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Friday Roundup

By on April 4, 2014 in African Development Bank, Bonny Island Bribery, Cisco, Citigroup, Declination Decisions, Enforcement Agency Policy, Enforcement Agency Speeches, Internal Investigation Issues, JGC of Japan, Kellogg Brown and Root, Opinion Procedure Release, SBM Offshore, Societe Generale, Sweett Group, Technip, Voluntary Disclosure

Contorted, interesting, deserving?, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

Contorted

One of the most contorted words in the FCPA vocabulary is “declination” (see here among other posts).

This K&L Gates report contains a useful summary of DOJ and SEC comments at a recent conference.  It states:

“Mr. Knox [DOJ Criminal Division Fraud Section Chief] stated that companies continue to request specific information regarding the Department’s declinations, but that it is the Department’s long-standing practice not to publish details of declinations without a company’s permission, which is rarely given.  According to Mr. Knox, however, over the last two years, the Department has declined to prosecute dozens of cases.  Notably, Mr. Knox stated that, aside from finding no evidence of criminal conduct, the Department may issue a declination when a case involves an isolated incident, the company had a strong compliance program, and the problem was remediated.”

Newsflash.

If the DOJ does not find evidence of criminal conduct and therefore does not bring a case, this is not a “declination,” it is what the law commands.

On the topic of voluntary disclosure, the K&L Gates report states:

“Mr. Cain [SEC FCPA Unit Deputy Chief] started by stating “there is no perfect compliance program;” therefore, companies will always have some “background issues” which need to be addressed, especially as business and risk profiles change.  Mr. Cain does not expect companies to disclose these “normative” problems; however, companies should disclose “significant problems.”  These “significant problems” are the types of issues which may end up being enforcement actions if the SEC learns of them through means other than self-disclosure.”

“Mr. Knox took the position that it would be “very reckless and foolish” for him “to try and draw a line between matters which should be self-disclosed and matters which shouldn’t.”  In making the decision of whether to self-disclose, he advised companies and counsel to apply “common sense” and ask whether this is “something that [the Department] would be interested in hearing about?”  According to Mr. Knox, if the answer to that question is “yes,” then the Department would “probably want [a company] to self-disclose it.”  Nonetheless, there are instances which are not worthy of self-disclosure because the conduct is “minor” and “isolated” or the allegation of wrongdoing is “much too vague.”  Mr. Knox advised companies to “be thoughtful” when making disclosure decisions and carefully document any decision not to disclose.”

If the above leaves you scratching your head, join the club.

Interesting

My article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” highlights how ADM and its shareholders were victims of a corrupt Ukrainian government in that the government refused to give ADM something even the DOJ and SEC acknowledged ADM was owed – VAT refunds.  Among other things, the article discusses how VAT refund refusals were well-known and frequently criticized prior to the ADM enforcement action in late 2013.

Fast forward to the present day and VAT refund refusals remain a problem in Ukraine.  Recently the International Monetary Fund issued this release concerning a potential aid package for Ukraine.  Among the conditions is that Ukraine  adopt “reforms to strengthen governance, enhance transparency, and improve the business climate” such as taking “measures to facilitate VAT refunds to businesses.”

Deserving?

Earlier this week, the African Development Bank Group (AfDB) released this statement

“Kellogg Brown & Root LLC, Technip S.A. and JGC Corp. agree to pay the equivalent of US $17 million in financial penalties as part of Negotiated Resolution Agreements with the African Development Bank following admission of corrupt practices by affiliated companies in relation to the award of services contracts for liquefied natural gas production plants on Bonny Island, Nigeria, from 1995 until 2004.”

The Director of the AfDB’s Integrity and Anti-Corruption Department stated:

“This settlement demonstrates a strong commitment from the African Development Bank to ensure that development funds are used for their intended purpose.  At the same time, it is a clear signal to multinational companies that corrupt practices in Bank-financed projects will be aggressively investigated and severely sanctioned. These ground-breaking Negotiated Resolution Agreements substantially advance the Bank’s anti-corruption and governance agenda, a strategic priority of our institution.”

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

As alleged in the U.S. Bonny Island FCPA enforcement actions, the above-mentioned companies allegedly made corrupt payments to, among others, NLNG officials.  And for this, the specific companies paid $579 million (KBR, et al), $338 million Technip, and $219 million (JGC).

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Scrutiny Alerts and Updates

SBM Offshore, Sweett Group, Citigroup, Cisco, and Societe Generale.

SBM Offshore

The Netherlands-based company (with ADRs traded in the U.S. that provides floating production solutions to the offshore energy industry) has been under FCPA scrutiny for approximately two years.  It recently issued this statement which states, in summary, as follows.

“SBM Offshore presents the findings of its internal investigation, which it started in the first quarter of 2012, as the investigators have completed their investigative activities. The investigation, which was carried out by independent external counsel and forensic accountants, focused on the use of agents over the period 2007 through 2011. In summary, the main findings are:

  • The Company paid approximately US$200 million in commissions to agents during that period of which the majority relate to three countries: US$18.8 million to Equatorial Guinea, US$22.7 million to Angola and US$139.1 million to Brazil;
  • In respect of Angola and Equatorial Guinea there is some evidence that payments may have been made directly or indirectly to government officials;
  • In respect of Brazil there were certain red flags but the investigation did not find any credible evidence that the Company or the Company’s agent made improper payments to government officials (including state company employees). Rather, the agent provided substantial and legitimate services in a market which is by far the largest for the Company;
  • The Company voluntarily reported its internal investigation to the Dutch Openbaar Ministerie and the US Department of Justice in April 2012. It is presently discussing the disclosure of its definitive findings with the Openbaar Ministerie, whilst simultaneously continuing its engagement with the US Department of Justice. New information could surface in the context of the review by these authorities or otherwise which has not come up in the internal investigation to date;
  • At this time, the Company is still not in a position to estimate the ultimate consequences, financial or otherwise, if any, of that review;
  • Since its appointment in the course of 2012 the Company’s new Management Board has taken extensive remedial measures in respect of people, procedures, compliance programs and organization in order to prevent any potential violations of applicable anti-corruption laws and regulations. Both it and the Company’s Supervisory Board remain committed to the Company conducting its business activities in an honest, ethical, respectful and professional manner.”

The SBM Offshore release contains a detailed description of the scope and methodology of its review, as well as remedial measures the company has undertaken.  For this reason, the full release is an instructive read.

Sweett Group

As noted in this prior post, in June 2013 Sweett Group Ltd. (a U.K. based construction company) was the subject of a Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe.” The focus of the article concerned the construction of a hospital in Morocco and allegations that the company would get the contract if money was paid to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”

Earlier this week, the company issued this release which stated:

“[T]here have been further discussions with the Serious Fraud Office (SFO) in the UK and initial discussions with the Department of Justice (DOJ) in the USA.  The Group is cooperating with both bodies and no proceedings have so far been issued by either of them.  The Group has commissioned a further independent investigation which is being undertaken on its behalf by Mayer Brown LLP.  Whilst this investigation is at an early stage and is ongoing, to date still no conclusive evidence to support the original allegation has been found.  However, evidence has come to light that suggests that material instances of deception may have been perpetrated by a former employee or employees of the Group during the period 2009 – 2011.  These findings are being investigated further.”

Citigroup

When first discussing Citigroup’s “FCPA scrutiny” I noted the importance of understanding that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).  As highlighted in this recent New York Times Dealbook article, this appears to be what Citigroup’s scrutiny involves.  According to the article:

“Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter …  The investigation, overseen by the FBI and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.”

Cisco

BuzzFeed goes in-depth as to Cisco’s alleged conduct in Russia that has resulted in FCPA scrutiny for the company. The article states, in pertinent part:

“[T]he iconic American firm is facing a federal investigation for possible bribery violations on a massive scale in Russia. At the heart of the probe by the Department of Justice and the Securities and Exchange Commission, sources tell BuzzFeed, are allegations that for years Cisco, after selling billions of dollars worth of routers, communications equipment, and networks to Russian companies and government entities, routed what may have amounted to tens of millions of dollars to offshore havens including Cyprus, Tortola, and Bermuda.”

“Two former Cisco insiders have described to BuzzFeed what they say was an elaborate kickback scheme that used intermediary companies and went on until 2011. And, they said, Cisco employees deliberately looked the other way.”

“No one is suggesting that Cisco bribed Russia’s top leaders. Instead, the investigation is centered on day-to-day kickbacks to officials who ran or helped run major state agencies or companies. Such kickbacks, according to the allegations, enabled the firm to dominate Russia’s market for IT infrastructure.”

“Last year, according to sources close to the investigation, a whistleblower came forward to the SEC, sketching out a vast otkat [kickback] scheme and providing documents as evidence.”

“The two former Cisco executives laid out for BuzzFeed how the alleged scheme worked:  In Cisco’s Russia operations, funds for kickbacks were built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35% to 40%, but sometimes as high as 68% percent off the list price.  And there was a catch: Instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies — Cisco’s end customers — that these intermediaries functioned as their agents. These middleman companies would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands, or Bermuda.”

According to the article, WilmerHale is conducting the internal investigation.

Societe Generale

Like other financial services company, Societe Generale has come under FCPA scrutiny for business dealings in Libya.  (See here for the prior post).  As noted in this recent article in the Wall Street Journal, in a U.K. lawsuit the Libyan Investment Authority has alleged that the company “paid a middleman $58 million in alleged bribes to secure almost $2 billion in business … during the final years of dictator Moammar Gadhafi’s rule.”

Reading Stack

The most recent issue of the always informative FCPA Update from Debevoise & Plimpton contains a useful analysis of the DOJ’s recent opinion procedure release (see here for the prior post).  Among other things, the Update states:

“[W]hy did it take eight months for the DOJ to issue an Opinion which could have simply cited [a prior Opinion Release]? The delay does not appear to be related to the DOJ’s heavy workload or bureaucratic inertia, as “significant backup documentation” was provided and “several follow up discussions” took place during the eight months.”

*****

A good weekend to all.  On Wisconsin!

Does DOJ Expect FCPA Counsel To Roll Over And Play Dead?

By on April 27, 2011 in Enforcement Agency Policy, JGC of Japan, Jurisdiction

Remember those “issue spotting” exams in law school?

Well, here is one.

A Japanese company (without shares traded on a U.S. exchange) participated in a joint venture operating in Nigeria. The joint venture operated through three Portuguese special purpose corporations. The joint venture hired a U.K. citizen who, along with his Gibraltar corporation, allegedly paid bribes to Nigerian government officials. The U.S. Department of Justice starts an investigation as to your Japanese company client. Consistent with your duty to zealously advocate on behalf of your client, discuss likely legal defenses your client may raise to a U.S. enforcement action based on the described conduct?

Got the answer?

Your answer includes jurisdictional issues does it not?

In fact, a lawyer representing the Japanese company would likely fall short of his/her professional duties without raising a jurisdictional defense.

Why am I even talking about this?

Because of this troubling sentence in the recent JGC Corporation of Japan deferred prosecution agreement (here p. 3) – “after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and other relating to violations of the FCPA.”

The above sentence – save for the portion in italics – is standard fare in DOJ resolution agreements.

However, the portion in italics is troubling.

For starters, what does it mean to decline “to cooperate with the Department based on jurisdictional arguments?”

The DOJ’s Principles of Federal Prosecution of Business Organizations (“Principles”) (here) talk about the “Value of Cooperation” (at 9-28.700), but the discussion focuses on issues such as “identifying potentially relevant actors and locating relevant evidence, among other things, and in doing so expeditiously.” Further, 9-28.720 discusses cooperation as disclosing “relevant facts.”

However, nothing in the Principles suggest that raising legal arguments obviously implicated by the DOJ’s investigation is not cooperating.

Surely the DOJ carries a big stick and has juicy carrots at its disposal. Thus, cooperation – along the lines outlined in the Principles – may be warranted in certain cases.

However, is the message tucked in the JGC DPA that the DOJ now expects FCPA counsel to roll over and play dead and that the failure to do so will be adverse consequences for the client?

After all, JGC’s total culpability score under the U.S. Sentencing Guidelines (a score that impacts the ultimate fine amount) was only reduced by -1 whereas the other joint venture partners that previously resolved enforcement actions (Technip, Snamprogetti, and KBR) all received a “better” -2 reduction.

JGC of Japan Formally Joins the Bonny Island Bribery Club

By on April 13, 2011 in 2011 Enforcement Actions, Bonny Island Bribery, Deferred Prosecution Agreements, DOJ Enforcement Action, Foreign Non-Issuer Company, JGC of Japan, Joint Venture, Nigeria, Oil and Gas Industry

In an enforcement action anticipated for months (see here for the prior post), JGC Corporation on Japan last week became the fourth joint venture partner to resolve its FCPA exposure in connection with the Bonny Island, Nigeria project.
Other joint venture partners in the so-called TSKJ consortium to previously resolve Bonny Island bribery probes were KBR / Halliburton (see here), Technip (see here) and Snamprogetti (see here). In addition, M.W. Kellogg Ltd., the entity that originally formed the TSKJ consortium resolved a U.K. Serious Fraud Office enforcement action (see here). In terms of individual prosecutions, Albert Jack Stanley pleaded guilty and awaits sentencing (see here); Wojciech Chodan pleaded guilty and awaits sentencing (see here); and Jeffrey Tesler recently pleaded guilty and awaits sentencing (see here).

The JGC enforcement action involved only a DOJ component. Total settlement amount was $218.8 million and the criminal charges (see here for the information) were resolved via a DOJ deferred prosecution agreement (here).

Criminal Information

The substance of the criminal allegations are the same as in the prior KBR, Technip, and Snamprogetti enforcement actions. That is, the TSKJ consortium, of which JGC was a member, was formed for purposes of bidding on and performing a series of engineering, procurement, and construction (“EPC”) contracts to design and build a liquefied natural gas plant on Bonny Island, Nigeria.

Tesler was hired by TSKJ to “help it obtain business in Nigeria, including by offering to pay and paying bribes to high-level Nigerian government officials” and Tesler “was an agent of TSKJ and of each of the joint venture companies.”

According to the information, TSKJ also hired “Consulting Company B” – a “global trading company headquartered in Tokyo” to help it “obtain business in Nigeria, including by offering to pay and paying bribes to Nigerian government officials” and “Consulting Company B was an agent of TSKJ and of each of the joint venture companies.”

Most of the allegations in the information focus on the conduct of the JGC’s alleged co-conspirators such as Stanley, Tesler, and Tesler’s corporate entity, Tri-Star Investments Ltd. As to U.S. nexus, the information alleges money flowing through U.S. based accounts “to bribe Nigerian government officials” and co-conspirators faxing or e-mailing information into the U.S. in furtherance of the bribery scheme.

Based on the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

DPA

The DOJ’s charges against JGC were resolved via a deferred prosecution agreement.

Pursuant to the DPA, JGC admitted, accepted and acknowledged “that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth above. As is typical in FCPA DPAs, JGC expressly agreed not to make any statements, directly or indirectly, “contradicting” the facts alleged.

The term of the DPA is two years and it states that the DOJ entered into the agreement based on the following factors.

“(a) after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA;

(b) JGC has undertaken remedial measures, including evaluating and enhancing its compliance program, and has agreed to undertake further remedial measures as contemplated by this Agreement; and

(c) the impact of JGC, including collateral consequences, of a guilty plea or criminal conviction.”

As stated in the DPA, the fine range for the above conduct under the U.S. Sentencing Guidelines was $312.6 million to $625.2 million. Pursuant to the DPA, JGC agreed to pay a monetary penalty of $218.8 million (30% below the minimum amount suggested by the guidelines). DPAs frequently then state why such a below-guidelines fine amount is “appropriate,” however the JGC DPA is silent as to this issue. Interesting also is that the conduct at issue took place between 1995 and 2004. Yet, the 2010 sentencing guidelines were used in calculating the fine rather than the 2003 guidelines that were used in the prior KBR, Technip, and Snamprogetti enforcement actions.

Pursuant to the DPA, JGC agreed to “engage a corporate compliance consultant.”

The DOJ release (here) states as follows. “With [the JGC] resolution, each of the four companies in the TSKJ joint venture, the former chairman of the U.S. joint venture partner, and several other individuals have now been held accountable for a massive conspiracy to bribe Nigerian government officials to obtain lucrative construction contracts.” “The approximately $1.5 billion in criminal and civil penalties that have been imposed on the members of the joint venture far exceed their profits from the scheme. Foreign bribery is a serious crime, and as this case makes clear, we are investigating and prosecuting it vigorously.”

Manny Abascal (Latham & Watkins – see here – a former DOJ enforcement attorney) represented JGC.

This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.

JGC of Japan Formally Joins the Bonny Island Bribery Club

By on April 13, 2011 in 2011 Enforcement Actions, Bonny Island Bribery, DOJ Enforcement Action, JGC of Japan, Nigeria

In an enforcement action anticipated for months (see here for the prior post), JGC Corporation on Japan last week became the fourth joint venture partner to resolve its FCPA exposure in connection with the Bonny Island, Nigeria project.
Other joint venture partners in the so-called TSKJ consortium to previously resolve Bonny Island bribery probes were KBR / Halliburton (see here), Technip (see here) and Snamprogetti (see here). In addition, M.W. Kellogg Ltd., the entity that originally formed the TSKJ consortium resolved a U.K. Serious Fraud Office enforcement action (see here). In terms of individual prosecutions, Albert Jack Stanley pleaded guilty and awaits sentencing (see here); Wojciech Chodan pleaded guilty and awaits sentencing (see here); and Jeffrey Tesler recently pleaded guilty and awaits sentencing (see here).

The JGC enforcement action involved only a DOJ component. Total settlement amount was $218.8 million and the criminal charges (see here for the information) were resolved via a DOJ deferred prosecution agreement (here).

Criminal Information

The substance of the criminal allegations are the same as in the prior KBR, Technip, and Snamprogetti enforcement actions. That is, the TSKJ consortium, of which JGC was a member, was formed for purposes of bidding on and performing a series of engineering, procurement, and construction (“EPC”) contracts to design and build a liquefied natural gas plant on Bonny Island, Nigeria.

Tesler was hired by TSKJ to “help it obtain business in Nigeria, including by offering to pay and paying bribes to high-level Nigerian government officials” and Tesler “was an agent of TSKJ and of each of the joint venture companies.”

According to the information, TSKJ also hired “Consulting Company B” – a “global trading company headquartered in Tokyo” to help it “obtain business in Nigeria, including by offering to pay and paying bribes to Nigerian government officials” and “Consulting Company B was an agent of TSKJ and of each of the joint venture companies.”

Most of the allegations in the information focus on the conduct of the JGC’s alleged co-conspirators such as Stanley, Tesler, and Tesler’s corporate entity, Tri-Star Investments Ltd. As to U.S. nexus, the information alleges money flowing through U.S. based accounts “to bribe Nigerian government officials” and co-conspirators faxing or e-mailing information into the U.S. in furtherance of the bribery scheme.

Based on the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

DPA

The DOJ’s charges against JGC were resolved via a deferred prosecution agreement.

Pursuant to the DPA, JGC admitted, accepted and acknowledged “that it is responsible for the acts of its employees, subsidiaries, and agents” as set forth above. As is typical in FCPA DPAs, JGC expressly agreed not to make any statements, directly or indirectly, “contradicting” the facts alleged.

The term of the DPA is two years and it states that the DOJ entered into the agreement based on the following factors.

“(a) after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA;

(b) JGC has undertaken remedial measures, including evaluating and enhancing its compliance program, and has agreed to undertake further remedial measures as contemplated by this Agreement; and

(c) the impact of JGC, including collateral consequences, of a guilty plea or criminal conviction.”

As stated in the DPA, the fine range for the above conduct under the U.S. Sentencing Guidelines was $312.6 million to $625.2 million. Pursuant to the DPA, JGC agreed to pay a monetary penalty of $218.8 million (30% below the minimum amount suggested by the guidelines). DPAs frequently then state why such a below-guidelines fine amount is “appropriate,” however the JGC DPA is silent as to this issue. Interesting also is that the conduct at issue took place between 1995 and 2004. Yet, the 2010 sentencing guidelines were used in calculating the fine rather than the 2003 guidelines that were used in the prior KBR, Technip, and Snamprogetti enforcement actions.

Pursuant to the DPA, JGC agreed to “engage a corporate compliance consultant.”

The DOJ release (here) states as follows. “With [the JGC] resolution, each of the four companies in the TSKJ joint venture, the former chairman of the U.S. joint venture partner, and several other individuals have now been held accountable for a massive conspiracy to bribe Nigerian government officials to obtain lucrative construction contracts.” “The approximately $1.5 billion in criminal and civil penalties that have been imposed on the members of the joint venture far exceed their profits from the scheme. Foreign bribery is a serious crime, and as this case makes clear, we are investigating and prosecuting it vigorously.”

Manny Abascal (Latham & Watkins – see here – a former DOJ enforcement attorney) represented JGC.

This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.

Bonny Island Bribery Developments

By on February 3, 2011 in Bonny Island Bribery, Foreign Non-Issuer Company, Halliburton, JGC of Japan, Joint Venture, KBR, Serious Fraud Office

As reported elsewhere earlier this week (see here among other places), JGC Corporation of Japan (here) is close to resolving an FCPA enforcement action. JGC is the fourth joint venture partner along with KBR, Technip and Snamprogetti in the TSKJ consortium (a consortium originally formed by M.W. Kellogg) involved in the Bonny Island, Nigeria project.

In a disclosure earlier this week (here) the company stated:

“JGC and DOJ have been engaged in discussions about a potential resolution of the investigation relating to JGC. It was confirmed at the meeting of JGC’s board of directors held on January 31, 2011 that the Board has approved a potential resolution of the investigation. Based on this approval, JGC recognized a provision for the cost estimated for such a resolution, which will be appropriated as a financial loss in the 3rd Quarter Financial Result. The amount of such loss is 17.8 billion Japanese yen [approximately $218 million]”.

The expected JGC settlement would thus fall in the Top Ten FCPA enforcement actions of all time (see here for the FCPA Blog’s current list) and would bump the total amount of corporate fines and penalties U.S. authorities have collected in Bonny Island bribery cases to approximately $1.52 billion.

See here for my current Bonny Island bribery statistics.

How will JGC’s expected settlement affect KBR (a company, along with its current or former affiliated entities, that has already paid $579 million in U.S. fines and penalties in connection with Bonny Island)?

In early January, KBR announced (here) that it “completed the acquisition of the 44.94 percent share interest in M.W. Kellogg Limited (MWKL) previously held by JGC Corporation. With the completion of the transaction, MWKL, which was previously an affiliate of both companies since 1992, is again a wholly-owned KBR subsidiary.”

During a January 13th earnings call, Sue Carter (KBR – Senior VP and CFO) stated as follows:

“Also in regards to MWKL, included in the transaction is an estimate of JGC’s share of the ongoing [Serious Fraud Office] investigation. Any potential liabilities at this point are only estimated. Therefore any financial impact pending an actual outcome in the investigation will be trued up positive or negative.”

During the Q&A, William Utt (KBR – Chairman, President and CEO) was asked “can you tell us what kind of risks are structured in the MWKL deal? I mean, you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?” He responded as follows: “Well I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation and as Sue commented, we’ve already factored that into the purchase price with JGC subject to a true-up.”

As Halliburton disclosed in its Oct. 22, 2010 10-Q filing, its indemnification obligations to KBR in connection with the SFO investigation “is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”

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