increased 24.1 percent for the full year, primarily from our investments in leverage services and Global eCommerce. Core corporate expenses, which included $282 million in charges related to FCPA matters, increased 15.6 percent. Approximately $173 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $109 million was related to our global compliance program and organizational enhancements.”
[…]
“During the first quarter of this year, we will begin to anniversary the increased costs we’ve incurred for FCPA matters, including compliance program enhancements and the ongoing investigations. These costs will remain in the Corporate and Support area, and we anticipate expenses to be between $200 million and $240 million for the year. [for the fiscal year 2015]
You add it up, and here is what you get.
FY 2013 = $157 million (approximately $$604,000 per working day)
FY 2014 = $282 million (approximately $1.1 million per working day)
FY 2015 = $200 – $240 million (anticipated)
As Wal-Mart’s FCPA scrutiny will once again demonstrate, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.
Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts). For instance, the total of the above pre-enforcement action professional fees and expenses and estimates is approximately $659 million. A $659 million FCPA settlement amount would be second of all-time.
That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact. However it must nevertheless be asked whether FCPA scrutiny has turned into a boondoggle for many involved. Using just Wal-Mart and Avon’s pre-enforcement professional fees and expenses results in FCPA Inc. being over a billion dollar industry!
Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA? Does it even matter? See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”
Scrutiny Alerts and Updates
Knut Hammarskjold
Earlier this week, the DOJ announced that Knut Hammarskjold “pleaded guilty today for his role in a scheme to pay bribes to foreign government officials and to defraud PetroTiger.” According to the release, Hammarskjold pleading guilty “to an information charging one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud and is scheduled for sentencing on May 16, 2014.” Despite the DOJ’s announcement, the docket for Hammarskjold’s case does not contain the plea agreement or related documents. For a comprehensive summary of the DOJ’s charges against Kammarskjold and co-defendants Joseph Sigelman and Gregory Weisman, see this prior post. As noted in the previous post, Weisman has also pleaded guilty and the charges against Sigelman remain pending.
Mead Johnson
As highlighted in this previous Friday Roundup, last year Mead Johnson Nutritional Company disclosed an internal investigation related to business practices in China. Thus, contrary to certain reports Mead Johnson’s FCPA scrutiny is not “new,” but earlier this week, the company updated its disclosure as follows.
“Following an SEC request for documents relating to certain business activities of the Company’s local subsidiary in China, the Company is continuing an internal investigation of such business activities. The Company’s investigation is focused on certain expenditures that were made in connection with the promotion of the Company’s products or may have otherwise been made. Certain of such expenditures were made in violation of Company policies and may have been made in violation of applicable U.S. and/or local laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”). The investigation is being conducted by outside legal counsel and overseen by a committee of independent members of the Company’s board of directors. The status and results of the investigation are being discussed with the SEC and other governmental authorities. At this time, the Company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”
Lyondellbasell
As highlighted in this 2010 post, in connection with a bankruptcy proceeding, Lyondellbasell’s disclosed as follows.
“We have identified an agreement related to a project in Kazakhstan under which a payment was made in late 2008 that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”).
Yesterday the company disclosed:
“We previously reported that we had identified, and voluntarily disclosed to the U.S. Department of Justice, an agreement related to a former project in Kazakhstan under which a payment was made that raised compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”). In January 2014, the U.S. Department of Justice advised the Company that it had closed its investigation into this matter. No fine or penalty was assessed.”
In the minds of some, this is a declination. I beg to differ – see here.
Baxter International
The company recently disclosed as follows.
“The company was the recipient of an inquiry from the U.S. Department of Justice (DOJ) and the SEC that was part of a broader review of industry practices for compliance with the U.S. Foreign Corrupt Practices Act. In January 2014, the company was notified by both the DOJ and the SEC that their respective investigations were closed as to Baxter without any further action taken by either agency.”
For a previous post regarding Baxter, see here.
Alstom
Bloomberg reports:
“Alstom SA, the French maker of trains and power equipment, will be charged in the U.K. over bribery allegations after a five-year investigation, according to two people with knowledge of the case. The Serious Fraud Office may ask the attorney general to approve charges in the coming weeks, a standard requirement for the agency to prosecute some offenses, according to the people, who asked not to be identified because the case is private. […] The SFO said in 2011 it suspected that Alstom gave money to companies that acted as “bogus consultants” to bribe overseas officials for contracts from 2004 to 2010, according to court papers at the time.”
If Alstom does face criminal charges in the U.K., the charges are unlikely to fall under the U.K. Bribery Act as the law went effective in July 2011 and is forward-looking only. As highlighted in previous posts (see here for instance) in 2013 the DOJ brought charges against four individuals associated with Alstom concerning alleged conduct in Indonesia.
Quotable
In this recent Chicago Tribune article, Tom Pritzker (Chairman and Chief Executive Officer of The Pritzker Organization, LLC – the principal financial and investment advisor to various Pritzker family business interests) reportedly stated as follows at a recent Chicago Council on Global Affairs event:
“The way that [FCPA] enforcement is working out of Washington strikes all of us in American business as arbitrary. It’s a revenue-generating mechanism for Washington, and that makes it additionally difficult in terms of how you figure out how to navigate emerging markets.”
February 21st
Today is a notable day in FCPA history (see this prior post).
I am grateful that I – and this website – have played a role in these events.
Further to the Conversation I
As frequently highlighted on these pages (see here for instance), trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.
Simply put, trade barriers and distortions create bureaucracy.
Bureaucracy creates points of contact with foreign officials.
Points of contact with foreign officials create discretion.
Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.
This recent Wall Street Journal article highlights China’s “quota system” for foreign-films. As the article states:
“[34 is] maximum number of foreign titles the Chinese government allows into its nation’s theaters every year, a quota in place to try to protect China’s own nascent movie business. Hollywood studios have wondered when that number might be boosted—the last time was in February 2012, when Vice President Joe Biden announced a deal increasing the quota to the current 34 titles, from 20.”
Perhaps you’ve heard that various film companies are under FCPA scrutiny concerning business practices in China. (See here).
Further to the Conversation II
Whether it’s a federal court judge stating that a pending federal criminal case is “not window dressing” nor is the court “a potted plant” in concluding that a federal court does indeed have supervisory authority over the DPA process (see here for the prior post) or whether it’s a federal court judge criticizing various common aspects of corporate criminal law enforcement, including DPAs, as “both technically and morally suspect” (see here for the prior post) – there is an important conversation taking place concerning how the DOJ resolves alleged instance of corporate criminal liability.
Further to this conversation, the Better Markets, Inc. (a group that advocates for greater transparency, accountability, and oversight in the financial system) recently filed this complaint for declaratory and injunctive relief against the DOJ and Attorney General Eric Holder. While the complaint reads more like a policy paper than a complaint, it nevertheless calls the $13 billion settlement between the DOJ and JPMorgan a “mere contract” and alleges in pertinent part:
“Yet, this contract was the product of negotiations conducted entirely in secret behind closed doors, in significant part by the Attorney General personally, who directly negotiated with the CEO of JP Morgan Chase, the bank’s “chief negotiator.” No one other than those involved in those secret negotiations has any idea what JP Morgan Chase really did or got for its $13 billion because there was no judicial review or proceeding at all regarding this historic and unprecedented settlement. However, it is known that JP Morgan Chase’s $13 billion did result in almost complete nondisclosure by the DOJ regarding JP Morgan Chase’s massive alleged illegal conduct.
Thus, the Executive Branch, through DOJ, acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions. The DOJ assumed this all-encompassing role even though the settlement amount is the largest with a single entity in the 237 year history of the United States and even though it provides civil immunity for years of illegal conduct by a private entity related to an historic financial crash that has cause economic wreckage affecting virtually every single American. The Executive Branch simply does not have the unilateral power or authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.”
The complaint seeks a declaration that, among other things,
“the DOJ violated the separation of powers doctrine by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”
“the DOJ acted in excess of its statutory authority by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”
“the DOJ acted arbitrarily and capriciously by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval.”
I agree with Professor Peter Henning who recently stated in his New York Times Dealbook column:
“The lawsuit faces substantial hurdles that make it unlikely to succeed. As a general matter, private parties do not have standing to challenge a decision by the government to settle a case. The Justice Department has broad discretion in how it chooses to exercise its authority, and courts rarely intervene to scrutinize a decision unless there is evidence involving improper discrimination.
Nevertheless, the frustration expressed by Better Markets about the process for determining what JPMorgan should have paid to resolve multiple investigations is fair.”
Reading Stack
For more on princelings and the hiring practices of certain financial institutions in China, see here from Bloomberg.
A dandy article here from Jon Eisenberg (K&L Gates) titled “Brother Can You Spare $8.9 Billion? Making Sense of SEC Civil Money Penalties.” In pertinent part, the article is about:
“Other than negotiations about the wording of settlement documents, agreeing to the amount of the money penalty is often the last barrier to resolution. And it’s one of the most frustrating because the amounts proposed may appear untethered to any principle or precedent.
In an effort to provide more clarity on SEC money penalties, we look at four sources that should inform the negotiations about those penalties: first, the explosive growth in the SEC’s authority to impose civil money penalties; second, the relevant statutory language since the SEC’s authority to impose civil money penalties comes from and is limited by Congress; third, two recent D.C. Circuit decisions making clear that there are meaningful limits on the Commission’s discretion in assessing money penalties; and fourth, the outcome in recent cases before SEC administrative law judges in which the amount of the penalties was contested.”
The article is not FCPA specific, but very much FCPA relevant, particularly given the SEC’s increased interest in resolving corporate FCPA enforcement actions via administrative actions. In short, Eisenberg’s article is excellent. Read it.
*****
A good weekend to all.
Checking In
This post checks in on recent developments in two enforcement actions: (i) the FCPA enforcement action against various individuals associated with Alstom; and (ii) the FCPA-related enforcement action against alleged Haitian “foreign official” Jean Duperval currently on appeal to the 11th Circuit.
Alstom-Related Action
Earlier this week, the DOJ announced that Lawrence Hoskins, “a former senior vice president for the Asia region for [Alstom], was charged in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive FCPA and money laundering violations.”
The conduct at issue in the Second Superceding Indictment is the same core conduct alleged in original criminal charges filed against Frederic Pierucci and David Rothschild, as well as the conduct alleged in the Superceding Indictment which added William Pomponi to the action. (See here and here for previous posts). That is – alleged payments in connection with the Tarahan coal-fired steam power plant project in Indonesia. In the prior charging documents, Hoskins was generically referred to as Executive A.
As noted in previous posts, Rothschild pleaded guilty to conspiracy to violate the FCPA.
The DOJ further announced in its release earlier this week that Pierucci pleaded guilty to one count of conspiring to violate the FCPA and one count of violating the FCPA. (See here for the plea agreement).
Duperval Action
This previous post detailed the 11th Circuit appeal of Jean Duperval. Duperval was one of the alleged “foreign officials” charged in connection with the Haiti Teleco enforcement actions (see here for a summary and roundup of the entire Haiti Teleco enforcement actions) with non-FCPA offenses and he was found guilty by a jury of various money laundering charges.
As noted in the previous post, in his appeal Duperval argues, among other things, as follows. “The evidence was insufficient to prove beyond a reasonable doubt that Haiti Teleco was a government instrumentality and that Jean Rene Duperval was a foreign official as required to prove that a violation of the Foreign Corrupt Practices Act generated proceeds of a specified unlawful activity – a necessary predicate for the convictions on the money laundering conspiracy and substantive money laundering charges.”
As noted in the previous post, Duperval’s substantive arguments as to “foreign official” largerly mirror the arguments of Joel Esquenazi and Carlos Rodriguez (also criminally charged and convicted in the Haiti Teleco matter) in their historical “foreign official” appeal to the 11th Circuit (see here for links to the briefing).
Among other things, Duperval’s argument includes discussion and several citations to my “foreign official” declaration (see here).
Briefing is now complete in the Duperval appeal.
Not surprisingly, the DOJ’s arguments in connection with “foreign official” largely mirror the arguments it makes in the Esquenazi and Rodriguez appeal. The DOJ is again seeking to exclude my foreign official declaration from the record and its brief states:
“Duperval relies on a 144-page declaration by a proposed defense expert that was filed on behalf of the defendants in Carson. Although Duperval suggests that this Court may take judicial notice of the declaration because it relates to legislative history, the declaration selectively reviews the legislative history and draws inferences in support of a defense motion to dismiss the indictment. As such, it is not necessarily the statement of a disinterested expert, it was not reviewed as a scholarly article, and it was never subject to impeachment in the case below.”
Last week Duperval filed a reply brief, and not surprisingly, the arguments in connection with “foreign official” largely mirror the arguments made by Esquenazi and Rodriguez in their reply brief. As to my “foreign official” declaration, the brief states:
“The government also condemns Duperval’s reference to Professor Michael J. Koehler’s declaration addressing the legislative history of the FCPA, which was filed in United States v. Carson. Aside from the analysis contained in the Koehler declaration, the substance of the declaration is the legislative history of the FCPA. The Court can surely take notice of legislative history, and evaluate the utility and accuracy of Professor Koehler’s declaration for itself. But the Government’s claim that the declaration of a professor filed in another criminal proceeding and under penalty of perjury is somehow of lower status than a law-review article reviewed by law students strains credulity.”
It will be an interesting “foreign official” Fall in the 11th Circuit.
Friday Roundup
Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack. It’s all here in the Friday roundup.
Additional Alstom-Related Charges
This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia. The post highlighted several other individuals generically referred to in the charging documents.
Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme. Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.
Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.
Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.
Kudos to the DOJ for including a link to the charging document in the release. This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this. Let’s hope this is a new practice!
Avon’s FCPA Expenses
Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries. In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).
In its most recent quarterly filing, Avon stated as follows. “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”
Headlines read “Avon FCPA Costs Down to $7 Million for Q1” and “Avon Slows Spending on Bribery Probe.”
Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues. (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).
International Philanthropy
FCPA material pops up in a variety of places. Such as this article in www.wealthmanagement.com concerning the perils of global giving. With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.
Scrutiny Alerts
Scrutiny alerts concerning IBM, ADM, Total, and ENRC.
IBM
This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”
In a recent quarterly filing, IBM disclosed as follows.
“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”
In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China. (See here). The settlement is still pending the approval of Judge Richard Leon (D.D.C.). In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).
ADM
Archer Daniels Midland Company recently stated as follows in this release.
“ADM is in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”
Total
France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.
“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations. Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt. U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013. In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”
A $398 million FCPA enforcement action would be the third-highest of all-time.
ENRC
Last week the U.K. Serious Fraud Office announced here as follows.
“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation. The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”
In a statement, the U.K. company, stated as follows.
“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.
ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.
This recent article in the Wall Street Journal states as follows.
“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.
Reading Stack
Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.” I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”
Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.
Current And Former Alstom Employees Charged In Connection With Payments In Indonesia
The final catch-up post from recent FCPA enforcement activity – this one concerning the recently unsealed enforcement actions against David Rothschild and Frederic Pierucci.
First, what to make of this month’s enforcement activity? Quite frankly, not much as I told Samuel Rubenfeld (Wall Street Journal) last week in this article. Much of this “new” enforcement activity is really not “new.” For instance, the BizJet individual enforcement actions were filed in 2011 and in 2012, but recently unsealed. Parker Drilling disclosed last year its settlement and the amount, it just took a while for resolution documents to be finalized. It was publicly reported last year that former Siemens executive Uriel Sharef was going to settle the SEC enforcement action, it just took a while for the resolution documents to be finalized. And finally, the charges against Rothschild and Pierucci discussed below were filed last year, but recently unsealed.
This post summarizes the Rothschild information (dated November 2, 2012) and plea agreement (dated November 2, 2012) and then the Pierucci indictment (dated November 27, 2012).
Pierucci, a French national, has been identified as a current executive of Alstom and he was arrested on April 14th at JFK airport in New York City. Rothschild is a former vice president of sales for Alstom Power Inc., a Connecticut-based subsidiary of Alstom.
According to this report, Alstom said in a statement that it “has been working constructively with the Justice Department for the last two years to address allegations of past misconduct.” It went on to say that Pierucci, its current executive, is entitled to the presumption of innocence. “We urge everyone to respect the judicial process, which will provide a full and fair opportunity for the facts to be adjudicated,” the statement read.
Rothschild Information
The conduct at issue concerned the Tarahan coal-fired steam power plant project in Indonesia. According to the charging documents Perusahaan Listrik Negara (“PLN”) “the state-owned and state-controlled electricity company in Indonesia and an ‘agency’ and ‘instrumentality’ of a foreign government […] was responsible for sourcing the Tarahan Project.
The officials allegedly involved were.
“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”
The information charges one count of conspiracy and alleges that Rothschild and others, between 2002 through 2009, conspired to make “corrupt payments to a member of Parliament in Indonesia, officials at PLN, and others in order to obtain and retain business related to the Tarahan Project on behalf of the following entities and in violation of the FCPA’s anti-bribery provisions.
Alstom
Alstom Power Inc.
Power Company Switzerland – an indirect subsidiary of Alstom.
Power Company Indonesia – an indirect subsidiary of Alstom.
Consortium Partner – “a trading company … headquartered in Japan, incorporated in Japan, an in the business of providing power generation related services around the world.” According to the information, this entity “acted as the partner” of the above Alstom entities “in the bidding and carrying out of the Tarahan Project in Indonesia.” Consortium Partner would sure seem to be Marubeni Corp. of Japan. (See here for its 2004 press release concerning the Tarahan Project). This will be interesting to follow as Marubeni in 2012 resolved an FCPA enforcement action concerning conduct at Bonny Island, Nigeria (see here for the prior post) and is currently under a two year DPA.
Specifically the information alleges various telephone and e-mail communications between Rothschild and others concerning the alleged bribe payments and efforts to “conceal the payments to foreign officials by entering into consulting agreements with Consultant A (described as a “consultant who purportedly provided consulting related services [for the above companies] in connection with the Tarahan Project in Indonesia”) and Consultant B (same description) in order to disguise the bribe payment to the foreign officials.”
All of the alleged overt acts in the information allegedly occurred between 2002 and 2004, although the information does allege the following wire transfers:
In 2005 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2006 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2007 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2009, “66,688” from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
Other individuals generically identifed in the information include the following.
“Executive A – Senior Vice President for the Asia Region at [Alstom]. Executive A’s responsibilities at [Alstom] included oversight of [Alstom’s] and [Alstom’s] subsidiaries’ efforts to obtain contracts with new customers and to retain contracts with existing customers in Asia, including the Tarahan Project in Indonesia.”
“Executive B – who held executive level positions at [Alstom Power Inc.] and [Alstom], including Vice President of Global Sales [this is Pierucci]. Executive B’s responsibilities at [Alstom Power Inc.] included oversight of [Alstom Power Inc.] efforts to obtain contracts with new customers and to retain contracts with existing customers around the world, including the Tarahan Project in Indonesia.”
“Employee A – Vice President of Regional Sale at [Alstom Power Inc.] Employee’s A’s responsibilities at [Alstom Power Inc.] included obtaining contracts with new customers retaining contracts with existing customers in various countries, including the Tarahan Project in Indonesia.”
“Employee B – the General Manager of Power Company Indonesia. Employee B’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”
“Employee C – Director of Sales at Power Company Indonesia. Employee C’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”
In the plea agreement, Rothschild pleaded guilty to the one count information charging him with conspiracy to violate the FCPA. According to the plea agreement, the offense carries a maximum penalty of 5 years imprisonment and a $250,000 fine. Other than setting forth the DOJ’s recommendation that the court reduce by two levels Rothschild’s offense level “based on the defendant’s prompt recognition and affirmative acceptance of person responsibility,” the plea agreement does not set forth any further specifics concerning sentencing.
Pierucci Indictment
The indictment is based on the same core set of facts alleged above in the Rothschild information. Because it is an indictment, and not an information, the Pierucci indictment is more detailed and indeed contains additional charges beyond the one count of conspiracy to violate the FCPA. In addition, Pierucci is charged with four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.
In the indictment, the DOJ alleges that “Pierucci was one of the people responsible for approving the selection of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments to Consultants A and B was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project contract to [Alstom] and its subsidiaries.”
The indictment further alleges that Pierucci and others “came to the conclusion that Consultant A was not effectively bribing key Indonesian officials” and accordingly in 2003 Pierucci and others concluded “that Consultant A would be responsible only for paying bribes to Official 1, a member of the Indonesian Parliament” and that Alstom and its subsidiaries would retain another consultant to pay bribes to PLN officials.”
In this release, Acting Assistant Attorney General Mythili Raman stated as follows.
“Frederic Pierucci and David Rothschild allegedly used outside consultants to bribe foreign officials in Indonesia in exchange for lucrative power contracts. Stamping out foreign bribery is a Justice Department priority, and we are determined to continue our vigorous enforcement of the Foreign Corrupt Practices Act.”