Statoil Charges Dismissed
In October 2006, Statoil ASA (a Norwegian company with shares traded on a U.S. exchange – and thus an “issuer” under the FCPA) settled an FCPA enforcement action by agreeing to pay $21 million in combined DOJ and SEC fines and penalties for improper payments that assisted the company in securing contracts for the South Pars field in Iran.
The DOJ action was settled through a three-year deferred prosecution agreement (see here).
Under a deferred prosecution agreement, criminal charges against the company are filed with a court, but prosecution of the charges is deferred if the company adheres to the requirements of the agreement (such as acknowledging and accepting responsibility for the alleged conduct, cooperating with the DOJ’s continued investigation, engaging a compliance monitor, and implementing more stringent FCPA policies and procedures, etc.) throughout the term of the agreement.
At the end of the term, usually 2-3 years, and if the company has complied with its obligations, DOJ agrees that it will seek dismissal of the charges.
Deferred prosecution agreements and non-prosecution agreements have become the most common method of resolving corporate FCPA enforcement actions.
The Statoil prosecution was precedent setting at the time as it was the first time the DOJ brought criminal FCPA charges against a non-U.S. company.
The DOJ announced today (see here) that Statoil satisfied its obligations under the deferred prosecution agreement and that a court has formally dismissed the charges.
In this respect, Statoil may again be precedent setting as I am not aware of any other instance in which the DOJ has issued a press release announcing the end of a deferred prosecution agreement (even though it would seem that several others have ended).
If my recollection is correct and if this perhaps is a change in DOJ policy, “hear-hear” as it increases transparency.
Other posts which have mentioned Statoil can be found here and here.
“We Don’t Want The Auditors Raising Any Questions on Iraq Business”
Yet another Iraqi Oil-For-Food enforcement action.
Yesterday, the DOJ and SEC announced resolution of an enforcement action against AGCO Corp. (a Georgia-based manufacturer and supplier of agricultural machinery and equipment) as well as AGCO Limited (AGCO’s a wholly-owned subsidiary headquartered in the United Kingdom responsible for AGCO’s business in Europe, Africa, and the Middle East)(see here, here, here, here, and here).
Big picture, AGCO acknowledged responsibility for improper payments made by its subsidiaries and agents to the former government of Iraq in order to obtain contracts with the Iraqi Ministry of Agriculture under the United Nations Oil-For-Food program.
DOJ filed a criminal information against AGCO Limited charging one count of conspiracy to commit wire fraud and to violate the FCPA’s books and records provisions.
According to the DOJ, AGCO Limited paid approximately $550,000 to the former government of Iraq to secure three contracts. DOJ and AGCO entered into a three-year deferred prosecution agreement under which DOJ will defer prosecution upon, among other things, AGCO’s payment of a $1.6 million penalty. According to the DOJ, the basis for the deferred prosecution agreement was, among other things, AGCO’s cooperation in the DOJ’s investigation, its implementation of remedial measures, and its settlement with the SEC (see below).
Why no substantive FCPA anti-bribery charges in this case and other Iraqi Oil-For-Food cases (Novo Nordisk, Fiat, AB Volvo, etc.)? The anti-bribery provisions apply to payments to “foreign officials,” not foreign governments. Thus, in this and the other cases, conspiracy to commit wire fraud and to violate the FCPA books and records provisions were charged.
Because AGCO is an issuer, the SEC also played a role in the enforcement action. The SEC filed a settled civil complaint charging AGCO with violating the FCPA’s books and records and internal control provisions.
According to the SEC, certain AGCO subsidiaries made – through a Jordanian agent – approximately $5.9 million in kickback payments to Iraq in the form of “after-sales service fees” to secure contracts worth approximately $14 million. These payments were disguised or improperly recorded in the subsidiaries’ books and records which were consolidated with AGCO’s for SEC filing purposes. According to the SEC, “AGCO knew or was reckless in not knowing that kickbacks were paid in connection with its subsidiaries’ transactions.”
The SEC ordered AGCO to pay $18.3 million in combined disgorgement, interest, and penalties.
In a previous post (see here), it was noted that FCPA compliance is a task that not just company lawyers need to be concerned with, but rather a task that internal audit and finance should also be concerned with and actively involved in as well. It was noted that internal audit and finance personnel must be specifically trained to approach their specific job functions with “FCPA goggles” on.
Reading the SEC complaint against AGCO, it is clear that various AGCO personnel could have used a pair of “FCPA goggles” as the complaint is an indictment of the entire company’s control function.
In para 23, the SEC charges, among other things, that:
the “accrual account [where the kickback payments were recorded] was created by AGCO Ltd.’s marketing staff with virtually no oversight from AGCO Ltd.s’ finance department;”
“no one questioned the existence of the dual accounts;”
“no one questioned why the [accrual account] contained approximately ten percent of the contract value despite the fact that there was no contract in place requiring that such ten percent be paid to the ministry or anyone else;”
“when the finance department authorized payments from the [accrual account], it did not ask for or receive any proof of service to warrant the payments;” and
an employee cautioned the business manager for Iraq and his supervisor that “we don’t want the auditors raising any questions on Iraq Business!”
Further, in para 25, the SEC charges, among other things, that:
“Sales and marketing personnel were able to enter into contracts without review from the legal or finance departments;”
“an accounting employee described the Finance Department employees as ‘blind loaders’ who input information into AGCO’s books without any adequate oversight role;” and
“marketing personnel were able to create accrual accounts […] without any oversight and caused accounts to be created and payments to be made without proper documentation.”
In para. 26, the SEC charges, among other things, that:
“AGCO Ltd.’s structure at the time allocated inappropriate accounting and finance responsibilities to the marketing department;” and
“turnover in the marketing department […] was high and employees were forced to shoulder a great deal of the accounting burden.”
AGCO’s management and legal department did not fare much better.
In para. 27, the SEC charges, among other things, that:
“AGCO did not conduct any due diligence on the [Jordanian] agent or require that the agent undergo FCPA training;” and
the “agent’s contract with AGCO did not accurately explain the agent’s services and payments, and lacked any FCPA language.”
What would the results look like if your company or your client’s company was “put under the internal controls microscope” in an FCPA enforcement action?
Benchmarking FCPA Compliance
Over at the White Collar Crime Prof Blog (see here), Professor Ellen Podgor has posted her essay titled “Educating Compliance” (see here) in which she argues that the U.S. government should more actively participate in “promoting compliance with the law.”
In discussing some examples of where the government does pro-actively educate compliance with the law, Profesor Podgor refers to the DOJ’s Lay-Person’s Guide to the FCPA (see here) and the DOJ’s Opinion Procedure Regulations (see here).
While perhaps lacking the “pro-active” label Professor Podgor advocates, an additional resource for companies seeking guidance on FCPA “best practices” is the actual FCPA non-prosecution and deferred prosecution agreements themselves. More often than that, these agreements will contain an appendix that contains the minimum elements of an FCPA compliance program that the DOJ has “signed off on” as part of the settlement process.
Reviewing these agreements, one will find, virtually verbatim, the same elements. For instance, see the Novo Nordisk agreement (here – pgs. 19-21), the Fiat agreement (here pgs. 34-36) and the Faro Technologies agreement (here pgs. 14-16).
While these minimum elements are not the “be-all and end-all” of FCPA compliance, and while any FCPA corporate compliance policy should be specifically calibrated to a company’s risk profile, these elements consistently included by DOJ in resolution agreements are certainly a good initial benchmark for any company’s FCPA compliance policies and procedures.