Category: Deferred Prosecution Agreements

DOJ Prosecution Of Individuals – Are Other Factors At Play?

Friday Roundup

Did you notice?, scrutiny updates, quotable, too narrow, save the date and for the reading and viewing stack.  It’s all here in the Friday roundup.

Did You Notice?

This previous post – “Double Dipping” – spotlighted a common trend in issuer FCPA enforcement actions.  That is, the company pays twice for the improper conduct.  First, to the DOJ because alleged improper gain is a key factor in the advisory U.S. sentencing guidelines which guide criminal fine amounts, and again to the SEC because alleged improper gain often equates to a disgorgement amount.

Did you notice the following in the recent Alcoa enforcement action?  In the DOJ’s plea agreement with Alcoa World Alumina LLC the DOJ set forth various factors justifying a reduced criminal fine amount including:  “the significant remedy being imposed on the Defendant’s majority shareholder, Alcoa, by the U.S. Securities and Exchange Commission for Alcoa’s conduct in this matter.”

FCPA practitioners would be wise to file this someplace important and the DOJ’s recognition of such “double-dipping” is a welcome development.  Time will tell whether it was case specific.

Scrutiny Updates

Companies have different disclosure practices.  Some companies disclose specific FCPA internal investigation costs, others do not.  When a company falls into the former category, it is a relevant datapoint.  Nordion (see this prior post for its initial disclosure) recently disclosed that its “full year expenses associated with [its] investigation was $11.8 million.”

Microsoft, which first became the subject of FCPA scrutiny in March 2013 (see here) – thereby exposing the fallacy of the “good companies, don’t bribe period” position (see here) –  “is now requiring its partners to educate their employees on the legal
consequences of bribery and other illegal activity.”  So says this recent article in CRN which further states:   “A new Microsoft partner program requirement that went into effect this month calls for partners to “provide anti-corruption training to all employees who resell, distribute, or market Microsoft products or services,” Microsoft said in a document sent recently to partners, which was viewed by CRN.”

Quotable

Homer Moyer (Miller & Chevalier and a dean of the FCPA) steps up to the plate and hits another one out of the park.  In this recent article he states:

“One reality is the [FCPA] enforcement agencies’ views on issues and enforcement policies, positions on which they are rarely challenged in court.  The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged.  The two may not be the same.  The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Spot-on.

While the decision of one risk-averse business organization to settle an FCPA enforcement action may seem case specific, the long-term effects of such a decision affect not only the settling company, but other business organizations subject to increasingly aggressive FCPA enforcement theories.  (See here for a previous guest post titled “Prosecutorial Common Law”).

As former Attorney General Alberto Gonzales rightly noted:

“In an ironic twist, the more that American companies elect to settle and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.”

Like A Kid In A Candy Store

It is mid-January and, like every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading these publications are recommended and should find their way to your reading stack.  However, be warned.  The divergent enforcement statistics contained in them are likely to make you dizzy at times and as to certain issues.

Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)

Gibson Dunn

The firm’s Year-End FCPA Update is a quality read year after year.

Consistent with this prior post “FCPA Settlement Amounts Have Come a Long Way In a Short Amount of Time,” the Update notes as follows.  “An unmistakable characteristic of the year in FCPA enforcement is that the market rate for resolving a corporate FCPA enforcement action spiked precipitously in 2013.”

Numerous previous posts have highlighted various double standards relevant to FCPA enforcement and the following passage from the Update is well-stated.

“The paradigm of international anti-corruption enforcement is frequently viewed, at least in the United States, through the prism of U.S. enforcers determined to root out the illicit dealings of corrupt foreign officials.  We speak of sovereign nations as “risky neighborhoods” in which to do business, denoted by dark shades of red on the ubiquitous Transparency International Corruption Perceptions Index (“CPI”).  So the authors frequently note the quizzical looks on the faces of audience members in training sessions when we reveal that the United States barely qualifies as a Top 20 country on the CPI, tied at 19 with South America’s Uruguay.  To be sure, the less-than-stellar CPI ranking of the United States has as much to do with an unparalleled domestic enforcement regime as any other factor, but the sad truth is that corruption is not a problem unique to government officials outside our borders.”

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”  The update: “(1) identifies the NPAs and DPAs announced in 2013 and the trends they reflect; (2) surveys the role NPAs and DPAs may play in federal civil litigation collateral to the criminal resolutions of the agreements themselves; (3) analyzes the challenges that non-contradiction clauses in NPAs and DPAs can present for companies when they address the underlying conduct and facts outside the context of the criminal settlement; and (4) discusses debarment and suspension implications of NPAs and DPAs.”

According to the Update, of the 28 NPAs or DPAs the DOJ (or SEC) entered into in 2013, 8 (28%) were in FCPA enforcement actions and the FCPA was the single largest source of NPAs and DPAs in 2013 in terms of primary allegation.

According to previous Gibson Dunn reports on this subject, in 2012 (a year in which saw a large number of trade sanctions, export controls, and money laundering enforcement actions resolved via NPAs or DPAs) 23% of all NPAs and DPAs were in FCPA enforcement actions; in 2011, approximately 40% of DOJ NPAs or DPAs were in FCPA enforcement actions; and in 2010, approximately 50% of DOJ NPAs or DPAs were in FCPA enforcement actions.

Shearman & Sterling

The firm’s “Recent Trends and Patterns in the Enforcement of the FCPA” is also another quality read year after year.

Consistent with Philip Urofsky’s previous critique of the Ralph Lauren Corporation enforcement action (see here), the report states as follows.

“We have previously highlighted the SEC’s disconcerting practice of charging parent companies with anti bribery violations based on the corrupt payments of their subsidiaries, even when the facts alleged in the pleadings do not establish any parental involvement in bribery. In the Ralph Lauren case, both the SEC and DOJ took an even larger leap, by seemingly imposing apparently strict criminal and civil liability on a parent company for the corrupt acts of its subsidiary. […] Neither agency … included any allegation of any authorization, direction, or control by RLC of its subsidiary’s corrupt conduct, or even its knowledge of such conduct.  […]  [T]he government apparently intends to treat a subsidiary as the parent’s agent by focusing not on the formal relationship, present in all cases, between a parent and a subsidiary, informed by the practical realities of how the parent and subsidiary interact, and then apply “traditional principles of respondeat superior” to hold the parent liable for bribery by the subsidiary, whether or not specifically authorized, directed, or controlled by the parent.  Under this theory, a subsidiary is virtually always an agent of its parent, and thus the parent is strictly liable for any acts ‘‘within the scope of [the agent’s] duties’’ and intended to benefit the parent—even if the parent had policies prohibiting bribery. This flagrantly disrespects the corporate form and the black letter rule that to ‘‘pierce the corporate veil’’ the parent must have operated the subsidiary as an alter ego and itself paid no attention to the corporate form.  Although we have noted elements of this approach in prior SEC actions, the DOJ’s espousal of such a theory is particularly worrisome, as it impacts non issuer domestic concerns and foreign companies —a much broader universe of companies.  […] The fact that the Ralph Lauren case was resolved through an NPA rather than a DPA (or a guilty plea) does not excuse this approach—when the DOJ announces it will not prosecute but requires the company to admit to facts establishing a criminal violation of the law, it is stating, as a fact, that the company committed a crime. In such case, it is obligated to demonstrate, through the pleadings, in whatever form they are presented, that it could, in fact, prove each and every element of the offense.”

Hughes Hubbard

The firm’s Winter Alert is thick and comprehensive and begins in dramatic fashion:

“To paraphrase Mark Twain, reports of the FCPA’s death were greatly exaggerated.  Although at times many pillars of anti-corruption enforcement seemed to be crumbling or at least showing cracks, 2013 has seen a string of developments that reinforce that anti-bribery laws — and their vigorous enforcement — are here to stay. Where once we watched the Shot Show prosecution crumble, we now see indictments and plea deals for even non-U.S. citizens and non-U.S. issuers. Where once we saw monitorships seemingly falling into disfavor, we now see them restored and imposed in the most high-profile, high-stakes cases.”

Other Items for the Reading Stack

See here for “Mitigating Potential Bribery-Related Risks Associated With Minority Owned and Non-Controlled Joint Ventures” by Covington & Burling attorneys Robert Amaee, David Lorello, John Rupp and Ashely Sprague.

See here for “Top Ten Compliance Trends for the New Year” by Perkins Coie attorneys Markus Funk and Sambo Dul.

World Bank / U.N. Report Rightly Identifies A Problem, Yet Ends With Contradiction

The Stolen Asset Recovery Initiative, a partnership between the World Bank Group and the U.N. Office on Drugs and Crime, recently released this report titled “Left Out of the Bargain:  Settlements in Foreign Bribery Cases and Implications for Asset Recovery.”

The report addresses the “core issue of how the imposition of monetary sanctions through settlement compares to the requirements of the U.N. Convention Against Corruption on the recovery and return of the proceeds of corruption.”

This post highlights other topics, beyond the above core issue, addressed in the lengthy report.

For starters, the report is a useful resource in understanding how other nations prosecute and resolve bribery and corruption offenses as well as how settlements in one jurisdiction affect legal actions in other jurisdiction (that is double jeopardy issues).  Also informative was the section of the report detailing countries who “have taken enforcement actions against foreign companies or individuals who have bribed their public officials” In other words, carbon-copy prosecutions (see here for the prior post).

From my perspective, the most notable feature of the report was its call for greater transparency of bribery and corruption settlements.

As the report notes, “over the past decade, there has been significant progress in battling foreign bribery, with the clear trend of many cases being resolved through settlements rather than full trials.”

In the Executive Summary, under the heading “Additional Observations,” the report states:

“This study calls for greater transparency in settlements. The negotiation of settlements takes place between the authorities and implicated parties behind closed doors. One critical step would be to inform affected jurisdictions that a negotiation toward a settlement is taking place. The study shows that forms of settlements (such as Non-Prosecution Agreement, Deferred Prosecution Agreement, penalty notice, or a guilty plea) provide varying degrees of transparency. In some jurisdictions, the outcomes of settlements are publicly available, illustrating that greater transparency is possible. Most settlements are negotiated with little oversight by a judge and sometimes without any public hearing at the conclusion. The report emphasizes that once an agreement has been reached, it should not be shielded from public view. More transparency helps ensure fairness to all affected jurisdictions and parties.”

After noting that the “United States has resolved more foreign bribery cases by way of settlement than any other nation,” the report states that the U.S. has some “unique procedural features” in that non-prosecution agreements and deferred prosecution agreements are “unique even among the common law jurisdictions.”

The report notes that NPAs in the U.S. have no judicial involvement and then states that “in general, if a judge oversees the [settlement] process, the public will have more confidence in the outcome” and that “without the stamp of judicial approval, settlements may have less legitimacy.”

Elsewhere, the report notes that settlements, and the “abbreviated procedures [they contain] have also helped in no small measure to boost the enforcement of foreign bribery laws and regulations globally.”

Under the heading “reduced role of the courts,” the report states:

“The more cases are concluded by means of a settlement rather than proceeding to trial, the more the role of the courts is reduced.  In common law systems, in particular, the greater involvement of courts usually leads to greater clarification of what the law means.  But as greater use is made of settlements and guilty pleas, this clarifying role is diminished.  In a trial, issues are litigated with full arguments made on each side, permitting a judge to weigh the merits of the legal issues in light of the facts.  In common law jurisdictions, such case law plays a large role, and its effect on the development of law is considered desirable.  Moreover, in such systems, legal precedent is often binding on future cases.”

Despite the above spot-on statements on the issue of settlements, the report ends with a Conclusion section and the first conclusion is stated as follows.

“Over the past decade, enforcement actions against foreign bribery have increased.  This is a positive and welcome trend, especially since improvements in enforcement also improve the climate for asset recovery.  This progress in enforcement has largely been due to the effective use of settlements in a steadily increasing number of jurisdictions.”

From calling for greater transparency of settlements, to stating that settlements have less legitimacy, to criticizing the reduced role of the judiciary in settlements, to calling such a state of affairs “effective.”

That is quite the contradiction.

German Company Resolves FCPA Enforcement Action Based On Conduct From “The Distant Past”

Approximately 8 years ago, a German company owned 80% of a German entity doing business in Nigeria.  The German entity doing business in Nigeria entered into a joint venture consortium agreement with subsidiaries of a Panamanian company.  The Panamanian company had principal places of business in the U.S. and had shares traded on the New York Stock Exchange.  The joint venture consortium allegedly made bribe payments to Nigerian officials.

The end result?

Why of course, $32 million dollars to the U.S. Treasury.

Yesterday, the DOJ announced (here) that “Bilfinger SE, an international engineering and services company based in Mannheim, Germany, has agreed to pay a $32 million penalty to resolve charges that it violated the Foreign Corrupt Practices Act by bribing [Nigerian] government … to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project, which was valued at approximately $387 million.”

As noted in the DOJ’s release, the EGGS has been the focus, in whole or in part, in several prior enforcement actions against Willbros Group, Jim Brown, Jason Steph, James Tillery and Paul Novak.

The enforcement action involved a DOJ criminal information resolved via a deferred prosecution agreement.

Information

The information alleges that Bilfinger conspired with others “to obtain and retain contracts related to the EGGS project through the promise and payment of over $6 million in bribes to officials of [the Nigerian National Petroleum Corporation – NNPC], [National Petroleum Investment Management Services – a subsidiary of NNPC], the [dominant political party in Nigeria], an official in the executive branch of the Government of Nigeria, and others (collectively – the Nigerian Officials).”

According to the information, in 2003 Bilfinger “agreed to create a joint venture with [Willbros West Africa, Inc. (WWA) and Willbros Nigeria Ltd. (WNL) – both subsidiaries of Willbros International Inc., a Panamanian corporation with principal places of business in the U.S. and with shares traded on the New York Stock Exchange] to bid on the EGGS contract and its optional scopes of work.”  In late 2003, [Bilfinger Berger Gas and Oil Services Nigeria Ltd. “BBGOS” – a German company based in Nigeria that was owned 80% by Bilfinger] and WWA/WNL executed a “Consortium Agreement” which formalized Bilfinger’s agreement to create a joint venture in connection with the EGGS project.”

According to the information, “Bilfinger and its coconspirators agreed that the EGGS Consortium would inflate the price of its bids for the EGGS project by 3% so it could cover the cost of paying bribes to Nigerian officials for their assistance in obtaining and retaining the EGGS project and its optional scopes of work.

The information alleges, among other things, that when other conspirators “encountered difficulty obtaining money to make [their] share of the promised bribe payments to Nigerian officials,” Bilfinger agreed to those loan the other conspirators $1 million “with the understanding that the $1 million would be used to pay some of the promised bribe payments to Nigerian officials …”.

The information contains the following relevant jurisdictional allegations.

• “[In 2004] WWA opened a bank account in the U.S. on behalf of the EGGS Consortium, in which payments for work conducted by the EGGS Consortium would be deposited and out of which payments would be made to BBGOS or WWA when authorized by both BBGOS and WWA.”
• “[In 2005], Bilfinger Employee 1 [a German citizen] telephoned Bilfinger Employee 3 [a German citizen], who was in the United States, and asked Bilfinger Employee 3 to meet with Tillery in Boston, MA, to find out what payments had been promised to officials and whether [a relevant contract] was at risk because those payments had not yet been made.”
• [In 2005], Bilfinger Employee 3 flew from Houston, TX, to Boston, MA, to meet with Tillery and inquire about the outstanding corrupt payments and the [relevant contract].”

Based on the above allegations, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and two substantive FCPA anti-bribery charges.  The two substantive charges are based on (1) a 2005 “flight from Houston, TX to Boston, MA to discuss promised bribe payments,” and (2) a 2005 “wire transfer of $2,804,496 from Houston, TX to Frankfurt, Germany in connection with the EGGS contract.”

DPA

The charges against Bilfinger were resolved via a DPA in which the company admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees, and agents as charged in the information.

The DPA has a term of three years and under the heading “relevant considerations” it states:

“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and the Company.  Among the facts considered were the following:  (a) the Company’s cooperation with the Department, albeit at a late date, including interviewing relevant employees and disclosing the facts learned during those interviews to the Department, facilitating the Department’s interviews of foreign employees; (b) the Company’s remediation efforts, including terminating the employment of certain employees responsible for the corrupt payments and disciplining others, and enhancing its compliance program and internal accounting controls; (c) the Company’s committment to continue to enhance its compliance program and internal accounting controls …; and (d) the Company’s agreement to continue to cooperate with the Department in any ongoing investigation of the conduct of the Company and its officers, directors, employees, agents, and consultants relating to violations of the FCPA …”.

Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $28 million to $56 million.  The DPA states that the monetary penalty of $32 million “is appropriate given the facts and circumstances of this case, including the Company’s cooperation and remediation in this matter.”

Pursuant to the DPA, Bilfinger agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA and other applicable anti-corruption laws.   The specifics are detailed in Attachment C to the DPA.  The DPA also requires Bilfinger to engage a corporate compliance monitor for ”a period of not less than 18 months from the date the monitor is selected.”  The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.

As is common in FCPA corporate enforcement actions, the DPA contains a “muzzle clause” prohibiting Bilfinger or anyone on its behalf from “contradicting the acceptance of responsibility by the company” as set forth in the DPA.

Sidley Austin attorneys Thomas Green and Jeffrey Green represented Bilfinger.

In this press release (which the company had to consult with the DOJ before releasing) Bilfinger CEO stated:

“We are pleased that we have now been able to put these events from the distant past behind us. In recent years, Bilfinger has consistently expanded its compliance instruments and today has a modern and efficient system.”