More on Snamprogetti, ENI
Yesterday’s post (see here) provided a high-level overview of the joint DOJ / SEC FCPA enforcement action.
Today’s post provides a summary of the DOJ criminal information (here), deferred prosecution agreement (here), and SEC civil complaint (here).
For starters, the conduct at issue focuses on Snamprogetti Netherlands BV (“Snamprogetti”), a Dutch company headquartered in Amsterdam. Snamprogetti was a wholly-owned subsidiary of Snamprogetti, S.p.A., an Italian company, which in turn was a wholly-owned subsidiary of ENI, S.p.A., an Italian company headquartered in Rome that has been an issuer since 1995 and currently has common stock and American Depository Shares listed on the New York Stock Exchange. In February 2006, ENI sold Snamprogetti to Saipem, S.p.A., an Italian company. As indicated in this Saipem press release, even though Snamprogetti is a current subsidiary of Saipem, “in connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for losses resulting” from the Bonny Island bribery investigation and accordingly neither the DOJ or SEC penalty “will impact Saipem’s consolidated income statement and balance sheet.” According to the SEC, “ENI owns 43% of, and exercises control over” Saipem.
With that out of the way, back to Snamprogetti.
Information
Not surprisingly, the Snamprogetti information largely mirrors the criminal informations previously filed last week against Technip (see here) and in February 2009 against the Kellogg Brown & Root (see here) – entities also part of the joint venture engaged in the Bonny Island bribery scheme.
The Snamprogetti information charges conspiracy to violate the FCPA and aiding and abetting violations of the FCPA’s antibribery provisions and alleges that Snamprogetti was part of a joint venture (“JV”) in Nigeria to design, build and expand LNG facilities on Bonny Island. According to the information, JV profits, revenues, and expenses were equally shared among the four JV partners. The JV’s Steering Committee consisted of high-level executives from each of the four companies and the Steering Committee made major decisions on behalf of the JV, including whether to hire agents to assist the JV in winning contracts, who to hire as agents, and how much to pay the agents.
The information charges that the JV operated through three Portuguese special purpose corporations, including a corporation (#3), 25% owned by Snamprogetti, specifically used to enter into consulting agreements with JV agents.
The criminal conduct charged centers on two agents hired by the JV.
The first agent, Jeffrey Tesler was a citizen of the United Kingdom who used a Gibraltar-based company as a vehicle to enter into agent contracts and receive payments from the JV. The information charges that the JV paid the company over $130 million to bribe high-ranking Nigerian government officials. According to the information, Tesler was an agent of the JV and each of the JV companies.
The second agent was a global trading company headquartered in Tokyo (the “Japanese Agent”), which was hired by the JV to help it obtain business in Nigeria, including by paying bribes to Nigerian officials. The information charges that the JV paid the consulting company over $50 million to bribe Nigerian government officials. According to the information, the Japanese Agent was an agent of the JV and each of the JV companies.
According to the information, between 1995 and 2004, the JV was awarded four contracts (collectively valued at over $6 billion) to build the Bonny Island Project and alleges that Snamprogetti, Technhip, Kellogg Brown & Root, Tesler, the Japanese Agent, and others, were engaged in a conspiracy to obtain and retain the contracts “through the promise and payment of tens of millions in bribes to officials of the Executive Branch of Nigeria, officials of Nigeria National Petroleum Corporation (NNPC), officials of Nigeria LNG Limited (NLNG) and others.”
[According to the information, NNPC was a Nigerian government-owned company and an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA. According to the information, NLNG was also an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA, notwithstanding the fact that NLNG was 51% owned by multinational oil companies. Why? Presumably because, as the information alleges, “through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the abilty to block the award” of the relevant contracts.]
Among other means of the conspiracy, the information alleges that:
“officers, employees, and agents of Snamprogetti and their co-conspirators caused wire transfers totaling approximately $132 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands, to bank accounts in New York, New York, to be further credited to bank accounts in Switzerland and Monaco controlled by Tesler for Tesler to use to bribe Nigerian government officials.”
“officers and employees of Snamprogetti and their co-conspirators caused wire transfers totaling over $50 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands to [Japanese Agent’s] bank account in Japan for [the Japanese Agent to use to bribe Nigerian government officials.”
Based on the same core conduct, the information also charges Snamprogetti with aiding and abetting violations of the FCPA’s antibribery provisions and alleges that “Snamprogetti aided and abetted Kellogg, Brown and Root in causing […] corrupt U.S. dollar payments to be wire transferred from [#3’s] bank account in Amsterdam, The Netherlands, via correspondent bank accounts in New York, New York, to bank accounts of [Tesler’s Gibraltar based company] in Switzerland for use in part to bribe Nigerian government officials.”
DPA
The DPA has a term of two years. Parties to the DPA include Snamprogetti, Saipem and ENI.
Pursuant to the DPA, Snamprogetti admitted, accepted, and acknowledged that it is responsible for the acts of its employees, subsidiaries, and agents as detailed in the above criminal information.
According to the DPA, the DOJ agreed to enter into the agreement with the parties based on the following factors: “(a) Snamprogetti, Saipem, and ENI cooperated with the DOJ’s investigation of Snamprogetti and others; (b)Snamprogetti, Saipem, and ENI undertook remedial measures, including the implementation of an enhanced compliance program; and (c) Snamprogetti, Saipem, and ENI agreed to continue to cooperate with the DOJ in any ongoing investigation of the conduct of Snamprogetti and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA.”
According to the DPA, the fine range under the advisory U.S. Sentencing Guidelines for Snamprogetti’s conduct is $300 million – $600 million. Snamprogetti agreed to pay a criminal penalty of $240 million or approximately 20% below the bottom of the fine range. Thus another example of the DOJ allowing a corporation to settle significant bribery allegations for an amount below even the bottom range of fines available under the advisory Sentencing Guidelines.
The DPA, unlike the recent Technip DPA, does require the engagement of a corporate compliance monitor.
Representing Snamprogetti, Saipem, and ENI in the FCPA enforcement action was Karen Patton Seymour (here) and Nicolas Bourtin (here) of Sullivan & Cromwell LLP.
In the DOJ release (here) Principal Deputy Assistant Attorney General Mythili Raman stated: “the resolutions in this investigation demonstrate the U.S. government’s commitment to identifying and holding accountable all companies and individuals who scheme to bribe foreign government officials to win business;” “Snamprogetti and its joint-venture partners conspired to pursue lucrative contracts through a massive bribery scheme – a scheme that has led to more than $1.28 billion in criminal and civil penalties to date. The monetary penalties and enforcement actions that have resulted from this investigation should send a clear message to companies and their employees that using foreign bribery as a means of winning contracts abroad will be punished.” Kevin L. Perkins, assistant director of the FBI’s Criminal Investigative Division added: this “resolution is yet another example of the FBI’s willingness to aggressively investigate individuals and businesses that engage in corrupt conduct around the globe;” “those who elect to expand or protect their business interests through the payment of illegal bribes to foreign public officials should know that they are not beyond the reach of the FBI. Together, with our law enforcement partners around the world, we will identify these bad actors and work with the Justice Department to prosecute them under the Foreign Corrupt Practices Act and other appropriate federal statutes.”
SEC Complaint
The SEC complaint “arises from multiple violations of the Foreign Corrupt Practices Act” by ENI and its former indirect subsidiary Snamprogetti. According to the complaint: “between at least 1995 and 2004, senior executives at Snamprogetti, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas production facilities on Bonny Island, Nigeria” that a four-company JV, of which Snamprogetti was a member, won the contracts to build.
Specifically, the SEC complaint alleges that “to conceal the illicit payments, Snamprogetti and others, through the JV, entered into sham ‘consulting’ or ‘services’ agreements” with Tesler and the Japanese Agent “who would then funnel their purportedly legitimate fees to Nigerian government officials.”
According to the SEC, “as a result of the scheme, numerous books and records of Snamprogetti and ENI contained false information relating to, among other things” Tesler and the Japanese Agent “and the payments made to them.” Specifically, the SEC alleged that “Snamprogetti’s business records […] contained the contracts with [Tesler] and the Japanese Agent, which falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services.” According to the SEC, “these documents were part of Snamprogetti’s business records and supported Snampogetti’s financial statements, which were consolidated into ENI’s financial statements.”
The SEC alleges that “Snamprogetti did not conduct due diligence” on Tesler or the Japanese Agent and “ENI failed to ensure that Snamprogetti complied with ENI’s policies regarding the use of agents.” Specifically, the SEC alleged that “ENI’s policies and procedures governed Snamprogetti’s use of agents” but that “ENI failed to ensure that Snamprogetti conducted due diligence on agents hired through JV’s in which Snamprogetti participated.” “As a result,” the complaint alleged, “ENI’s internal controls failed to detect, deter or prevent the decades-long bribery scheme.”
Based on the above allegations, the SEC charged Snamprogetti, as “an agent of a U.S. issuer” with violating the FCPA’s antibribery provisions and knowingly falsifying books and records that supported the financial statements of ENI and knowingly circumventing ENI’s internal accounting controls. The SEC charged ENI with violating the FCPA’s books and records and internal control provisions. According to the SEC, “ENI exercised control and supervision of […] Snamprogetti during the relevant time and on certain of its business decisions, such as Snamprogetti’s entry into the JV.”
Without admitting or denying the SEC’s allegations, Snamprogetti and ENI consented to court orders permanently enjoining the companies from future violations of the FCPA and court orders requiring the companies, jointly and severally, to pay $125 million in disgorgement.
In a press release (see here) with the grabbing line “SEC charges Italian Company and Dutch Subsidiary in Scheme Bribing Nigerian Officials With Carloads of Cash,” Robert Khuzami, Director of the SEC’s Division of Enforcement stated: “this elaborate bribery scheme featured sham intermediaries, Swiss bank accounts, and carloads of cash as everyone involved made a concerted effort to cover their tracks” … “but the billion-plus dollars in sanctions paid by these companies show that ultimately there is no hiding or profiting from bribery.”
[As to the carload of cash, the SEC complaint alleges that the joint venture in which Snamprogetti participated in, paid Tesler (the UK agent) $40 million under a sham consulting agreement, and that Tesler then used a subcontractor to transfer $5 million to a Nigerian government official for the benefit of a Nigerian political party. According to the SEC complaint, “on several occassions, the Subcontractor personally delivered hand-delivered $1 million in U.S. currency in a brief case to the Nigerian official in a hotel room in Abuja, Nigeria.” The complaint alleges that the “Subcontractor delivered the remainder of the $5 million to the Nigerian official in local Nigerian currency,” but that because the currency “was too bulky to deliver by hand, the Subcontractor loaded the cash into vehicles, which were delivered to the Nigerian official.”
In a press release (see here) ENI stated, among other things, as follows:
“As the U.S. authorities’ court filings indicate, the criminal activity with which Snamprogetti Netherlands B.V. was charged ceased by June 15, 2004. Eni, Saipem, and Snamprogetti cooperated with the U.S. authorities’ investigations. In the agreements, the SEC and DOJ did not require the implementation of any independent compliance monitor. Since the conduct at issue, Eni, Saipem, and Snamprogetti Netherlands B.V. have made substantial enhancements to their anti-corruption compliance programs, which monitor Eni and its subsidiaries’ compliance systems. Eni and its subsidiaries are committed to continuous improvements to their internal compliance program and policies.”
Coverage From The Conference Circuit
The end of June was a busy time on the FCPA conference circuit with events taking place around the world.
Wrage Blog (see here) has a summary of certain events, including comments by Hank Walther, the Assistant Chief DOJ Fraud Section, at an event hosted by Ethical Corporation (see here).
As noted in the post, with official FCPA guidance “pretty sparse,” reading the “tea leaves” from comments made by government enforcement attorneys at conferences “become more important.” It all seems like a rather odd way for a law to develop and for enforcement theories and priorities to be disclosed, but such is the current state of affairs.
Among the “tea leaves” discussed in the Wrage Blog post:
“The ‘Siemens Phenomena’ is here to stay. That is, the DOJ will continue to pursue large cases where the alleged misconduct spans multiple continents. [Walther] noted that the Siemens case, with its billion-dollar-plus settlement, was not an outlier. [Walther] pointed to other recent eye-catching settlements: BAE ($400 million), Daimler ($93 million criminal penalty) and KBR ($402 million).”
[Comment: why does the DOJ continue to trumpet the BAE case as an FCPA case when it (or others in government) did not have the gumption to actually charge BAE with FCPA violations despite allegations which seem to support such a charge?]
“…the DOJ’s interest in pursuing marquee names does not mean private companies are off the hook. Per [Walther], the DOJ still likes the smaller cases. Although the public company prosecutions grab the headlines, [Walther] was quick to note that more private companies have been prosecuted under the FCPA than public companies.”
“Individuals remain squarely in the DOJ’s cross hairs. [Walther] pointed out that, even as recently as four or five years ago, the DOJ rarely charged individuals with FCPA violations. What has changed? First, an apparent public policy shift at the DOJ has occurred. The DOJ has come to realize that ‘it can’t build an enforcement regime on criminal fines alone.’ That is, if bribery convictions only impact corporate coffers, then paying bribes just becomes a cost of doing business. If, instead, the specter of jail time is factored into the cost-benefit analysis, then the calculus changes dramatically. Second, the DOJ has become more adept at gathering evidence in FCPA cases.”
For additional coverage on the DOJ’s focus on individuals, see this article from Aruna Viswanatha at Main Justice. Of particular interest, the Main Justice article quotes Walther as saying that “a fine-only enforcement policy allows companies to calculate such settlements as the cost of doing business.”
That fine-only FCPA enforcement actions (particularly those that leave the company in a “net positive” position after the improper payments) and FCPA enforcement actions that allow the company to escape the “most fitting” charges and penalties do not deter is precisely one of the points I made in these prior posts (see here and here) challenging Mark Mendelsohn and William Jacobson’s (both former DOJ FCPA enforcement attorneys) defense of the Siemens enforcement action.
For coverage of another recent event (The Marcus Evans 4th FCPA & Anti-Corruption Compliance Conference) see this piece from Joe Palazzolo at Main Justice regarding how the FBI anti-corruption unit is expanding and being more aggressive.
The Second Africa Regional Anti-Corruption Seminar
Last week in Cameroon, the U.S. Department of Justice and Cameroonian Ministry of Justice co-sponsored the Second Africa Regional Anti-Corruption Seminar (see here for the U.S. Embassy’s press release). As noted in the release, the annual seminar series “was started by the U.S. government because of the growing transnational nature of corruption and the importance many African nations attached to the recovery of stolen assets abroad” and because “the United Nations Convention Against Corruption and several other multilateral initiatives call for increased international cooperation to combat corruption.” According to the release, working sessions included: “international standards to fight against corruption and recover stolen assets; investigating corruption in state-owned corporations and enterprises; international funds transfers; and investigating corruption in customs and revenue services.”
U.S. Ambassador Janet Garvey (see here) opened the seminar and here comments can be found here.
Among other things, Ambassador Garvey stated that “corruption is a global problem and I don’t have to tell you that much work needs to be done at every level to combat it.”
She then stated:
“In the United States, companies listed on U.S. stock exchanges are subject to stiff punishment under the Foreign Corrupt Practices Act (FCPA) if they are caught engaging in corruption. We take this very seriously and such major corporations as Siemens, Daimler, BHP Billiton, Kellog, Brown and Root, and Britain’s BAE Systems have recently been forced to pay huge fines under the FCPA.”
Stiff punishment under the FCPA?
Does Ambassador Garvey know that Siemens, Daimler, and BAE System were not even charged with FCPA anti-bribery violations?
[Note – BHP Billiton has not recently been forced to pay huge fines under the FCPA. Rather, the company disclosed in April 2010 (see here) as follows: “Following requests for information from the U.S. Securities and Exchange Commission as a part of an investigation relating primarily to certain terminated minerals exploration projects, the Company has disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anti-corruption laws involving interactions with government officials. Accordingly, the Company is cooperating with the relevant authorities including conducting an internal investigation, which is continuing. It is not possible at this time to predict the scope or duration of the investigation or its likely outcome.”]
Ambassador Garvey also stated as follows:
“In the U.S., we have taken other important steps to contribute to the global anti-corruption regime. Presidential Proclamation 7750 requires the U.S. Department of State to deny visas to citizens and government officials who have engaged in serious corruption.”
For more on Presidential Proclamation 7750, including what happens when the Forest and Agriculture Minister of Equatorial Guinea and the son of Equatorial Guinea’s president shows up at the U.S. “doorstep” on his way to his $35 million Malibu estate (see here). Short answer, he is let in. Despite the fact that federal law enforcement officials believe that “most if not all” of his wealth came from corruption related to oil and gas reserves in his home country. Despite the fact that the DOJ believes that he “may be receiving bribes or extortion payments” from oil companies operating in the country.
Thumbs up to the U.S. for sponsoring global anti-corruption seminars.
Thumbs down for yet another instance of “official rhetoric” not matching reality.
The Holder Memo and FCPA Enforcement
Attorney General Eric Holder recently issued a memo (here) regarding “Department Policy on Charging and Sentencing.”
There is little that is new is this memo; in fact Holder states that the purpose of the memo is “to reaffirm the guidance” provided by Title 9 of the U.S. Attorneys’ Manual, Chapter 27″ (see here) – a manual which has “guided federal prosecutors” for “nearly three decades.”
Nor is there anything FCPA specific in the memo.
Yet the memo, and the broad pronouncements Holder makes, call into question whether several recent Foreign Corrupt Practices Act enforcement actions contradict the guidance the Attorney General has reaffirmed.
In the memo, Holder states – “persons who commit similar crimes and have similar culpability should, to the extent possible, be treated similarly.”
Under the law, “persons” include both individuals and business entities, including corporations.
However, as explored in this post, a two-tiered justice system has seemingly developed in FCPA enforcement.
Certain corporations in certain industries, most often selling certain things to certain customers, can seemingly violate the FCPA’s anti-bribery provisions with very little consequence. In fact, with increasingly frequency, such companies are not even charged with FCPA antibribery violations and/or may not even have to plead guilty to anything. See here for the recent Daimler, here for the recent BAE, and here for the Siemens “bribery, yet no bribery” enforcement actions.
On the other hand, the DOJ seeks long prison sentences for individuals such as Charles Paul Edward Jumet, who make payments that pale in comparison to the payments made by the above corporations. In doing so, the DOJ usually trots out its get tough language (i.e. “bribery isn’t just a cost of doing business overseas [… but] a serious crime that the U.S. government is intent on enforcing”).
The Holder memo also states “in accordance with long-standing principle, a federal prosecutor should ordinarly charge ‘the most serious offense that is consistent with the nature of the defendant’s conduct, and that is likely to result in a sustainable conviction.”
Again, reference is made to the Daimler, BAE, and Siemens enforcement actions.
In Daimler, the DOJ release (here) notes that Daimler “brazenly offered bribes in exchange for business around the world” and that Daimler “saw foreign bribery as a way of doing business.” Yet, Daimler was not charged with FCPA anti-bribery violations. In fact, Daimler was not required to plead guilty to anything as it received a deferred prosecution agreement.
In BAE, the DOJ’s criminal information (here) alleges that “BAE provided substantial benefits to one KSA (Kingdom of Saudi Arabia) public official, who was in a position of influence regarding the KSA Fighter Deals (the “KSA Official”), and to the KSA Official’s associates.” The indictment alleges that BAE “provided these benefits through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere.” Yet, BAE was not charged with FCPA anti-bribery violations.
In Siemens, the DOJ release (here) states, among other things, that for “much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.” Yet, Siemens was not charged with FCPA anti-bribery violations.
It is difficult to reconcile the charging decisions in these recent enforcement actions with the language of the Holder memo.
As to sentencing, the Holder memo states – “in a typical case” the appropriate sentence should be reflected by the “applicable guidelines range, and prosecutors should generally continue to advocate for a sentence within that range.”
Apparently, neither Siemens and Daimler were “typical” cases, because in both enforcement actions the DOJ advocated for a sentence significantly below the guidelines range.
In Siemens, the guidelines range (see here) was $1.35 billion – $2.7 billion. However, the ultimate DOJ fine was $448.5 million. Siemens did not voluntarily disclose the conduct at issue, nevertheless, the DOJ gave Siemens greater sentencing credit than allowed for under the guidelines because the guidelines calculation was “incongruent with the level of cooperation and assistance provided by the company in the Department’s investigation.” For more on Siemens’ fine, see here and here.
In Daimler, the guidelines range (see here) was $116 million – $232 million. However, the ultimate DOJ fine was approximately $94 million. Again, Daimler did not voluntarily disclose the conduct at issue, nevertheless, the DOJ gave Daimler greater sentencing credit allowed for under the guidelines. The DOJ stated, “indeed, because Daimler did not voluntarily disclose its conduct prior to the filing of the whistleblower lawsuit, it only receives a two-point reduction in its culpability.” However, the DOJ “respectfully submit[ed] that such reduction is incongruent with the level of cooperation and assistance provided by the company in the Department’s investigation.”
As demonstrated above, three of the DOJ’s most high-profile FCPA or “FCPA like” enforcement actions seemingly contradict many of the guiding principles in the Holder memo.
With Attorney General Holder now re-affirming these principles, it will be interesting to see if future FCPA enforcement actions comply more closely with these principles or if the future holds more facade enforcement actions.
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Speaking of Attorney General Holder, while most of us were enjoying the Memorial Day barbeque, he was delivering remarks at the OECD Conference in Paris. See here for a copy of his remarks.
DOJ Speaks
There is a “same speech, different day” aspect of late when the DOJ talks about the FCPA. One can reasonably predict what will be said (i.e. DOJ values voluntary disclosure and cooperation), even before it is said, and this has the tendency of diminishing the message.
This week it was Compliance Week 2010 (see here). The speaker’s – Acting Deputy Attorney General Gary Grindler and Assistant Attorney General (Criminal Division) Lanny Breuer.
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On Tuesday, Grindler spoke (see here for his remarks).
Grindler began his remarks as follows:
“Having spent a good portion of my career in private practice representing corporate clients and advising them on compliance matters, I am no stranger to what I suspect many of you in the audience are thinking: What is the Department of Justice focused on and how can I make sure my clients stay as far away from it as possible? I’d like to spend my time with you this evening hopefully answering the first question by giving you a sense of some of the policy and enforcement priorities that we are focused on at the Department and sharing some of my thoughts how you can best position your clients when interacting with the Department.”
Grindler’s remarks covered three general topics: DOJ’s Financial Fraud Enforcement Task Force, DOJ’s efforts to combat health care fraud, and the DOJ’s new Intellectual Property Enforcement Task Force.
While speaking on health care fraud, Grindler noted:
“You can be assured that we will also use every tool at our disposal to investigate and prosecute corrupt practices in the pharmaceutical industry. In the months ahead, for example, you can expect to see the Department increasingly use the Foreign Corrupt Practices Act to prosecute kickbacks and bribes paid to foreign government officials by pharmaceutical companies. As the drug companies do more and more of their business overseas where so much of the health care business is government run, we see the opportunities for FCPA violations unfortunately proliferating. Indeed, in some foreign countries nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a “foreign official” within the meaning of the FCPA. The extent of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process. The Department will not hesitate to charge pharmaceutical companies and their senior executives under the FCPA if warranted to root out foreign bribery in the industry.”
For the same speech, different day version, see here and here.
The final part of Grindler’s speech is titlted – “What You Can Do.” Excerpted portions are below.
“Now, how can you best advise your clients in light of the Department’s enforcement priorities and given the climate we are in where there is so much distrust of corporate America.”
“First, you can make sure that your clients have robust, effective compliance programs and internal controls. A company’s compliance program continues to be one of the most important factors that we consider under the Principles of Federal Prosecution of Business Organizations. You are on the front lines of this issue and can make a real difference in your respective institutions by sending the message about the need for an effective compliance program. Compliance programs must not exist only on paper.”
“In this context, I want to point out that the United States Sentencing Commission recently amended the Sentencing Guidelines on the issue of compliance programs. Specifically, the Commission clarified the importance of assessing and modifying compliance programs after you discover criminal conduct at your company. The current Guidelines provide that, following the discovery of criminal conduct, a company should, among other things, make “any necessary modifications to the organization’s compliance and ethics program.” The new amendment — assuming it goes into effect in November — provides a new commentary to that provision specifying that this post-violation process includes “assessing the compliance and ethics program and making modifications necessary to ensure the program is effective … and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.”
“In addition, the latest Guideline amendments clarify the circumstances under which an effective compliance and ethics program can entitle an organization to a 3-level reduction in its culpability score. Specifically, the amendment allows an organization to receive the decrease if the organization meets four criteria: (1) the individual or individuals with operational responsibility for the compliance and ethics program have direct reporting obligations to the organization’s governing authority or appropriate subgroup thereof; (2) the compliance and ethics program detected the offense before discovery outside the organization or before such discovery was reasonably likely; (3) the organization promptly reported the offense to the appropriate governmental authorities; and (4) no individual with operational responsibility for the compliance and ethics program participated in, condoned, or was willfully ignorant of the offense. These amendments reinforce the point that having a robust compliance program is critical not only to preventing misconduct in the first place, but also how your organization will be treated in the event criminal conduct does take place.”
“The second thing you can do to best position your client, is you can partner with us. As I hope has been clear in my discussion of our enforcement efforts, there is a consistent theme of the importance of sharing information and partnering with the private sector in its anti-fraud efforts. Through examples like the National Heath Care Fraud Summit and the regional mortgage fraud summits, we have been reaching out to private sector anti-fraud professionals to share information about fraud schemes and improvements in data analysis. While we have limitations in what we can share, we are interested in exploring ways to work together within those constraints. If the private sector sees new fraud schemes or ways in which we can prevent fraud, that is something you should share with us.”
“Third, you can advise your clients to make early, voluntary disclosure of misconduct. As you know, it is usually in your client’s best interest to cooperate with the government’s investigation through the disclosure of relevant facts, the production of documents and other evidence, and making witnesses available who have relevant information.”
“Fourth, you can guide your client’s decision to take meaningful remedial measures in response to criminal wrongdoing, including the payment of restitution and the disciplining or termination of culpable employees, officers, or directors.”
“In the end, all of these steps – robust compliance programs, information sharing between public and private sector anti-fraud efforts, voluntary disclosure, and meaningful remedial measures — will inure to the benefit of your clients in several significant ways. They will deter criminal conduct from occurring in the first place. They will ensure that if and when misconduct does occur, it is detected early on and can be rooted out before too much damage is done. Your client will receive credit for such actions during the prosecutorial decision-making process. Finally, such steps will make your clients stronger corporate citizens, and will empower your clients’ officers, directors, and employees to fulfill their fiduciary obligations to shareholders and their duties of honest dealing to the investing public and the taxpayers.”
For more on Grindler’s speech, including topics raised during the Q&A, see this piece from Christopher Matthews at Main Justice.
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On Wednesday, Breuer spoke (see here for a copy of his remarks). Below are various excerpts from the speech.
Given the DOJ’s recent “bribery, yet no bribery” cases against BAE and Daimler, I must admit to getting a bit frazzled after only paragraph two of the speech in which Breuer talks about the “the Justice Department’s determination to prosecute – and prosecute aggressively – financial fraud and corruption in all its forms. The American public demands no less, and we will deliver no less.”
Speaking generally, Breuer described “a new era of heightened white-collar crime enforcement – an era marked by increased resources, increased information-sharing, increased cooperation and coordination, and tough penalties for corporations and individuals alike.”
Breuer next discussed that “additional resources are also being committed in the Criminal Division, where we are in the process of adding a number of attorneys to the Fraud Section – lawyers who will be deployed immediately to prosecute crimes like securities fraud, health care fraud, and foreign bribery under the Foreign Corrupt Practices Act.” He cited the Africa Sting case as an example of using “more aggressive law enforcement techniques” and further stated that “it is fair to say that [DOJ] will continue to look for opportunities to innovate in how we identify financial fraud and corruption.”
Speaking of innovation at the SEC, Breuer stated:
“The SEC will now make use of cooperation agreements, as well as deferred and non-prosecution agreements – all of which have been staples of the Justice Department’s approach in white collar criminal cases for many years now. These innovations will likely lead to even earlier and closer coordination between the SEC and the Justice Department.”
Breuer next talked specifically about foreign bribery “which obviously is at the center of this heightened enforcement climate and which presents unique compliance challenges.”
Below are his remarks.
“As I have said in the past, foreign bribery is a law enforcement challenge of truly global dimensions. It is, as the Attorney General has said, a ‘scourge on civil society.’ We in the Criminal Division combat foreign bribery each and every day. And as we go about our business, we are looking carefully at lapses in corporate compliance. Why? Because of what I said a few minutes ago. Our preference, like yours, is for these crimes to be prevented in the first instance. And the only way that can happen in your organizations is through a robust, state-of-the-art compliance program and a true culture of compliance.”
“I know that you all do not lack for incentives; the statistics in FCPA enforcement are well known. But it is worth pausing on them for a moment.”
“Since 2004, the Fraud Section has achieved 37 corporate FCPA and foreign bribery related resolutions, with fines totaling over $1.5 billion. In this time period, we have charged 81 individuals with FCPA violations and related offenses. Forty-six have been charged since the start of 2009 – more than the total number of individuals charged in the previous seven years combined.”
“The individuals charged have included CEOs, CFOs, other senior-level corporate officials and, where jurisdiction existed here, several foreign officials. Charging individuals is part of a deliberate enforcement strategy to deter and prevent corrupt corporate conduct before it happens. And rest assured that we will seek equally tough sentences, including significant jail time if appropriate, to reinforce this message of deterrence.”
“Aggressive enforcement by the Criminal Division provides one set of incentives for corporations. Others are sprouting up each and every day, and they are coming from all corners as anti-fraud and corruption enforcement catches up with the globalization of business.”
“Here in the United States, the United States Sentencing Commission recently approved amendments to its Sentencing Guidelines, one of which reaffirmed the importance of compliance and ethics programs within organizations. The amendment stressed the critical need to embed these programs at the very highest level of the organization. In an interesting twist, the Commission expanded eligibility for effective compliance and ethics program credit at sentencing even if one or more members of ‘high level personnel’ has some role in the offense.”
“But there’s a catch. In order to be eligible for credit where there is such ‘high level’ involvement, the corporation must have in place a direct reporting relationship between the individual with operational responsibility for the compliance program and the corporation’s governing body. And more than that, the corporation must have discovered the offense and reported it to enforcement officials before it otherwise became known. The amendment has not been uncontroversial. But whatever your opinion, it can at least be said that the amendment reflects the Commission’s view that compliance should be embedded at the very highest levels of an organization.”
“On the international front, the United Kingdom has passed a new, comprehensive Bribery Act that criminalizes, among other things, the failure by a corporate entity to prevent bribery. Pretty serious, right? Well, the Act does provide a defense to such a charge if the corporate entity can show that it has ‘adequate procedures’ in place to deter and detect such conduct. What does ‘adequate procedures’ mean? It’s not entirely clear. And I’m, of course, not your lawyer. But, at a minimum, it would seem prudent to have in place a strong, state-of-the-art compliance program.”
Breuer then offers a few thoughts on compliance and offers up the Principles of Federal Prosecution of Business Organizations (see here) and the OECD’s Good Practice Guidance on Internal Controls, Ethics, and Compliance (see here – Annex II) as benchmarks.
Breuer then acknowledges that “even the best compliance program may not stop fraud or corruption from occurring. So, what should a corporation do when a problem has been discovered?”
Because the answer has been stated numerous, numerous times, you probably already known the answer – voluntarily disclose and cooperate.
Below are Breuer’s comments on these issues:
“Whether to voluntarily disclose potential criminality is admittedly a difficult question for business entities.”
“But I can offer you this: If you come forward and if you fully cooperate with our investigation, you will receive meaningful credit for having done so. In talking about ‘meaningful’ credit, we are not promising amnesty for doing the right thing. But, self-reporting and cooperation carry significant incentives – by working with the Department, no charges may be brought at all, or we may agree to a deferred prosecution agreement or non-prosecution agreement, sentencing credit, or a below-Guidelines fine. Ultimately, every case is fact-specific and requires an assessment of the facts and circumstances, as well as the severity and pervasiveness of the conduct and the quality of the corporation’s pre-existing compliance program. But, in every case of self-disclosure, full cooperation, and remediation, the Department is committed to giving meaningful credit where it’s deserved to obtain a fair and just resolution.”
“The Siemens matter is a case in point. While the conduct in that case is arguably the most egregious example of systemic foreign corruption ever prosecuted by the Department, [Note – Siemens was not charged with violating the FCPA’s anti-bribery provisions] it also illustrates the tremendous benefits that flow from truly extraordinary cooperation. By Siemens opening itself up to authorities, [Note – Siemens did this after its offices were raided by German authorities] the Department completed its investigation and resolved the case – with domestic and international dimensions – in two years’ time. In the end, the benefits Siemens received through its cooperation, even in the absence of a voluntary disclosure, were plain – the $450 million fine that was paid to the Justice Department, although quite substantial, was a far cry from the advisory range of $1.35 billion to $2.7 billion called for in the Sentencing Guidelines. Put another way, Siemens received a penalty that was 67 to 84 percent less than what it otherwise could have faced had it not provided extraordinary cooperation and carried out such extensive remediation.”
“Another example, on a more modest scale, was the resolution of the Helmerich & Payne matter, a company that self-disclosed improper or questionable payments. [Note – is Breuer acknowledging that the payments at issue in this case – payments to various officials and representatives of the Argentine and Venezuelan customs services in connection with importation and exportation of goods and equipment – may not have violated the FCPA? See here for more] The case was resolved through a non-prosecution agreement with a term of two years, a penalty of $1 million (which was approximately 30 percent below the bottom of the Guidelines range), and compliance self-reporting by the company for a period of two years in lieu of an independent compliance monitor. Because of the forward-leaning, proactive, and highly cooperative approach taken by Helmerich & Payne, that company received a host of benefits that likely would not otherwise have been obtained from the Department.”
“In short, these two cases, and others like them, reflect the Department’s willingness to step up to the plate when a corporation does the right thing by making a voluntary disclosure and cooperating fully.”
“Let me offer one additional piece of guidance on this topic. When a problem has been discovered, the corporation should seriously consider seeking the government’s input on the front end of its internal investigation. [Note – at the front end of an FCPA internal investigation, it is generally not even known if a violation has occurred – why should a company seek the DOJ’s input when it is not yet known if a violation of law has occurred?] We encourage a company to come in and describe its work plan for conducting the investigation. Often we have questions, or helpful suggestions, or we may ask that the corporation expand the scope of the investigation. Regardless, the dialogue can be very helpful in ensuring at the outset that the corporation has an effective, cost-effective plan in place to investigate and deal with the problem.”
Breuer then offered a few words about compliance monitors.
Below are his comments.
“In resolving criminal conduct, the Department’s goal is to vindicate the law and ensure adherence to it in both letter and spirit. In that regard, the structure and terms of a corporate resolution are properly determined by the particular facts of the case and the circumstances surrounding the specific business entity and the public interest. Thus, a compliance monitor may be particularly useful where the agreement requires the corporation to design, or substantially re-design, and implement a broad compliance and ethics program and internal controls. As an independent observer, the monitor can enable the government to verify whether a business is fulfilling the obligations to which it agreed. In other cases, however, a compliance monitor may not be needed for a variety of reasons, such as where the business organization has ceased operations in the area where the criminal conduct occurred, or where the business has re-designed and effectively implemented appropriate compliance measures and internal controls before entering into an agreement with the United States.”
“However the calculus plays out, we are always mindful of, and we do weigh, the potential benefits of employing a monitor with the cost of a compliance monitor and its impact on the operations of the business organization. Of that much you can be sure.”
For more on Breuer’s speech, including topics raised during the Q&A, see this piece from Christopher Matthews at Main Justice.
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A good holiday weekend to all – please check back on Tuesday for a post about a current FCPA compliance monitor.