Snamprogetti The Latest to Join The Bonny Island Bribery Club
Last week (see here and here), it was French company Technip that admitted to bribing Nigerian foreign officials with the end result being $338 million paid into the United States treasury.
This week its a Dutch company and its former Italian parent company that admitted to bribing Nigerian foreign officials with the end result being an additional $365 million paid into the United States treasury.
As indicated in this DOJ release: “Snamprogetti Netherlands B.V., (Snamprogetti) has agreed to pay a $240 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts” to build liquefied natural gas facilities on Bonny Island, Nigeria.”
According to the release, the DOJ “filed a deferred prosecution agreement [DPA] and a criminal information today against Snamprogetti [a Dutch corporation headquartered in Amsterdam, The Netherlands, which was a wholly owned subsidiary of Snamprogetti S.p.A., an Italian company headquartered in Milan, Italy] charging Snamprogetti with one count of conspiracy and one count of aiding and abetting violations of the FCPA.” The release further states that pursuant to the two-year DPA “Snamprogetti, its current parent company, Saipem S.p.A., and its former parent company, ENI S.p.A. (ENI), agreed to ensure that their compliance programs satisfied certain standards and to cooperate with the department in ongoing investigations.”
In addition, the release notes that:
“Today, Snamprogetti and ENI also reached a settlement of a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC), charging Snamprogetti with violating the FCPA’s anti-bribery provisions, falsifying books and records, and circumventing internal controls and charging ENI with violating the FCPA’s books and records and internal controls provisions. As part of that settlement, Snamprogetti and ENI agreed jointly to pay $125 million in disgorgement of profits relating to those violations.”
For a copy of the SEC release and complaint (see here and here).
Stay tuned for analysis of the DOJ deferred prosecution agreement, criminal information, and SEC complaint.
In the meantime, some questions to ponder.
For those scoring at home, the current U.S. treasury deposit slip, because a joint venture largely comprised of foreign companies bribed Nigerian officials, stands at $1.28 billion given the related February 2009 enforcement action against Kellogg Brown & Root entities as well as Halliburton Company – an enforcement action that was settled for $579 million in combined fines and penalties.
Bribery and corruption, the conventional wisdom goes, is not a victimless crime. Accordingly, the Bonny Island bribery scheme resulted in victims. Surely those victims were not U.S. taxpayers, but the U.S. Treasury is where the entire $1.28 billion has gone.
The Bonny Island bribery scheme, which now stands as the largest collective FCPA enforcement action in history, begs the question – where should the fines and penalties resulting from an FCPA enforcement action go? Solely to U.S. taxpayers? To the “victims” of the alleged crime? If to the “victims” who are the “victims” and how best does one get the money to the “victims?” Are the enforcement agencies willing to sacrifice portions of their current FCPA cash cow? (see here for more).
More On Technip
A post last week (see here) contained a high-level overview of the Technip matter as described in the DOJ release.
Let’s take a closer look at the criminal information (see here) and the deferred prosecution agreement (see here).
Information
Not surprisingly, the Technip information largely mirrors the criminal information previously filed in February 2009 (see here) against the Kellogg Brown & Root entity also part of the joint venture engaged in the Bonny Island bribery scheme.
That is, the Technip information charges conspiracy to violate the FCPA and violations of the FCPA’s antibribery provisions and alleges that Technip was part of a joint venture (“JV”) in Nigeria to design, build and expand LNG facilities on Bonny Island. According to the information, JV profits, revenues, and expenses were equally shared among the four JV partners. The JV’s Steering Committee consisted of high-level executives from each of the four companies and the Steering Committee made major decisions on behalf of the JV, including whether to hire agents to assist the JV in winning contracts, who to hire as agents, and how much to pay the agents.
The information charges that the JV operated through three Portuguese special purpose corporations, including a corporation (#3), 25% owned by Technip, specifically used to enter into consulting agreements with JV agents.
The criminal conduct charged centers on two agents hired by the JV.
The first agent, Jeffrey Tesler was a citizen of the United Kingdom who used a Gibraltar-based company as a vehicle to enter into agent contracts and receive payments from the JV. The information charges that the JV paid the company over $130 million to bribe high-ranking Nigerian government officials. According to the information, Tesler was an agent of the JV and each of the JV companies.
The second agent was a global trading company headquartered in Tokyo (the “Japanese Agent”), which was hired by the JV to help it obtain business in Nigeria, including by paying bribes to Nigerian officials. The information charges that the JV paid the consulting company over $50 million to bribe Nigerian government officials. According to the information, the Japanese Agent was an agent of the JV and each of the JV companies.
According to the information, between 1995 and 2004, the JV was awarded four contracts (collectively valued at over $6 billion) to build the Bonny Island Project and alleges that Technip, Tesler, the Japanese Agent, Kellogg Brown & Root, and others, were engaged in a conspiracy to obtain and retain the contracts “through the promise and payment of tens of millions in bribes to officials of the Executive Branch of Nigeria, officials of Nigeria National Petroleum Corporation (NNPC), officials of Nigeria LNG Limited (NLNG) and others.”
[According to the information, NNPC was a Nigerian government-owned company and an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA. According to the information, NLNG was also an entity and instrumentality of the Government of Nigeria whose officers and employees were “foreign officials” under the FCPA, notwithstanding the fact that NLNG was 51% owned by multinational oil companies. Why? Presumably because, as the information alleges, “through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the abilty to block the award” of the relevant contracts.]
Among other means of the conspiracy, the information alleges that:
“Senior executives and employees of Technip and their co-conspirators caused wire transfers totaling approximately $132 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands, to bank accounts in New York, New York, to be further credited to bank accounts in Switzerland and Monaco controlled by Tesler for Tesler to use to bribe Nigerian government officials.”
“Senior executives and employees of Technip and their co-conspirators caused wire transfers totaling over $50 million to be sent from [#3’s] bank account in Amsterdam, The Netherlands to [Japanese Agent’s] bank account in Japan for [the Japanese Agent to use to bribe Nigerian government officials.”
Based on the same core conduct, the information also charges a substantive violation of the FCPA’s antibribery provisions and alleges that “Technip
caused […] corrupt U.S. dollar payments to be wire transferred
from [#3’s] bank account in Amsterdam, The Netherlands, via correspondent bank accounts in New York, New York, to bank accounts of [Tesler’s Gibraltar based company] in Switzerland for use in part to bribe Nigerian government officials.”
DPA
The DPA has a term of two years and seven months. A DPA is a less harsh resolution to an FCPA enforcement action because, while the criminal charges are technically filed, the charges are deferred or not prosecuted during the term of the DPA. If Technip abides by its obligations under the DPA, the criminal charges will be dismissed when the DPA’s term expires.
Pursuant to the DPA, Technip admitted, accepted, and acknowledged that it is responsible for the acts of its employees, subsidiaries, and agents as detailed in the above criminal information.
According to the DPA, the DOJ agreed to enter into the agreement with Technip based on the following factors: “(a) Technip cooperated with the DOJ’s investigation of Technip and others; (b) Technip undertook remedial measures, including the implementation of an enhanced compliance program, and agreed to undertake further remedial measures; (c) Technip agreed to continue to cooperate with the DOJ in any ongoing investigation of the conduct of Technip and its employees, agents, consultants, contractors, subcontractors, subsidiaries, and others relating to violations of the FCPA; and (d) the impact on Technip, including collateral consequences, of a guilty plea or criminal conviction. (emphasis added).
According to the DPA, the fine range under the advisory U.S. Sentencing Guidelines for Technip’s conduct is $318.4 million – $636.8 million. Technip agreed to pay a criminal penalty of $240 million or approximately 25% below the bottom of the fine range. The Technip enforcement action is thus another example of the DOJ allowing a corporation to settle significant bribery allegations for an amount below even the bottom range of fines available under the advisory Sentencing Guidelines.
Pursuant to the DPA, Technip agreed to engage a corporate compliance monitor for a two year period. The DPA specifically states that this individual will be a “French national.”
Representing Technip in the FCPA enforcement action was Robert Luskin from Patton Boggs LLP (see here) and John Savarese from Wachtell Lipton Rosen & Katz (see here).
As referenced above, the Technip allegations largely mirror the previous allegations against the Kellogg Brown & Root entity also part of the joint venture engaged in the Bonny Island bribery scheme.
How does the DOJ component of these two FCPA enforcement actions compare?
Technip settled pursuant to a DPA and paid a $240 million criminal penalty – an amount 25% below the bottom range allowed under the advisory Sentencing Guidelines.
Kellogg Brown & Root was required to plead guilty and paid a $402 million criminal penalty – an amount within the advisory Sentencing Guidelines range of $376.8 million – $753.6 million.
The disparate treatment of Technip and Kellogg Brown & Root – two entities involved in the same joint venture engaged in the same bribery scheme – is likely due to the fact that, per the government’s allegations, Kellogg Brown & Root appeared to have played a more active role in the bribery scheme. Specifically, Albert Jack Stanley, a former officer and director of various Kellogg Brown & Root entities, was directly involved in the bribery scheme as evidenced by his prior guilty plea (see here).
Disconnected … Another Telecommunications Company Settles An FCPA Enforcement Action
Yesterday, Veraz Networks, Inc. (see here) joined a long list of telecommunications companies to recently settle an FCPA enforcement action. Veraz, a California-based telecommunications provider, went public in April 2007 and sells its telecommunication products through both direct and indirect sales channels with a majority of its revenue coming from sales outside of the U.S.
Other telecommunications companies, or individuals employed in that industry, to recently resolve FCPA enforcement actions include: UTStarcom (see here and here for the enforcement action), Latin Node, Inc. (see here for the enforcement action), Lucent Technologies (see here and here for the enforcement action), Siemens (in part, see here for the enforcement action), various individuals in connection with the Haiti Teleco matter (see here for the enforcement action), and various employees of ITXC Corporation (see here for the enforcement action). Pending FCPA enforcement actions against telecommunications companies presumably include: Magygar Telekom (see here) and Global Crossing Limited (see here).
That’s a long list.
Back to Veraz.
According to the SEC release (see here), Veraz violated the FCPA’s books and records and internal control provisions in connection with “improper payments made by Veraz to foreign officials in China and Vietnam after the company went public in 2007.”
The SEC complaint (see here) alleges that “from 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz.” According to the complaint, a Veraz supervisor referred to certain of these payments as the “gift scheme.” The complaint further alleges that “Veraz failed to accurately record these improper payments on the Company’s books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA […] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate.”
The SEC’s sparse factual allegations fall under two headings: “Veraz Made Improper Payments to Chinese Government Officials” and “Veraz Made Improper Payments to Vietnamese Government Officials.”
As to payments to “Chinese Government Officials,” the SEC alleges that Veraz engaged a consultant in China to assist Veraz sell products “to a telecommunications company controlled by the government of China.” The complaint further alleges that the consultant “provided approximately $4,500 worth of gifts to officials” of the telecommunications company “in an attempt to secure a business deal for Veraz.” The complaint further alleges that the consultant “also offered a separate improper payment to officials” at the telecommunications company “to secure a deal for Veraz valued at approximately $233,000.” According to the complaint, “Veraz discovered this improper offer of payment prior to receiving any money from the transaction and cancelled the sale.”
As to payments to “Vietnamese Government Officials,” the SEC alleges that “Veraz sold products to a telecommunications company controlled by the government of Vietnam through a Singapore-based reseller.” According to the complaint, a “Veraz employee, through the Singapore-based reseller, at times made or offered illicit payments to the CEO” of the telecommunications company “in order to win business for Veraz.” The complaint further alleges that Veraz “approved of and reimbursed its employee for questionable expenses related” to the telecommunications company “including gifts and entertainment” for employees of the company and “flowers for the wife of the CEO” of the company.
In both instances, according to the complaint: (i) Veraz did not make or keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the improper gifts or payments provided by Veraz; and (ii) Veraz failed to devise and maintain an effective system of internal controls to prevent or detect violations of the FCPA.
Based on these allegations, the SEC charged Veraz with violating the FCPA’s books and records and internal control provisions.
According to the SEC’s release, Veraz, without admitting or denying the SEC’s allegations, consented to entry of a final judgment permanently enjoining Veraz from future FCPA violations and ordering Veraz to pay a $300,000 civil penalty.
In an article to be published later this summer titled “The Facade of FCPA Enforcement,” I highlight four pillars which contribute to the facade of FCPA enforcement.
The first pillar highlights the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones, and legal conclusory statements of facts or allegations. Check as to the Veraz enforcement action. Just who were those Chinese and Vietnamese Government officials? The SEC complaint contains these wonderfully descriptive allegations: “a telecommunications company controlled by the government of China” and a “telecommunications company controlled by the government of Vietnam.” What was the nature of the “illicit payments” made or offered to the CEO of the Vietnamese telecommunications company and what were the “questionable expenses” related to the same company? The complaint does not elaborate.
The second pillar highlights the increasing and alarming trend of FCPA enforcement actions being resolved based on tenuous, dubious and untested legal theories. Check as to the Veraz enforcement action. True, the enforcement action does not allege antibribery violations, but let’s face it, if Veraz’s books and records did not adequately reflect sales and marketing expenses associated with domestic customers and if Veraz did not have sufficient internal controls to prevent and detect such expenses, we would not be reading about this case as an “FCPA enforcement action” even though such conduct would similarly violate the FCPA’s books and records and internal control provisions. Rather, this is an FCPA enforcement action (in the traditional sense) because the improperly recorded payments were directed at “foreign officials” – so alleges the SEC under the theory, never accepted by a court, that employees of state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
The third pillar highlights highlights the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties. Check as to the Veraz enforcement action. If ever there were carbon copy FCPA enforcement actions, it would seem to be Veraz, UTStarcom and Lucent. All principally involved providing things of value to Chinese “foreign officials” (employees of alleged state-owned enterprises). One would expect then that the charges would be similar as well. Wrong. Veraz appears to be only an SEC enforcement action charging only FCPA books and records and internal control violations. UTStarcom involved a DOJ non-prosecution agreement and an SEC enforcement action charging FCPA antibribery as well as books and records and internal control violations. Lucent also involved a DOJ non-prosecution agreement and an SEC enforcement action charging only FCPA books and records and internal control violations. Thus, three similar cases resolved three distinct ways.
[The fourth pillar highlights how seemingly clear-cut instances of corporate bribery and corruption (per the government’s own allegations) are resolved without FCPA antibribery charges. Veraz is not BAE, Siemens, or Daimler – and thus this pillar is of little significance here].
One final point demonstrated by the Veraz enforcement action: resolution fines/penalties represent merely the “tip of the iceberg” in terms of the costs associated with an FCPA inquiry.
The final fine amount, $300,000, is 1/10 the amount of expenses incurred by the company in connection with the SEC investigation. As stated in the company’s most recent 10-Q filing (May 2010) (see here) “as of March 31, 2010, the Company has incurred expenses relating to the SEC investigation of approximately $3 million.”
No wonder Forbes (see here) recently termed the increase in FCPA enforcement the “bribery racket.” No wonder the Wall Street Journal Law Blog (see here) recently posed the question – “is the FCPA Just a Full-Employment Act for the Private Bar?”
Technip Joins the Bonny Island Bribery Club
A French company bribes Nigerian foreign officials with the end result being $338 million paid into the United States treasury.
Welcome to the sometimes wacky world of Foreign Corrupt Practices Act enforcement. Except in this case, the end result is not so wacky because the French company, Technip (see here) was a U.S. issuer, and thus subject to the FCPA, because, between August 2001 and November 2007, it had American Depository Shares registered with and listed on the New York Stock Exchange. In addition to being an Issuer subject to the FCPA, “Technip and other members of the joint venture [described below] routinely made use of the U.S. mails and of U.S. common carriers, and of other instrumentalities of U.S. interstate commerce” including improper payments “routed through banks in New York.”
The Technip FCPA enforcement action has been anticipated since February when the company (see here) foreshadowed the pending settlement.
Yesterday, the DOJ and SEC announced the settlement. It includes payment of a $240 criminal penalty pursuant to a DOJ deferred prosecution agreement and payment of $98 million in disgorgement and prejudgment interest pursuant to a settled SEC civil complaint.
The below post summarizes the DOJ release (to my knowledge the DOJ deferred prosecution agreement and criminal information are not yet publicly available) and the SEC settled civil complaint.
DOJ
The DOJ release (here) states that Technip “has agreed to pay a $240 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts […] to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, [contracts that] were valued at more than $6 billion.”
According to the release, “Technip, Kellogg Brown & Root Inc. (KBR) (see here for the prior FCPA enforcement action), and two other companies were part of a four-company joint venture that was awarded four EPC contracts.”
The release further states that “Technip authorized the joint venture to hire two agents, Jeffrey Tesler (see here for the criminal indictment) and a Japanese trading company, to pay bribes to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. According to the release, “at crucial junctures preceding the award of EPC contracts, a senior executive of Technip, KBR’s former CEO, Albert “Jack” Stanley (see here and here for the prior FCPA enforcement action), and others met with successive holders of a top-level office in the executive branch of the Nigerian government to ask the office holders to designate a representative with whom the joint venture should negotiate bribes to Nigerian government officials.” According to the release, “the joint venture paid approximately $132 million to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company during the course of the bribery scheme” and that “Technip intended for these payments to be used, in part, for bribes to Nigerian government officials.”
As has become the norm in corporate FCPA prosecutions, Technip will not be required to plead guilty to anything as the criminal charges (one count of conspiracy and one count of violating the FCPA), while filed, will be deferred pursuant to two-year deferred prosecution agreement.
In a press release (see here) Technip Chairman and CEO, Thierry Pilenko said:
“The final agreement with the US authorities, completely in line with the road map that we laid out in February, puts this legacy story behind us and enables us to focus on continuing to develop Technip’s business. We stand by Technip’s commitment to carrying out its business activities ethically and according to both the spirit and letter of the law worldwide. The Board of Directors of Technip and its management are strongly committed to the continued enhancement of our internal compliance policies and processes.”
Technip’s release further states:
“The DOJ investigation of Technip was resolved through a deferred prosecution agreement, in which the Department of Justice agreed not to pursue a prosecution of Technip in return for Technip’s agreement to undertake a variety of steps during the next two years, including maintaining and enhancing its compliance program and cooperating with the DOJ. Technip agreed to pay USD 240 million to the DOJ in eight equal installments of USD 30 million over the next two years. Technip will retain a French national, approved by the Department of Justice, to serve as an independent corporate monitor, who will be chiefly responsible for reviewing Technip’s compliance initiatives and recommending improvements.”
Principal Deputy Assistant Attorney General Mythili Raman of the Criminal Division stated: “The resolutions announced today demonstrate once again the department’s commitment to aggressively investigate and prosecute international bribery by U.S. and foreign corporations alike.”
SEC
In a settled civil complaint (see here) charging FCPA anti-bribery violations and FCPA books and records and internal violations, the SEC alleged that “between at least 1995 and 2004, senior executives at Technip, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas (“LNG”) production facilities on Bonny Island, Nigeria.” According to the SEC, “to conceal the illicit payments, Technip and others, through the joint venture, entered into sham ‘consulting’ or ‘services’ agreements with intermediaries who would then funnel their purportedly legitimate fees to Nigerian officials.” Specifically, the SEC alleged that “Technip, through the joint venture, implemented this scheme by using a Gibraltar shell company controlled by a solicitor based in the United Kingdom (“the UK Agent” [Tesler]) and a Japanese trading company (“the Japanese Agent”) as conduits for the bribes” and that “as a result of the scheme, numerous books and records of Technip contained false information relating to, among other things, the UK Agent and the Japanese Agent, and the payments made to them.”
As to Technip’s internal controls violations, the SEC alleges as follows:
“Technip conducted due diligence on the UK Agent that was not adequate to detect, deter or prevent the UK Agent from paying bribes, and Technip conducted no due diligence on the Japanese Agent.”
“Although the executives of Technip who participated in the joint venture were aware of [the FCPA’s] prohibitions, Technip did not implement adequate controls to ensure compliance with the Act. For example, Technip did not adopt due diligence procedures as to agents that were adequate to detect, deter or prevent the payment of bribes by agents. The due diligence procedures adopted by Technip only required that potential agents respond to a written questionnaire, seeking minimal background information about the agent. No additional due diligence was required, such as an interview of the agent, or a background check, or obtaining information beyond that provided by the answers to the questionnaire. A senior executive of Technip admitted that the due diligence procedures adopted by Technip were a perfunctory exercise, conducted so that Technip would have some documentation in its files of purported due diligence. In fact, Technip executives knew that the purpose of the agreements with the UK Agent was to funnel bribes to Nigerian officials, and therefore certain answers by the UK Agent to the questionnaire were false.”
According to the SEC release (see here) “without admitting or denying the SEC’s allegations, Technip has consented to the entry of a court order permanently enjoining it from” future FCPA violations “and ordering Technip to disgorge $98 million in ill-gotten profits derived from the scheme and prejudgment interest.”
Other members of the TSKJ joint venture that also potentially face FCPA exposure include Snamprogetti Netherlands B.V. (see below information regarding Eni SpA), and JGC of Japan (see here).
In March 2010, Eni SpA of Italy disclosed (here) as follows:
“Snamprogetti SpA, the holding company of Snamprogetti Netherlands BV, was a wholly owned subsidiary of Eni until February 2006, when an agreement was entered into for the sale of Snamprogetti to Saipem SpA and Snamprogetti was merged into Saipem as of October 1, 2008. Eni holds a 43% participation in Saipem. In connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for a variety of matters, including potential losses and charges resulting from the investigations into the TSKJ matter referred […}, even in relation to Snamprogetti subsidiaries.”
The disclosure further stated:
“As to Eni, the contacts with the US authorities have been intensified recently. Based on the ongoing status of the discussions, the Company has been able to estimate the cost of a global resolution of all potential claims arising from the investigation with the US authorities, similarly to Technip. As a result of this, a provision in the amount of €250 million has been accrued, also considering the contractual obligations assumed by Eni to indemnify Saipem as part of the divestment of Snamprogetti. Discussions with the US authorities are underway.”
Stay tuned for additional analysis of the Technip DPA, criminal information, and other issues raised by the Technip enforcement action.
Kyrgyzstan, Thailand, Tobacco, and Piranha Fishing
The SEC announced today (see here) an FCPA enforcement action involving “multiple payments of bribes to foreign officials in Kyrgyzstan and Thailand by senior executives and employees of Dimon, Inc. (“Dimon”) and Standard Commercial Corporation (“Standard”), predecessor companies of Alliance One International, Inc. (“Alliance One”), during the period from 1996 through 2004 in violation of the Foreign Corrupt Practices Act…”
In 2005, Dimon and Standard merged to form Alliance One (see here) and its stock is listed on the New York Stock Exchange.
Kyrgyzstan
According to the SEC complaint (see here), “from 1996 through 2004, Dimon International Kyrgyzstan (“DIK”), a wholly-owned subsidiary of Dimon, paid more than $3 million in bribes to Kyrgyzstan government officials in order to purchase Kyrgyz tobacco for resale to Dimon’s largest customers.”
The complaint alleges that “these payments were made to various government officials, including officials of the JSC GAK Kyrgyztamekisi (“Tamekisi”) [an entity established by the Kyrgyz government that had authority to issue and control licenses for the fermentation and export of tobacco] and local public official (“Akims”)” and “DIK also made improper payments to Kyrgyzstan tax officials.”
According to the compliant: (i) defendant Bobby Elkin Jr., Dimon’s country manager, “authorized, directed, and made these bribes in Kyrgyzstan through a DIK bank account under his name (the “Special Account);” (ii) defendant Baxter Myers, Dimon’s Regional Financial Director, “authorized all fund transfers from a Dimon subsidiary’s bank account to the Special Account;” and (iii) defendant Thomas Reynolds, Dimon’s International Controller, “formalized the accounting methodology used to record the payments made from the Special Account for purposes of internal reporting by Dimon.”
The complaint alleges that in September 1996 “the Kyrgyzstan government imposed a requirement that all exporters of fermented tobacco have an export license,” and that “Tamekisi acted as the issuing authorize and controlled the issuance of export licenses, thus effectively controlling all tobacco purchases in Kyrgyzstan.”
According to the complaint, Elkin “periodically delivered bags filled with $100 bills to a high-ranking Tamekisi official” and that from 1996 to 2004, Elkin, on behalf of Dimon, “paid more than $2.6 million to a high-ranking Tamekisi official…” The complaint also alleges that Elkin “also paid bribes to local government officials in Kyrgyzstan known as the Akims, who controlled the tobacco regions.” The complaint says that “DIK needed the support and consent from each local Akim in order to continue to purchase tobacco from local growers or agricultural collectives” and that “as governors, Akims had the power and influence to prevent the purchase of tobacco in the region, even if a company had an export license.” The complaint also states that “Akims could also send the police to block the entrance to buying stations or install a lock box to prevent the transfer of tobacco.” According to the complaint, “Elkin authorized and paid more than $260,000 to the Akims…”
Finally (at least as to Kyrgyzstan), the complaint details how DIK was “frequently subjected to audits by Kyrgyz tax officials” and that “during one audit, the tax officials determined that DIK failed to submit two reports to the tax office.” Accordingly, the complaint states that the tax officials imposed an approximate $172,000 fine against DIK and the “tax authorities also threatened to seize DIK’s bank accounts and tobacco inventory for tax violations.” However, according to the complaint, “the tax authorities later offered to reduce the tax penalties levied against DIK in exchange for a cash payment.” The complaint then alleges that Elkin “made a cash payment to the tax authorities” and that from 1996 through 2004 Elkin, on behalf of Dimon, “paid approximately $82,850 to Kyrgyz tax officials.”
According to the complaint, although the Special Account used to make the above-described payments “was funded by a Dimon subsidiary in the United Kingdom, the financial reporting on the Special Account by that subsidiary, and all other consolidated subsidiaries, went directly to Dimon’s corporate headquarters in the United States…”
Thailand
The complaint also alleges that “from 2000 to 2003, Dimon paid bribes of approximately $542,590 to government officials of the Thailand Tobacco Monopoly (“TPM”) in exchange for obtaining approximately $9.4 million in sales contracts.” According to the complaint, defendant Tommy Williams, Dimon’s Senior Vice President of Sales, “directed the sales of tobacco from Brazil and Malawi to the TTM through Dimon’s agent in Thailand” and that he “authorized the payment of bribes to TTM officials and characterized the payments as commissions paid to Dimon’s agent in Thailand.”
The complaint alleges that a “portion of Dimon’s selling price to the TTM” included “kickbacks paid as commissions through Dimon’s agent to certain members of the TTM in exchange for the sales contracts.” The complaint alleges that these bribes to the TTM were authorized “by Dimon’s U.S. and Brazilian personnel,” in particular Williams.
The complaint also alleges that “Williams also knew about a purported business trip to Brazil that actually was a sightseeing trip arranged by Dimon and others for TTM officials.” According to the complaint, the “sightseeing trip occurred in May 2000 and included, among other things, trekking in the Amazon jungle, piranha fishing, and visits to Argentina and various Brazilian waterfalls.” The complaint also alleges that in 2002 Williams arranged a trip for a TTM delegation to travel from Bangkok to Brazil “purportedly to look at tobacco blends and samples.” According to the complaint, “the return portion of the TTM delegation’s trip included a one-week stay in Madrid and Rome that was unrelated to the inspection and purchase of tobacco by the TTM.”
Based on the above conduct, the SEC charged Elkin, Myers, Reynolds, and Williams for violating the SEC’s antibribery provisions and for aiding and abetting violations of the FCPA’s internal controls and books and records provisions.
According to the SEC release, “without admitting or denying the allegations” in the complaint, Elkin, Myers, Reynolds, and Williams consented to the entry of final judgments permanently enjoining violations of the FCPA. Myers and Reynolds also agreed to pay a civil monetary penalty of $40,000 each.
The SEC release notes that the settlement with Elkin “takes into account his cooperation” with the SEC’s investigation and “acknowledges of the assistance” of the DOJ and the FBI.
*****
This is the second SEC FCPA enforcement action of the year which seems, according to the facts, to be based, in whole or in part, on extortion or something close to it. For a previous post on the NATCO enforcement action (see here). In addition, earlier this week I had a post “Facilitating Payments or Bribes” (see here). The Kyrgyzstan facts would seem relevant to that issue.
The FCPA, as part of the securities laws, has a statute of limitations of five years. The conduct at issue occured between 1996 and 2004. Perhaps there was a tolling agreement in place or perhaps this is another example where it is difficult to square black-letter law concepts with an FCPA enforcement action.