Issues To Consider From The Goodyear Enforcement Action
recent post highlighted the SEC FCPA enforcement action against Goodyear.
This post continues the analysis by highlighting various issues to consider associated with the enforcement action.
Invoking a Standard That Does Not Even Exist Under the FCPA
To anyone who values the rule of law, it is troubling when an FCPA enforcement agency invokes a standard of liability that does not even exist under the FCPA.
As previously highlighted in this article, “Why You Should Be Alarmed By the ADM FCPA Enforcement Action,” the enforcement agencies’ invocation of a ‘‘failure to prevent or detect’’ internal controls standard is alarming because such a standard does not even exist in the FCPA and is inconsistent with actual legal authority. Just as important, such a standard is inconsistent with enforcement agency guidance relevant to the internal-controls provisions.
Nevertheless, and notwithstanding such legal authority and enforcement agency guidance, the SEC again referenced the “prevent and detect” standard twice in the Goodyear enforcement action.
The internal-controls provisions are specifically qualified through concepts of reasonableness and good faith. This statutory standard is consistent with congressional intent in enacting the provisions. Relevant legislative history states: “
“While management should observe every reasonable prudence in satisfying the objectives called for [in the books-and-records and internal-controls provisions], . . . management must necessarily estimate and evaluate the cost/benefit relationships to the steps to be taken in fulfillment of its responsibilities . . . . The size of the business, diversity of operations, degree of centralization of financial and operating management, amount of contact by top management with day-to-day operations, and numerous other circumstances are factors which management must consider in establishing and maintaining an internal accounting controls system.”
As highlighted here, the only judicial decision to directly address the substance of the internal-controls provisions states, in pertinent part, as follows:
“The definition of accounting controls does comprehend reasonable, but not absolute, assurances that the objectives expressed in it will be accomplished by the system. The concept of ‘‘reasonable assurances’’ contained in [the internal control provisions] recognizes that the costs of internal controls should not exceed the benefits expected to be derived. It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs. It appears that Congress was fully cognizant of the cost-effective considerations which confront companies as they consider the institution of accounting controls and of the subjective elements which may lead reasonable individuals to arrive at different conclusions. Congress has demanded only that judgment be exercised in applying the standard of reasonableness.”
In addition, various courts have held—in the context of civil derivative actions in which shareholders seek to hold company directors liable for breach of fiduciary duties due to the company’s alleged FCPA violations— that just because improper conduct allegedly occurred somewhere within a corporate hierarchy does not mean that internal controls must have been deficient.
The ‘‘failure to prevent and detect’ standard is also alarming when measured against the enforcement agencies’ own guidance concerning the internal controls provisions. As highlighted here, the SEC’s most extensive guidance on the internal controls provisions states, in pertinent part, as follows:
“The accounting provisions’ principal objective is to reaching knowing or reckless conduct.”
“Inherent in this concept [of reasonableness] is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the Act allows a range of reasonable judgments.”
“The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”
A Government Required Transfer of Shareholder Wealth to FCPA Inc.?
According to Goodyear’s initial disclosure of the matter, the voluntary disclosure resulted from an anonymous source reporting through a confidential ethics hotline. In short, an effective internal control.
According to the SEC, Goodyear “promptly halted the improper payments” and voluntarily reported the matter to the SEC (and DOJ). Goodyear also provided significant cooperation with the SEC’s investigation and undertook significant remedial efforts and disciplinary actions. Goodyear also implemented “improvements to its compliance program, both specific to its operations in sub-Saharan Africa, and globally.” In short, an effective internal control and remediation.
Nevertheless, as a condition of settlement, Goodyear is required to report to the SEC, “at no less than 12 month intervals during a three year term” on the status of its remediation and implementation of compliance measures.” The SEC’s Order contains further specifics about initial reviews, written reports, and follow-up reviews and reports.
Let’s call a spade a spade folks. This amounts to little more than a government required transfer of shareholder wealth to FCPA Inc. (See here for the prior post of the same title).
Top 5
While the Goodyear enforcement action was clearly not a top ten enforcement action in terms of overall settlement amount, it was the 4th largest SEC only FCPA enforcement action of all-time behind (Eli Lilly, General Electric and Diageo).
No-Charged Bribery Disgorgement
As in prior years, in the Goodyear enforcement action the SEC continued its practice of ordering disgorgement even though the offending company was not charged with violating the FCPA’s anti-bribery provisions.
As highlighted in this previous post, so-called no-charged bribery disgorgement is troubling.
Among others, Paul Berger (here) a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
Not The First FCPA Enforcement Action Against a Goodyear Entity
As highlighted in this prior post, in 1989 the DOJ charged Goodyear International Corp., a subsidiary of Goodyear Tire & Rubber Co., with FCPA anti-bribery violations for alleged improper payments to Iraqi officials. Goodyear International pleaded guilty and agreed to pay a $250,000 fine.
A Future Enforcement Action Against a Tire Industry Company?
It will be interesting to see if anything comes from the following sentence in the SEC’s Order. The SEC is “not imposing a civil penalty based upon [Goodyear’s] cooperation in a Commission investigation and related enforcement action.”
Exploring A Deferred Prosecution Agreement Courtesy Of Biomet
Since introduced to the Foreign Corrupt Practices Act context in 2004, most corporate FCPA enforcement actions are resolved via non-prosecution agreements or deferred prosecution agreements (DPAs).
DPAs are essentially contracts, but beyond the fine amount, few of the contractual terms are explored.
This post uses recent events involving Biomet to explore other terms of a typical FCPA DPA.
As highlighted in this previous post, in March 2012 Biomet resolved an FCPA enforcement action involving alleged conduct in Brazil, Argentina, and China by agreeing to pay approximately $22.8 million ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint).
The three-year DPA stated, as is typical in FCPA DPAs, as follows.
Deferred Prosecution: In consideration of: (a) the past and future cooperation of Biomet […] ; (b) Biomet’s payment of a monetary penalty of $17,280,000; and (c) Biomet’s implementation and maintenance of remedial measures, the Department agrees that any prosecution of Biomet for the conduct set forth in the … Statement of Facts, and for the conduct that Biomet disclosed to the Department, prior to the signing of this Agreement, be and hereby is deferred for the Term of this Agreement. The Department further agrees that if Biomet fully complies with all of its obligations under this Agreement, the Department will not continue the criminal prosecution against Biomet […] and, after the Term, this Agreement shall expire and the Department shall seek to move to dismiss, with prejudice, the Criminal Information filed against Biomet.”
Breach of Agreement: If during the term of this Agreement, the Department determines, in its sole discretion, that Biomet has: (a) committed any felony under federal law subsequent to the signing of this Agreement; (b) at any time, provided deliberately false, incomplete or misleading information; or (c) otherwise breached the Agreement, Biomet shall thereafter be subject to prosecution for any federal criminal violation of which the Department has knowledge, including the charges in the Information […]
As relevant to the above terms of the Biomet DPA, on July 3rd, Biomet disclosed as follows.
“As previously disclosed, on March 26, 2012, Biomet entered into a Deferred Prosecution Agreement, or DPA, with the Department of Justice, or DOJ, and a Consent to Final Judgment, or Consent, with the Securities and Exchange Commission, or SEC, regarding an investigation regarding possible violations of the Foreign Corrupt Practices Act. Pursuant to the DPA, the DOJ agreed to defer prosecution of Biomet in connection with those matters, provided that Biomet satisfies its obligations under the DPA over the term of the DPA. The DPA has a three-year term but provides that it may be extended in the sole discretion of the DOJ for an additional year. Pursuant to the Consent, Biomet consented to the entry of a Final Judgment which, among other things, permanently enjoined Biomet from violating the provisions of the Foreign Corrupt Practices Act.
In October 2013, Biomet became aware of certain alleged improprieties regarding its operations in Brazil and Mexico. Biomet retained counsel and other experts to investigate both matters. Based on the results of the investigation, Biomet terminated, suspended or otherwise disciplined certain of the employees and executives involved in these matters, and took certain other remedial measures. Additionally, pursuant to the terms of the DPA, in April 2014, Biomet disclosed these matters to the independent compliance monitor and to the DOJ and SEC.
On July 2, 2014, the SEC issued a subpoena to Biomet requiring that Biomet produce certain documents relating to such matters. Moreover, pursuant to the DPA, the DOJ has sole discretion to determine whether conduct by Biomet constitutes a violation or breach of the DPA. If the DOJ determines that the conduct underlying these investigations constitutes a violation or breach of the DPA, the DOJ could, among other things, extend or revoke the DPA or prosecute Biomet and/or the involved employees and executives. Biomet continues to cooperate with the SEC and DOJ and expects that discussions with the SEC and the DOJ will continue.”
In short, Biomet’s recent disclosure creates the risk that the company may be in breach of the DPA giving the DOJ the ability, per the terms of the DPA, to continue or resurrect the prosecution of Biomet deferred under the DPA, as well as bring an enforcement action for any conduct occurring after the DPA.
As relevant to DPAs, the DOJ maintains that such agreements “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe.”
Yet, Biomet’s recent disclosure puts it in a category of many other companies (such as Orthofix International, Willbros Group, Marubeni, Diebold, IBM, Tyco, Aibel Group, and Ingersoll-Rand) that have become the subject of additional scrutiny or enforcement after resolving FCPA enforcement actions through a DPA or agreeing to an SEC permanent injunction. For more, see this prior post Do NPAs and DPAs Deter?
Yet, what Biomet’s recent disclosure demonstrates is that not even companies with the greatest incentive to comply with the FCPA – and subject to post-enforcement action compliance obligations – are able to ensure FCPA compliance across its business organization or eliminate FCPA scrutiny. In short, FCPA compliance can not be guaranteed in a business organization, rather steps can be taken that only minimize the risk of non-compliance occurring.
This fundamental fact (and it is a fact that even the enforcement agencies have recognized) is one of the policy reasons underlying an FCPA compliance defense. (See here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense”).
Whether Biomet may ultimately be in breach of its 2012 DPA is not the only contractual term that could implicated by recent events at Biomet.
In April 2014, Biomet and Zimmer Holdings announced “that their respective Boards of Directors have approved a definitive agreement under which Zimmer will acquire Biomet in a cash and stock transaction valued at approximately $13.35 billion, including the assumption of net debt.” The transactions is expected to close in the first quarter of 2015.
As relevant to this pending merger, the DPA states as follows.
“Sale or Merger: Biomet agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger, or transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.”
Friday Roundup
Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack. It’s all here in the Friday roundup.
Further Trimmed
When the SEC announced its enforcement action against James Ruehlen and Mark Jackson (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.
Over the past two years, the SEC’s case has been repeatedly trimmed. (See this recent post containing a summary). In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th. In pertinent part, the motion states as follows.
“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA’s internal controls provisions”.
For additional specifics, see the filing.
As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA’s anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.
In short, the SEC’s enforcement action against Ruehlen and Jackson is a shell of its former self. Interesting, isn’t it, what happens when the government is put to its burden of proof in FCPA enforcement actions.
Scrutiny Alerts and Updates
Alstom
Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts. (See here for the current Top 10).
The article states:
“The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said.”
In response to the Bloomberg article, Alston released this statement.
“Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.
“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.
VimpelCom
Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:
“[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”
On March 12, 2014, VimpelCom disclosed:
“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”
Orthofix International
As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:
“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.
In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”
As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary. In resolving that action, the company agreed to a three year deferred prosecution agreement. As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.
See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct). As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.
Besso Limited
Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”
Specifically, the FCA stated:
“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso: (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”
The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here). For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.
Facts and Figures
Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download. Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics. The GER states:
“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013. An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”
The Conference Board recently released summary statistics regarding anti-bribery policies. It found as follows.
39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.
Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.
Quotable
This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.
“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division. “Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”
The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.” For additional comments related to the general topic, see this prior post.
Reading Stack
This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross. Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit. As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.
Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped. Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial. Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.
Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case. Bistrong has recently launched an FCPA Blog – see here.
*****
A good weekend to all.
Of Note From The Marubeni Enforcement Action
This previous post highlighted specifics from the recent Marubeni Foreign Corrupt Practices Act enforcement action and this post continues the coverage by discussing various items of note.
Do Legal Principles Even Matter?
Forgive me for being the law guy, but in the aftermath of the Marubeni enforcement action, like so many others, one can legitimately ask – do legal principles even matter?
As highlighted in the previous post, the most recent alleged overt act in support of Marubeni’s conspiracy charge allegedly occurred in November 2008. In other words, all of the alleged conduct supporting the conspiracy charge was beyond the five year statute of limitations applicable to FCPA offenses.
In addition, the information also charged 7 substantive FCPA anti-bribery violations. One charge concerned a 2005 wire transfer, three charges concerned 2006 wire transfers, one charge concerned a 2007 wire transfer, and one charge concerned a 2008 wire transfer. In other words, 6 of the 7 substantive FCPA anti-bribery charges concerned alleged conduct beyond the five year limitations period applicable to FCPA offenses. (Note: the final substantive FCPA charge was based on an October 2009 wire transfer made, not by any Marubeni employee, but Alstom employees).
In corporate FCPA enforcement actions, companies often enter into tolling agreements and statute of limitations can also otherwise be extended in other ways, but the DOJ’s criminal information and plea agreement are silent as to any of these issues relevant to statute of limitations.
Is Marubeni A Recidivist?
As noted in the original Marubeni post, last week’s $88 million FCPA enforcement action followed closely on the heels of Marubeni exiting a deferred prosecution agreement from its 2012 FCPA enforcement action based on conduct at Bonny Island, Nigeria. (See here for the prior post).
Against this backdrop, it is tempting to call Marubeni an FCPA recidivist.
However, as noted in Marubeni’s release (a release that the DOJ needed to approve per the plea agreement) “the Tarahan conduct pre-dates the execution of Marubeni’s 2012 Deferred Prosecution Agreement with the DOJ.”
At the very least, Marubeni is a repeat FCPA offender and joins a category that also includes IBM, Tyco, Aibel Group, General Electric, Diebold (at least as to books and records and internal controls issues) and Ashland Oil (at least in theory given that the first enforcement action occurred prior to passage of the FCPA in 1977).
The distinction Marubeni has among the group though is the shortest gap between enforcement actions.
More Details Please As to Lack of Cooperation
As noted in the previous post, the $88 million Marubeni enforcement action was a relatively rare instance of a company paying a criminal fine within the advisory guidelines range. The plea agreement includes the DOJ’s justification as to why, including Marubeni’s lack of cooperation. However, the plea agreement merely states that Marubeni refused to cooperate with the Department’s investigation when given the opportunity to do so.
It sure would have been nice for the DOJ to provide some additional details regarding Marubeni’s apparent lack of cooperation.
For instance, in the Bonny Island, Nigeria enforcement action against JGC Corp. (also a Japanese company), the DOJ stated that the company declined “to cooperate with the Department based on jurisdictional arguments?”
The DOJ’s statement motivated this prior post, “Does the DOJ Except FCPA Counsel to Roll Over and Play Dead?“
While the DOJ declined to provide specifics as to Marubeni’s lack of cooperation, it would be truly frightening if the DOJ’s position is that a company is not cooperating if it raises purely legal issues such as jurisdiction or statute of limitations.
FCPA Enforcement Statistics
FCPA enforcement statistics are literally all over the map given the creative and unique ways in which many FCPA Inc. participants keep such statistics. (For instance, see this prior post for visual proof).
As I have long maintained, the most reliable and accurate way to keep FCPA enforcement statistics is by using the “core” approach, an approach to tracking FCPA enforcement endorsed by the DOJ and a commonly accepted method used in other areas.
Consider the stark difference in approaches using just the Marubeni enforcement action and the April 2013 FCPA enforcement action against current and former employees of Alstom. The enforcement actions were virtual carbon copies of each other involving the same project in Indonesia, involving the same alleged “foreign officials,” the same consultants, Marubeni was a central actor in the Alstom related action and the Alstom employees were central actors in the Marubeni enforcement action.
In short, the Marubeni and Alstom related action were the same “core” action.
However, many in FCPA Inc. will no doubt count these actions as five enforcement actions: Marubeni and Alstom employees Frederic Pierucci, David Rothschild, Lawrence Hoskins and William Pomponi. Make that six enforcement actions when – in all likelihood – Alstom resolves an enforcement action based, in whole or in part, on the same conduct. In short, by tracking FCPA enforcement statistics this way the statistics will be distorted.
Marubeni Enforcement Action Specifics
A post last week mentioned the $88 million Foreign Corrupt Practices Act enforcement action (the 12th largest of all-time in terms of settlement amount) against Marubeni (a Japanese company). In 2012, Marubeni resolved a $55 million FCPA enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct.
This post highlights specifics from the enforcement action in the original source documents – the criminal information and plea agreement. [Previously, the DOJ released original source documents relevant to an FCPA enforcement action at the same time as announcing the enforcement action. However, according to a knowledgeable source, the DOJ has a new policy of releasing original source documents only when those documents have been filed-stamped by the relevant court. While an understandable policy, the end result will likely be that the majority of reporting of FCPA enforcement actions will be reporting exclusively from DOJ press releases, not original source documents. Not on this website]
The Marubeni enforcement action is a virtual carbon copy of the April 2013 FCPA enforcement action against various current and former employees of Alstom concerning the Tarahan power project in Indonesia. Indeed, as highlighted in the previous post, Marubeni is the “Consortium Partner” in the prior enforcement action and those associated with Alstom previously charged (Lawrence Hoskins, Frederic Pierucci, William Pomponi and David Rothschild) are mentioned prominently in the Marubeni enforcement action.
Information
The information alleges that Marubeni and its subsidiaries, including Marubeni Power Systems Corporation (“MPSC”), partnered with Alstom (simply referred to in the Information as Power Company) and its subsidiaries in bidding and carrying out of the Tarahan Project in Indonesia, a $118 project to provide power-related services to the citizens of Indonesia that was bid and contracted through Indonesia’s state-owned and state-controlled electricity company, Perusahaan Listrik Negara (“PLN”). According to the information, Marubeni managed all work on the project, including auxiliary equipment and civil building and installation work.
According to the information, Marubeni and Alstom retained two consultants (the same consultants as in the prior 2013 enforcement action) and the “consultant’s primary purpose was not to provide legitimate consulting services to Marubeni and Alstom but was instead to pay bribes to Indonesian officials who had the ability to influence the award of the Tarahan Project contract.” The Indonesian officials are the same as the officials in the prior enforcement action.
“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”
According to the information, Marubeni, through its employees and agents made payments to a consultant’s bank account in Maryland, knowing that a portion of the payments to the consultant was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project to Marubeni and Alstom. In addition, the information alleges that Marubeni, through its employees and agents, attended meetings in Connecticut in connection with the Tarahan Project.
There are no specifics in the information concerning the Marbueni employees such as rank, title or position of the employees (as noted in the information, Marubeni has approximately 24,000 employees in over 70 countries).
Based on the above allegations, the information charges Marubeni with conspiracy to violate the FCPA’s anti-bribery provisions. As to jurisdiction, the information alleges that Marubeni, through its employees, together with others, while in Connecticut discussed in person, via telephone and via e-mail the need to obtain the Tarahan Project and making bribe payments to various alleged foreign officials in order to obtain the contract, and offered to pay, promised to pay, and authorized the payment of bribes to obtain the contract. The information alleges approximately 60 separate overt acts in furtherance in the conspiracy and the vast majority of these allegations concerning the alleged co-conspirators associated with Alstom. There are relatively few specific overt acts allegations concerning Marubeni employees other than the following.
In 2002 and 2004 employees of Marubeni traveled to Connecticut “to attend meetings … in connection with the Tarahan Project”
Between 2002 – 2004, e-mails were sent to Marubeni employees from co-conspirators or from Marubeni employees to co-conspirators in connection with the project and bribery scheme
Twice in 2005 and once in 2008 “Marubeni caused” wire transfers from a bank account in New York to a consultant’s bank account in Maryland in furtherance of the bribery scheme
The “most recent” allegation supporting Marubeni’s conspiracy charge allegedly occurred in November 2008.
In addition to the conspiracy charge, the information also alleges 7 substantive FCPA anti-bribery violations under the 78dd-3 prong of the statute. The jurisdictional element of 78dd-3 is “while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance …” of a bribery scheme.
Two of the 7 FCPA anti-bribery charges are Marubeni specific (the above mentioned 2005 and 2008 wire transfers). The other 5 FCPA anti-bribery charges are based on the conduct of Alstom employees.
Plea Agreement
In the plea agreement, Marubeni admitted to the factual allegations in the information and agreed that it was responsible for the acts of its present and former employees described in the information.
As set forth in the plea agreement, the advisory sentencing guidelines range for the conduct at issue was $63.7 million to $127.4 million. Pursuant to the plea agreement, Marubeni agreed to pay $88 million. This is a relatively rare situation of an FCPA corporate defendant paying a criminal fine amount within the guidelines range.
The plea agreement states that the DOJ believes that the fine amount was the appropriate disposition based on: “(1) the nature and seriousness of the offense; (2) the Defendant’s failure to voluntarily disclose the conduct; (3) the Defendants refusal to cooperate with the Department’s investigation when given the opportunity to do so; (4) the lack of an effective compliance and ethics program at the time of the offense; (5) the Defendant’s failure to properly remediate: and (6) the Defendant’s history of prior criminal misconduct.”
As is typical in corporate FCPA resolutions, Marubeni agreed to a host of compliance requirements and the plea agreement also contains a muzzle clause.
DOJ Release
In this release, Acting Assistant Attorney General Raman stated:
“Marubeni pleaded guilty to engaging in a seven-year scheme to pay – and conceal – bribes to a high-ranking member of Parliament and other foreign officials in Indonesia. The company refused to play by the rules, then refused to cooperate with the government’s investigation. Now Marubeni faces the consequences for its crooked business practices in Indonesia .”
Acting U.S. Attorney Michael Gustafson (D. Conn.) stated:
“For several years, the Marubeni Corporation worked in concert with a Connecticut company, among others, to bribe Indonesian officials in order to secure a contract to provide power-related services in Indonesia. Today’s guilty plea by Marubeni Corporation is an important reminder to the business community of the significant consequences of participating in schemes to bribe government officials, whether at home or abroad.”
FBI Assistant Director in Charge of the Washington Field Office Valerie Parlave stated:
“Companies that wish to do business in the United States or with U.S. companies must adhere to U.S. law, and that means bribery is unacceptable. The FBI continues to work with our international law enforcement partners as demonstrated in this case to ensure that companies are held accountable for their criminal conduct. I want to thank the agents, analysts and prosecutors who brought this case to today’s conclusion.”
Marubeni’s Release
In this release, Marubeni stated:
“[The enforcement action follows the successful completion by Marubeni of its obligations under a January 2012 Deferred Prosecution Agreement entered with the DOJ relating to the liquid natural gas project in Nigeria. That Agreement required Marubeni to retain a corporate compliance consultant for two years to review and enhance its anticorruption compliance program to ensure that it satisfies standards specified by the DOJ, and to report to the DOJ regarding the results of this review. This was completed in January 2014, and at the request of the DOJ the related proceeding was dismissed on February 26, 2014.
The Tarahan conduct pre-dates the execution of Marubeni’s 2012 Deferred Prosecution Agreement with the DOJ. Marubeni has undertaken extensive efforts to enhance its anti-corruption compliance program, and believes that its current program is robust and effective. Although the agreement reached with DOJ today does not require Marubeni to further engage a compliance consultant, Marubeni is taking this matter seriously and commits to continue to thoroughly implement and enhance its anti-corruption compliance program.”
Marc Weinstein (Hughes Hubbard & Reed) represented Marubeni. Weinstein also represented Marubeni in connection with the 2012 FCPA enforcement action.