Ashland Oil – The “FCPA’s” First Repeat “Offender”
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
In 1986 the SEC brought this civil injunctive action against Ashland Oil, Inc. (a Kentucky based oil refining company) and its Chairman and CEO Orin Atkins for engaging in conduct in violation of the FCPA’s anti-bribery provisions.
The complaint began by noting that in 1975, prior to the passage of the FCPA, the defendants consented to final judgments of permanent injunction enjoining them from using corporate funds “for unlawful political contributions or other similar unlawful purposes.” As noted in “The Story of the Foreign Corrupt Practices Act” Ashland Oil’s payments to Albert Bernard Bongo, the President of Gabon, were among a group of payments that drew Congressional attention to the foreign corporate payments problem and motivated Congress to pass the FCPA in 1977.
The 1986 Ashland Oil enforcement action is thus notable as the first instance of an “FCPA” repeat “offender.”
As highlighted in more detail below, the enforcement action is also notable for the following reasons: (i) the thing of value consisted of buying a “foreign official’s” interest in a largely worthless mine); (ii) the conduct at issue lead to an FCPA-related civil suit in which two terminated company employees were awarded $70 million in damages; and (iii) there was controversy both as to the DOJ’s and SEC’s handling of the conduct at issue.
In the 1986 action, the SEC alleged that Ashland Oil and Atkins “paid $25 million in principal plus approximately $4 million in interest, and by virtue of the acquisition of an interest in Midlands Chrome [a largely worthless Zimbabwe mine owned by the “foreign official” and his family], gave something of value to James Landon [a British national seconded (detailed) to the government of Oman who served as a special adviser to the Sultan of Oman on Omani intelligence and security matters] … for the purpose of inducing Landon to use his influence with the government of Oman … in order to assist Ashland in obtaining and retaining business with the government of Oman … namely certain business related to crude oil.”
According to the complaint, Atkins was told that Midlands Chrome “could be purchased from persons who could be sympathetic to Ashland’s desire to become a purchaser of crude oil from Oman.” Even though a company lawyer advised that the transaction raised issues under the FCPA, the SEC alleged that the “board of directors of Ashland held a meeting at which Atkins presented for the Board’s approval the acquisition of Midland Chrome.” According to the complaint, Atkins viewed the acquisition as a “high risk project” but one that had “potential of being more than offset by a potential crude oil contract …”. According to the complaint, initial board meeting minutes show that Atkins said “the corporation was interested [in the Midlands Chrome acquisition] for the reason that it might thereby be enabled to obtain a contract to purchase crude oil from Oman” but that “this statement was deleted from the final version of the minutes at Atkins’ direction.”
Based on the above core conduct, in a detailed 35 page complaint, the SEC alleged three substantive FCPA anti-bribery violations.
Atkins resigned as chairman of Ashland in 1981 after an internal investigation into a number of questionable foreign payments. According to media reports, when the 1986 matter was resolved Atkins issued a statement which read as follows. “Although it would be my personal preference to litigate this matter, I have agreed to settle this action so that the company can put this lingering dispute behind it, and because to contest this matter would have involved disproportionate trouble and expense.” For more on the life of Orin Atkins, see here and here.
In media reports, Richard Murphy, an SEC enforcement lawyer, said the Ashland case was significant because it demonstrated that the SEC will go beyond the traditional “cash cases” and scrutinize more complicated transactions to determine if they represent violations.
In 1995, Ashland Oil changed its name to Ashland Inc.
In an interesting side note, former Ashland employees Bill McKay and Harry Williams sued the company for breach of contract and wrongful discharge, asserting that Ashland’s pattern of corrupt practices amounted to a violation of the Racketeer Influenced and Corrupt Organizations law. McKay alleged that he was terminated because he refused to take part in any bribery schemes and that he refused in subsequent investigations to hide Ashland’s conduct from officials at the IRS and SEC. According to a 1989 ABA Journal report, “Williams had not been asked to take part in any foreign payments, but he’d become sympathetic to McKay’s efforts to change Ashland’s policy.” According to the report, Williams “made an anonymous phone call to the SEC and spoke freely about Ashland’s recent actions abroad.” A jury returned a verdict of approximately $70 million. According to the ABA report, McKay was awarded over $44.5 million, and the rest was apportioned to Williams. According to the report, Ashland threatened to appeal and the parties settled for $25 million.
Set forth below, in pertinent part, is an interesting article published in the Washington Post on July 10, 1988. about the DOJ’s and SEC’s handling of the conduct at issue.
“Lawyers for two former executives who won a $ 69.5 million award from Ashland Oil Co. contend that their victory shows the Securities and Exchange Commission pulled its punches in handling charges of overseas bribery and other illegal conduct by Ashland. The two former vice presidents had said in wrongful-dismissal lawsuits and in SEC testimony that Ashland paid tens of millions of dollars in bribes to foreign officials to get scarce crude oil and then tried to cover up the illegal conduct. They said they lost their jobs after refusing to participate in conspiracies, perjury and other crimes. Last month, a U.S. District Court jury in Covington, Ky., awarded Bill E. McKay $ 44.6 million and Harry D. Williams $ 24.9 million after a 35-day trial. The jury said the liability should be shared by Ashland; its former chairman and chief executive, Orin E. Atkins; John R. Hall, who succeeded Atkins in 1981, and Richard W. Spears, senior vice president for human resources and law.”
“The SEC filed a much narrower civil lawsuit in July 1986 charging that Ashland and Atkins had bribed an official of Oman to get oil from the sultanate. The suit was filed in tandem with a consent decree, a final court judgment in which Ashland and Atkins neither admitted nor denied past violations while agreeing to face criminal penalties for future ones.”
“The jury and the SEC each had essentially the same evidence of possible violations of the Foreign Corrupt Practices Act (FCPA) of 1977. The gap between the jury’s verdict and the SEC action shows that the SEC dealt with the matter too lightly, according to John R. McCall and Kenneth M. Robinson, the lawyers for McKay and Williams. ‘I can understand how counsel for McKay and Williams are proud of their achievement, and they certainly have the right to crow about it,’ said SEC enforcement chief Gary G. Lynch. ‘But any criticism of the commission’s investigation, or of the results that we achieved, is simply unwarranted.'”
“Punitive damages accounted for only $ 3 million of the awards to McKay and Williams. Compensatory damages were tripled — to $66.5 million — for conspiring to violate, and for violating, the Racketeer Influenced and Corrupt Organizations Act. RICO makes it unlawful for any person associated with an enterprise affecting commerce to lead or to join in ‘conduct of [the] enterprise’s affairs through a pattern of racketeering activity.’ The jury found that the three individual defendants had all conducted or participated in ‘a pattern of racketeering activity’ principally through multiple violations of the FCPA antibribery section and of a law prohibiting travel for the purpose of violating the section.”
[…]
“The SEC’s 1986 lawsuit, which followed months of negotiations with Ashland’s law firm, Cravath, Swaine & Moore, named only one person paid by the oil company, James T.W. (Tim) Landon of Oman, as a foreign government official under the FCPA’s antibribery provisions. The complaint also alleged only one bribe, described by Ashland as a $ 25 million investment in a Landon-controlled chromium mine in Rhodesia. But the jury found that Ashland, ‘with corrupt intent to bribe,’ had made payments to three figures it said were foreign officials under the FCPA: Landon and Yehia Omar of Oman, and Hassan Y. Yassin of Saudi Arabia (who also has operated a consulting firm in McLean). With the same corrupt intent, the jury said, Ashland had made payments to a fourth recipient, Sadiq Attia, ‘knowing or having reason to know that’ all or a portion of the money — $ 17 million — ‘would be used to bribe a government official of Abu Dhabi.'”
“The SEC complaint and consent decree did not mention Yehia Omar or cite any Abu Dhabi and Saudi Arabia payments. Last December, SEC Chairman David S. Ruder told Senate Banking Committee Chairman William Proxmire (D-Wis.) that the Division of Enforcement ‘concluded that the evidence was … insufficient to support further charges of violations’ of the FCPA. In an interview after the jury verdict, Lynch said ‘there was not sufficient evidence that we felt comfortable we could prevail’ if charges were brought based on Ashland payments to Omar. ‘Even before we sat down to negotiate, we had decided privately to exclude Omar, Abu Dhabi, and Saudi Arabia from the consent decree. ‘It was clear to us that the Landon transaction was the strongest, because we believed we could establish that Landon was a government official at the time the chrome transaction occurred.’ Lynch said. He called a multiple-count complaint unnecessary. ‘We were suing for injunctive relief,’ and ‘we could get it with Landon,’ he said. ‘There was no need to push and take on a litigation risk in a case that was much less certain.’ He extended this argument to the omission of the Abu Dhabi and Saudi Arabia cases.”
“But lawyers McCall and Robinson disagreed. ‘The finest judicial scrutiny our American judicial system can provide has now determined that the earlier government efforts were incomplete,’ McCall said. It’s ‘ridiculous’ for the SEC to claim the evidence was insufficient to convince a jury that bribery far beyond that which it alleged hadn’t occurred, he said.”
“Lynch also defended the SEC’s decision not to ask a federal court to find Ashland and Atkins had violated a 1975 consent decree and to hold them in criminal contempt. ‘We did have a concern about meeting the higher burden of proof in order to prove criminal contempt,’ Lynch said. […] One difficulty in going the criminal route was that ‘the major thrust’ of the 1975 decrees involved unlawful political contributions, and ‘these were foreign bribes,’ Lynch said.”
“But the lawyers for McKay and Williams dismissed this explanation. They pointed out that the 1975 consent decrees prohibited false or fictitious bookkeeping entries, and said the $ 25 million Oman item that the SEC called a bribe, as well as the Abu Dhabi and Saudi Arabia payments, all were recorded by Ashland as ordinary outlays. ‘It was like shooting ducks in a barrel,’ Robinson said. ‘There was no answer that any Ashland official could give on the stand to explain the fraud that was in the documents that they wrote. And how the SEC could miss that is beyond description.’ ‘The SEC should have seen it. These were indictable offenses … I don’t see the evidence that the SEC even slapped Ashland’s wrist. They just closed the book by executing another consent decree — a promise to pay, which is all that it is.'”
“Arthur F. Mathews, who was an SEC deputy enforcement chief in 1969, said in an interview that ‘in the horse-trading for not litigating,’ Cravath, Swaine ‘got the staff to strike Yehia Omar … If I had to guess, they did not include Yehia Omar in their action because they thought it was a toss-up whether you could prove it, and they gave it up in the bargain.'”
“McCall said the SEC staff may well have done all it could have, particularly in light of the Reagan administration’s apparent reluctance to enforce the FCPA’s antibribery provisions.’ The SEC commissioners, for example, voted 3 to 2 to reject the division’s initial recommendation for a lawsuit that named only Landon as the recipient of a bribe. Only after the division reargued its case did the commission reverse itself, allowing Lynch to file the lawsuit. Lynch said the SEC disregarded a report by an outside counsel who concluded that the Oman transactions had not violated the FCPA or the 1975 consent decree. Williams and McKay had challenged the independence of the outsider, Pittsburgh attorney Charles J. Queenan. Queenan is a friend of Cravath, Swaine presiding partner and Ashland director Samuel C. Butler, who submitted the report to the SEC as the work of an independent counsel. ‘We did not accept the conclusion that it was an ‘independent counsel’ report,” Lynch said. The SEC staff ‘did our own very thorough investigation of the matter,’ he said. ‘It is clear that if we had accepted the Queenan report’s findings, we would not have filed an action.”
[…]
“Sen. Proxmire, who monitors FCPA enforcement, also has raised questions about the Justice Department’s role in the Ashland case. The department had full access to the SEC’s files from the start of the SEC staff investigation in May 1983. Last October, after a Washington Post series on Ashland’s payments to overseas consultants, Proxmire asked the department if it had investigated the matter and if ‘it has concluded that violations of the FCPA have taken place.’ If the conclusion was that there’d been no violations, ‘I would like an explanation of the rationale underlying such a judgment,’ Proxmire said. ‘If the department has not investigated these allegations, I request that you do so and let me know the results.’ Assistant Attorney General John R. Bolton said on Jan. 20 that he would respond when he received a report from the fraud section of the Criminal Division. On June 20, Proxmire, having heard nothing more for six months, sent Attorney General Edwin Meese III a news story on the jury verdict in Kentucky and asked ‘whether the Department of Justice will now initiate a criminal action.’ If not, Proxmire said he wanted to know why. A department spokesman said a response is being prepared.”
Friday Roundup
Simply inexcusable, tell us who, an interesting case study, and for the reading stack. It’s all here in the Friday roundup.
Simply Inexcusable
The government holds those subject to the FCPA to high standards. If the proverbial “right hand” in a company doesn’t know what the “left hand” is doing, the government is likely to call that an internal control failure.
Ought not the government be held to the same standard?
What follows is simply inexcusable.
In February 2012, Judge Lynn Hughes (S.D.Tex.) signed this final dismissal of the FCPA enforcement action against John O’Shea. The motion followed Judge Hughes granting O’Shea’s motion for acquittal after the DOJ’s case in chief in the FCPA trial. (See here for the prior post). During the case, Judge Hughes stated, among other things, as follows. “The problem here is that the principal witness against Mr. O’Shea . . . knows almost nothing. . . .; The government should have been prepared before they brought the charges to the Grand Jury. . . . You shouldn’t indict people on stuff you can’t prove.’’
Following the acquittal and dismissal, O’Shea has attempted to resume a normal life without the specter of criminal charges and possible jail time occupying his mind. It is understandable that O’Shea wants his reputation and “old” life back. But removing the taint of being labeled a criminal law violator by the government has not come easy for O’Shea.
Case in point is the following story.
O’Shea was recently hired by a company and traveled to Canada for a business trip. The trip was uneventful until O’Shea tried to enter Canada. It turns out the relevant government databases were not updated to reflect the disposition of his case – something that happened 14 months ago!
O’Shea indicated that he spent the entire afternoon with officials of the Canadian government to persuade them that he should not be put on the next plane back to the U.S. with U.S. marshals. O’Shea reports that the Canadian official was open-minded enough to visit internet sites suggested by O’Shea (including FCPA Professor) as proof that he was no longer a criminal defendant in the U.S.
After his business trip to Canada, O’Shea also had problems re-entering the U.S. from Canada and could not help but wonder whether someone would be waiting for him upon arrival in Houston. O’Shea reports that thankfully his fears were not realized, but he can not help but wonder what would have happened if his business trip was to some country other than Canada.
In short, the government’s internal control failure was simply inexcusable.
Tell Us Who
In the aftermath of this week’s Ralph Lauren enforcement action (see here for the prior post) alleging payments to Argentine customs officials, the Argentine government wants to know who the customs officials are.
As noted in a Law360 article, “in a letter to U.S. Ambassador to Argentina Vilma Martinez, the head of Argentina’s tax agency, Ricardo Echegaray, said that it was necessary for the Argentine government to have names and more detailed information about the alleged bribery to aid in a newly launched criminal investigation into the matter.” The article further stated as follows. “While seeking the names of Argentine officials implicated in the scheme, Echegaray also put the blame on Ralph Lauren’s customs brokers, who are not government officials, but rather private professionals hired to deal with trade matters. Echegaray likened these brokers’ roles to those of a tax adviser or accountant which companies hire for assistance.”
The question asked by the Argentine official is obviously a legitimate question.
But query whether the DOJ and/or SEC even know who the officials are.
As noted in this previous post concerning the SEC’s briefing in the Jackson and Ruehlen case involving alleged payments to Nigerian customs officials, the SEC argued that the name, titles and exact positions of foreign officials allegedly bribed need not be known in order to state a claim under the FCPAs anti-bribery provisions.
As highlighted in this previous post, in ruling on Jackson and Ruehlen’s motion to dismiss, Judge Keith Ellison (S.D.Tex.) noted in a footnote as follows.
“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O’Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third-party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”
This post earlier this week regarding Wal-Mart noted that savvy investors should have recognized the NY Times induced “FCPA dip” of the company’s stock as a buying opportunity because the market often overreacts to FCPA issues.
In this post earlier this week regarding Ralph Lauren Corp.’s (RLC) FCPA enforcement action, it was noted that the RLC enforcement action was a rare instance of an issuer not previously disclosing its FCPA scrutiny. Thus, the first instance of public scrutiny appears to have been announcement of the enforcement action on Monday morning. RLC’s stock dipped approximately 2% on the news and closed at $165.93. The “FCPA dip” lasted only a day, as Tuesday the stock rebounded and then some and closed yesterday at $175.38.
Reading Stack
Miller & Chevalier’s seasonal FCPA alerts are always information reads. The firm recently released its FCPA Spring Review 2013.
Is sex as a “thing of value”? See here from Wendy Wysong (Clifford Chance) – with a particular focus on Asia.
Should you be looking for further citations that more FCPA enforcement is good for FCPA Inc., see this recent article in Lawyers Weekly, an Australian publication. The article begins as follows. “A crackdown on foreign bribery has created “a mountain of work” for lawyers, a Jones Day partner has said ahead of a major international anti-corruption conference.”
A good weekend to all.
Friday Roundup
Well represented, scrutiny alerts / updates, and a timetable. It’s all here in the Friday roundup.
Well Represented
Companies that have resolved FCPA enforcement actions or have been otherwise the subject of FCPA scrutiny are well represented in Ethisphere’s recent World’s Most Ethical Companies list.
I point this out not to argue that Ethisphere’s methodology if flawed, but to demonstrate, consistent with this prior post, that just because a company resolves an FCPA enforcement action does not therefore mean that the company is a bad or unethical company. To the contrary, many FCPA enforcement actions involve companies, such as those on World’s Most Ethical Companies list, that have pre-existing FCPA compliance policies and procedures, yet because of respondeat superior, face legal exposure based on the conduct of a small group of individuals.
Companies appearing on the list that have recently resolved FCPA enforcement actions, or have otherwise been the subject of FCPA scrutiny, are: ABB, Deere & Company, Dun & Bradstreet, General Electric, Rockwell Automation, and Sempra Energy.
Scrutiny Alerts / Updates
Optimer Pharmaceuticals
Christopher Matthews (Wall Street Journal – Corruption Currents) reported earlier this week (here) that Optimer Pharmaceuticals is “investigating whether an attempted grant of stock options to the company’s co-founder violated the FCPA. According to the company’s recent earnings call transcript, the conduct under investigation relates to an “attempted grant in September of 2011 to Dr. Michael Chang of 1.5 million technical shares of Optimer Biotechnology, Inc. (“OBI”) as well as “a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual who was also associated with the OBI share grant.” The company has disclosed the results of its preliminary investigation to the DOJ and SEC.
As noted in this previous post, business interests or equity interests have previously been a basis for FCPA scrutiny and FCPA enforcement actions.
Tesco Corporation
Tesco (a Houston based oil services company) disclosed in a recent SEC filing as follows.
“On December 26, 2012, we received a request by the staff of the United States Securities and Exchange Commission (“SEC”) that the Company take steps to preserve and retain five categories of documents relating to commercial agents who perform services for the corporate group in a foreign jurisdiction, the Company’s general use of commercial agents in that jurisdiction, and compliance with the Foreign Corrupt Practices Act. This request stated that it “should not be construed as an indication by the Commission, or its staff, that any violations of law have occurred; nor should it be considered an adverse reflection upon any person, entity, or security.” We have, under the advice and through independent external legal counsel, cooperated with and have provided the SEC staff with specific information which it has requested. External legal counsel for the Company has been advised by the SEC staff that no formal order of investigation has been issued. The outcome of the SEC’s review and any future financial impact resulting from this matter are indeterminable at this time.”
Bio-Rad
Bio-Rad Laboratories Inc., a company that previously disclosed FCPA scrutiny, disclosed earlier this week (see here) that it would be unable to file its annual report for the year ended December 31, 2012 prior to the filing deadline. The SEC filing states, in pertinent part, as follows.
“Bio-Rad is unable to file its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”) prior to the filing deadline because the Company has not finalized its assessment of the effectiveness of its internal control over financial reporting due in part to recently raised issues and has not finalized an accrual for royalties payable by the Company as of December 31, 2012 under certain patent licenses from a third party. As previously reported, the Company has implemented enhancements to its internal control over financial reporting and is continuing to evaluate and improve its internal controls, including processes and procedures relating to the Company’s compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company is currently in the process of finalizing its assessment of the effectiveness of its internal control over financial reporting as of December 31, 2012 and will be unable to file the Form 10-K until the Company completes this assessment. “
Brookfield Asset Management
Prior posts here and here discussed the scrutiny of Brookfield Asset Management for conduct in Brazil. Today, the Wall Street Journal reported (here) that the “SEC is looking into allegations that a Brazilian unit” of the company “paid bribes to win construction permits.” According to the article, “a member of the SEC’s enforcement division is scheduled to interview a former executive in the Sao Paulo unit of Brookfield who made the allegations.” According to the article “the allegations include that Brookfield employee hired an armored truck to deliver cash to two city officials to speed the permits.”
Timetable
Via thebriberyact.com, a timetable for DPAs becoming real in the U.K. This is unfortunate, as discussed in this prior post.
*****
A good weekend to all.
Data Systems & Solutions LLC Resolves FCPA Enforcement Action
Earlier this week, Data Systems & Solutions LLC (“DS&S”), a wholly-owned subsidiary of Rolls Royce Holdings and based in Reston Virginia, resolved a DOJ FCPA enforcement action. The total fine was $8.82 million.
DS&S’s business includes the design, installation, and maintenance of instrumentation and controls systems at nuclear power plants, fossil fuel power plants, and other critical infrastructure facilities. According to the information, “DS&S’s instrumentation and controls business customers included state-owned nuclear power plants in Eastern Europe.” The charged conduct focuses on DS&S’s business with Ignalina Nuclear Power Plant (“INPP”) described as a “state-owned nuclear power plant in Lithuania and an ‘agency’ and ‘instrumentality’ of a foreign government, as that term is used in the FCPA.” For more on INPP, see its website here.
According to the charging documents, payments were made by DS&S to various INPP employees primarily through subcontractors. The INPP employees are described as follows. Official 1 (the Deputy Head of the Instrumentation & Controls Department at INPP with influence over the award of contracts); Official 2 (the Head of Instrumentation & Controls Department at INPP with influence over the award of contracts); Official 3 (the Director General at INPP with influence over the award of contracts); Official 4 (the Head of International Projects Department at INPP with influence over the award of contracts); and Official A (the lead software engineer at INPP with influence over the award of contracts). All officials are alleged to “foreign officials as that term is used in the FCPA.”
The DOJ enforcement action involved a criminal information (here) against DS&S resolved through a deferred prosecution agreement (here).
Criminal Information
The information charges conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation. As to the conspiracy charge, the information alleges that between 1999 to 2004, DS&S and others conspired to “obtain and retain contracts for DS&S from INPP to design, install, and maintain INPP’s instrumentation and controls systems through the promise and payment of bribes to foreign officials employed by INPP.”
According to the information, DS&S would and did attempt to conceal the payments to foreign officials by using Subcontractor A Subcontractor B and Subcontractor C (an alleged U.S. shell company) to funnel bribes from DS&S to INPP officials. The information further alleges that: (i) “Subcontractor A would and did pay bribes to INPP officials on behalf of DS&S by issuing tens of thousands of dollars in checks to INPP officials for deposit into the officials’ bank accounts in the United States”; (ii) DS&S “would and did pay INPP employees who were also employed by Subcontractor B significantly above-market rates for services performed by Subcontractor B in connection with DS&S contracts with INPP in exchange for the INPP employees’ support for the award of contracts to DS&S” and in a manner designed to allow those employees to avoid taxes on the payments from DS&S; (iii) DS&S “would and did provide gifts, travel, and entertainment to employees of INPP in exchange for those foreign officials’ agreements to help DS&S secure contracts with INPP. The travel alleged includes trips to Florida and Hawaii and gifts alleged include a Cartier watch.
Executive A (vice president of marketing and business development at DS&S during the relevant time period responsible for marketing and business development efforts in connection with DS&S’s nuclear services, including power plant customers in Eastern Europe) is alleged to have engaged in a variety of the improper conduct.
DPA
The DOJ’s charges against DS&S were resolved via a deferred prosecution agreement. Pursuant to the DPA, DS&S admitted, accepted and acknowledged that it is responsible for the acts of its officers, directors, employees, and agents as charged in the information.
The term of the DPA is two years and it states that the DOJ entered into the agreement based on the following factors: “(a) following the receipt of subpoenas in connection with the government’s investigation, DS&S initiated an internal investigation and provided real-time reports and updates of its investigation into the conduct described in the Information; (b) DS&S’s cooperation has been extraordinary, including conducting an extensive, thorough, and swift internal investigation; providing to the Department searchable databases of documents downloaded from servers, computers, laptops, and other electronic devices; collecting, analyzing, and organizing voluminous evidence and information to provide to the Department in a comprehensive report; and responding promptly and fully to the Department’s requests; (c) DS&S has engaged in extensive remediation, including terminating the officers and employees responsible for the corrupt payments; dissolving the joint venture and reorganizing and integrating the Company as a subsidiary with a more rigorous compliance program; enhancing its due diligence protocol for third-party agents and subcontractors, including CEO review and approval of the retention of any agent or subcontractor; strengthening its ethics policies, including the appointment of a Company Ethics Representative who reports directly to the CEO and provides regulator reports to the Members Committee at each Committee meeting; providing FCPA training for all agents and subcontractors; and establishing heightened review of most foreign transactions; (d) DS&S has committed to continue to enhance its compliance program and internal controls …; and (e) DS&S has agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of DS&S and its officers, directors, employees, agents and subcontractors relating to violations of the FCPA.
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $12.6 – $25.2 million. The DPA states as follows. “DS&S agrees to pay a monetary penalty in the amount of $8,820,000, an approximately thirty-percent reduction off the bottom of the fine range […] DS&S and the Department agree that this fine is appropriate given the facts and circumstances of this case, including the nature and extent of DS&S’s extraordinary cooperation and extensive remediation in this matter.”
Pursuant to the DPA, DS&S agreed to report to the DOJ “periodically, at no less than twelve-month intervals during the two-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures” described in an attachment to the DPA. As is customary in FCPA DPA’s, DS&S agreed that it shall not make any public statement contradicting its acceptance of responsibility.
See here for the DOJ’s release. Given the allegation in the information that INPP officials received payments into their bank accounts in the U.S., it will be interesting to see whether the INPP officials are charged with non-FCPA offenses. Such a U.S. nexus was used to prosecute certain of the “foreign officials” in the Haiti Teleco enforcement action (see here for a summary of those actions) as well as the Siriwan’s in connection with the Green matter (see here for the prior post).
Carl Rauh (Hogan Lovells – here) represented DS&S.
Friday Roundup
Checking in on Wal-Mart, an enforcement action that flew under the radar from beginning to end, a guilty plea in the U.K., and is sex a thing of value? It’s all here in the Friday roundup.
Wal-Mart
Various reports this week reported on the expansion of Wal-Mart’s FCPA probe. As many readers know, this is hardly surprising as most FCPA inquiries result in the “where else” question as indicated in this prior guest post. Even if the enforcement agencies do not actually ask the “where else” question, a company knows it will eventually be asked and will thus likely conduct a broader review of certain other FCPA high-risk jurisdictions not part of the original inquiry on its own initiative and to demonstrate to the enforcement agencies its committment to compliance and its cooperation.
This June 12th letter from Elijah Cummings (D-MD, Ranking Member, House Committee on Oversight and Government Reform) and Henry Waxman (D-CA, Ranking Member, House Committee on Energy and Commerce) to Wal-Mart CEO Michael Dukes references that Wal-Mart’s review has expanded beyond Mexico to also include Brazil, China, South Africa and India. Indeed, the letter references that Wal-Mart is “conducting a worldwide assessment of the company’s anti-corruption policies” something Wal-Mart indicated it was already doing. In short, Wal-Mart’s FCPA inquiry is following a typical path.
In the letter, Cummings and Waxman again express disappointment as to Wal-Mart’s cooperation in their own Congressional probe. For more on Cummings and Waxman’s interest in Wal-Mart, see this prior post (and links therein).
Meanwhile on the civil litigation front, a 12th lawsuit has been filed in the wake of April’s New York Times story. As noted in this release from the New York City Comptroller, New York City Pension Funds filed a shareholder derivative action in the Delaware Chancery Court alleging “that Wal-Mart’s officers and directors breached their fiduciary duty to the company and its shareholders by failing to properly handle credible claims of the bribery allegations and attempting to cover up details of the scandal.”
Under the Radar
This post from March 2011 highlighted how criminal charges against Manual Salvoch flew under the radar in that the DOJ did not issue a press release announcing the charges and the enforcement action appeared to escape coverage elsewhere. Salvoch is the former CFO of LatiNode and was charged in connection with payments to Hondutel (see here – according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras). The Hondutel payments also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode), Manuel Caceres (a former Vice President of Business Development) and Juan Vasquez (a former senior commercial executive).
This prior post highlights the sentences of Granados, Caceres and Vasquez.
Last week, Salvoch was sentenced by Judge Paul Huck (S.D. of Florida) t0 10 months in prison and 3 years of supervised release. Just like the beginning, the end of the Salvoch enforcement action also flew under the radar.
The final sentencing scorecard in the LatiNode individual prosecutions is thus as follows.
Granados – 46 months
Caceres – 23 months
Vasequez – 3 years probation
Salvoch – 10 months.
U.K. Plea
Previous posts (here and here) discussed charges on both sides of the Atlantic against Paul Jennings, the former CEO of Innospec. Earlier this week, the U.K. Serious Fraud Office announced (here) that Jennings pleaded guilty to the following charges: “Two allegations of conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia (between 14 February 2002 and 31 December 2008) and Iraq (between 1 January 2003 and 31 January 2008) as inducements to secure, or as rewards for having secured, contracts from that Government for the supply of its products including Tetraethyl Lead by Innospec.”
As noted in this previous post, in March 2010, Innospec resolved enforcement actions on both sides of the Atlantic based on the same core set of facts.
Thing of Value?
At its core, the FCPA’s anti-bribery provisions require “anything of value” to a “foreign official” to “obtain or retain business.”
This recent Reuters story concerning an employee of Oracle’s business unit in Singapore has a “foreign official” (the former head of the city-state’s anti-narcotics agency) and the article describes that the thing of value was provided to the “foreign official” as “an inducement to help further the firm’s business interest.”
The thing of value?
Sex.
Can sex be a thing of value under the FCPA’s anti-bribery provisions? I guess it depends, it’s a factual issue.
On that note, a good weekend to all.