Mexico – Page 7 – FCPA Professor

Tyson Foods Settles FCPA Enforcement Action Involving Mexican Veterinarians And Their No-Show Wives

Yet another FCPA enforcement action raises the issue of whether the FCPA’s “obtain or retain business” element means anything anymore or whether the FCPA, contrary to Congressional intent, has morphed into an all-purpose corporate ethics statute and – in a game of chicken – companies opt to settle rather than mount a legal defense.

Yesterday, Tyson Foods, one of the world’s largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians (and their no-show wives) responsible for certifying product for export.

The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $5.2 million ($4 million criminal fine via a DOJ deferred prosecution agreement; $1.2 million in disgorgement and prejudgment interest via a SEC settled complaint).

DOJ

The DOJ enforcement action involved a criminal information (here) against Tyson resolved through a deferred prosecution agreement (here).

Criminal Information

The information contains a background section which describes the following.

“The Government of Mexico administers an inspection program, Tipo Inspeccion Federal (“TIF”), for meat-processing facilities. Any company that exports meat products from Mexico must participate in the inspection program, which is supervised by an office in the Mexican Department of Agriculture (“SAGARPA”). The inspection program at each facility is supervised by an on-site veterinarian who is a government employee (“TIF veterinarian”), paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws.” “There are two categories of TIF veterinarians: ‘approved’ and ‘official.’ Although all TIF veterinarians are foreign officials under the FCPA, Mexican law permits approved veteriarians to charge the facility in which they work a fee for their services in addition to their offcial salary. Official veterinarians receive all of their salary from the Mexican government and may not be paid by the facility they supervise.”

The conduct at issue focuses on Tyson de Mexico (“TdM”), a wholly-owned subsidiary of Tyson that produces protein-based and prepared food products for sale in Mexico and foreign countries other than the U.S. TdM is headquartered in Mexico and maintains three meat-processing factories in Mexico.

The information charges that from July 2004 through November 2006, Tyson, TdM, and others were engaged in a conspiracy to “assist Tyson and TdM in the export of meat products from Mexico through the payment and promise of payment of things of value to Mexican government-employed TIF veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF Program.”

The information does not give any detail as to how the payments sought to influence the veterinarians nor does it suggest that the product at issue was not qualified for export. In fact, as detailed below, Tyson’s press release (a release the DOJ had to approve per the deferred prosecution agreement) states that there were no issues with the safety of the exported products.

Among other things, the information alleges that part of the conspiracy was “to place the wives of the TIF veterinarians on TdM’s payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services for TdM …”. According to the information, upon “termination of the salaries to the wives of the TIF veterinarians” in November 2006 Tyson “agreed to increase the amount paid to the veterinarians based on false invoices by the same amount as the salaries previously paid to their wives.”

The information alleges that the above payments were falsely recorded on company books and records as “professional fees” and salaries in order to conceal the true nature of the improper payments in the consolidated books and records of Tyson.

In addition to the above described payments, the information also alleges that from the time Tyson acquired TdM in 1994 through 2006, “Tyson made occassional additional improper payments to the TIF veterinarians on an ad-hoc basis.”

Under the heading “Total Improper Payments” the information alleges as follows:

“Tyson, its executives, and its subsidiaries authorized the payment, directly or indirectly, of approximately $90,000 to Mexican government-employed veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF program, resulting in profits of approximately $880,000.”

In addition, the information alleges that from the time of Tyson’s acquisition of TdM until May 2004, “an additional $260,000 in improper payments were made to the TIF veterinarians, both indirectly and directly, including through payments to wives of TIF veterinarians.”

Based on the above allegations, the information charges Tyson with conspiracy to violate the FCPA and substantive FCPA anti-bribery violations.

DPA

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

Pursuant to the DPA, Tyson admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and wholly-owned subsidiaries as set forth above.

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

(a) Tyson voluntarily disclosed the misconduct;

(b) Tyson conducted a thorough internal investigation of the misconduct;

(c) Tyson reported all of its findings to the Department;

(d) Tyson cooperated in the Department’s investigation of the matter;

(e) Tyson has undertaken certain remedial measures;

(f-g) Tyson has agreed to continue to cooperate with the Department and the SEC in any investigation of the conduct of Tyson and its directors, offcers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA; and

(h) with respect to the corporate compliance reporting obligations, the Department considered the following facts and circumstances: (i) Tyson has already engaged in signficant remediation related to the misconduct and implemented an enhanced compliance program; (ii) approximately 85-90% of Tyson’s sales are domestic; (iii) Tyson operates only six wholly-owned production facilities overseas, three in Mexico and three in Brazil, all of which have been subjected to rigorous FCPA reviews; (iv) Tyson’s only direct government customers are domestic; and (v) the problematic operations in TdM comprised less than one percent of Tyson’s global net sales.

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $5.04 to $10.08 million. Pursuant to the DPA, Tyson agreed to pay a monetary penalty of $4 million (approximately 20% below the minimum amount suggested by the guidelines).

Pursuant to the DPA, Tyson agreed to self-report to the DOJ “periodically, at no less than six-month intervals” during the term of the DPA “regarding remediation and implementation of the compliance activities” described in the DPA. Given the factors the DOJ set forth in (h) above, this reporting obligation is a bit of a surprise.

As is standard in FCPA DPAs, Tyson agreed not to make any public statement “contradicting the acceptance of responsibility” as set forth in the DPA and Tyson further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

In the DOJ’s release (here) Assistant Attorney General Lanny Breuer stated as follows: “Tyson Foods used false books and sham jobs to hide bribe payments made to publicly-employed meat processing plant inspectors in Mexico – the penalty and resolution announced today reflect the company’s disclosure of this conduct, its cooperation with the government’s investigation and its commitment to implementing enhanced controls.”

SEC

The SEC’s civil complaint (here) is based on the same core conduct described above.

The complaint alleges that Tyson “authorized” TdM’s illicit activities and that “in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to have effective internal controls, as the true nature of the payments were concealed through salary payments to phantom employees and through service invoices submitted by one of the veterinarians.”

According to the SEC, “Tyson Foods realized net profits of more than $880,000 from export sales from [TdM] facilities in fiscal years 2004, 2005 and 2006.

Based on the above conduct, the SEC charged Tyson with FCPA’s anti-bribery violations and FCPA books and records and internal control violations.

Without admitting or denying the SEC’s allegations, Tyson agreed to an injunction prohibiting future FCPA violations and agreed to pay $1.2 million in disgorgement and pre-judgement interest.

In the SEC release (here), Robert Khuzami (Director of the SEC’s Division of Enforcement) stated: “Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct.”

Laurence Urgenson (here) of Kirkland & Ellis represented Tyson.

Tyson’s press release (here) notes, among other things, that its voluntary disclosure occured in early 2007 and that “none of the products exported from Tyson de México during the time period involved were shipped to the U.S., nor were there any issues with the safety of the products.”

David Van Bebber, the company’s Executive Vice President and General Counsel stated as follows: “We’re committed to abiding by the law as well as our company’s Core Values, which call on all of our people to operate with integrity. While we’re disappointed mistakes were made, corrective action has been taken and the improper payments were discontinued. As our international operations have expanded, we continue to strengthen the compliance efforts of our international businesses including improved training and compliance programs, extensive retraining, and anti-corruption focused audits.”

Pride – A Little Bit Of Nigeria, And A Whole Lot Else … Plus It Pays To Assist the DOJ!

Next up in the analysis of CustomsGate enforcement actions is Pride International.

As described below, the Pride enforcement action includes not only Nigeria – Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.

See here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Pride enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).

DOJ

The DOJ enforcement action involved a criminal information against Pride International Inc. (“Pride International”) resolved through a deferred prosecution agreement and a criminal information against Pride Forasol S.A.S. (“Pride Forasol”), a wholly-owned subsidiary of Pride International resolved through a plea agreement.

Pride International Inc. Criminal Information

Houston based issuer Pride International Inc. (here) is one of the world’s largest offshore drilling companies.

The criminal information (here) alleges bribery schemes in Venezuela, India and Mexico.

Venezuela

According to the information, “Pride International owned and operated numerous oil and gas drilling rigs throughout South America, including in Venezuela.” In Venezuela, Petroleos de Venezuela S.A. (“PDVSA”), “a Venezuelan state-owned oil company,” leased “the semi-submersible rig Pride Venezuela from Pride Foramer Venezula.” Pride Foramer is described as a branch of Pride Forasol’s wholly-owned subsidiary Prime Foramer operating in Venezuela. According to the information, PDVSA “also contracted with Pride Foramer Venezuela to operate two jackup rigs, the GP-19 and the GP-20.”

The information alleges that between February 2003 and July 2003 Country Manager 1 [a U.S. citizen who was the Country Manager in Venezuela], the Marketing Manager [a Venezuelan citizen working for Pride Foramer Venezuela in Venezuela], the Operations Manager [a French citizen working for Pride Foramer Venezuela in Venezuela], and others known and unknown agreed to pay $120,000 to the Venezuela Intermediary [a company that provided catering services to Pride Foramer Venezuela] with the intent that the money would be paid to the PDVSA Director [a Venezuelan citizen appointed by the President of Venezuela as a member of the PDVSA Board of Directors] to secure a contract extension for the Pride Venezuela.”

According to the information, “in order to conceal and to generate money to pay the bribes to the PDVSA Director” the above named individuals “agreed and instructed one of Pride Foramer Venezuela’s vendors, Vendor A, to inflate certain of its invoices for its services” that “Pride Foramer Venezuela then paid Vendor A for the undelivered services relating to the inflated invoices” and that “Vendor A delivered the excess money it received from Pride Foramer Venezuela to the Venezuela Intermediary with the intent that it would be provided to the PDVSA Director.”

According to the information, “on behalf of Pride International and Pride Foramer Venezuela, Vendor A wire transferred bribe payments of at least $120,000 to, or for the benefit of, the PDVSA Director to an account at a bank in Miami, Florida in the name of the Venezuelan Intermediary.” According to the information, “in exchange for the corrupt payments, the Pride Venezuela contract was extended for approximately three months” and “the profits Pride International derived from extending the contract were approximately $2.45 million.”

As to GP-19 and GP-20, the information alleges that between April 2004 and November 2004 “the Marketing Manager, the Operations Manager, and others known and unknown also agreed to pay at least $114,000 to the Venezuelan Intermediary with the intent that the money would be paid to the PDVSA Director to secure contract extensions for the GP-19 and GP-20.” The information describes a similar payment scheme and payments made to an account in Miami, Florida in the name of the Venezuela Intermediary. According to the information, “in exchange for the corrupt payments, the PDVSA Director caused PDVSA to extend the GP-20 contract from July 2004 through June 2005 and the GP-19 contract from February 2005 through June 2005.”

According to the information “the profits that Pride International derived from the contract extensions for the GP-20 were approximately $596,000” however, the “GP-19 extension was not profitable.” The information further alleges that Senior Executive A [a U.S citizen located in Houston] “concealed information relating to the bribe payments to the PDVSA Director from reports submitted to Pride International auditors.”

India

The information alleges that between January 2003 and July 2003, “Senior Executive B [a French citizen who served as the Director of International Finance for Pride International], the Legal Director [a French citizen who served as the Director of Legal Affairs for Pride Forasol], the Base Manager [a Canadian citizen working for Pride India], the Area Manager [a U.S. citizen with responsibility for the Asia Pacific region], the India Customs Consultant [an individual who provided customs consulting services to Pride India], and others known and unknown agreed to pay $500,000 into bank accounts in Dubai in the names of third party entities with the intent that it would be passed on to an Indian CEGAT [Customs, Excise, and Gold Appellate Tribunal – an Indian administrative judicial tribunal] judge to secure a favorable judicial decision for Pride India [a branch of Pride Forasol’s wholly-owned subsidiary Pride Foramer] relating to a litigation matter pending before the official involving the payment of customs duties and penalties owed for a rig, the Pride Pennsylvania.”

According to the information, “to pay the bribe, employees of Pride Forasol, including Senior Executive B and the Legal Director, caused false invoices for agent and consulting services to be created and submitted to Interdrill [a wholly-owned subsidiary of Pride International organized under the laws of the Bahamas] for payment.” The invoices were processed, the payment was made and on June 30, 2003″Pride India received a favorable ruling from CEGAT” resulting in an “estimate gain to Pride Forasol” of “at least $10 million.”

According to the information, “to conceal the bribe, the Finance Manager [a British citizen who was the Eastern Hemisphere Finance Manager for Pride International], who was located in Houston, Texas, with knowledge of the scheme to bribe the Indian CEGAT judge, sent an e-mail to the Assistant Controller [a U.S. citizen], who was located in Houston, Texas, authorizing the booking of the bribe payments by Pride International’s subsidiary, Interdrill, as a ‘regular fee’ in a newly created ‘miscellaneous fees’ account.”

Mexico

The information alleges that around December 2004, “Senior Executive A, the Logistics Coordinator [a U.S. citizen who was the Logistics Coordinator for Pride Mexico], Country Manager 2 [a U.S. citizen who was the Country Manager in Mexico], and others known and unknown agreed to pay approximately $10,000 to the Mexican Marketing Agent [an individual who provided marketing services to Pride Mexico] to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.”

According to the information, “to conceal the payments, the Mexico Marketing Agent caused false invoices purportedly for electrical maintenance services to be submitted to Pride Mexico [collectively Mexico Drilling Limited LLC, Pride Central America LLC, and Pride Drilling LLC – wholly owned subsidiaries of Pride International] in support of the payment.”

The information then alleges that all of the above-described payments were falsely characterized in the books and records of various subsidiaries or branches that were consolidated into the books, records, and accounts of Pride International for purposes of financial reporting.

Under the heading “total corrupt payments paid and improper benefits received,” the information alleges that between January 2003 through December 2004 “certain Pride International subsidiaries and their branches paid at least $804,000 in bribes to foreign government officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties.”

According to the information, “the benefit that Pride International received as a result of these payments was at least $13 million.”

Based on the above allegations, the DOJ charged Pride International with one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records as to the Mexico payments; one count of violating the FCPA’s anti-bribery provisions as to the Venezuela payments; and one count of FCPA books and records violations as to the India payments.

Pride International Inc. DPA

The DOJ’s charges against Pride International were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, Pride International admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and Pride International. Among the factors stated are the following.

(a) during a routine audit, Pride International discovered an allegation of bribery;

(b) Pride International voluntarily and timely disclosed to the Department and the SEC the misconduct;

(c) Pride International conducted a thorough internal investigation of that misconduct;

(d) Pride International voluntarily initiated a comprehensive anti-bribery compliance review of Pride International’s business operations in certain other high-risk countries [as to this broader compliance review, this Joint Motion to Waive Presentence Investigation notes that the review included a number of “high-risk countries including Angola, Brazil, Kazakhstan, Libya, Nigeria, the Republic of Congo, and Saudi Arabia” and that outside counsel with assistance from forensic accounting professionals were involved in the review of approximately 20 million pages of electronic and hard copy documents gathered from approximately 350 custodians, and that more than 200 interviews of employees and agents took place;

(e) Pride International regularly reported its findings to the Department;

(f) Pride International cooperated in the Department’s investigation of this matter, as well as the SEC’s investigation;

(g) Pride International undertook, of its own accord, remedial measures, including the enhancement of its FCPA compliance program, and agreed to maintain and enhance, as appropriate, its FCPA compliance program; and

(h) Pride International agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Pride International and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.

As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $72.5 million to $145 million. Pursuant to the DPA, Pride International agreed to pay a monetary penalty of $32.625 million – approximately 55% below the minimum guideline amount.

Pursuant to the DPA, Pride International agreed to a host of compliance undertakings and to report to the DOJ on an annual basis (during the term of the DPA) “on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures.”

As is standard in FCPA DPAs, Pride International agreed not to make any public statement “contradicting the acceptance of responsibility by Pride International as set forth” in the DPA and Pride International further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

Pride Forasol Criminal Information

The Pride Forasol criminal information (here) alleges the same scheme to bribe an administrative judge in India as described in the Pride International information. The information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records; one count of violating the FCPA’s anti-bribery provisions; and one count of aiding and abetting the creating of false books and records.

Pride Forasol Plea Agreement

The above described charges against Pride Forasol were resolved via a plea agreement (see here). Even though the Pride Forasol information is limited to India conduct, the sentencing guidelines range, $72.5 million to $145 million, is the same as set forth in the above described Pride International DPA.

The agreement sets forth factors motivating the DOJ to resolve the criminal charges in the manner in which they were resolved.

Such factors include: “Pride International’s and Pride Forasol’s substantial assistance with other related Department investigations regarding the bribery of foreign government officials in Venezuela and Mexico, including providing: (1) the names of individuals involved; and (2) contact information for the individuals” and “Pride International’s and Pride Forasol’s substantial assistance with other Department investigations regarding the bribery of foreign government officials in Nigeria and Saudi Arabia, including providing documentation and access to individuals.”

The above referenced Joint Motion to Waive Presentence Investigation states that Pride Forasol and Pride International “developed and timely provided detailed and significant information regarding third parties, including Panalpina Word Transport (Holding) Ltd. […] that was used to pay bribes to foreign government officials by numerous companies around the world.” The Joint Motion states that “the information provided by the Companies substantially assisted the Department because the extent of Panalpina’s conduct was unknown by the Department at the time of the Companies’ disclosure. It was only through the extensive, worldwide investigative efforts of the Companies that these complex criminal activities were uncovered and reported to the Department.”

SEC

The SEC’s civil complaint (here) alleges the same Venezuela, India, and Mexico payments described above.

As to Venezuela, the complaint alleges as follows:

“From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela’s state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela’s state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables.” (See this prior post for a summary of the Summers enforcement action).

“In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride’s U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made.”

“In or about late 2004, Bobby Benton, Pride’s Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat.” (See here for a summary of the Benton enforcement action).

Based on these allegations, the SEC charged Pride International with FCPA anti-bribery violations. Based on these allegations, as well as the below allegations, the SEC charged Pride International with FCPA books and records and internal control violations.

The SEC’s complaint also describes certain other “transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries’ books.”

As to Mexico, the complaint alleges that a $15,000 payment was made to a “Mexican customs official during the course of the export [of certain rigs] to ensure that the export of the rig would not be delayed due to claimed violations relating to non-conforming equipment on board the rig.”

As to Kazakhstan, the complaint alleges that the Kazakhstan affiliate of Panalpina informed a Pride Forasol logistics manager “that Kazakh customs officials had identified irregularities during a customs audit of Pride Forasol Kazakhstan, but that the issue could be resolved by making a cash payment of approximately $45,000 and paying substantially reduced monetary penalties.” According to the complaint, “certain Pride Forasol managers authorized the cash payment by [Panalpina] to resolve the customs irregularities.” The complaint further alleges that Pride Forasol Kazakhstan made “three payments totaling approximately $204,000” to a Kazakh Tax Consultant while “knowing facts that suggested a high probability that the Kazakh Tax Consultant would give all or a portion of the payments to Kazakh tax officials” who previously threatened to levy substantial taxes and penalties against Pride Forasol Kazakhstan.

As to Nigeria, the complaint alleges that “certain Pride Forasol Nigeria and Pride Forasol managers were aware of information suggesting a high probability that [Panalpina] would give all or a portion of the lump-sum payments charged in connection with obtaining or extending Pride Forasl Nigeria temporary importation (“TI”) permits to Nigerian customs officials in exchange for their cooperation in issuing the TI permits on favorable terms and/or without completing certain legally required steps.” The complaint further alleges that Pride Forasol Nigeria records were incompete and that Pride Forasol Nigeria “did not have adequate assurances” that certain tax payments were not paid directly to tax officials. In addition, the complaint alleges that Pride Forasol Nigeria “authorized the payment of $52,000 to a Nigeria Tax Agent while knowing facts that suggested a high likelihood that the Nigeria Tax Agent would give all or a portion of the money to a Nigerian tax official.”

As to Saudi Arabia, the complaint alleges that the Saudi Arabian affiliate of Panalpina informed a Pride Forasol Arabia manager that expedited customs clearance of a rig could be assured for a payment of $10,000. The complaint alleges that the manager “took $10,000 in cash from Pride Forasol Arabia’s petty cash fund, describing on the petty cash voucher the purpose of the payment as ‘freight forwarding services,’ and gave the money to a Saudi customs official.”

As to Congo, the complaint alleges as follows. “An inspection by the Congo Merchant Marine revealed that certain personnel abroad [a Pride Congo rig] lacked required maritime certification. A Merchant Marine official proposed that Pride Congo could resolve the paperwork defiiciency by making a payment for his personal benefit. A Pride Congo manager agreed to pay the Merchant Marine official $8,000 in lieu of an official penalty.” According to the complaint, the “payments were recorded as travel expenses in Pride Congo’s books and records.”

As to Libya, the complaint alleges that Pride Forasol managers authorized payments to a Libya Tax agent in connection with unpaid social security taxes and penalties against Pride Forasol Libya “without adequate assurances that the Libyan Tax Agent would not pass some or all of these fees to” officials of Libya’s social security agency.

According to the complaint, “Pride obtained improper benefits totaling approximately $19,341,870 from the conduct” described in the complaint. “Prejudgment interest on this amount is $4,187,848.”

Without admitting or denying the SEC’s allegations, Pride agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement and prejudgment interest of $23,529,718.

Pride’s press release (here) notes, among other things, as follows: “In addition to self-reporting in February 2006 and voluntarily cooperating with the government, we have greatly strengthened and enhanced our antibribery compliance program and policies. Our current management and board are strongly committed to conducting the company’s business ethically and legally, and we seek to instill in our employees the expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.”

Martin Weinstein (here) and Jeffrey Clark (here) both former DOJ enforcement attorneys with Willkie Farr & Gallagher, as well as Samuel Cooper (here) of Baker Botts, represented the Pride entities.

Yet Another Noisy Exit

Rodolfo Michelon was the Director & Controller – Mexico of Sempra Global. Michelon was also the legal representative of various Sempra subsidiary companies located in Mexico and served as a member of the board of directors of the Mexican subsidiaries.

That is until March 10, when Michelon was terminated by Sempra.

In a lawsuit (here) recently filed in California state court, Michelon claims that his termination was wrongful for many reasons, including the following:

“Sempra regularly required Michelon to transfer funds, and account for illegitimate expenditures that boiled down to bribes of government officials – everything from fraudulent trusts ostensibly to purchase fire fighting equipment for Mexican governments, to paying off local fisherman to move their operations away from Sempra facilities, to demanding remediation of accounting that falsely stated Sepmpra’s assets, to the outright wiring of huge amounts of money to ‘consultants’ throughout Mexico. As with his other attempts to ensure he was complying with his ethical requirements as a CPA, Michelon’s repeated questioning and protests of the miscellaneous frauds and bribes was met with open hostility and threats of termination. The termination of the Controller employment was not only in retaliation for Michelon’s complaints, but it was also meant to keep Michelon from reporting the frauds and bribes to governmental, law enforcement officials.”

Sempra Global is described (here) as “the umbrella for Sempra Energy’s businesses operating in competitive energy markets. Sempra Global companies acquire, develop and operate infrastructure assets related to the production and distribution of energy, including power plants, natural gas pipelines and liquefied natural gas (LNG) receipt terminals.”

Various Sempra entities are publicly traded issuers (see here).

In this San Diego Union Tribune report Sempra officials “called Michelon a disgruntled ex-employee attempting to cash in by making ‘outlandishly false claims and misrepresentations’ after being let go in a routine reorganization.” A Sempra spokesperson said that the “company first became aware of Mr. Michelon’s claims several months ago” and that “Sempra’s board of directors ordered an independent investigation, which found Mr. Michelon’s allegations to be completely without merit.”

Michelon’s “noisy exit” is the fourth such exit publicly reported over the past three months that may implicate the FCPA. See here and here for the prior posts.

Friday Roundup

It has been a few weeks since my last Friday Roundup.

As a result this is a souped-up edition.

Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo … it’s all here in the Friday roundup.

Is Paying an FCPA Fine Merely a Cost of Business?

One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens – The Year After, here for my post on BAE’s recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA – see here).

Denis McInerney, Chief of the DOJ’s Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.

According to Inside U.S. Trade, McInerney “sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which ‘companies are allowed to bribe, but if caught they have to pay a fee.'” According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he “emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur.” According to Inside U.S. Trade, McInerney said “I guarantee you that these firms do not view these are mere licensing fees.”

Is This Getting a Bit Out of Hand?

Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).

Here is what the company said in its 10-Q filing (here) yesterday:

“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.

As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews.”

Here is what Avon had to say in the fling about its net global expenses:

“The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation.”

Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.

On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts “for approximately one percent of the Company’s consolidated net sales and consolidated total assets.”

Recently, Orthofix provided this update in an 8-K filing (here):

“Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico.”

Newsweek Notices FCPA Inc.

Newsweek recently carried a short blurb (here) titled “Going After Graft.” Among other things, the piece states:

“With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are ‘four letters you need to be aware of if you’re doing business in the international marketplace.'”

Quit Picking On Canada

What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no “overzealous prosecutions,” and there were no prosecutions undertaken as “publicity stunts.”

According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada’s Corruption of Foreign Public Officials Act.

At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.

For more on Canada’s Corruption of Foreign Public Officials Act (see here and here).

Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?

Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison “after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad.”

Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role “he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions.”

According to the SFO release, “Messent authorized 41 corrupt payments” “to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS.”

The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).

Messent was charged under the U.K.’s Prevention of Corruption Act 1906 (see here).

According to this report in the Guardian, “the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund.”

According to the Guardian, “the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida.”

Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.

Will FCPA prosecutions of Messent (and perhaps others) follow?

Breuer on the Kleptocracy Asset Recovery Initiative

As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a “global imperative” and he announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.

In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative “aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations.” Holder announced that the DOJ is “assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”

In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:

“This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.”

In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants “companies that uncover illegal conduct to come forward voluntarily.”

Proclamation 7750 News

In 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here).

Proclamation 7750 basically says the U.S. can suspend entry into the country “of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity” subject to an exception where denying such entry would be “contrary to the interests” of the U.S.

Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”

Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:

“The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States.”

Joe Palazzolo (Wall Street Journal – Corruption Currents) followed up with Johnson and noted in a recent article that the “State Department is stepping up its game” in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to “step up the game” when “for a long time, one part-official […] handled 7750 matters.”

Palazzolo reports that the State Department recently hired two new employees and is “processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues.” The article quotes a State Department official as saying, “it is our hope and intention that the new hires will result in greater capacity.”

Son Fights to Keep New York Condo

This prior post discussed the DOJ’s civil forfeiture complaint filed in July against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”

Joe Palazzolo (Wall Street Journal – Corruption Currents) recently reported that “the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government.”

According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss “shortly.”

*****

A good weekend to all.