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Spot On Observations Regarding The Telefonica Brasil Enforcement Action


Previous posts here and here discussed the SEC’s recent Foreign Corrupt Practices Act enforcement action against Telefonica Brasil (focused on the company hosting Brazilian officials at soccer matches in Brazil) as well as the many problematic issues associated with the expansive enforcement action.

The most recent edition of the always informative FCPA Update by Debevoise & Plimpton likewise takes issue which various aspects of the enforcement action. Kara Brockmeyer (the SEC’s former FCPA Unit Chief) is the lead author of the spot on article which states in pertinent part:

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Purported BHP Billiton Whistleblower Bounty Raises Several Questions

Tough Question

According to this Australian Financial Review report (also covered by Reuters) the SEC paid approximately $3.75 million “to a former employee of Australian mining giant BHP Billiton” apparently in connection with the May 2015 Foreign Corrupt Practices Act enforcement action against the company.

As highlighted in prior posts here and here, the $25 million SEC FCPA enforcement action involved findings that BHP Billiton violated the FCPA’s books and records and internal controls provisions in connection with a global hospitality program that the company had related to its sponsorship of the 2008 Beijing Summer Olympic Games.

According to the report, “legal sources have confirmed that the whistleblower was a BHP Billiton insider” who “provided detailed information to U.S. investigators about the mining firm’s activities overseas several years ago.”

If true (BHP Billton made the following statement to Reuters – “we are not aware of the involvement of any whistleblower as part of the SEC’s or DOJ’s investigation,”), it would represent the first publicly reported instance of a whistleblower being paid an SEC whistleblower bounty in connection with an FCPA enforcement action.

Yet, as highlighted below, if true the purported bounty raises several questions.

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BHP Billiton Enforcement Action Generates Much Critical Commentary

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FCPA Inc. is an active group of writers.

Thus it was no surprise that the recent BHP Billiton enforcement action generated much commentary.

The May 20th enforcement action was previously highlighted here and here and this post highlights other commentary regarding the BHP Billiton enforcement action.

Prior to highlighting the commentary – much of it is consistent with my prior criticisms of the enforcement action linked above –  a few observations.

While the BHP Billiton action is problematic on a number of levels, it does not dilute FCPA enforcement as much as the even more problematic 2012 Oracle enforcement action.

A general theme in much of the below commentary is that the enforcement action lacked anti-bribery charges because there was no quid pro quo relationship between the hospitality payments or offers of payments and BHP Billition’s business.

In the minds of some, this lack of quid pro quo is the reason for the lack of SEC anti-bribery charges.

I disagree.

For starters, as noted in certain of the commentary, the SEC did allege “payments to foreign officials to support their attendance at Olympic events at the very time BHPB had pending business before those officials or others over whom they may have had influence.”

More importantly, the lack of anti-bribery charges against BHP Billiton (a foreign issuer) would seem to be based on the fact that the required U.S. jurisdictional nexus for such charges was lacking.

Another general theme in much of the below commentary is that the BHP action is somehow unique in charging (or finding as the case may be since it was an SEC administrative action) books and records and internal controls violations in the absence of anti-bribery violations.

As will be highlighted in a future post, the enforcement approach in BHP Billiton was hardly unique.  The SEC often charges or finds books and records and internal controls violations in the absence of anti-bribery charges or findings.  Point taken that often the reasons are opaque, but the charges or findings in BHP are hardly unique.

To the commentary.


The always informative Debevoise & Plimpton FCPA Update stated in pertinent part:

“Although the BHPB settlement involves a smaller penalty than some other recent resolutions, it may well turn out to be one of the more notable FCPA resolutions in several years. This is because the case addresses issues of recurring concern to multinational corporations that have long been sought out as sponsors of – or, at least, purchasers of hospitality packages for – marquee sporting events.

As good corporate citizens, these firms have come to view the purchase of tickets and hospitality packages as part of the collaboration with host entities managing such events, including national governments. This is an integral element of brand management and corporate strategy. In the course of such collaboration, these companies also receive due credit for making the event a successful interlude during which governments, business, and society at large, pause to celebrate the endeavor of sport. Yet the very process of supporting such an event leads to the inevitable question of “whom may we invite?” From there, the issue of anti-bribery compliance becomes a central issue for in-house compliance personnel.

The BHPB resolution likely will lead U.S. issuers choosing to provide hospitality of this kind to expend significant additional time, resources, and money devising and maintaining controls suggested by the resolution. Even though the settlement lacks the force of law, it will no doubt raise considerable pressure on companies to exercise even greater care if inviting foreign officials to such events, and may cause some firms subject to the books and records and internal controls provisions of the FCPA, i.e., those subject to SEC jurisdiction, to reconsider altogether this practice.


The bottom line for compliance professionals and in-house counsel is that – despite statements by enforcement officials that the issues of greatest concern to them are those arising out of the “big bribe” – travel, hospitality, and entertainment remain front and center in many cases and, particularly for the SEC, can provide the basis for substantial settlements.”


As in all settled FCPA matters, the terms of the BHPB resolution are the product of negotiation designed to serve the immediate interests of the parties in resolving a pending matter, and not the broader interest in definitively clarifying the law. And, at the end of the day, and after years of investigation, this particular resolution appeared to have yielded, at most, violations of lower severity than those that have led to larger settlements. It is notable that the Cease-and-Desist Order identified only four individuals out of 176 “foreign officials” invited to the Olympics who were involved with or in a position to influence pending matters involving BHPB. Of those four, only one official attended the Olympics. In these circumstances, it is no surprise that the DOJ did not take action.

But even for one of the smaller FCPA cases on its docket, the SEC could have provided more useful guidance in a compliance area where government officials and the courts alike (the latter at least in domestic bribery cases) have long stated that companies should have substantial leeway – provided that no quid pro quo arrangements inhere. Because of the ambiguities in the BHPB settlement, issuers will now inevitably need to exercise even greater caution when inviting “foreign officials” (including employees of state-owned enterprises) to events like this one.

The Cease-and-Desist Order may not have found this practice to violate the FCPA’s anti-bribery provisions. But the SEC has set a high bar for any company extending hospitality to foreign officials in terms of necessary internal controls, requiring independent review of almost every decision, potentially exacting accuracy and specificity for documentation, special training, and other procedures.”


This Steptoe & Johnson publication is titled “Does SEC’s Enforcement Action Against BHP Billiton Take the FCPA’s Accounting Provisions To Far?” In pertinent part it states:

“This settlement … represents one of the most aggressive uses by the SEC to date of its accounting, and particularly its internal controls, authorities in an FCPA context.  Instead of being predicated on specific questionable payments, the factual basis of the charges was that the company recognized the risk that improper quid pro quo arrangements could develop in connection with the hospitality program, and that such risks were not appropriately managed by the company’s program, including through the manner in which they were documented in company compliance approval tracking forms.

This settlement raises significant questions regarding the manner in which SEC enforcement of the FCPA’s accounting provisions continues to evolve.  As regular consumers of SEC FCPA enforcement actions will know, in recent years, leadership of the SEC’s FCPA Unit has consistently asserted that it views an effective FCPA compliance program as essential to satisfying the FCPA’s legal requirement to “devise and maintain a system of internal accounting controls sufficient …” to ensure that “transactions are executed in accordance with management’s general or specific authorization”, and related tracking requirements.

The charges in this settlement take that position – which has not been litigated – a step further.  They appear to raise the prospect that companies could be charged with violations of the FCPA’s accounting provisions where their compliance programs do not maintain all elements of what the SEC would deem an effective compliance program – even where no underlying bribery (or at least payment arrangements suggesting some kind of improper quid pro quo, for example), has taken place.

The case also suggests that programs in the areas of hospitality and sponsorship – common and recurring areas of activity for many companies – may face enhanced scrutiny for systemic adequacy from a regulatory point of view, at least where larger amounts are involved.  Such a position – if the SEC indeed intends to pursue enforcement actions on this basis as a matter of enforcement policy – would significantly expand the scope of risks facing US issuers with appreciable FCPA/anti-corruption risks to their business.


This settlement represents one of the most expansive assertions of the SEC’s authority under the FCPA’s accounting provisions in its enforcement practice to date.  While the elements of both books-and-records and internal control violations do not require an underlying anti-bribery provision violation, as noted above, the SEC has typically brought books-and-records and internal controls charges against companies where there has been at least some suggestion of specific improper quid pro quo arrangements in connection with the payments in question. Consequently, the second-guessing of the adequacy of the company’s compliance procedures for BHP Billiton’s hospitality program is stunning: it imposes legal liability, a $25 million civil penalty, and ongoing compliance obligations on a company simply for the failure to address and manage risks in a way the SEC deems adequate. In addition to straying even further from the text of 15 U.S.C. 78m(b)(2)(A) and (B) than the SEC already had, this settlement represents some of the most prescriptive statements regarding specific compliance program practices SEC has made in the FCPA context.

As a result, many companies will understandably be very uneasy about the direction of the SEC’s enforcement program after this settlement and the sufficiency of their efforts to meet it.   Very few companies’ compliance programs comprehensively address all anti-corruption risks that a company faces, and most companies’ programs will have process or procedure gaps of which they may or may not be aware.  This settlement thus raises the question whether simply the existence of FCPA risks not effectively eliminated by a company’s compliance program – but not necessarily resulting in anti-bribery provision violations either – may nevertheless be subject to enforcement action.  Specific to the sponsorship, hospitality and gifts and entertainment area, it also raises the question of whether business entertainment for the purposes of relationship building – a necessary activity in most, if not all businesses – will raise enforcement risks when it nevertheless does not rise to the level of a specific, prohibited quid pro quo arrangement and is not undertaken in connection with other business activities.  Companies that engage in event sponsorships for other than purely altruistic reasons may be particularly challenged to manage these “group events” – even those that treat state enterprises and government officials on the same footing as private customers – in a way that meets enforcement expectations.  But if significant benefits are involved, then the message from this settlement is clearly that such differential risk management is expected.

As with many SEC resolutions, the settlement documents provide no insight into how the fine was calculated.  The settlement also continues a recent trend of the SEC to require post-settlement compliance reporting on the part of the company.

Whether this settlement represents the beginning of a trend, or an isolated occurrence representing a negotiated resolution in connection with difficult facts, remains to be seen.  This settlement highlights in particular, however, that companies should consider whether their compliance programs effectively address their most significant risks and review their associated processes and procedures accordingly.”


This Paul Weiss alert states in pertinent part:

“In addition to the record-setting civil fine, BHPB is notable as a significant expansion of the SEC’s use of the FCPA’s accounting provisions in cases where the SEC believes an issuer’s compliance program creates the potential for bribery, even if bribery has not actually occurred or cannot be established. BHPB raises the very real prospect that issuers may face charges under the FCPA’s accounting provisions—even when there is no evidence of a quid pro quo, corrupt intent, or any improperly awarded business or government action—if the SEC is not satisfied that the issuer’s internal accounting controls and anti-corruption compliance program are sufficient to adequately manage corruption risks.”


“The SEC’s enforcement action against BHPB is significant for at least four reasons.

First, this settlement represents a rare example of the SEC bringing internal accounting controls and books and records charges in a case where it neither alleges actual bribery of a foreign official, nor suggests that such bribery took place but could not be charged for jurisdictional or other reasons.

Historically, the SEC has tended to charge issuers with violating the accounting provisions of the FCPA as a supplement to—rather than a substitute for—a bribery charge. In the exceptional cases where the accounting provisions alone have been charged, there is ordinarily some indication that improper payments were offered in exchange for a business benefit—in other words, that bribery had in fact occurred even if not charged. SEC precedent for bringing charges under the accounting provisions without an indication of actual underlying bribery seems to have its roots in a 2012 settled enforcement action against Oracle Corporation (“Oracle”). In Oracle, the SEC alleged that employees of an Oracle subsidiary in India secretly “parked” proceeds from sales to the Indian government for potential future use. The SEC did not claim that the Oracle subsidiary made corrupt payments to government officials, but did allege that the parked proceeds created “the potential for bribery or embezzlement,” and that Oracle lacked proper internal controls in light of that potential.

Here, it appears that the SEC was unable to show that BHPB’s business hospitality entertainment program was accompanied by any corrupt motive or involved a quid pro quo. This outcome is consistent with the proposition—well established in the domestic bribery context—that giving things of value to government officials for the purpose of building relationships or buying generalized goodwill is permissible. The BHPB enforcement action thus suggests that the Oracle case may not be an outlier in charging FCPA violations in the absence of an allegation of actual bribery, as some expert commentators have suggested, but perhaps the beginning of a new frontier in FCPA enforcement.

Second, even if it is tenable as a general legal matter to charge a standalone internal accounting controls violation based solely on the SEC’s subjective assessment of the adequacy of an issuer’s anti-corruption compliance program, the BHPB settlement represents an expansive application of the accounting provisions.6 Indeed, the SEC’s Order acknowledges that BHPB devised and maintained multiple internal controls to prevent corruption. For example, BHPB adopted a written Guide to Business Conduct; the President of each business line was given responsibility for ensuring compliance with that Guide; all business line Presidents certified annually that they had read and understood the Guide, confirmed that their direct reports did the same, and discussed compliance with their direct reports; BHPB established a Global Ethics Panel whose remit involved advising business leaders on compliance with the Guide and other business ethics issues; and BHPB’s compliance was overseen by a centralized Legal Department. In addition, BHPB instituted internal controls intended to address the particular corruption risks arising from the Olympics Hospitality Program, including creating detailed internal application forms aimed at addressing corruption risk, a senior business manager approval process, and a role for the Global Ethics Panel in assessing the invitation process that included reviewing a sample of the hospitality application forms.

To be sure, the SEC’s Order notes the absence of a centralized compliance group, and BHPB confirmed that it had “no independent compliance function” in its release announcing the end of the U.S. government investigations. However, more than any objective deficiency with BHPB’s compliance structure, the SEC’s internal accounting controls charge appears to rest on highly specific criticisms of the internal forms used to evaluate individual hospitality applications and the related compliance process. While giving things of value for purposes of relationship building is permissible and does not constitute bribery, it appears that the SEC may intend to use the FCPA’s internal accounting controls provisions to penalize any perceived shortcomings in companies’ efforts to scrutinize such activities.

Third, the SEC’s books and records charge reflects an aggressive, but not necessarily new, interpretation of Section 13(b)(2)(A), which requires issuers to make and keep books and records that “accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” The SEC’s position raises important questions of statutory interpretation and public policy. There is nothing in the language of the books and records provision to suggest that it encompasses purely internal application forms completed for the purpose of approving gifts and entertainment expenditures. If the SEC can charge a books and records violation for any alleged inaccuracy in any internal paperwork, it will impose an enormous compliance burden that even the most sophisticated and well-resourced companies may struggle to satisfy.

Finally, the imposition of a $25 million civil fine and year of compliance reporting to the SEC is remarkable for a case in which there was no actual bribery, much less a bribery charge, no allegation of any quid pro quo or improper business benefit, and complete cooperation and full remediation. It is also noteworthy that the SEC has consistently reaffirmed its authority to seek disgorgement in enforcement actions brought under the internal controls or books and records provisions, but did not seek any disgorgement here. And despite the record-setting fine against BHPB, the SEC’s Order sheds no light on how such a fine was calculated. Moreover, although the SEC’s press release acknowledged the assistance of the Department of Justice’s Fraud Section, the Federal Bureau of Investigation, and the Australian Federal Police, no criminal charges to date have been brought.”


This Willkie Farr alert states in pertinent part:

“The BHPB settlement represents an aggressive stance by U.S. regulators with regard to providing entertainment and hospitality to government officials. As part of BHPB’s 2008 Summer Olympic Games sponsorship activities, the company invited people from all around the world. BHPB recognized the anticorruption risks potentially associated with such entertainment and tried to take precautions in advance of inviting government officials to the Summer Games by using a specifically designed “Olympic-specific internal approval process” to vet the company’s invitations. However, the SEC determined BHPB’s efforts fell short. In particular, the SEC noted that (1) BHPB did not require an independent legal or compliance review of hospitality applications; (2) some hospitality applications were not accurate or complete; (3) although BHPB had an annual Guide to Business Conduct review and certification process, as well as general compliance training, it did not have specific training on how to fill out the hospitality forms for the Olympic entertainment or evaluate applications under the company’s existing policies; (4) BHPB did not institute a process to update or reassess the appropriateness of invitations if conditions changed; and (5) the review process did not coordinate or assess whether an invitee from one CSG was involved in the business dealings of other CSGs. The SEC order does not allege that BHBP provided entertainment as part of a quid pro quo arrangement or allege a violation of the FCPA’s antibribery provisions. The order does not state how the SEC arrived at the civil monetary penalty of $25 million, a seemingly harsh penalty based on the facts alleged in the order.”


Issues To Consider From The Recent BHP Billiton Enforcement Action


This recent post highlighted the SEC FCPA enforcement action against BHP Billiton.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

Record-Setting SEC Civil Penalty

At $25 million, the BHP Billiton enforcement action clearly did not set any records in terms of overall settlement amount. (See here for the current top ten FCPA enforcement actions in terms of overall settlement amount).

In most SEC FCPA enforcement actions, the settlement amount comprises (in any given year 95%+) of disgorgement and prejudgment interest.

However, the BHP Billiton comprised solely a $25 million civil penalty.

This is believed to be, by a large margin, the largest-ever SEC civil penalty in an FCPA enforcement action.  Number 2 on this list is believed to be against ABB in 2010 (settlement amount included a $16.5 million civil penalty).

Moreover, the BHP Billiton enforcement action is the second-largest SEC only FCPA enforcement action of all-time behind the $29 million SEC only FCPA enforcement action against Eli Lilly in 2012 (see here for the prior post). (Note: an SEC only FCPA enforcement action means an enforcement action that involved only an SEC component, not an SEC settlement amount in an enforcement action that also involved a DOJ component).

That the BHP Billiton enforcement action – a travel and entertainment action – represents the largest SEC FCPA penalty ever and the second largest SEC only FCPA enforcement action of all-time is nothing short of remarkable and further to the point that FCPA settlement amounts (and components thereof) seem to be getting bigger each year … just because.  (See here for the prior post).

The Absurdity of Just Don’t Bribe

In the minds of some, the FCPA is simple.  Just don’t bribe.

More sophisticated observers recognize the absurdity of such an absolutist position.

In short, a company can do things with customer or prospective customer x and it is generally just fine.  But when the same company does the same thing with customer or prospective customer y, the U.S. government just might call it bribery.

The BHP Billiton enforcement action highlights this dynamic.

To recap, BHP Billiton was an official sponsor of the 2008 Summer Olympics in Beijing, China.  As such, the company received priority access to tickets, hospitality suites, and accommodations for the games.  Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.

According to the SEC’s findings, approximately 75% of these invitees were not alleged “foreign officials.”  Thus no problem.

But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.

The end result, according to the SEC, bribery.

Sure, BHP Billiton was not charged with FCPA anti-bribery violations, but does anyone seriously question whether this enforcement action was regarding anything but the alleged “foreign officials.”?

Avoiding the “D” Word

BHP Billiton was not the subject of a DOJ enforcement action.

To those who overuse the “D” word, this is yet another example of a DOJ “declination.”

However, consider this.

As a foreign issuer, the only way BHP Billiton could have been found to be in violation of the FCPA’s anti-bribery provisions is to the extent “[U.S.] mails or any means or instrumentality of interstate commerce” was used in furtherance of the alleged travel and entertainment expenditures.  The SEC’s enforcement action contained no such findings.

Sure, the DOJ also can bring criminal enforcement actions – including against foreign issuers – for willful violations of the FCPA’s books and records and internal controls provisions, but the SEC’s findings surely did not warrant such treatment.


Like most FCPA inquiries by the DOJ/SEC, BHP Billiton’s FCPA scrutiny followed a glacial pace.

As the company previously disclosed, it received requests for information in August 2009 from the SEC.

Thus, from start to finish it took approximately six years.

BHP Billiton Becomes The Most Recent Foreign Company To Pay Uncle Sam

Uncle Sam3

BHP Billiton, a company based in Australia and the United Kingdom, was an official sponsor of the 2008 Summer Olympics in Beijing, China.  As such, the company received priority access to tickets, hospitality suites, and accommodations for the games.  Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.

But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.

The end result seven years later?

Why of course $25 million to the U.S. Treasury because BHP Billiton had American Depositary Shares that trade on a U.S. exchange.

Yesterday the SEC released this administrative cease and desist order concerning BHP Billiton Ltd. and BHP Billiton Plc.

In summary fashion, the SEC order states:

“This matter concerns BHPB’s failure to devise and maintain sufficient internal controls over a global hospitality program that the company hosted in connection with its sponsorship of the 2008 Beijing Summer Olympic Games. BHPB invited approximately 176 government officials and employees of state-owned enterprises (collectively, “government officials”) to attend the Olympics at BHPB’s expense. The majority of these invitations were extended to government officials from countries in Africa and Asia that had well-known histories of corruption. The three to four day hospitality packages included event tickets, luxury hotel accommodations, meals, other hospitality, and, in many instances, offers of business-class airfare for government officials and their guests. BHPB informed its employees that “[o]ne of the core objectives [of the Olympic sponsorship] is to maximize the commercial investment made in the Games through assisting [BHPB] to strengthen relationships with key local and global stakeholders, e.g.: Government Ministers, Suppliers and Customers,” and that the hospitality program was “a primary vehicle to ensure this goal is achieved.”

BHPB recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws and the company’s own Guide to Business Conduct, but the internal controls it developed and relied upon in an effort to address this risk were insufficient. As a result, BHPB invited government officials who were directly involved in, or in a position to influence, pending contract negotiations, efforts to obtain access rights, regulatory actions, or business dealings affecting BHPB in multiple countries. In addition, BHPB’s books and records, namely certain internal forms that employees prepared in order to invite a government official to the Olympics, did not, in reasonable detail, accurately and fairly reflect BHPB’s pending negotiations or business dealings with the government official at the time of the invitation.

As a result of this conduct, BHPB violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act (“FCPA”).”

Under the heading “BHPB’s Hospitality Program for the 2008 Beijing Summer Olympic Games,” the order states:

“In December 2005, BHPB and the Beijing Organizing Committee announced their agreement for BHPB to become an official sponsor of the 2008 Beijing Olympic Games. Under this agreement, BHPB paid a sponsorship fee and supplied the raw materials used to make the Olympic medals. In exchange, BHPB received the rights to use the Olympic trademark and other intellectual property in public announcements and advertisements, as well as priority access to tickets, hospitality suites, and accommodations in Beijing during the August 2008 Games.

BHPB established an Olympic Sponsorship Steering Committee (“OSSC”) to plan, oversee, and implement its sponsorship program, which involved multiple different branding, promotion, and relationship-building initiatives. The chair of the OSSC, who also was the chair of the Ethics Panel, reported directly to BHPB’s CEO.

One of BHPB’s objectives for the sponsorship was “to reinforce and develop relationships with key stakeholders” in China and in “product and investor markets, and regions where we have or would like to have operations.” BHPB’s strategy for accomplishing its objectives included “[u]tiliz[ing] Olympic hospitality to motivate China-based stakeholders, including customers, suppliers, government and media, to enhance business opportunities for BHP Billiton in China” and “[u]tiliz[ing] Olympic hospitality to build relationships with stakeholders from product and investor markets, and regions where we have or would like to have operations.”

One of the company’s sponsorship-related initiatives was a global hospitality program under which BHPB invited guests from around the world, including foreign government officials and representatives of state-owned enterprises, to attend the Beijing Olympics on three to four day hospitality packages. The hospitality packages included luxury hotel accommodations, meals, event tickets, and sightseeing excursions, at a cost of approximately $12,000 to $16,000 per package. In addition, BHPB executives approved the offer of round trip business class airfare to approximately 51 foreign government officials, as well as the airfares for 35 of these government officials’ spouses or guests. Apart from BHPB’s desire to enhance business opportunities by strengthening relationships with its guests, these trips had no other business purpose.

An internal e-mail to CSG presidents and other senior BHPB business managers emphasized the importance of the hospitality program to the success of BHPB’s sponsorship, stating, “[a]s you know we have made a commitment to support the Beijing Olympic Games in 2008. One of the core objectives is to maximise the commercial investment made in the Games through assisting [BHPB] to strengthen relationships with key local and global stakeholders, e.g.: Government Ministers, Suppliers and Customers. The BHP Billiton Hospitality Program is a primary vehicle to ensure this goal is achieved.”

In early 2007, BHPB employees prepared country-specific Olympic Leverage Plans, which summarized BHPB’s business and Olympic-related objectives. In a number of instances, these plans discussed inviting key stakeholders, including government officials, to help BHPB develop relationships with a view to increasing or maintaining its business opportunities. For example, the Olympic Leverage Plan prepared for one country stated that BHPB’s business objectives in that country included “gaining access to regions that will provide growth for [BHPB’s] business” and “gaining port access.” The plan further stated that the hospitality program would “provide useful relationship building opportunity for . . . stakeholders” and that the invitees would include the country’s Minister of Mines and Minister of Transport. The Olympic Leverage Plan for another country, while not specifically addressing the hospitality program, stated that one of the goals for the sponsorship was “us[ing] Olympics program to strengthen and build the govt’s confidence and relationship with [BHPB], to help facilitate approvals for future projects.”

After Olympic Leverage Plans were prepared for each country, BHPB business managers submitted lists of potential invitees and were instructed to rank them in order of importance, with “Category A” being those “most critical to the business.” Internal BHPB presentations discussed the need to establish “the business benefit” of an Olympic invitation.

Eventually, BHPB invited approximately 650 people to attend the Beijing Olympics, including 176 government officials, 98 of whom were representatives of state-owned enterprises that were BHPB customers or suppliers. BHPB also invited the spouses of 102 of these government officials. Most of the invited government officials were from countries in Africa and Asia where there was a known risk of corruption. Sixty of these government officials ultimately attended, 24 of them with their spouses or guests. A number of other invited government officials accepted their invitations, but then cancelled before the Olympics began.”

Under the heading “BHPB’s Insufficient Internal Controls over the Olympic Hospitality Program,” the order states:

“Early in its planning for the Olympics, BHPB identified the risk that inviting government officials to the Olympics could potentially violate anti-corruption laws and the company’s own Guide to Business Conduct. The company relied on its existing operating model and an Olympic-specific internal approval process to address this risk. However, these internal controls, and BHPB’s implementation of them, were insufficient.

BHPB developed a hospitality application which business managers were required to complete for any individuals, including government officials, whom they wished to invite. These applications included the following questions:

9. What business obligation exists or is expected to develop between the proposed invitee and BHP Billiton?

10. Is BHP Billiton negotiating or considering any contract, license agreement or seeking access rights with a third party where the proposed invitee is in a position to influence the outcome of that negotiation?

11. Do you believe that the offer of the proposed hospitality would be likely to create an impression that there is an improper connection between the provision of the hospitality and the business that is being negotiated, considered or conducted, or in any way might be perceived as breaching the Company’s Guide to Business Conduct?

If yes, please provide details.

12. Are there other matters relating to the relationship between BHP Billiton and the proposed invitee that you believe should be considered in relation to the provision of hospitality having regard to BHP Billiton’s Guide to Business Conduct?

BHPB required each such application to be filled out and signed by an employee with knowledge of the invitee’s relationship with the company, and approved in writing by the president of the relevant CSG or the BHPB country president. A cover sheet that accompanied the blank forms included a short description of anti-bribery provisions in the Guide to Business Conduct and urged employees to re-read the section of the Guide concerning travel, entertainment, and gifts before completing the form. However, the controls did not adequately address the antibribery risks associated with offering expensive travel and entertainment packages to government officials.

First, BHPB did not require independent legal or compliance review of hospitality applications by someone outside the CSG that was submitting the application, and did not clearly communicate to its employees the fact that the Ethics Panel was not reviewing and approving each invitation to a government official. On the one hand, BHPB’s internal website stated that the hospitality applications were subject to “scrutiny by the Ethics Panel [steering committee],” and the hospitality applications themselves stated that, “[r]equests for travel and accompanying spouses will be approved by the Olympic Sponsorship Steering Committee and the Global Ethics Panel Sub-Committee.” E-mails sent to some BHPB business managers by a member of the OSSC staff stated that the Ethics Panel had “approved” their applications.

However, other than reviewing approximately 10 hospitality applications for government officials in mid-2007 in order to assess the invitation process, the OSSC and the Ethics Panel subcommittee did not review the appropriateness of individual hospitality applications or airfare requests. The Ethics Panel’s charter stated that its role simply was to provide advice on ethical and compliance matters, and that “accountability rest[ed] with business leaders.” Members of the Ethics Panel understood that, consistent with their charter, their role with respect to implementation of the hospitality program was purely advisory. As a result, business managers had sole responsibility for reconciling the competing goals of inviting guests – including government officials – who would “maximize [BHPB’s] commercial investment made in the Olympic Games” without violating anti-bribery laws.

Second, some hospitality applications were not accurate or complete. Many applications identified an employee of a state-owned enterprise as a “Customer,” but failed to identify the invitee as a “Representative of Government.” In addition, a number of applications contained “No” responses to Question 10, even when BHPB had pending negotiations, efforts to obtain access rights, regulatory actions, or other business dealings in which the government official was directly involved or in a position to influence. Furthermore, in a number of instances, BHPB business people were provided with examples of language that had been used by other employees when responding to Questions 10 and 11 in order to explain why an invitation was appropriate, even when there was a “Yes” response to Questions 10-12. As a result, many hospitality applications contained the exact same statements in response to Questions 10 and 11, rather than a description of the specific facts and circumstances relating to that government official.

Third, while BHPB had an annual Guide to Business Conduct review and certification process, and generalized training, it did not provide its employees and executives with any specific training on how to fill out the hospitality forms or how to evaluate whether an invitation to a government official complied with the Guide. During the relevant period, this portion of the Guide included a case example concerning a negotiation between BHPB and a Ministry for Planning in a particular country, in which the Minister indicated that it would help his consideration of the company’s application if the Minister and his wife could visit BHPB’s operations in Australia. The example stated that “this kind of situation requires the utmost caution and you must consult senior management. You must not offer to provide anything that could be reasonably regarded as an attempt to unduly influence the Minister’s decision. This means that you must not pay for travel by the Minister’s wife.” However, BHPB did not provide any guidance to its senior managers on how they should apply this portion of the Guide when determining whether to approve invitations and airfares for government officials’ spouses.

Fourth, although the form asked whether any business was “expected to develop” with the invitee, BHPB did not institute a process for updating hospitality applications or reassessing the appropriateness of invitations to government officials if conditions changed. Almost all of the hospitality applications relating to government officials were approved and submitted in mid-2007. However, BHPB did not require hospitality forms to be updated, or invitations to be reconsidered, in those situations when government officials subsequently became involved in negotiations, attempts by BHPB to obtain access rights, or other pending matters.

Fifth, hospitality applications were submitted by individual CSGs, and generally only reflected negotiations between the government official and that CSG. While lists of invitees were circulated among senior BHPB business managers, BHPB had no process in place to determine whether the invited government official also was involved in other CSGs’ negotiations, efforts to obtain access rights, or other business dealings.”

The order next states, under the heading “As a Result of its Insufficient Internal Controls, BHPB Invited Government Officials who were Directly Involved in, or in a Position to Influence, Pending Negotiations, Regulatory Actions, or Business Dealings with BHPB,” as follows:

“As a result of its failure to design and maintain sufficient internal controls over the Olympic global hospitality program, BHPB invited a number of government officials who were directly involved with, or in a position to influence, pending negotiations, efforts by BHPB to obtain access rights, or other pending matters.”

Republic of Burundi

In mid-2007, BHPB’s MinEx group submitted a hospitality application form to invite the as-yet-unidentified Burundi Minister of Mines and spouse to the Olympics, with airfare included. Because BHPB was not currently in negotiations with the Minister of Mines at the time, the hospitality application form contained a “No” response to Question 10. However, BHPB had a joint venture (“JV”) in Burundi with an entity that was in danger of losing a nickel exploration permit unless it made a substantial near-term financial investment in the project or negotiated a renewal or amendment of the permit. Under Burundi law, the Minister of Mines was responsible for reviewing an application to renew or amend a mining permit and presenting the application to the country’s Council of Ministers for final approval.

In late 2007 and early 2008, BHPB began to negotiate directly with the newly appointed Minister of Mines to extend and modify the JV’s nickel exploration permit. However, BHPB employees did not update the hospitality application or take steps to re-review the appropriateness of the invitation after these negotiations began. As noted above, no such re-review was required by the internal controls that BHPB relied upon for the Olympic hospitality program. The Minister of Mines and his wife attended the Olympics as BHPB’s guests for four days.

Republic of the Philippines

In July 2007, BHPB became embroiled in a dispute with a local JV partner concerning a prospective nickel mining operation in the Philippines. The JV partner sued BHPB in local court and filed requests with the country’s Secretary of Department of Environment and Resources (“DENR”), requesting reversion of the mining rights that the JV partner had assigned to the JV.

In October 2007, a BHPB employee from the Stainless Steel Materials CSG submitted a hospitality application to invite the Secretary and his spouse to attend the Olympics, with airfare included. The completed application contained a “Yes” response to Question 10, but only described a technical services agreement that BHPB was considering submitting to the DENR for the Secretary’s approval. Question 10 of the hospitality form did not explicitly require, and the employee’s response did not provide, any information about the Secretary’s role in reviewing the JV partner’s reversion request or the fact that the President of the Philippines had designated the Secretary to mediate the dispute between BHPB and its JV partner. The form included a “No” response to Question 11.

The Secretary accepted BHPB’s invitation in December 2007. In March 2008, he issued a decision denying the JV partner’s reversion request and continued during the ensuing months to mediate the parties’ dispute. In late July, BHPB became concerned that the company’s JV partner had learned about the Olympics invitation. As a result, BHPB withdrew the invitation shortly before the Olympics began.

Democratic Republic of the Congo

In mid-2007, MinEx submitted a hospitality application form to invite the Governor of the Katanga Province in the Democratic Republic of the Congo (the “DRC”) and his spouse, with airfare included. Following its June 2007 review of 10 invitations to government officials, the Ethics Panel subcommittee advised MinEx to provide more detail about whether the invitation involved Gecamines, a state-owned entity with which BHPB was attempting to negotiate a copper exploration deal. In response, MinEx submitted a revised application that contained a “No” response to Question 10, stating, “[t]he issuing and management of mineral titles and negotiations with third parties in DRC have nothing to do with the Governor’s roles and responsibilities. Although [BHPB] are currently engaged in negotiations with State copper company, Gecamines, the Governor of Katanga will have no influence in these dealings.”

Later in 2007, however, BHPB employees held several meetings with the Governor. Internal summaries of these meetings noted that the Governor was “a close ally of [the DRC] President” and that having the Governor as BHPB’s ally “could be the key to unlock a successful entry in a deal with Gecamines.” In spite of obtaining this information after making the initial decision to invite the Governor of Katanga and his wife to the Olympics, BHPB employees did not update the hospitality application form or take steps to re-review the appropriateness of the invitation. No such re-review was required under the internal controls that BHPB relied upon for the Olympic hospitality program. The Governor accepted the invitation, but then cancelled before the Olympics.

Republic of Guinea

In May 2007, MinEx submitted a hospitality application to invite the Guinea Minister of Mines and his spouse to the Olympics, with airfare included. The application contained a “No” response to Question 10, and in response to Question 11 it stated, “No. A sound professional relationship with the Guinea Ministry of Mines is key for the success of the [BHPB] exploration and mining business in this country.” Following its June 2007 review of 10 invitations to government officials, the Ethics Panel subcommittee advised MinEx to provide additional information concerning this invitation. The MinEx employee who had prepared the original form asked BHPB’s Guinea country president to respond to the request for information concerning any pending negotiations with the Minister. The country president replied that “of course” there would be “further negotiations” regarding the upcoming renewal of a bauxite mining concession held by BHPB and the government’s intention to review all existing mining concessions, but that the response to Question 11 was “key in that regard.”

This information was not passed along to the Ethics Panel subcommittee, however, and the form was not updated to accurately reflect the pending negotiations across all of the CSGs operating in Guinea. Because they received no response to the Guinea country president’s email, MinEx officials mistakenly understood that the Ethics Panel had approved the invitation. The Minister accepted the invitation on behalf of himself and his wife in January 2008, but cancelled shortly before the Olympics began.”

Based on the above findings, the order states:

“As a result of the conduct described above, BHPB violated [the FCPA’s books and records provisions] because its books and records, namely certain Olympic hospitality applications, did not, in reasonable detail, accurately and fairly reflect pending negotiations or business dealings between BHPB and government officials invited to the Olympics. BHPB violated [the FCPA’s internal controls provisions] because it did not devise and maintain internal accounting controls over the Olympic hospitality program that were sufficient to provide reasonable assurances that access to assets and transactions were in executed in accordance with management’s authorization.”

Under the heading “BHPB’s Cooperation and Remedial Efforts,” the order states:

“In response to the Commission’s investigation, BHPB retained outside counsel to assist it with conducting an extensive internal investigation into potential improper conduct in the jurisdictions that were the subject of the staff’s inquiry. BHPB provided significant cooperation with the Commission’s investigation by voluntarily producing large volumes of business, financial, and accounting documents from around the world in response to the staff’s requests, and by voluntarily producing translations of key documents. BHPB’s counsel conducted scores of interviews and provided the staff with regular reports on the findings of its internal investigation.

BHPB also has undertaken significant remedial actions. BHPB has created a compliance group within its legal department that is independent from the business units. This compliance group is responsible for FCPA compliance, among other things, and reports directly to BHPB’s general counsel and Audit Committee. In addition, it has reviewed its existing anticorruption compliance program and implemented other changes. These include embedding independent anti-corruption managers into its businesses and further enhancing its policies and procedures concerning hospitality, gift giving, use of third party agents, business partners, and other high-risk compliance areas. BHPB also has enhanced its financial and auditing controls, including policies to specifically address conducting business in high-risk markets. BHPB has conducted extensive employee training on anti-corruption issues and overhauled its processes for conducting internal investigations of potential violations of anti-corruption laws.”

The order further states:

“During a one-year term …, Respondents [BHP Billiton] shall report to the Commission staff on the operation of BHPB’s FCPA and anti-corruption compliance program. If Respondents discover credible evidence, not already reported to the Commission staff, that: (1) questionable or corrupt payments or questionable or corrupt transfers of property or interests may have been offered, promised, paid, or authorized by Respondents, or any entity or person while working directly for Respondents, to any government official; (2) that related false books and records have been maintained; or (3) that Respondents’ internal controls failed to detect and prevent such conduct, Respondents shall promptly report such conduct to the Commission staff.”

During the one-year period, BHP Billiton shall also report to the SEC “on the operation of [its] FCPA and anti-corruption compliance program” and “shall undertaken one follow-up review.”

In this SEC release, Andrew Ceresney (Director of the SEC’s Enforcement Division) stated:

“BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors. BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.”

Antonia Chion (Associate Director of the SEC’s Enforcement Division) added:

“A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA. Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”

As noted in the SEC release:

“The SEC’s order finds that BHP Billiton violated [the FCPA’s books and records and internal controls provions].  The settlement, in which the company neither admits nor denies the SEC’s findings, reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation and requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.”

BHP Billiton agreed to pay a $25 million penalty to settle the SEC’s charges.

This BHP Billiton release states in full as follows.

  • U.S. Department of Justice (DoJ) to take no action
  • U.S. Securities and Exchange Commission (SEC) investigation that commenced in 2009 resolved on all matters
  • No findings of bribery or corrupt intent
  • DOJ’s ‘no action’ and SEC resolution conclude the U.S. investigations
  • SEC imposes a civil penalty relating to accounting provisions of the FCPA
  • SEC notes BHP Billiton’s “significant cooperation” and “significant remedial actions”
  • SEC findings relate to BHP Billiton’s internal controls and books and records governing its hospitality program at the 2008 Beijing Olympic Games

BHP Billiton today announced the resolution of the previously disclosed investigation by the SEC into potential breaches of the United States Foreign Corrupt Practices Act (FCPA). The DOJ has also completed its investigation into BHP Billiton without taking any action.

The investigations related primarily to previously terminated minerals exploration and development efforts as well as hospitality provided by the Company at the 2008 Beijing Olympic Games. This concludes the US investigations on all matters.

BHP Billiton will continue to cooperate with the Australian Federal Police investigation, which was announced in 2013.

The matter is being resolved with the SEC pursuant to an administrative order which imposes a US$25 million civil penalty. The SEC Order makes no findings of corrupt intent or bribery by BHP Billiton.

The findings announced today by the SEC relate to a hospitality program hosted by BHP Billiton which supported its sponsorship of the 2008 Beijing Olympic Games. As part of this program, the Company invited customers, suppliers, business partners, and government officials, along with Company employees, to the Olympic Games. While BHP Billiton made efforts at the time to address the risks related to inviting government officials to the Olympics, the controls it relied upon were insufficient to satisfy the civil books and records and internal accounting controls requirements of the U.S. statute.

The SEC noted the “significant cooperation” BHP Billiton provided during the extensive investigation, which commenced in 2009. It also noted the “significant remedial actions” the Company has taken over the past five years to enhance its compliance program.

At the time of its sponsorship of the 2008 Beijing Olympics and Paralympics, BHP Billiton had no independent compliance function. Instead, accountability for complying with the Company’s anti-corruption policies, which were set out in the Company’s Guide to Business Conduct, was vested in its operating business units. The Company has since created an independent compliance function that reports to the head of the legal function and the Risk & Audit Committee of the BHP Billiton Board. Today this function would be required to approve any offer of hospitality of this kind to a government official. Under the SEC Order, BHP Billiton will self-report on its compliance program for twelve months.

BHP Billiton CEO Andrew Mackenzie said, “We have fully cooperated with the SEC throughout this process. We have taken the appropriate remedial actions and developed a world class compliance program that builds on the strong policies we have had in place. BHP Billiton operates a global resources business and recognises that the highest standards of business conduct are an essential part of our operations. Our Company has learned from this experience and is better and stronger as a result.”

Scott Muller (Davis Polk & Wardwell) represented BHP Billiton.  See here for Davis Polk’s press release. According to the release, 8 attorneys worked on the matter.

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