BHP Billiton, a company based in Australia and the United Kingdom, was an official sponsor of the 2008 Summer Olympics in Beijing, China. As such, the company received priority access to tickets, hospitality suites, and accommodations for the games. Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.
But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.
The end result seven years later?
Why of course $25 million to the U.S. Treasury because BHP Billiton had American Depositary Shares that trade on a U.S. exchange.
Yesterday the SEC released this administrative cease and desist order concerning BHP Billiton Ltd. and BHP Billiton Plc.
In summary fashion, the SEC order states:
“This matter concerns BHPB’s failure to devise and maintain sufficient internal controls over a global hospitality program that the company hosted in connection with its sponsorship of the 2008 Beijing Summer Olympic Games. BHPB invited approximately 176 government officials and employees of state-owned enterprises (collectively, “government officials”) to attend the Olympics at BHPB’s expense. The majority of these invitations were extended to government officials from countries in Africa and Asia that had well-known histories of corruption. The three to four day hospitality packages included event tickets, luxury hotel accommodations, meals, other hospitality, and, in many instances, offers of business-class airfare for government officials and their guests. BHPB informed its employees that “[o]ne of the core objectives [of the Olympic sponsorship] is to maximize the commercial investment made in the Games through assisting [BHPB] to strengthen relationships with key local and global stakeholders, e.g.: Government Ministers, Suppliers and Customers,” and that the hospitality program was “a primary vehicle to ensure this goal is achieved.”
BHPB recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws and the company’s own Guide to Business Conduct, but the internal controls it developed and relied upon in an effort to address this risk were insufficient. As a result, BHPB invited government officials who were directly involved in, or in a position to influence, pending contract negotiations, efforts to obtain access rights, regulatory actions, or business dealings affecting BHPB in multiple countries. In addition, BHPB’s books and records, namely certain internal forms that employees prepared in order to invite a government official to the Olympics, did not, in reasonable detail, accurately and fairly reflect BHPB’s pending negotiations or business dealings with the government official at the time of the invitation.
As a result of this conduct, BHPB violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act (“FCPA”).”
Under the heading “BHPB’s Hospitality Program for the 2008 Beijing Summer Olympic Games,” the order states:
“In December 2005, BHPB and the Beijing Organizing Committee announced their agreement for BHPB to become an official sponsor of the 2008 Beijing Olympic Games. Under this agreement, BHPB paid a sponsorship fee and supplied the raw materials used to make the Olympic medals. In exchange, BHPB received the rights to use the Olympic trademark and other intellectual property in public announcements and advertisements, as well as priority access to tickets, hospitality suites, and accommodations in Beijing during the August 2008 Games.
BHPB established an Olympic Sponsorship Steering Committee (“OSSC”) to plan, oversee, and implement its sponsorship program, which involved multiple different branding, promotion, and relationship-building initiatives. The chair of the OSSC, who also was the chair of the Ethics Panel, reported directly to BHPB’s CEO.
One of BHPB’s objectives for the sponsorship was “to reinforce and develop relationships with key stakeholders” in China and in “product and investor markets, and regions where we have or would like to have operations.” BHPB’s strategy for accomplishing its objectives included “[u]tiliz[ing] Olympic hospitality to motivate China-based stakeholders, including customers, suppliers, government and media, to enhance business opportunities for BHP Billiton in China” and “[u]tiliz[ing] Olympic hospitality to build relationships with stakeholders from product and investor markets, and regions where we have or would like to have operations.”
One of the company’s sponsorship-related initiatives was a global hospitality program under which BHPB invited guests from around the world, including foreign government officials and representatives of state-owned enterprises, to attend the Beijing Olympics on three to four day hospitality packages. The hospitality packages included luxury hotel accommodations, meals, event tickets, and sightseeing excursions, at a cost of approximately $12,000 to $16,000 per package. In addition, BHPB executives approved the offer of round trip business class airfare to approximately 51 foreign government officials, as well as the airfares for 35 of these government officials’ spouses or guests. Apart from BHPB’s desire to enhance business opportunities by strengthening relationships with its guests, these trips had no other business purpose.
An internal e-mail to CSG presidents and other senior BHPB business managers emphasized the importance of the hospitality program to the success of BHPB’s sponsorship, stating, “[a]s you know we have made a commitment to support the Beijing Olympic Games in 2008. One of the core objectives is to maximise the commercial investment made in the Games through assisting [BHPB] to strengthen relationships with key local and global stakeholders, e.g.: Government Ministers, Suppliers and Customers. The BHP Billiton Hospitality Program is a primary vehicle to ensure this goal is achieved.”
In early 2007, BHPB employees prepared country-specific Olympic Leverage Plans, which summarized BHPB’s business and Olympic-related objectives. In a number of instances, these plans discussed inviting key stakeholders, including government officials, to help BHPB develop relationships with a view to increasing or maintaining its business opportunities. For example, the Olympic Leverage Plan prepared for one country stated that BHPB’s business objectives in that country included “gaining access to regions that will provide growth for [BHPB’s] business” and “gaining port access.” The plan further stated that the hospitality program would “provide useful relationship building opportunity for . . . stakeholders” and that the invitees would include the country’s Minister of Mines and Minister of Transport. The Olympic Leverage Plan for another country, while not specifically addressing the hospitality program, stated that one of the goals for the sponsorship was “us[ing] Olympics program to strengthen and build the govt’s confidence and relationship with [BHPB], to help facilitate approvals for future projects.”
After Olympic Leverage Plans were prepared for each country, BHPB business managers submitted lists of potential invitees and were instructed to rank them in order of importance, with “Category A” being those “most critical to the business.” Internal BHPB presentations discussed the need to establish “the business benefit” of an Olympic invitation.
Eventually, BHPB invited approximately 650 people to attend the Beijing Olympics, including 176 government officials, 98 of whom were representatives of state-owned enterprises that were BHPB customers or suppliers. BHPB also invited the spouses of 102 of these government officials. Most of the invited government officials were from countries in Africa and Asia where there was a known risk of corruption. Sixty of these government officials ultimately attended, 24 of them with their spouses or guests. A number of other invited government officials accepted their invitations, but then cancelled before the Olympics began.”
Under the heading “BHPB’s Insufficient Internal Controls over the Olympic Hospitality Program,” the order states:
“Early in its planning for the Olympics, BHPB identified the risk that inviting government officials to the Olympics could potentially violate anti-corruption laws and the company’s own Guide to Business Conduct. The company relied on its existing operating model and an Olympic-specific internal approval process to address this risk. However, these internal controls, and BHPB’s implementation of them, were insufficient.
BHPB developed a hospitality application which business managers were required to complete for any individuals, including government officials, whom they wished to invite. These applications included the following questions:
9. What business obligation exists or is expected to develop between the proposed invitee and BHP Billiton?
10. Is BHP Billiton negotiating or considering any contract, license agreement or seeking access rights with a third party where the proposed invitee is in a position to influence the outcome of that negotiation?
11. Do you believe that the offer of the proposed hospitality would be likely to create an impression that there is an improper connection between the provision of the hospitality and the business that is being negotiated, considered or conducted, or in any way might be perceived as breaching the Company’s Guide to Business Conduct?
If yes, please provide details.
12. Are there other matters relating to the relationship between BHP Billiton and the proposed invitee that you believe should be considered in relation to the provision of hospitality having regard to BHP Billiton’s Guide to Business Conduct?
BHPB required each such application to be filled out and signed by an employee with knowledge of the invitee’s relationship with the company, and approved in writing by the president of the relevant CSG or the BHPB country president. A cover sheet that accompanied the blank forms included a short description of anti-bribery provisions in the Guide to Business Conduct and urged employees to re-read the section of the Guide concerning travel, entertainment, and gifts before completing the form. However, the controls did not adequately address the antibribery risks associated with offering expensive travel and entertainment packages to government officials.
First, BHPB did not require independent legal or compliance review of hospitality applications by someone outside the CSG that was submitting the application, and did not clearly communicate to its employees the fact that the Ethics Panel was not reviewing and approving each invitation to a government official. On the one hand, BHPB’s internal website stated that the hospitality applications were subject to “scrutiny by the Ethics Panel [steering committee],” and the hospitality applications themselves stated that, “[r]equests for travel and accompanying spouses will be approved by the Olympic Sponsorship Steering Committee and the Global Ethics Panel Sub-Committee.” E-mails sent to some BHPB business managers by a member of the OSSC staff stated that the Ethics Panel had “approved” their applications.
However, other than reviewing approximately 10 hospitality applications for government officials in mid-2007 in order to assess the invitation process, the OSSC and the Ethics Panel subcommittee did not review the appropriateness of individual hospitality applications or airfare requests. The Ethics Panel’s charter stated that its role simply was to provide advice on ethical and compliance matters, and that “accountability rest[ed] with business leaders.” Members of the Ethics Panel understood that, consistent with their charter, their role with respect to implementation of the hospitality program was purely advisory. As a result, business managers had sole responsibility for reconciling the competing goals of inviting guests – including government officials – who would “maximize [BHPB’s] commercial investment made in the Olympic Games” without violating anti-bribery laws.
Second, some hospitality applications were not accurate or complete. Many applications identified an employee of a state-owned enterprise as a “Customer,” but failed to identify the invitee as a “Representative of Government.” In addition, a number of applications contained “No” responses to Question 10, even when BHPB had pending negotiations, efforts to obtain access rights, regulatory actions, or other business dealings in which the government official was directly involved or in a position to influence. Furthermore, in a number of instances, BHPB business people were provided with examples of language that had been used by other employees when responding to Questions 10 and 11 in order to explain why an invitation was appropriate, even when there was a “Yes” response to Questions 10-12. As a result, many hospitality applications contained the exact same statements in response to Questions 10 and 11, rather than a description of the specific facts and circumstances relating to that government official.
Third, while BHPB had an annual Guide to Business Conduct review and certification process, and generalized training, it did not provide its employees and executives with any specific training on how to fill out the hospitality forms or how to evaluate whether an invitation to a government official complied with the Guide. During the relevant period, this portion of the Guide included a case example concerning a negotiation between BHPB and a Ministry for Planning in a particular country, in which the Minister indicated that it would help his consideration of the company’s application if the Minister and his wife could visit BHPB’s operations in Australia. The example stated that “this kind of situation requires the utmost caution and you must consult senior management. You must not offer to provide anything that could be reasonably regarded as an attempt to unduly influence the Minister’s decision. This means that you must not pay for travel by the Minister’s wife.” However, BHPB did not provide any guidance to its senior managers on how they should apply this portion of the Guide when determining whether to approve invitations and airfares for government officials’ spouses.
Fourth, although the form asked whether any business was “expected to develop” with the invitee, BHPB did not institute a process for updating hospitality applications or reassessing the appropriateness of invitations to government officials if conditions changed. Almost all of the hospitality applications relating to government officials were approved and submitted in mid-2007. However, BHPB did not require hospitality forms to be updated, or invitations to be reconsidered, in those situations when government officials subsequently became involved in negotiations, attempts by BHPB to obtain access rights, or other pending matters.
Fifth, hospitality applications were submitted by individual CSGs, and generally only reflected negotiations between the government official and that CSG. While lists of invitees were circulated among senior BHPB business managers, BHPB had no process in place to determine whether the invited government official also was involved in other CSGs’ negotiations, efforts to obtain access rights, or other business dealings.”
The order next states, under the heading “As a Result of its Insufficient Internal Controls, BHPB Invited Government Officials who were Directly Involved in, or in a Position to Influence, Pending Negotiations, Regulatory Actions, or Business Dealings with BHPB,” as follows:
“As a result of its failure to design and maintain sufficient internal controls over the Olympic global hospitality program, BHPB invited a number of government officials who were directly involved with, or in a position to influence, pending negotiations, efforts by BHPB to obtain access rights, or other pending matters.”
Republic of Burundi
In mid-2007, BHPB’s MinEx group submitted a hospitality application form to invite the as-yet-unidentified Burundi Minister of Mines and spouse to the Olympics, with airfare included. Because BHPB was not currently in negotiations with the Minister of Mines at the time, the hospitality application form contained a “No” response to Question 10. However, BHPB had a joint venture (“JV”) in Burundi with an entity that was in danger of losing a nickel exploration permit unless it made a substantial near-term financial investment in the project or negotiated a renewal or amendment of the permit. Under Burundi law, the Minister of Mines was responsible for reviewing an application to renew or amend a mining permit and presenting the application to the country’s Council of Ministers for final approval.
In late 2007 and early 2008, BHPB began to negotiate directly with the newly appointed Minister of Mines to extend and modify the JV’s nickel exploration permit. However, BHPB employees did not update the hospitality application or take steps to re-review the appropriateness of the invitation after these negotiations began. As noted above, no such re-review was required by the internal controls that BHPB relied upon for the Olympic hospitality program. The Minister of Mines and his wife attended the Olympics as BHPB’s guests for four days.
Republic of the Philippines
In July 2007, BHPB became embroiled in a dispute with a local JV partner concerning a prospective nickel mining operation in the Philippines. The JV partner sued BHPB in local court and filed requests with the country’s Secretary of Department of Environment and Resources (“DENR”), requesting reversion of the mining rights that the JV partner had assigned to the JV.
In October 2007, a BHPB employee from the Stainless Steel Materials CSG submitted a hospitality application to invite the Secretary and his spouse to attend the Olympics, with airfare included. The completed application contained a “Yes” response to Question 10, but only described a technical services agreement that BHPB was considering submitting to the DENR for the Secretary’s approval. Question 10 of the hospitality form did not explicitly require, and the employee’s response did not provide, any information about the Secretary’s role in reviewing the JV partner’s reversion request or the fact that the President of the Philippines had designated the Secretary to mediate the dispute between BHPB and its JV partner. The form included a “No” response to Question 11.
The Secretary accepted BHPB’s invitation in December 2007. In March 2008, he issued a decision denying the JV partner’s reversion request and continued during the ensuing months to mediate the parties’ dispute. In late July, BHPB became concerned that the company’s JV partner had learned about the Olympics invitation. As a result, BHPB withdrew the invitation shortly before the Olympics began.
Democratic Republic of the Congo
In mid-2007, MinEx submitted a hospitality application form to invite the Governor of the Katanga Province in the Democratic Republic of the Congo (the “DRC”) and his spouse, with airfare included. Following its June 2007 review of 10 invitations to government officials, the Ethics Panel subcommittee advised MinEx to provide more detail about whether the invitation involved Gecamines, a state-owned entity with which BHPB was attempting to negotiate a copper exploration deal. In response, MinEx submitted a revised application that contained a “No” response to Question 10, stating, “[t]he issuing and management of mineral titles and negotiations with third parties in DRC have nothing to do with the Governor’s roles and responsibilities. Although [BHPB] are currently engaged in negotiations with State copper company, Gecamines, the Governor of Katanga will have no influence in these dealings.”
Later in 2007, however, BHPB employees held several meetings with the Governor. Internal summaries of these meetings noted that the Governor was “a close ally of [the DRC] President” and that having the Governor as BHPB’s ally “could be the key to unlock a successful entry in a deal with Gecamines.” In spite of obtaining this information after making the initial decision to invite the Governor of Katanga and his wife to the Olympics, BHPB employees did not update the hospitality application form or take steps to re-review the appropriateness of the invitation. No such re-review was required under the internal controls that BHPB relied upon for the Olympic hospitality program. The Governor accepted the invitation, but then cancelled before the Olympics.
Republic of Guinea
In May 2007, MinEx submitted a hospitality application to invite the Guinea Minister of Mines and his spouse to the Olympics, with airfare included. The application contained a “No” response to Question 10, and in response to Question 11 it stated, “No. A sound professional relationship with the Guinea Ministry of Mines is key for the success of the [BHPB] exploration and mining business in this country.” Following its June 2007 review of 10 invitations to government officials, the Ethics Panel subcommittee advised MinEx to provide additional information concerning this invitation. The MinEx employee who had prepared the original form asked BHPB’s Guinea country president to respond to the request for information concerning any pending negotiations with the Minister. The country president replied that “of course” there would be “further negotiations” regarding the upcoming renewal of a bauxite mining concession held by BHPB and the government’s intention to review all existing mining concessions, but that the response to Question 11 was “key in that regard.”
This information was not passed along to the Ethics Panel subcommittee, however, and the form was not updated to accurately reflect the pending negotiations across all of the CSGs operating in Guinea. Because they received no response to the Guinea country president’s email, MinEx officials mistakenly understood that the Ethics Panel had approved the invitation. The Minister accepted the invitation on behalf of himself and his wife in January 2008, but cancelled shortly before the Olympics began.”
Based on the above findings, the order states:
“As a result of the conduct described above, BHPB violated [the FCPA’s books and records provisions] because its books and records, namely certain Olympic hospitality applications, did not, in reasonable detail, accurately and fairly reflect pending negotiations or business dealings between BHPB and government officials invited to the Olympics. BHPB violated [the FCPA’s internal controls provisions] because it did not devise and maintain internal accounting controls over the Olympic hospitality program that were sufficient to provide reasonable assurances that access to assets and transactions were in executed in accordance with management’s authorization.”
Under the heading “BHPB’s Cooperation and Remedial Efforts,” the order states:
“In response to the Commission’s investigation, BHPB retained outside counsel to assist it with conducting an extensive internal investigation into potential improper conduct in the jurisdictions that were the subject of the staff’s inquiry. BHPB provided significant cooperation with the Commission’s investigation by voluntarily producing large volumes of business, financial, and accounting documents from around the world in response to the staff’s requests, and by voluntarily producing translations of key documents. BHPB’s counsel conducted scores of interviews and provided the staff with regular reports on the findings of its internal investigation.
BHPB also has undertaken significant remedial actions. BHPB has created a compliance group within its legal department that is independent from the business units. This compliance group is responsible for FCPA compliance, among other things, and reports directly to BHPB’s general counsel and Audit Committee. In addition, it has reviewed its existing anticorruption compliance program and implemented other changes. These include embedding independent anti-corruption managers into its businesses and further enhancing its policies and procedures concerning hospitality, gift giving, use of third party agents, business partners, and other high-risk compliance areas. BHPB also has enhanced its financial and auditing controls, including policies to specifically address conducting business in high-risk markets. BHPB has conducted extensive employee training on anti-corruption issues and overhauled its processes for conducting internal investigations of potential violations of anti-corruption laws.”
The order further states:
“During a one-year term …, Respondents [BHP Billiton] shall report to the Commission staff on the operation of BHPB’s FCPA and anti-corruption compliance program. If Respondents discover credible evidence, not already reported to the Commission staff, that: (1) questionable or corrupt payments or questionable or corrupt transfers of property or interests may have been offered, promised, paid, or authorized by Respondents, or any entity or person while working directly for Respondents, to any government official; (2) that related false books and records have been maintained; or (3) that Respondents’ internal controls failed to detect and prevent such conduct, Respondents shall promptly report such conduct to the Commission staff.”
During the one-year period, BHP Billiton shall also report to the SEC “on the operation of [its] FCPA and anti-corruption compliance program” and “shall undertaken one follow-up review.”
In this SEC release, Andrew Ceresney (Director of the SEC’s Enforcement Division) stated:
“BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors. BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.”
Antonia Chion (Associate Director of the SEC’s Enforcement Division) added:
“A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA. Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”
As noted in the SEC release:
“The SEC’s order finds that BHP Billiton violated [the FCPA’s books and records and internal controls provions]. The settlement, in which the company neither admits nor denies the SEC’s findings, reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation and requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.”
BHP Billiton agreed to pay a $25 million penalty to settle the SEC’s charges.
This BHP Billiton release states in full as follows.
U.S. Department of Justice (DoJ) to take no action
U.S. Securities and Exchange Commission (SEC) investigation that commenced in 2009 resolved on all matters
No findings of bribery or corrupt intent
DOJ’s ‘no action’ and SEC resolution conclude the U.S. investigations
SEC imposes a civil penalty relating to accounting provisions of the FCPA
SEC notes BHP Billiton’s “significant cooperation” and “significant remedial actions”
SEC findings relate to BHP Billiton’s internal controls and books and records governing its hospitality program at the 2008 Beijing Olympic Games
BHP Billiton today announced the resolution of the previously disclosed investigation by the SEC into potential breaches of the United States Foreign Corrupt Practices Act (FCPA). The DOJ has also completed its investigation into BHP Billiton without taking any action.
The investigations related primarily to previously terminated minerals exploration and development efforts as well as hospitality provided by the Company at the 2008 Beijing Olympic Games. This concludes the US investigations on all matters.
BHP Billiton will continue to cooperate with the Australian Federal Police investigation, which was announced in 2013.
The matter is being resolved with the SEC pursuant to an administrative order which imposes a US$25 million civil penalty. The SEC Order makes no findings of corrupt intent or bribery by BHP Billiton.
The findings announced today by the SEC relate to a hospitality program hosted by BHP Billiton which supported its sponsorship of the 2008 Beijing Olympic Games. As part of this program, the Company invited customers, suppliers, business partners, and government officials, along with Company employees, to the Olympic Games. While BHP Billiton made efforts at the time to address the risks related to inviting government officials to the Olympics, the controls it relied upon were insufficient to satisfy the civil books and records and internal accounting controls requirements of the U.S. statute.
The SEC noted the “significant cooperation” BHP Billiton provided during the extensive investigation, which commenced in 2009. It also noted the “significant remedial actions” the Company has taken over the past five years to enhance its compliance program.
At the time of its sponsorship of the 2008 Beijing Olympics and Paralympics, BHP Billiton had no independent compliance function. Instead, accountability for complying with the Company’s anti-corruption policies, which were set out in the Company’s Guide to Business Conduct, was vested in its operating business units. The Company has since created an independent compliance function that reports to the head of the legal function and the Risk & Audit Committee of the BHP Billiton Board. Today this function would be required to approve any offer of hospitality of this kind to a government official. Under the SEC Order, BHP Billiton will self-report on its compliance program for twelve months.
BHP Billiton CEO Andrew Mackenzie said, “We have fully cooperated with the SEC throughout this process. We have taken the appropriate remedial actions and developed a world class compliance program that builds on the strong policies we have had in place. BHP Billiton operates a global resources business and recognises that the highest standards of business conduct are an essential part of our operations. Our Company has learned from this experience and is better and stronger as a result.”
Scott Muller (Davis Polk & Wardwell) represented BHP Billiton. See here for Davis Polk’s press release. According to the release, 8 attorneys worked on the matter.