Panalpina DPA Provides Blanket Immunity Even For Undisclosed Conduct
Deferred prosecution agreements (DPA) tend to be interesting reads. These documents clearly are based on templates, but you never know what clause will be buried deep within the large document.
The DPA template contains a “Conditional Release From Criminal Liability” section that generally states as follows.
“In return for the full and truthful cooperation of [Company] and its compliance with the other terms and conditions of this Agreement, the Department agrees [subject to breach of the Agreement] not to use any information related to the conduct described in the attached Statement of Facts against [Company] or its wholly-owned or controlled subsidiaries in any criminal case [except for perjury, making false statements, and certain other exceptions]. In addition, the Department agrees, except as provided herein, that it will not bring any criminal case against [Company] or any of its wholly owned or controlled subsidiaries related to the conduct of present and former directors, employees, agents, consultants, contractors, and subcontractors, as described in the attached Statement of Facts, or relating to information [Company] disclosed to the Department prior to the date on which this Agreement was signed.”
The Panalpina DPA (here) follows this template, but also states that the DOJ will not bring any criminal or civil charges against Panalpina or its related entities “relating to undisclosed conduct of a similar scale and nature that took place prior to the signing of the Agreement and was not discovered by [Panalpina’s] internal investigation, notwithstanding reasonable efforts by [Panalpina].”
In other words, if there was something Panalpina and its counsel missed in its investigation, it does not matter because the DOJ contractually agreed not to prosecute any undisclosed conduct that took place prior to the signing of the Agreement.
This clause further demonstrates that DPAs are less a prosecuting document, but more a negotiated contract between the DOJ and the alleged offender.
In the United Kingdom, judges take a much more active role in analyzing the terms and conditions of bribery and corruption settlements compared to U.S. judges. For instance, in his recent BAE sentencing remarks, Justice David Michael Bean sharply criticized a similar blanket immunity clause in the Serious Fraud Office’s plea agreement with BAE.
At page 4 of his sentencing remarks (see here), Justice Bean states as follows. “The Settlement Agreement is, with respect, loosely and perhaps hastily drafted. In paragraph 6 “any person” is not defined, and paragraph 10 is not, at least expressly, confined to conduct preceding the agreement. But the heart of the matter is paragraph 8, whereby the SFO agreed that there would be “no further investigation or prosecutions of any member of the BAE Systems Group for any conduct preceding 5 February 2010.” It is relatively common for a prosecuting authority to agree not to prosecute a defendant in respect of specified crimes which are admitted and listed in the agreement: this is done, for example, where the defendant is an informer who will give important evidence against co-defendants. But I am surprised to find a prosecutor granting a blanket indemnity for all offences committed in the past, whether disclosed or otherwise. The US Department of Justice did not do so in this case: it agreed not to prosecute further for past offences which had been disclosed to it.”
U.K. Judge Reluctantly Accepts The “Loosely and Hastily Drafted” SFO – BAE Plea Agreement
In February 2010, the U.K. Serious Fraud Office (“SFO”) and the U.S. DOJ announced resolution of a joint enforcement action against BAE Systems. (See here for the prior post).
Despite years of widespread bribery allegations and despite the DOJ’s bribery, yet no bribery allegations (see here), BAE escaped bribery and corruption charges. The U.S. enforcement action came to a formal conclusion in March (see here). As noted in the DOJ release (here) BAE pleaded guilty to “conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations” and was sentenced to “pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ’s ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws.”
The SFO’s plea agreement with BAE was even more limited. As noted in this SFO release, the SFO “reached an agreement with BAE Systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.” As noted in the SFO release BAE agreed to pay a £30 million penalty “comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.”
Days before the SFO-BAE plea agreement, the SFO charged BAE’s former agent with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” However, these charges were quickly withdrawn and the SFO release states that “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.” As discussed in this prior post, the SFO agreed to drop the criminal charges against BAE’s former agent because BAE would not agree to the proposed SFO plea (as watered down as it was) without the SFO agreeing to drop the charges against the former agent.
Under no circumstances, it appeared, could BAE (or anyone associated with it) be accused of bribery or corruption. This would have complicated things too greatly for BAE, the world’s second largest defense contractor. (See page 15 of the DOJ’s sentencing memo – here).
With BAE’s U.S. legal exposure in the rear-view mirror, the final act in this circus was approval of the SFO – BAE plea agreement by a U.K. court.
Fast forward to December 20th, the day BAE was supposed to be fined and sentenced.
Enter Mr. Justice David Michael Bean.
As widely reported, Justice Bean, notwithstanding the accounting only charges, wanted to know “whether some of the payments had been channelled corruptly to decision makers in Tanzania.” (See here). Justice Bean said “he couldn’t approve the settlement until he knew the intended use of $12.4 million in payments to a local businessman, because Bean said it looked to him as though the money was so he could pay “whatever was necessary to whomever it was necessary” to win the $40 million contract.” (See here). Justice Bean suggested the “obvious inference” was that part of the secret payments was used as a “bribe” to win a lucrative contract. (See here).
Prosecutor Victor Temple QC for the SFO said it was not part of his case that any part of the payments at issue was improperly used. David Perry, QC, representing BAE, said the SFO was not alleging bribery or offering evidence of it. He said this was “fundamental to the plea agreement” between the company and the prosecutor to end the corruption probe.
Remember, under no circumstance could BAE be accused of bribery or corruption.
Justice Bean wanted to hear more arguments and postponed BAE’s fine and sentence.
The delay was termed (see here) a blow to the SFO and its use of U.S. style plea agreements.
Yesterday, Justice Bean announced his decision.
Justice Bean fined BAE £500,000 for failing to keep proper records of payments it made to an adviser in Tanzania. He also ordered BAE to pay £225,000 in costs.
Because the SFO-BAE plea agreement allowed BAE to deduct the court-ordered fine from the £30m it had offered to the people of Tanzania to settle the case, Justice Bean said he felt pressure to keep the court fine to a minimum. As noted here, Justice Bean stated “the structure of this settlement agreement places moral pressure on the court to keep the fine to a minimum so that the reparation is kept at a maximum.”
Justice Bean called the SFO-BAE plea agreement “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge,” such as conspiracy to corrupt or false accounting. (See here).
See here for Justice Bean’s sentencing remarks.
See here for the SFO release.
As noted here, the only money BAE is legally obliged to pay is a £500,000 fine and costs of £250,000 as ordered by Mr Justice Bean. After the sentencing, Richard Alderman, the SFO Director said: “I expect BAE to honour the agreement. I expect the company to pay it [the reparation payment to Tanzania] as quickly as possible.” As noted in the article, such a payment could be problematic.
In a statement (here) BAE stated:
“Today’s judgment concludes and draws a line under this historical matter. The company accepts the decision of the Court and will abide by it. In the decade since the conduct referred to in this settlement occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognised for responsible conduct as it is for high quality services and advanced technologies.”
In a statement (see here) Transparency International UK noted that despite Justice Bean’s “damning comments, [BAE] has not admitted bribery and no individuals have been punished.” Chandrashekhar Krishnan, Executive Director of Transparency International UK stated as follows: “This hearing also highlights the need for a thorough review of sentencing law and procedures, to ensure that judges presented with agreed settlements are able to sentence on a fully informed and transparent basis. It is clear that BAE Systems has got off lightly. The best that can now happen is that the company demonstrates it has turned a new leaf and is irrevocably committed to clean business.”
In an editorial, the Financial Times stated as follows.
“The plea-bargain deal BAE Systems struck earlier this year with the UK’s anti-corruption authority was designed to draw a line under the company’s murky past. This may indeed be the judicial outcome of the deal, which was sanctioned by a court on December 21. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done. The Serious Fraud Office has long been accused, with justice, of being toothless. So this newspaper welcomed its decision last year to prosecute BAE for allegedly paying bribes to foreign governments to win contracts in several African and eastern European countries. Although the SFO later switched to pursuing a more limited plea bargain, it was still hoped that this might raise the agency’s profile as a crusader against corporate corruption. This week’s court proceedings, which saw a judge reluctantly accept the SFO’s deal, have undermined that hope. British courts bridle at plea bargains because of the way they fetter judicial discretion. But even allowing for this aversion, the BAE deal rightly stuck in the judge’s craw. The company did not admit to any corruption, pleading guilty only to a trivial charge of keeping inadequate accounting records. In return, BAE and its officers were extraordinarily given blanket immunity from any offences before 2004 – whether admitted to or not. A cap was placed on the total amount BAE would pay to settle the litigation – whether as a fine or in compensation. There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped. The UK is trying to get its act together. But it is still some way from – to quote a minister in the last government – “giving the Americans a run for their money”. There are grounds for hope. Britain has passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency – hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed.”
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Hope is a fitting word to end the BAE circus.
Hope that a case of this magnitude is never again resolved the way it was resolved both in the U.S. and the U.K.
A U.K. Friday Roundup
With all the focus on the Senate’s FCPA hearing earlier this week, let’s take a break and go across the pond for the Friday roundup.
Debarment and the Bribery Act, BAE’s upcoming sentencing hearing, and Royal interest in the SFO’s BAE investigation, its all here.
Debarment and the U.K. Bribery Act
Pass a new Bribery Act that creates a new offense for corporate bribery and it is bound to intersect with other laws.
So the U.K. Ministry of Justice is learning, specifically as to the European Union’s debarment directive which provides that companies found guilty of bribery offenses shall be debarred from public contracts.
According to this article in the U.K. Telegraph, the Ministry of Justice is “considering how the regulations implementing the 2004 EU Procurement Directives should be amended to reflect the new Bribery Act and we intend to clarify this point before commencement of the Act” – scheduled for April 2011.
European Union Directive 2004/18/EC (here) was a specific factor the DOJ considered in its resolutions of the Siemens, BAE, and Daimler enforcement actions.
See here for the DOJ’s sentencing memo in Siemens (p. 11), here for the DOJ’s sentencing memo in BAE (p. 15), and here for the DOJ’s sentencing memo in Daimler (p. 12).
If the DOJ would have prosecuted these companies with the charge best fitting the facts (an FCPA anti-bribery violation) the companies would have been at risk of being debarred from certain EU public contracts – not to mention U.S. government contracts pursuant to 48 CFR 9.406.
BAE Hearing Scheduled
BAE’s sentencing hearing in connection with the U.K. portion of the case is scheduled for Dec. 20th in London (see here for more). The U.S. portion of the case concluded in March (see here).
The last time a U.K. Serious Fraud Office (“SFO”) plea agreement in a bribery case was before a court (in the Innospec matter), the SFO received several lashings (see here).
Prince Andrew’s Keen Interest in the BAE Case
The U.K. Guardian (here) reports that Prince Andrew, the Duke of York, took a keen interest in the SFO’s investigation of the BAE matter, specifically the al-Yamana deal with Saudi Arabia. According to the Guardian, Prince Andrew demanded a special meeting with the SFO, the SFO thought the request was out of order, but SFO Director Richard Alderman was ultimately summoned to Buckingham Palace in May 2008 for a meeting. The Guardian quotes the SFO as saying that “no confidential details” were discussed during the meeting.
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A good weekend to all.
FBI Awards BAE $40 Million Contract
Yesterday’s post (here) discussed the shortcomings of HR 5366 (the Overseas Contractor Reform Act). As highlighted in that post, HR 5366 represents impotent legislation because it exhibits little understanding of how conduct violating the FCPA is typically resolved.
One matter discussed in the post was the February 2010 enforcement action against BAE in which the DOJ alleged, among other things, that the company “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. (See here). The bribery was so extensive per the DOJ’s allegations, that just one BAE employee submitted $5 million in invoices for benefits to the official during a one year period.
Yet, these bribery, but no bribery allegations (see here) did not result in any FCPA anti-bribery charges against BAE – the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales.
Thus, even if HR 5366 was enacted prior to February 2010, it would not have prevented BAE from securing federal government contracts because the DOJ did not charge BAE with any FCPA anti-bribery offenses.
How many federal government contracts has BAE secured since the DOJ alleged that the company “provided substantial benefits” to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract?
Judging just by BAE’s press releases (see here) many – so many that separate links would be distracting.
None stand out more than the $40 million contract BAE was recently awarded by the FBI “to provide critical information security safeguards, including certification and accreditation, to ensure the confidentiality and privacy of FBI computer networks in the United States and around the world.” (see here).
BAE’s conduct giving rise to the February 2010 enforcement action, in which BAE agreed to pay a $400 million criminal fine, “was investigated by FBI special agents who are part of the Washington Field Office’s dedicated FCPA squad.” (See here).
In connection with the BAE resolution, the FBI issued its own press release (see here).
In the release, Shawn Henry, Assistant Director in Charge of the FBI’s Washington Field Office stated: “competition is one of the foundations of our economic system,” and “corporations and individuals who conspire to defeat this basic economic principle not only cause harm but ultimately shake the public’s confidence in the entire system.”
I agree.
The public’s confidence in the entire system is shaken, but not for the reason Henry articulated.
A Favor … Plus The Friday Roundup
A Favor
Each year, LexisNexis honors a select group of blogs that set the online standard for a given industry.
I am pleased to share that FCPA Professor is one of the nominated blogs for the LexisNexis Top 25 Business Law Blogs of 2010.
LexisNexis invites the business law community to comment on the list of nominees so that it can narrow the field to the Top 25.
The link to submit comments is here.
To submit a comment, you must register, but registration is free and does not result in sales contacts. The comment box is at the very bottom of the page and the comment period ends on October 8, 2010.
Many of the other blogs nominated are the work of multiple bloggers and/or for-profit entities. Thus, as a single blogger, I am honored to be included on this list. My mission remains the same since I launched FCPA Professor in July 2009. That is to inject a much needed scholarly voice into FCPA and related issues, to explore the more analytical “why” questions increasingly present in this current era of aggressive enforcement, and to foster a forum for critical analysis and discussion of the FCPA and related topics among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.
I hope you value the content delivered to you each day on FCPA Professor and I thank you for your consideration.
Friday Roundup
HP speaks, checking in with the Africa Sting case, Smith & Wesson’s reduced international shipments, BAE news, The Bribery Centre, and the International Anti-Corruption Academy … it’s all here in the Friday roundup.
HP Speaks
In April (see here) it was reported that German and Russian authorities were investigating whether Hewlett-Packard Co. (HP) executives paid millions of dollars in bribes to win a contract in Russia with the office of the prosecutor general of the Russian Federation. U.S. authorities then launched an investigation, something HP publicly acknowledged (see here). Yesterday, for the first time, HP “talked” about the investigation(s) in an SEC filing. In its 10-Q filing (see here) the company disclosed as follows:
“Russia GPO and Related Investigations
The German Public Prosecutor’s Office (“German PPO”) has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett−Packard ISE GmbH in Germany, a former subsidiary of HP, and the Chief Public Prosecutor’s Office of the Russian Federation. The €35 million transaction, which was referred to as the Russia GPO deal, spanned 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO has recently requested information on several non−public sector transactions entered into by HP and its subsidiaries on or around 2006 involving one or more persons also involved in the Russia GPO deal.
The U.S. Department of Justice and the SEC have also been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). Under the FCPA, a person or an entity could be subject to fines, civil penalties of up to $500,000 per violation and equitable remedies, including disgorgement and other injunctive relief. In addition, criminal penalties could range from the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation. The U.S. enforcement authorities have recently requested information from HP relating to certain governmental and quasi−governmental transactions in Russia and in the Commonwealth of Independent States subregion dating back to 2000.
HP is cooperating with these investigating agencies.”
Africa Sting
It’s been a while since I posted on the Africa Sting case (see here for numerous prior posts). You’ll recall that the 20+ defendants were snared in an undercover operation in which FBI agents posed as a Gabon “foreign official.” Entrapment is sure to be a legal issue the defendants will formally raise – and indeed it has been an issue defense lawyers have already publicly stated. As noted in this Blog of Legal Times post, during a hearing earlier this week, defense counsel “are demanding access to internal Justice Department and FBI manuals that govern the planning and execution of undercover operations.” According to the post, defense counsel have already claimed violations of DOJ/FBI policy in connection with the sting operation.
Smith & Wesson’s Reduced Shipments
Speaking of the Africa Sting case, one of the company’s indirectly, at least at this point, implicated in the matter is Smith & Wesson, the employer of Amaro Goncalves – one of the indicted individuals. In July (see here), the company disclosed the existence of a DOJ/SEC investigation and yesterday’s 10-Q filing (see here) does not seem to add much from the previous filing. However, this sentence from pg. 26 of the filing caught my eye: “Pistol sales decreased 25.3%, driven by the reduction in consumer demand as well as reduced international shipments related to our investigation of the FCPA matter.”
BAE News
The BAE bribery, yet no bribery enforcement action (see here) may be over in the U.S. and the U.K. Serious Fraud Office – BAE plea agreement may be waiting judicial approval in the U.K. (see here), but that does not mean that BAE’s potential exposure in other jurisdictions is over. For instance, this recent Businessweek article suggests that South African authorities remain interested in corruption allegations concerning the purchase of fighter jets from BAE. In addition, according to this recent story in The Prague Post “the Czech Republic has asked the United States for help in its inquiry into alleged corruption in a 2002 deal to buy 24 fighter jets from … BAE Systems.” The DOJ’s non-FCPA criminal information against BAE (see here) included allegations regarding the sale of fighter jets to the Czech Republic.
The Bribery Centre
The U.S. is not the only country with a vibrant and aggressively marketed anti-bribery sector. With implementation of the U.K. Bribery Act expected in April 2011, an industry is developing on the other side of the Atlantic as well. The Bribery Centre (here) seeks to provide a “unique resource to manage compliance to the Bribery Act 2010.” Described as a “collaboration between Ten Alps plc and Venalitas Ltd” the Centre “aims to become the predominant online resource for those companies who need assistance to become compliant with this new landmark piece of legislation.” Contributors include Clifford Chance and KPMG. As noted near the top of the site, you only have “29 weeks to implement adequate procedures.”
International Anti-Corruption Academy
The IAAC as it is known (see here) recently had its coming out party. As described on its website, the IAAC is “a joint initiative by the United Nations Office on Drugs and Crime, the Republic of Austria, the European Anti-Fraud Office, and other stakeholders” and it “is a pioneering institution that aims to overcome current shortcomings in knowledge and practice in the field of anti-corruption.”
Located near Vienna, Austria, the academy “will function as an independent centre of excellence in the field of anti-corruption education, training, networking and cooperation, as well as academic research.”
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A good weekend to all.