Friday Roundup
Chevron and others get the front-page treatment, the Aguilar prosecution is officially over as well, some additional FCPA compliance survey data, Wal-Mart civil suits continue to pile up, and Chinese state-owned enterprises continue their global M&A push, it’s all here in the Friday roundup.
Kazakhstan Customs Inquiry
In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group. (For more on KPO see here). According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.” The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.
Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.
In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct. In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.
Aguilar Conviction Vacated
This recent post highlighted the official end to the Lindsey Manufacturing prosecution. The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well. As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy. After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody. Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.
As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction. In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows. “The government overreached in its efforts to press this case. It is bittersweet whenever a prosecution is terminated for misconduct. Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far. I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”
Kroll’s 2012 FCPA Benchmarking Report
This post discussed recent FCPA survey data. Add Kroll’s recent FCPA Benchmarking Report (here) to the list.
As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”
Survey results that caught my eye include the following.
“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry. […] 85 percent believe [such risk] will increase or stay the same in the future.”
“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”
“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”
“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”
“[T]he weakest link among survey respondents was how they handled third party relationships. While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties. […] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad. Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties. A small number said they worked with more than 100,000 different third parties.”
It’s a third-party world.
The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012. Survey respondents were drawn mainly from four industries: financial services, IT/telecommunications, energy, and pharmaceuticals.
The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.
Wal-Mart Civil Suits
One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.
Sure enough.
Wal-Mart’s recent quarterly SEC filing stated as follows.
“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012. One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”
Chinese SOEs
This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs. Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report). As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.” According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.
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A good weekend to all.
Friday Roundup
The Chamber and others weigh in on the DOJ’s promised FCPA guidance, a re-run worth watching, the DOJ dismisses its FCPA case against defunct Cinergy Telecommunications, this week’s FCPA disclosure, a World Bank debarment, and reflecting on this “new era” of FCPA enforcement. It’s all here in a souped-up version of the Friday roundup.
Guidance
The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill. The current conversation thus seems to be focused on DOJ’s promised guidance.
This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.
Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”
The letter begins as follows. “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”
Topics addressed in the letter include: “definitions of ‘foreign official’ and ‘instrumentality'”; “consideration of compliance programs in enforcement decisions”; “parent-subsidiary liability”; “successor liability”; “de minimis gifts and hospitality”; “mens rea standard for corporate criminal liability”; and “declination issues.”
In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement. Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public domain for those who know where to look. The Chamber letter similarly states as follows concerning compliance programs. “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”
Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance. What the FCPA needs is not guidance, but limited structural reforms (such as a compliance defense) as well as a change in DOJ policy (such as elimination of non-prosecution and deferred prosecution agreements).
A Re-Run Worth Watching
If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides. At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.” Many thanks to Bruce Carton at Securities Docket for hosting.
Cinergy Telecommunications
In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post). In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering. In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy). As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.
Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy. The motion states as follows. “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita. For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.” The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.” The motion concludes as follows. “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”
Joel Hirschhorn (here – Hirschhorn & Bieber P.A.) represents Cinergy as well as certain individual defendants in the case.
This Week’s FCPA Disclosure
In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far so good. This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.
“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”
World Bank Debarment
Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s acknowledgment of misconduct in relation to a Bank-financed hydropower project.” According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a former senior government official for consultancy services in relation to the World Bank-financed Zambia Power Rehabilitation Project.” The release further states as follows. “The debarment is part of a Negotiated Resolution Agreement between Alstom and the World Bank which also includes a restitution payment by the two companies totaling approximately $9.5 million. The debarment can be reduced to 21 months – with enhanced oversight – if the companies comply with all conditions of the agreement.”
What to make of the debarment based on conduct 10 years ago is a bit difficult. This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows. “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.” Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”
Reflecting On The New Era of FCPA Enforcement
As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows. “We are in a new era of FCPA enforcement’ and we are here to stay.” Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here. In this post, titled “The New Era of FCPA Enforcement: A Time For Reflection” Gorman hit the ball out of the park when he states as follows.
“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”
For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.
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A good weekend to all.
Friday Roundup
ConocoPhillips is hit with an FCPA related shareholder proposal, add Wal-Mart to the list, and more on Embraer … it’s all here in the Friday Roundup.
ConocoPhillips Shareholder Proposal
Last week ConocoPhillips was hit with an FCPA shareholder proposal – see here. In the letter, titled “Shareholder Proposal and Statement for Publication in 2012 Proxy Materials Recommending an Audit of Controls on U.S. Foreign Corrupt Practices Act Violations,” the shareholder – Roger Parsons, a former Conoco employee who runs a website “The Iran-Conoco Affair” (here) – recommends “that the Board commission a forensic audit of ConocoPhillips compliance controls that failed to identify violations of the United States Foreign Corrupt Practices Act of 1977 (“FCPA”) arising from James J. Mulva ‘s peddling influence with the Bush Administration to obtain Executive Order 13477 on behalf of Muammar al-Qadhafi.” Mulva is currently ConocoPhillips Chairman and Chief Executive Officer.
Wal-Mart
Add Wal-Mart to the list of company’s under FCPA scrutiny. In a 10-K filing yesterday, the company disclosed as follows. “During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known,
we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”
Given the reference to permits, licenses and inspections in the disclosure, it is useful to review the holding of U.S. v. Kay, the only appellate court decision to directly address payments outside the context of directly securing a foreign government contract. In Kay, the 5th Circuit said that such payments “could” violate the FCPA, but that “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business. The court specifically stated as follows. “If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in betting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”
Embraer
Bloomberg has additional information (here) regarding Embraer’s FCPA scrutiny (discussed in this previous post). The article suggests that the “probe started more than a year ago in Argentina with government-controlled Aerolineas Argentinas SA’s $700 million purchase of 20 E-190 jets in 2009.” The airline has switched between private ownership and government ownership a number of times over the years.
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A good weekend to all.
The 80’s Began With A Focus On “Finders”
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
Having left the 1970’s, lets start a new decade, the 1980’s. The FCPA began to mature and enforcement, while still measured, began to increase. The 1980’s witnessed nine “core” FCPA enforcement actions (including one involving several distinct companies) and this post starts off the decade by highlighting the SEC’s enforcement action against Tesoro Petroleum Corporation.
In 1980, the SEC filed a civil injunctive action against Tesoro Petroleum Corporation. In pertinent part, the SEC complaint alleged (as to conduct that occurred prior to 1977 – the year the FCPA was enacted) as follows. “Since at least the time Tesoro became a public company, Tesoro and others have engaged in a course of business in connection with acquiring material foreign assets, attempting to acquire material foreign assets, or conducting foreign business whereby they made or caused to be made substantial payments to ‘finders’ and ‘consultants’ where such payments, with respect to multi-million dollar contracts, were disproportionate to the business obtained or the services rendered, were not usual or customary and were made under circumstances such that Tesoro was and continues to be unable to account for or satisfy itself as to the final disposition of such corporate funds. In certain instances involving payments made in connection with foreign business activities, the circumstances of the payments indicate that the funds, in whole or in part, may have been directly or indirectly transferred to foreign government officials or political leaders.”
The SEC alleged that Tesoro: “(1) made and kept books, records and accounts which failed in reasonable detail to accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (2) made transfers and disbursements without adequate records and controls sufficient to ensure that such transfers and disbursements were actually made for the purposes indicated and without adequate records and controls to document whether the services provided therefore, if any, were commensurate with the amounts paid.”
Specifically, the SEC alleged that Tesoro, through the participation of the Chairman of its Board, Robert West, caused approximately $450,000 in payments to be made to James Morgan, a “finder/consultant who assisted Tesoro in obtaining certain foreign oil and gas concessions from a foreign government.” According to the SEC, “these payments were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been transferred directly or indirectly to foreign government officials.” In one instance, the SEC alleged that Tesoro made a payment to Morgan’s home “where an official of the national oil company of the country involved was waiting.”
In another instance, the SEC alleged that Tesoro paid $120,000 to another consultant “in connection with an application to do business in another foreign country, and in connection with subsequent applications by Tesoro to do business in that country and a refinery joint venture.” According to the SEC, the payments ($10,000 monthly for a year) “were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been passed on to government officials. The SEC alleged that “during the period when Tesoro’s application to do business was pending” the company transferred money to the consultant’s bank account and that the consultant paid, at various times, a director of the national oil company. According to the SEC, Tesoro’s application to purchase oil was denied by the national oil company.
Based on the above conduct, the SEC charged Tesoro with filing materially false and misleading reports with the SEC. Without admitting or denying the SEC’s allegations, Tesoro consented to entry of a final judgment requiring, among other things, Tesoro: (i) to make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (ii) to disclose in an SEC filing the amount and circumstances of all material “finders,” “consultants” or other fees similar to those described above, paid in the future in connection with the acquisition or disposition of foreign assets or the conduct of foreign business.
Original source documents from the Tesoro enforcement action can be found here.
Closing Out The 70’s
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
Previous posts (here and here) detailed FCPA enforcement actions from the 1970’s against: (i) Page Airways, Inc. (and six officers and/or directors of the company); and (ii) Kenny International Corporation and Finbar Kenny (Chairman of the Board, President and majority shareholder of Kenny International).
The 1970’s also witnessed: (i) a SEC civil complaint against Katy Industries, Inc. and its executives Wallace Carroll and Melvan Jones; and (ii) a DOJ civil complaint against Roy Carver and R. Eugene Holley; and (iii) a SEC civil complaint against International Systems & Controls Corporation and its executives J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein.
These enforcement actions are summarized below.
Katy Industries, Wallace Carroll and Melvan Jacobs
In August 1978, the SEC alleged in a civil complaint for permanent injunction that Katy Industries, Inc. (“Katy”), Wallace Carroll (Chairman of the Board and CEO of Katy) and Melvan Jacobs (Director and Member of Katy’s Executive Committee and also an attorney who acted as counsel to Katy as to the conduct at issue) “have engaged, are engaged and are about to engage in acts and practices” which constitute violations of various securities law provisions including the FCPA’s anti-bribery provisions.
According to the SEC complaint, Katy was interested in obtaining an oil exploration concession in Indonesia and retained a consultant who was a “close personal friend of a high level Indonesian government official.” The complaint alleges that Katy representatives and the consultant met with the official and his representative and during the meeting “the official agreed to assist Katy in obtaining an oil production sharing contract.” Katy agreed to compensate the consultant if it received the contract and the SEC alleged that Katy representatives were “told that the consultant would give a portion of such compensation to the official and the official’s representative.” According to the SEC, Katy entered into various agreements with the consultant and the official’s representative and thereafter “Katy entered into a thirty year Production Sharing Contract with Pertamina, the Indonesian Government-owned oil and gas enterprise.” The SEC alleged that “Katy, Carroll and Jacobs knew or had reason to know that the official and the official’s representative would directly or indirectly share in the payments to the consultant for the duration of the thirty year Contract.” In addition, the SEC alleged that Katy’s books and records did not reflect the true nature and purpose of the payments and that a “substantial portion” of the money paid by Katy to the consultant and the official’s representative “was expected by Katy to be given by the recipient to the official.”
Without admitting or denying the SEC’s allegations, Katy, Carroll and Jacobs consented to entry of final judgment of permanent injunction prohibiting future violations. Katy also agreed to establish a Special Committee of its Board “to review the matters alleged in the complaint and to conduct such further investigation as it deems appropriate into these and other similar matters” and to file the Special Committee’s findings publicly with the SEC.
See here for original source documents.
Roy Carver and R. Eugene Holley
In April 1979, the DOJ alleged in a civil complaint for permanent injunction that Roy Carver (Chairman of the Board and President of Holcar Oil Corporation) and R. Eugene Holley (Vice President of Holcar Oil Corporation) “have engaged, are engaged and are about to engage in acts and practices which constitute violations” of the FCPA’s anti-bribery provisions. The complaint alleges that on a trip to Doha, Qatar, Carver and Holley learned of “the possibility of engaging in the business of petroleum exploration in that country” if a “substantial payment of money were to be made to Ali Jaidah [an official of the government of Qatar – specifically the Director of Petroleum Affairs) for his official approval of a concession agreement.”
According to the complaint, the defendants agreed to proceed with the project by forming Holcar in the Cayman Islands “as a vehicle for the purpose of exploiting the concession.” The complaint alleges that the defendants further agreed “that an appropriate payment would be paid to Ali Jaidah to secure the necessary approval of the Government of Qatar.” During a subsequent meeting in Doha, the complaint alleges that Carver and Holley met with Ali Jaidah who requested a $1.5 million payment “into the account of his brother, Kasim Jaidah, at the Swiss Credit Bank of Geneva, Switzerland.” The complaint alleges that the defendants made the payment “knowing or having reason to know that all or a portion of such funds would be transferred to Ali Jaidah.” According to the complaint, thereafter, “as a result of the cooperation, influence and approval of Ali Jaidah, the government of Qatar entered into an oil drilling concession agreement with Holcar.” In addition, the complaint alleges that the defendants were willing to make additional payments to a new Director of Petroleum Affairs (Abdullah Sallat) when Holcar’s original concession agreement was under threat of termination given the company’s financing difficulties. However, the complaint asserts that “neither Director Sallat nor any other official of the government of Qatar has directly or indirectly received or solicited or been offered any payment in connection with renewal of Holcar’s oil concession.” Based on the above conduct, the DOJ charged that defendants “violated and may continue to violate” the FCPA’s anti-bribery provisions.
Both Carver and Holley consented to the entry of a final judgment of permanent injunction enjoining future FCPA violations. See here for original source documents.
International Systems & Controls Corp., J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein
In July 1979, the SEC filed a complaint against International Systems & Controls Corporation (“ISC”) and J. Thomas Kenneally (a director of ISC and its fomer CEO and Chairman of the Board), Herman Frietsch (Senior Vice President), Raymond Hofker (former General Counsel), Albert Angulo (former Treasurer) and Harlan Stein (Chief Engineer). The complaint alleged, among other things, that ISC “paid more than $23 million through one or more subsidiaries to certain foreign persons and entities in order to assist the company in securing certain contracts.” The complaint alleged that “in furtherance of this scheme, ISC disguised such payments on its books and records as consulting fees, consulting services, agent’s fees and commissions.” The complaint also alleged that “ISC violated the internal accounting controls provisions by failing to devise an adequate system of internal controls because it failed to require vouchers, expense statements, or similar documentation for the activities or services for which certain expenditures were made.”
According to various media reports, the payments at issue were made to government officials and members of ruling families in Iran, Saudi Arabia, Nicaragua, Ivory Coast, Algeria, Chile and Iraq in connection with contracts for engineering and construction projects.
The SEC’s complaint charged violations of the FCPA’s books and records and internal controls provisions, as well as antifraud, proxy, and reporting violations. In December 1979, ISC, Kenneally and Frietsch, without admitting or denying the SEC’s allegations, consented to the entry of a final order enjoining future violations. In addition, the final order directed ISC to, among other things, “appoint a special agent … who shall investigate and report on certain specific transactions.” Furthermore, Kenneally and Frietsch (for periods of four and two years respectively) agreed to be employed as an officer or director of an issuer only if that company “has a committee with duties and functions to those required of the ISC Audit Committee” as required by the consent degree.
See here for original source documents plus this packet of materials sent to me by a loyal reader.
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What are the take-away points from FCPA enforcement in the 1970’s? Clearly, the enforcement agencies were getting their feet wet enforcing an infant statute and, in many of the enforcement actions, the agencies were confronted with conduct that actually pre-dated enactment of the FCPA in December 1977. Thus, little can – or should be – taken away from the actual charging decisions in these early FCPA cases.
However, one meaningful take-away point is this. While one can question how the enforcement agencies held company employees accountable (i.e. criminal v. civil charges), one can not question that the enforcement agencies did hold company employees accountable. All five FCPA enforcement actions from the 1970’s involved company employees – a figure that stands in stark contrast to 2010 FCPA enforcement in which approximately 70% of corporate FCPA enforcement actions have not resulted (at least yet) in any DOJ charges against company employees. See here for the prior post.