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Friday Roundup


Sentenced, just saying, scrutiny alerts and updates, fallout, and what’s the difference? It’s all here in the Friday roundup.


As highlighted in this prior post, earlier this year Frank James Lyon (the owner of Lyon Associates Inc. – a privately held engineering and consulting company headquartered in Hawaii) pleaded guilty to violating the Foreign Corrupt Practices Act (based on things of value provided to officials in the Federated States of Micronesia) as well as paying bribes to an agent of an organization receiving federal funds (based on things of value provided to officials with a Hawaii governmental agency – State Agency).

As highlighted in this DOJ release, Lyon was recently sentenced to 30 months in prison.

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The First Time Baker Hughes Resolved An FCPA Enforcement Action


[This post is part of a periodic series regarding “old” FCPA enforcement actions]

As highlighted in this prior post, in 2001 KPMG Siddharta Siddharta & Harsono (KPMG-SSH) and Sonny Harsono resolved a joint DOJ/SEC civil FCPA enforcement regarding alleged improper payments in connection with an Indonesia tax assessment.

As detailed in the prior post, it was a unique FCPA enforcement action at the time (believed to be the first time the DOJ/SEC had ever brought an FCPA action against a professional services firm – i.e. a law firm or accounting firm) and still remains unique in that the DOJ/SEC are believed to have never again brought an FCPA enforcement action against a professional services firm. As further detailed in the prior post, KPMG-SSH was an agent of Baker Hughes and thus it was not surprising that a related FCPA enforcement action against Baker Hughes soon followed.

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FCPA Settlement Amounts Have Come A Long Way In A Short Amount Of Time

Many of the critiques of this new era of Foreign Corrupt Practices Act enforcement – including my own – have focused on enforcement theories, non-prosecution and deferred prosecution agreements, and other DOJ or SEC policies and procedures.

While there has been attention and focus on fine, penalty and disgorgement amounts (see here, here, here and here for prior posts including my own), more attention needs to be paid to such issues.

The reason is simple.

FCPA settlement amounts have come a long way in a short amount of time.  To be sure, historical issues with certain foreign issuers (i.e. Siemens, Total, and Daimiler) mostly account for this dynamic, as does the $6 billion Bonny Island, Nigeria liquified natural gas plant project that was the focus of 4 out of the top 10 FCPA enforcement actions of all time.

But consider this.

In 2007 – that is a mere six years ago – Baker Hughes resolved the largest FCPA enforcement action of all-time by agreeing to pay $44 million in combined DOJ and SEC settlements.  According to the criminal information, the company made approximately $4.1 million in improper payments – via an agent – in connection with the Karachaganak Project in Kazakhstan – a “giant gas and oil field” – according to the DOJ.  According to the DOJ’s sentencing guidelines calculation, the “benefit received or to be received [from the alleged improper conduct was] approximately $19 million.”

The SEC enforcement action against Baker Hughes was based on the same core set of conduct and the SEC stated in this release as follows:

“Baker Hughes paid approximately $5.2 million to two agents while knowing that some or all of the money was intended to bribe government officials, specifically officials of State-owned companies, in Kazakhstan. […] Baker Hughes engaged the agent and was awarded an oil services contract in the Karachaganak oil field in Kazakhstan that generated more than $219 million in gross revenues from 2001 through 2006.”

In addition, the SEC release stated:

  • from 1998 to 2004, Baker Hughes authorized commission payments of nearly $5.3 million to an agent (who worked in Kazakhstan, Russia and Uzbekistan) under circumstances in which the company failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA;
  • in Indonesia, between 2000 and 2003, Baker Hughes paid certain freight forwarders to import equipment into Indonesia using a “door-to-door” process under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Indonesian customs officials;
  • in Nigeria, between at least 2001 and 2005, Baker Hughes authorized payments to certain customs brokers to facilitate the resolution of alleged customs deficiencies under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Nigerian customs officials; and
  • in Angola, from 1998 to 2003, Baker Hughes paid an agent more than $10.3 million in commissions under circumstances in which the company failed to adequately assure itself that such payments were not being passed on to employees of Sonangol, Angola’s state-owned oil company, to obtain or retain business in Angola.

The record-setting 2007 Baker Hughes FCPA enforcement was then.

In October, the DOJ and SEC announced an FCPA enforcement action against Diebold.

As noted in this previous post, the enforcement action was primarily an excessive travel and entertainment enforcement action focused on conduct in China and Indonesia wherein the DOJ alleged in the criminal information that the company provided various things of value (such as Las Vegas sightseeing, a dance show, a Grand Canyon tour, a Universal Studios tour and a Napa Valley tour) totaling approximately $1.75 million to alleged “foreign officials” over a five year period.  (Note:  the enforcement action also contained non-specific monetary allegations concerning relationships with private business customers in Russia.  However, the DOJ’s sentencing guidelines calculation makes clear that the Russia conduct was a minor factor in determining the fine and penalty amount).  As to the core conduct – the China and Indonesia conduct – the DOJ’s sentencing guidelines calculation references a “value of benefit received [from the alleged improper conduct] more than $7 million.”

The SEC enforcement action against Diebold was based on the same core set of conduct and the SEC alleged in this complaint that Diebold subsidiaries in China and Indonesia spent approximately $1.8 million on travel, entertainment, and other improper gifts for senior officials with the ability to influence the banks’ purchasing decisions.  The SEC further alleged that Diebold falsified books and records to hide approximately $1.2 million of bribes paid to employees at privately owned banks in Russia.

In short, the recent Diebold enforcement action involved significantly less egregious allegations than the Baker Hughes enforcement action.

Yet the combined fine and penalty in the Diebold action ($48 million) was more than the record-setting $44 million Baker Hughes enforcement action from a mere six years ago.

Of course, factors beyond the core conduct at issue – such as volunatary disclosure, cooperation and a company’s past history –  can influence settlement amounts in an FCPA enforcement action.  However, the Baker Hughes and Diebold enforcement actions were substantively identical in these regards (i.e. both companies had a past history, both companies voluntarily disclosed and both companies cooperated).

This raises the obvious issue – have FCPA settlement amounts increased … just because?

Perhaps you have noticed this general trend in other areas.  Pfizer recently resolved a $2.2 billion enforcement action (and now for the weather), SAC Capital recently resolved a $1.2 billion enforcement action (can you please pass the butter) and JPMorgan recently resolved a $13 billion enforcement action.

In a recent speech SEC Commissioner Daniel Gallagher noted:

“[T]he amounts of the penalties that the SEC imposes against corporations today are eye-popping and likely would have shocked the legislators who voted for the Remedies Act and the Commission that sought penalty authority from Congress.”

As to the JPMorgan action, as noted in this recent Wall Street Journal article, the company’s top lawyer asked at a recent event “at what point does this [record-setting fines] stop.”  As Professor Peter Henning noted in this recent New York Times DealBook column regarding the JPMorgan matter:

“A standard part of enforcement actions against companies these days is the multimillion-dollar – or even multibillion-dollar – penalty. What can be perplexing is figuring out how those penalties were determined, and whether they have much if any direct relationship to either the gains realized from the violations or the harm inflicted.”

Indeed, at the same event discussed above, a government official acknowledged that the government’s application of fines in legal settlements “is more art than science.”


In many cases. there is little rhyme or reason to how FCPA settlement amounts are calculated.  As noted in this prior post, in the SEC context some FCPA settlements include a civil penalty, disgorgement and prejudgment interest, whereas other enforcement actions include only disgorgement and prejudgment interest, whereas other enforcement actions include only disgorgement and a civil penalty, whereas other enforcement actions include only disgorgement, whereas other enforcement actions include only a civil penalty.

As noted in this prior post, double-dipping by multiple government enforcement agencies is the norm in corporate FCPA settlements.

When a NPA is used to resolve an FCPA enforcement action, the ultimate fine amount and how it as calculated is not transparent.  Even with corporate DPAs and plea agreements, there remains little transparency regarding FCPA criminal fine amounts, particularly as to the value of the benefit allegedly received through the improper payment.  The DOJ simply cites a number.

As noted in this prior post, in 2012 the Supreme Court held in Southern Union that any fact that substantially increases a criminal defendant’s fine amount must be provable to a jury beyond a reasonable doubt.  As noted in the prior post however, the Supreme Court’s decision was great in theory, but it is rare for anything connected to a corporate FCPA enforcement action to be provable to a jury beyond a reasonable doubt.

The largest FCPA enforcement action of all time is the $800 million action against Siemens in 2008.  It is only a matter of time before there is an FCPA enforcement action in the “b” (as in billion) category.

Indeed, as the Baker Hughes and Diebold enforcement actions highlight, FCPA settlement amounts have come a long way in a short amount of time.

If a billion dollar FCPA enforcement action is what the conduct at issue warrants … fine.  But if it is just because, this is a problem and a significant public policy concern as even alleged wrongdoers have due process rights.

Meaningless Settlement Language?

Previous posts (here and here) have discussed scrutiny of SEC resolution procedures in the SEC v. Citigroup case.  Although not an FCPA enforcement action, the SEC policies (such as settlement via neither admit nor deny language) being questioned by Judge Jed Rakoff (S.D.N.Y.) are the same in SEC FCPA enforcement actions.  Thus, Judge Rakoff’s questions are relevant to SEC FCPA enforcement.

A typical SEC FCPA enforcement action involves a permanent injunction prohibiting future FCPA violations – see here for the recent Comverse SEC FCPA enforcement action containing such language.  In this prior post regarding Diebold’s FCPA disclosure, I noted that Diebhold was already subject to an injunction prohibiting future FCPA violations (as a result of a non-FCPA FCPA enforcement action) and  I asked whether Diebold was in jeopardy of violating that injunction. 

If Diebold does indeed become a repeat offender, it will have company.  For instance, in 2004 ABB Ltd. resolved an FCPA enforcement action (see here) and “consented to the entry of a final judgment enjoining it from future FCPA violations.”  In 2010, ABB Ltd. again agreed to resolve an FCPA enforcement action – see here for the prior post.  So much for that permanent injunction thing.   Likewise, in 2001 Baker Hughes resolved an FCPA enforcement action (see here) and was ordered to cease and desist from any future FCPA violations.   In 2007, Baker Hughes again agreed to resolve an FCPA enforcement action – see here.  So much for that cease and desist thing.

Thus, Judge Rakoff’s question in the Citigroup action – whether SEC injunctions against future violations have any meaning is a good question.  Specifically, Judge Rakoff requested an answer to the following question.  “The proposed judgment imposes injunctive relief against future violations.  What does the SEC do to maintain compliance?  How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of a prior consent judgment?”

In its Citigroup brief the SEC responded as follows.

“Civil contempt is a remedy available to the SEC in the event either (1) that a defendant is engaging in an ongoing violation of an injunction, or (2) compensation is due the SEC as a result of a defendant’s violation of an injunction.  Because alternative effective remedies often are available, including the filing of an independent action with corresponding legal and equitable relief, the Commission has not frequently pursued civil contempt proceedings and does not appear to have initiated such proceedings against a ‘large financial entity’ in the last ten years.  However, prior unlawful conduct by a corporate entity is considered in determining the appropriate penalty in any subsequent enforcement action.”

For additional information see this recent New York Times article from Edward Wyatt.


Baker Hughes – Behind the Scenes

In April, 2007, Baker Hughes entities settled related DOJ and SEC FCPA enforcement actions principally related to conduct in Kazakhstan. (See here, here, and here).

As noted in the DOJ release (here), Baker Hughes Services International Inc. (“BHSI”) – a wholly owned subsidiary of Baker Hughes Incorporated – pleaded guilty to violations of the anti-bribery provisions of the FCPA, conspiracy to violate the FCPA, and aiding and abetting the falsification of books and records of its parent company Baker Hughes. The conduct at issue involved “approximately $4.1 million in bribes over approximately a two-year period to an intermediary whom the company understood and believed would transfer all or part of the corrupt payments to an official of Kazakoil, the state-owned oil company.” BHSI agreed to pay a $11 million criminal fine. Baker Hughes entered into a deferred prosecution agreement regarding the same underlying conduct and accepted responsibility for conduct of its employees. As noted in the SEC release (here), Baker Hughes also agreed to pay more than $23 million in disgorgement and prejudgment interest and to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA.

The combined $44 million in fines and penalties was (at the time) the largest monetary sanction ever imposed in an FCPA case.

An April 11, 2007 diplomatic dispatch released by WikiLeaks and published by the U.K. Guardian (here) provides some interesting behind the scenes action that took place prior to the public announcement of the enforcement action.

The cable states, other other things, as follows.

“A Foreign Corrupt Practices Act case involving malfeasance by U.S. oil technology and services firm Baker Hughes in Kazakhstan will soon be settled, revealing details of bribes paid by the firm’s local representatives. Baker Hughes representatives are in Astana to brief Prime Minister Masimov on the case before it becomes public, in hopes of limiting the negative impact on the firm’s ability to work in Kazakhstan. In order to minimize the damage from the case to U.S. investors and the bilateral relationship, post believes it would be helpful to inform the Kazakhstani government that the U.S. government authorized Baker Hughes’ representatives to brief them in advance of the settlement, and to share the text of the decision once it is issued.”

“The Ambassador met with Alan R. Crain, Senior Vice President and General Counsel of Baker Hughes Incorporated, and Amb. Beth Jones, Executive Vice President of APCO Worldwide, on April 10 in Astana to discuss a Foreign Corrupt Practices Act (FCPA) case involving Baker Hughes’ work in Kazakhstan. Crain and Jones informed the Ambassador that they would meet with Prime Minister Masimov later that day to brief him on the upcoming U.S. court decision in the case. They had met with Masimov on January 9 to inform him that legal proceedings were underway in the U.S., and now planned to share the details. They stated that the Department of Justice and the SEC had authorized both meetings.”

“Jones and Crain said that their goal in briefing PM Masimov was to demonstrate the respect that Baker Hughes as an investor has for Kazakhstan and its laws, and thereby ensure that the firm will still be able to operate here and that its employees will not face harassment. They will also emphasize the fact that the investigation centered on commercial malfeasance and did not reveal the involvement of any high-ranking Kazakhstani government officials. After the Masimov meeting took place, Jones contacted the Ambassador to relay Masimov’s request that the Embassy convey the court decision as soon as it is released.”

The cable also states as follows.

“Crain told the Ambassador that a former employee of Baker Hughes filed a report with the SEC in August 2003 detailing alleged malfeasance in several overseas subsidiaries, including Kazakhstan.” “Four separate incidents were discovered during the internal investigation, the second of which is the basis of the legal proceedings currently underway in the U.S.”

The DOJ enforcement action relates only to Kazakhstan. The SEC’s enforcement action also relates to conduct in Indonesia, Nigeria, and Angola as well.

As to the agent at the center of the Kazakhstan payments, see this related story from the U.K. Guardian.

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