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Friday Roundup

By on May 13, 2016 in Andrade Gutierrez, AP Moeller-Maersk A/S, Asset Recovery, Business Effects, Electrobras, FCPA Inc., Harris Corporation, Internal Controls, OAS, Odebrecht, Peter Chapman, Petrobras, Sable Mining Africa, Samsung Heavy Industries Co, SBM Offshore, Securency International, Serious Fraud Office, Skanska AB, Toyo Engineering Corp., United Kingdom
Roundup

DOJ seeks legislative changes, a focus on FCPA Inc., credit ratings, across the pond, scrutiny update, and for the reading stack.

It’s all here in the Friday Roundup

DOJ Seeks Legislative Changes

The DOJ’s efforts to eradicate corruption and bribery is broader than just Foreign Corrupt Practices Act enforcement and includes: “public integrity prosecutions, bribery prosecutions, prosecutions of taxpayers who seek to conceal foreign accounts, money laundering prosecutions, [and its] Kleptocracy Initiative.”

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Friday Roundup

By on February 12, 2016 in British American Tobacco, Collateral Effects, Deferred Prosecution Agreements, Double Standard, ENRC, General Cable Corp., GPT Special Project Management Ltd, Non-Prosecution Agreement, Och-Ziff Capital Management, Qualcomm, Rolls-Royce, SBM Offshore, SEC, Securency International, Soma Oil and Gas, TeliaSonera, VimpelCom
Roundup2

Scrutiny alerts and updates, double standard, ripple, job description, new website, quotable and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Vimpelcom / TeliaSonera

As highlighted in this recent post, when recently asked about the slowdown in 2015 DOJ corporate FCPA enforcement Andrew Weissmann (Chief of the DOJ Fraud Section) stated: “just wait three months, it might be a very different picture.”

According to this report:

“Vimpelcom “is set to announce a settlement with the US Department of Justice and Swiss and Dutch authorities that will be “just shy of a billion dollars.” […]  A source close to the DoJ, which does not comment publicly on individual cases, said it is expected that approximately three-quarters of the funds would go to the US government and the remainder to the European governments. […] [S]ources say [the Vimpelcom action] is a precursor for a much larger settlement coming down the line with TeliaSonera, the Swedish telecom operator.”

See this prior post titled “The Burgeoning Uzbekistan Telecommunication Investigations.”

SBM Offshore

Previous posts have highlighted SBM Offshore’s scrutiny including its disclosure in November 2014 that the DOJ informed the company “that it is not prosecuting the Company and has closed its inquiry” into allegations of improper conduct in Brazil and other countries.

Earlier this week, the company disclosed:

“[The DOJ] has informed SBM Offshore that it has re-opened its past inquiry of the Company and has made information requests in connection with that inquiry.  The Company is seeking further clarification about the scope of the inquiry.  The Company remains committed to close-out discussions on this legacy issue which the Company self-reported to the authorities in 2012 and for which it reached a settlement with the Dutch Public Prosecutor in 2014.”

British American Tobacco

This previous Friday roundup highlighted the scrutiny surrounding British American Tobacco. Recently, several members of Congress sent this letter to Andrew Weissmann (Chief of the DOJ’s Fraud Section) stating in pertinent part:

“We are deeply troubled by recent media reports alleging that British American Tobacco (BAT) conspired to bribe politicians and public health officials across Central and East Africa to block, weaken, and delay the passage and implementation of public health laws designed to protect people from the deadly effects of tobacco. We request the Department of Justice to investigate BAT’s alleged bribery to determine whether it violated the Foreign Corrupt Practices Act.”

General Cable

The company has been under FCPA scrutiny since approximately September 2014 and recently disclosed:

“As previously disclosed, we have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with, and certain other transactions involving, our operations in Angola, Thailand, India, China and Egypt (the “Subject Countries”). Our review has focused upon payments and gifts made, offered, contemplated or promised by certain employees in one or more of the Subject Countries, directly and indirectly, and at various times, to employees of public utility companies and/or other officials of state owned entities that raise concerns under the Foreign Corrupt Practices Act (“FCPA”) and possibly under the laws of other jurisdictions. We have substantially completed our internal review in the Subject Countries and, based on our findings, we have increased our outstanding FCPA-related accrual of $24 million by an incremental $4 million, which represents the estimated profit derived from these subject transactions that we believe is probable to be disgorged. We have also identified certain other transactions that may raise concerns under the FCPA for which it is at least reasonably possible we may be required to disgorge estimated profits derived therefrom in an incremental aggregate amount up to $33 million.
The amounts accrued and the additional range of reasonably possible loss solely reflect profits that may be disgorged based on our investigation in the Subject Countries, and do not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing, and we continue to cooperate with the DOJ and the SEC with respect to these matters.”

Qualcomm 

As highlighted in previous posts, Qualcomm has been under FCPA scrutiny for over four years and recently disclosed:

“On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014 and May 29, 2014, the Company made Wells submissions to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

On November 19, 2015, the DOJ notified the Company that it was terminating its investigation and would not pursue charges in this matter. The DOJ’s decision is independent of the SEC’s investigation, with which we continue to cooperate.”

Double Standard

While we wait for additional FCPA enforcement actions against financial service firms based on alleged improper internship and hiring practices in the mold of the BNY Mellon action, the Wall Street Journal reports:

“Wall Street is emerging as a particularly dominant funding source for Republicans and Democrats in the presidential election, early campaign-finance reports filed with the Federal Election Commission show. So far, super PACs have received more than one-third of their donations from financial-services executives, according to data from the nonpartisan Center for Responsive Politics.”

Separately, certain FCPA enforcement actions have been based on alleged “foreign officials” receiving speaking fees or excessive honorariums. Against this backdrop, here is the list of Hillary Clinton’s speaking fees for speeches delivered to Wall Street audiences after she left the State Department but while she was a presumptive presidential candidate.

Ripple

Och-Ziff Capital Management has been under FCPA scrutiny since 2011. In this recent investor conference call, a company executive stated: “Uncertainty stemming from the FCPA investigation has also had some impact on investment decisions by certain LPs.”

In other words, a ripple of FCPA scrutiny.

To learn how FCPA scrutiny and enforcement has a range of negative financial impacts on a company beyond enforcement action settlement amounts, see “FCPA Ripples.”

Job Description

What is the Assistant Deputy Chief of the DOJ’s Foreign Corrupt Practices Act Unit expected to do? See here for the job opening and expected duties.

New Website

The U.K. Serious Fraud Office recently unveiled a new website. Among the feature is a “current cases” page which specifically lists the following companies are under investigation for bribery/corruption offenses.

  • Alstom Network UK Ltd & Alstom Power Ltd
  • ENRC Ltd
  • GPT Special Project Management Ltd
  • Innovia Securency PTY Ltd
  • Rolls-Royce PLC
  • Soma Oil & Gas

Quotable

In this Corporate Crime Reporter interview, Crispin Rapinet (a partner at Hogan Lovells in London) states:

“The danger of deferred prosecution agreements is the commercial temptation to deal with a problem that may or may not be in reality a real problem. If you pushed the prosecutor to actually establish that it is a criminal offense, it may not be that straight-forward. But the temptation for any corporate to deal with that risk through a commercial settlement which involves a sum of money and living with someone looking over your shoulder for a period of time is understandably great.

Whether that, from a jurisprudential point of view, is the ideal world is questionable. You can see why people might take the view of — we don’t actually know whether these people have committed a criminal offense or not. But the power of the threat of the cost and time and management distraction associated with defending a claim, to say nothing of the ultimate risk if you are ultimately unsuccessful in your defense, is such that in the overwhelming majority of circumstances where these problems arise, the commercial temptation is to enter into a deferred or non prosecution agreement.”

Spot-on.

For The Reading Stack

An informative read here from Jon Eisenberg (K&L Gates) regarding SEC civil monetary penalties.

An Update From Australia – Securency Banknote Printing Bribery Scandal Secures First Conviction And Sentence And Pressure Increases On Australia’s Central Bank

By on August 30, 2012 in Australia, David Ellery, Guest Posts, Securency International

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

*****

Background

According to The Age newspaper, from as early as the late 1990s, Securency International Pty Ltd (Securency) and Note Printing Australia Pty Ltd (NPA), two subsidiaries of Australia’s central bank, the Reserve Bank of Australia (RBA) sought to convince various foreign governments to award them valuable banknote printing contracts, extolling the virtues of the unique polymer plastic note features offered by Securency. Unfortunately, these commercial activities appear to have been associated with substantive allegations of bribes and illegal payments made to public officials to secure these contracts.

Prosecutions

On 1 July 2011, the Australian prosecutor, the Commonwealth Director of Public Prosecutions (CDPP) commenced Australia’s first foreign bribery prosecutions against Securency, NPA and various executives.

As reported in the Australian media, it was alleged that Securency and NPA had, for many years, engaged in widespread bribery and corruption of foreign public officials in various Asian and other countries to secure banknote printing contracts either directly or through intermediaries who received large commission payments from where it was alleged bribes to foreign public officials would be paid. The allegations covered commercial activities in Indonesia, Malaysia, Vietnam, Nepal and other unspecified countries.

The committal hearings against the Securency and NPA executives commenced before the Magistrates Court of Victoria on 13 August 2012 and are scheduled to run for between 2 to 3 months.

The reporting of these matters has been patchy over the last year due to national suppression orders preventing the publication of material which might prejudice the fair trial of the Securency and NPA executives. However, what is now emerging from the committal evidence is a disturbing tale from within the RBA and its subsidiaries of secret dealings, a refusal to tolerate criticism and a collective amnesia when pressed for an explanation.  What have we learned?

Ellery sentencing judgment

On 20 August 2012, David Ellery a former CFO of Securency was sentenced by the Supreme Court of Victoria to 6 months imprisonment, wholly suspended for 2 years (see R v Ellery [2012] VSC 349, available at www.austlii.edu.au). Mr Ellery had been charged with one count of false accounting contrary to s 83(1)(a) of the Crimes Act 1958 (Vic). Mr Ellery did not face any foreign bribery charges.

As Securency CFO, Mr Ellery received copies of various documents concerning the payment of monies as a “special commission” to an agent in Malaysia. An amount of $79,502 was authorised for payment to the Malaysian agent to a nominated bank in Singapore. The Court found that Mr Ellery knew that the invoice for the payment was false and that, relevantly, no “marketing expenses” had been incurred, as described on the invoice. In addition, Mr Ellery took steps to conceal what had occurred.

The Court accepted that Mr Ellery was not actively involved within the “inner sanctum” of Securency, where “secrecy and a denial of responsibility for wrongdoing also seem to have been part of a corporate culture at Securency at that time”. However, the Court reminded Mr Ellery that he was the company’s CFO, responsible for authorising and making payments and that his offending “involved a serious and dishonest breach of trust”.

The Court took into account various mitigatory factors in favour of a lesser sentence, from the 10 year imprisonment as a head sentence for the offence. Mr Ellery’s career had effectively ended. He had demonstrated remorse, he was unlikely to re-offend, his prospects of rehabilitation were high and he had not obtained any personal financial benefit from the offending conduct. Mr Ellery had offered an early plea with ongoing cooperation and the investigating police acknowledged that Mr Ellery would be an important prosecution witness in the other criminal proceedings against Securency and NPA executives.

Sentence

The Court formed the view that the conduct of Mr Ellery was in the mid-range of false accounting offences. Imprisonment for 6 months was the result, but wholly suspended for 2 years.

Lessons for corporate executives

The sentencing of Mr Ellery demonstrates that slowly, Australian courts are starting to reflect what their US counterparts have been doing for some time – treating white collar or economic crime with increasing seriousness, with imprisonment as the probable consequence. This has been an increasing trend in economic crime cases involving, for example, insider trading and revenue or tax fraud prosecutions. It is now being reflected in false accounting offences, often closely associated with allegations of foreign bribery.

The Court accepted that Mr Ellery was not within the group of Securency or NPA executives at the centre of what was alleged by the CDPP to be a conspiracy to bribe public officials for commercial benefit. Rather, as might often be the case with a CFO, Mr Ellery was in the position of knowing enough to contaminate him and then becoming actively involved in creating false records to record (or cover up) the questionable (or illegal) transactions. This reflects the Court’s recent criticism of AWB’s former CFO, in R v Ingolby (see my FCPA Professor post from 16 August 2012 here). Courts are making it clear that there is a need for “denunciation and just punishment” for these economic crime offences.

CFOs can no longer just authorise for payment transactions in circumstances where they in fact know or indeed perhaps, ought to have known, that the underlying transaction was improper or illegal. To remain silent, do nothing, process the finances and approve payment is no longer acceptable. If they do, even many years later, they run a real risk of detection, investigation, prosecution, a criminal conviction and deprivation of liberty.

The role of the RBA – should it have done more sooner?

In May 2009, The Age broke the story of alleged widespread and systemic corruption involving Securency, NPA, its various intermediaries or agents and payments to foreign officials to secure banknote printing contracts. It appears to be the case that Securency and NPA worked closely together, with Securency developing the substrate technology for polymer banknotes (as a 50-50 joint venture between the RBA and a Belgian company, Innovia Films) and NPA being the banknote printer. A former RBA Deputy Governor, Graeme Thompson chaired both companies. In May 2008, Thompson was replaced as chairman of both companies by Bob Rankin, the RBA’s Assistant Governor. It could not be said that the RBA was unrelated to its subsidiaries although its knowledge of their operational activities is far from clear.

The RBA, it seems, was unaware of the alleged corruption. Its reaction was to call in the AFP and KPMG to investigate and ultimately to cooperate with the AFP to the point where criminal charges were laid in July 2011.

However, in June 2007, an NPA senior manager Brian Hood (with responsibility for finance, security and compliance) wrote an extensive memorandum to the RBA’s Deputy Governor, Ric Battellino (a copy of what is now known as the Battellino memo is at www.theage.com.au). The Battellino memo was disclosed in evidence during the Securency committal hearings. It had not been disclosed in any previous statements made by the RBA, which created the impression that the first the RBA knew of the alleged corrupt conduct was when The Age broke the story in May 2009.

The Battellino memo tells a very different story. The crucial features of the memo can be summarised as follows:

  • while the NPA Board wanted all agents to sign up to new agency agreements, the NPA management did not see this as important;
  • Securency used the same agents and did not change its agency agreements;
  • many communications with agents were informal, by mobile or text messages, with little or no documentation;
  • numerous overseas trips were not reported outside NPA management;
  • commission rates payable to agents greatly exceeded industry average rates;
  • there were numerous occasions when agents, particularly those in Nepal and Malaysia, indicated that they had to “service others” and that there were matters that senior executives “didn’t want to know about”;
  • all meetings with agents, particularly with the Malaysian agent, had to take place in Malaysia; and
  • when Hood tried to take his concerns up with NPA executives, every support was given to the agents and NPA management reacted with hostility to any criticism of their conduct.

What did the RBA do?

Well, it did what AWB did and called in its lawyers, Freehills. As Commissioner Cole noted in the AWB saga, any legal advice is only as good as its instructions. It seems Freehills found “serious problems with business practices” but no illegality (see Black stain of corruption touches RBA in The Australian Financial Review, 22 August 2012). Despite the fact that NPA’s management had, according to Hood, adopted a very secretive culture, and Securency used the same agents and had done so for many years, no one within the RBA (or maybe Freehills) considered a further investigation of Securency was warranted. Life went on and the highly successful and profitable commercial operations of Securency and NPA continued to thrive.

The current RBA Governor, Glenn Stevens faced questioning on these issues before a Commonwealth Parliamentary committee on 24 August 2012. The Age described his testimony as “faltering, defensive and, at time, evasive” (see Still in the dark, with governor on the defensive, The Sydney Morning Herald 25-26 August 2012). The media suggested the Governor’s approach reflected the attitude of the current Australian Treasurer, Wayne Swan, which was “to say nothing and do nothing”. One only has to look at the consequences suffered by AWB to hope that the RBA does not suffer the same ignominious fate, metaphorically speaking!

One might think that in a matter involving such serious allegations, the RBA as Australia’s central bank, might have informed the Australian Treasurer, then Peter Costello. But no, that did not occur. Mr Costello has said that he had no knowledge of these facts and was not told of any RBA suspicions of wrongdoing up to November 2007 when he ceased to be Treasurer after a general election (see Awaiting a true account by Peter Costello in The Age, 23 August 2012). Clearly the RBA had no suspicions or if it had, it relied on its legal advice to satisfy itself that it had acted appropriately.

But had the RBA acted appropriately?

That is at the heart of corruption scandals, the difficult issue facing a corporation when it is faced with alleged corruption on the one hand and a profitable line of business sustained by that corruption on the other hand. Which has to stay and which has to go?

The lack of transparency, the reliance on legal advice (quite common amongst any person or corporation faced with allegations of impropriety) and the inevitable “I do not remember” makes the average person wonder whether anybody involved really cares about the law, about Australia’s international obligations or whether, simply, the pursuit of profit (the means) justifies the ends. Regulators are increasingly requiring corporations to give priority to ethical behaviour which requires, in the words of Richard Alderman, the former Director of the UK Serious Fraud Office, a constant and self-reinforcing cycle of directed behavioural change.

It seems as if the lessons of AWB have not been learned. This story has a long way to go and the ultimate consequences that might be visited upon the RBA, Securency, NPA and its executives is a road where judge and jury views may rule the world of those involved, whose lives will be fraught with unending time, cost and uncertainty.

A Focus On Australia

By on June 26, 2012 in Australia, Facilitating Payments, Guest Posts, Securency International, Whistleblowers

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.  Jasmine Forde (Senior Associate, Johnson Winter & Slattery) also contributed to this post.

*****

A FOCUS ON AUSTRALIA

For many years, bribery and corruption in Australia has taken a back seat to profitable enterprise.  It was all considered a bit too foreign and something Australian companies simply did not do.  All of a sudden, that changed in 2006 when the Australian Wheat Board (AWB) wheat sales to Iraq, corrupting the UN Oil-for-Food program, blazed across Australia’s public awareness.  Since then, the media has treated us to a never-ending procession of allegations and sagas involving companies of the stature of Rio Tinto (with the corruption prosecution and imprisonment of former Rio Tinto executive Stern Hu in China), BHP and its now abandoned bauxite mining ventures in Cambodia, Leighton Holdings in the Middle East and as a standout, subsidiaries of Australia’s central bank, the Reserve Bank of Australia, engaged in potentially illegal conduct to secure lucrative polymer banknote printing contracts.

So what has been happening over the last few years?  In short, a much more focused awareness of the risks that foreign corruption brings to corporations and individual liability and a legislative push to increase investigative powers and penalties to deter errant behaviour.

Legislative Developments Post AWB Wheat Saga in 2005

In 2007, the Australian government tightened up the weaknesses in Australian foreign corruption laws highlighted by the Cole Inquiry and AWB’s conduct. (The Cole Inquiry was a Royal Commission headed by a retired appellate Judge, The Hon Terence RH Cole AO, RFD, QC, who investigated AWB’s conduct and who formed the opinion that the company and various senior executives may have committed criminal and/or civil offences in connection with their wheat sales to Iraq under the UN Oil-For-Food Program.) Those involved:

  • ensuring the foreign law defence to bribery was reflected in a written foreign law; and
  • criminalising conduct in contravention of United Nations’ sanctions.

Between 2007 and 2010, the Australian Government established a Taskforce to investigate whether any of the identified AWB executives should be prosecuted. The Australian Federal Police (AFP), as the Australian federal investigative policy agency responsible for investigating contraventions of Australian laws, ultimately abandoned any criminal prosecution due to insufficient evidence to warrant a criminal case. The Australian Securities and Investments Commission (ASIC), the Australian corporate regulator, commenced civil penalty proceedings against 6 former AWB directors and officers alleging breach by those persons of their common law and/or statutory duties in connection with the AWB wheat sales and the payment of monies to Iraq and to third parties. The individuals are defending the cases, although in June 2012, both the former AWB Managing Director Andrew Lindberg and the CFO, Paul Ingolby, agreed to a settlement with ASIC and their penalties will be imposed by the Victorian Supreme Court in the future.

In 2010, primarily as a result of increasing focus on Australia’s inadequate penalties by the OECD and Transparency International, the Australian Government revised the applicable penalties for foreign corrupt offences.  Those penalties were now set, for conduct post February 2010, as follows:

  • for an individual – imprisonment for up to 10 years, a fine of up to 10,000 penalty units (one penalty unit being AU$110, with the maximum fine, AU$1,100,000) or both; and
  • for a corporation – a fine being up to the greatest of 100,000 penalty units (or AU$11,000,000), 3 times the value of the benefit obtained directly or indirectly from the conduct or if the benefit cannot be determined, 10% of the corporation’s annual turnover during the period of 12 months ending at the end of the month in which the offending conduct occurred.

Section 70.2(6) of the Criminal Code defines “annual turnover” to be the sum of the value of all supplies that the corporation or any related corporation has made or are likely to make during the 12 month period subject to limited statutory exceptions.

These penalties are similar to the penalty regime which applies to the criminalisation of Australia’s cartel or anti-trust offences. It remains to be seen how they will be applied to a foreign bribery prosecution by an Australian Court.

In 2011, the Australian Government published a Consultation Paper reviewing a number of aspects of Australia’s foreign bribery laws. In particular, the Paper asked:

  • whether facilitation payments should remain as a defence to foreign bribery; and
  • whether a particular foreign official had to be identified in respect of which the alleged bribe was either paid, offered or promised to be paid.

It is unclear which way the Government will go, but the authors understand that the Government has received conflicting views on both abolishing and retaining the defence.

In April 2012, the Crimes Legislation Amendment (Powers and Offences) Act 2012 amended the Australian Crime Commission Act (ACC Act) to enable Australian statutory and secretive crime agency, the Australian Crime Commission (ACC) to share information with corporations for a ‘permissible purpose’. Features of this new regime include the following:

  • section 59AB of the ACC Act enables the CEO of the ACC to disclose information to a prescribed body corporate, but only in circumstances where it would not prejudice the safety, or the fair trial, of a person who has been charged with an offence;
  • the ACC can impose conditions on the body corporate to ensure that the information is not used, and further disclosed, in a way that might prejudice the reputation of a person; and
  • the overriding purpose of the amendments is to facilitate cooperation between the private sector and the ACC to enable the ACC to combat serious and organised crime, which includes foreign bribery and corruption.

Aside from the privacy issues in connection with the use and disclosure of information, there are a number of practical challenges that arise, and present obvious risks, for a corporation in circumstances where one of its employees is the subject of an ACC investigation and subsequent disclosure, which include:

  • whether the information should be disclosed in the first place just to the corporation CEO, Chairman, or a wider group including General Counsel and, if applicable, any Head of Security;
  • if a person directly or indirectly makes a record of the information or discloses it to another person (other than for a specified purpose), that person has committed an offence with a potential penalty of up to 12 months’ imprisonment;
  • care must be taken to manage the storage of material constituting the disclosed information;
  • whether and if so, how the disclosed information interacts with a corporation’s continuous disclosure obligations to the market; and
  • whether the corporation should conduct its own internal investigation and if so, the impact that may have on any external official (or covert) investigation.

It remains to be seen how the ACC will handle this new power. It is hoped that the ACC will adopt a sensible and flexible approach, ensuring that any disclosure is undertaken co-operatively with a relevant corporation and the corporation is informed of whether any internal investigation may or may not impact on an official investigation.

Prosecutions

Since Australia criminalised foreign bribery in December 1999, until July 2011, there had been but a few investigations, no prosecutions and no convictions.

In July 2011, the Commonwealth Director of Public Prosecutions (CDPP) laid the first criminal charges against Securency International Pty Ltd and Note Printing Australia Pty Ltd, two subsidiaries of the Reserve Bank of Australia and various individuals, alleged to be involved in corrupt conduct to secure valuable polymer banknote printing contracts.  Allegations suggested the Central Bank subsidiaries used foreign agents or intermediaries in various countries to pay or offer to pay bribes to foreign officials to secure the contracts to replace national paper currency with polymer (plastic) banknotes.  These proceedings are continuing and are subject to suppression orders by the Courts in Victoria hearing the charges.

The AFP has a number of current referrals involving potential foreign bribing.  Whether prosecutions occur in the future remains to be seen.

Current issues under review in Australia

The current anti-bribery regime in Australia still has many practical difficulties which are of concern, particularly in terms of advising and educating corporations on compliance with local and international laws.

The main issues of concern are:

1                     Regulatory Body

The AFP investigates foreign bribery. Any prosecution is conducted by the (CDPP).

There is no one identified organisation or agency which can be approached if a corporation wishes to self-report a potential offence. While a potential offence can be reported to the AFP, the present structure simply requires the AFP to investigate and then determine if a brief should be presented to the CDPP. It is only the CDPP who is authorised to offer any inducement to a potential defendant to cooperate.

A regulator modelled on the US DOJ or UK SFO would be better positioned to educate, enforce, facilitate and provide guidance to corporations. Presently, that does not exist in Australia.

2                     Facilitation Payments

This is regarded as one of the biggest risk areas.  There is confusion in understanding any real distinction between a facilitation payment and a bribe, particularly in relation to hospitality, travel and education allowances.   There is very little guidance regarding when these are acceptable commercial relationship activities and when they are considered to be a bribe.  This is exacerbated by virtue of the fact that there are differences in the foreign bribery laws around the world where the US permit facilitation payments and offer official “guidance opinions’ while in the UK, facilitation payments do not exist.

The authors consider that facilitation payments should be abolished but until that time, the best advice is to look to the UK Bribery Act as the ‘gold standard’ and as far as possible, ban them from within your organisation.

3                     Awareness of Foreign Bribery and Training

Awareness of the foreign bribery regimes outside of Australian Stock Exchange listed corporations is patchy at best.  There is a great need for corporations to continually educate their employees and third party service providers so that they can put in place robust procedure and processes.  Whilst some global companies now insist on anti-corruption clauses being included in contractual arrangements, it is by no means standard practice.

One need only look to the features of the recent investigation into Morgan Stanley in the US and the non-prosecution of the company in light of the rogue conduct of Mr Petersen in Chinese real estate speculation, to understand what a corporation must be able to demonstrate if it is to satisfy a regulator that it did all it could, in the circumstances, to prevent foreign bribery.

4                     Lack of Prosecutions

To date, there has been no judicial enforcement in Australia which has had the effect of sending a message to the market that non-compliance is not an option.

The first prosecution under the legislation has taken 12 years and is still ongoing.  The lack of prosecutions in Australia is not likely to be because Australian companies are compliant; rather, the better explanation appears to be that corporations:

(a)                are simply not recording facilitation payments in accordance with the law (to do so would essentially be a self-            admission with no protection and/or may expose relevant individuals to prosecution if the country they are dealing with does not allow for such payments);

(b)                are failing to self-report any potential foreign bribery;

(c)                are prepared to take a risk against prosecution, given the inherent complexity and cost associated with foreign bribery investigations; and

(d)                accept that such controversial payments (either as a bribe or a facilitation payment) are simply the reality of doing business in some ‘risky’ jurisdictions.

5                     Whistleblower Protection

Arguably, it is not considered culturally acceptable in Australia to ‘dob’ in a friend or colleague. However, recent research pioneered by Professor AJ Brown from Griffith University Queensland in conjunction with the University of Melbourne, suggests that over 80% of his sample considered it was more important to support whistleblowers for revealing serious wrongdoing than to punish them. The overall findings, released on 6 June 2012 (see www.newsroommelbourne.edu), suggest Australia is not a country where hostility to whistle blowers is the norm.

Currently, there is no incentive to be a whistleblower; monetary or otherwise and indeed, there can be severe, even criminal sanctions applied to certain individuals (Commonwealth employees) who blow the whistle.  There is a need for legislative reform around whistleblower protection as the Australian Public Interest Disclosure Bill presently being considered by the Australian Parliament offers limited protection.

Foreign Enforcement Action Roundup

By on August 4, 2011 in Africa, Aon Limited, Australia, Bangladesh, Canada, Egypt, Financial Services Authority, Indonesia, Macmillan Publishers, Malaysia, Nigeria, Niko Resources, Oil and Gas Industry, Publishing Industry, Russia, Securency International, Serious Fraud Office, United Kingdom, Vietnam, Willis Limited

The U.S., of course, is not the only country with an FCPA-like law. Canada’s version is the Corruption of Foreign Public Officials Act (“CFPOA”).  Australia’s version is part of its general Criminal Code.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI’s] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.

Canada

Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA – in 2005 against Hydro Kleen – resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”

Australia

Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”

U.K.

Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  “to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the ” procedure based on the guidance contained within [the SFO’s] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

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