Friday Roundup
Checking in on Wal-Mart’s professional fees and expenses, still pouting, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.
Wal-Mart’s Professional Fees and Expenses
In its recent 3Q FY2016 earnings call Wal-Mart stated:
“FCPA and compliance related costs were approximately $30 million, comprised of $22 million for ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”
Doing the math, Wal-Mart’s 3Q FCPA and compliance-related costs is approximately $470,000 per working day.
Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny. Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.
While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past eight quarters have been approximately $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.
In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.
FY 2013 = $157 million.
FY 2014 = $282 million.
FY 2015 = $173 million.
FY 2016 = $93 million (through the first three quarters).
Still Pouting
This prior post discussed why SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout. Namely, that Canada does not offer deferred prosecution agreements and enforcement authorities must actually prove cases to prevail.
As noted here, with a new government in Ottawa, SNC-Lavalin’s new CEO continues the pout.
“SNC-Lavalin Group Inc.’s CEO wants the new federal government to allow companies to settle corporate corruption cases — as what happens in the United States and United Kingdom — so that Canadian firms can remain competitive. In his first speech since taking control of Canada’s largest engineering company last month, Neil Bruce said federal corruption charges laid against a few of SNC-Lavalin’s legal entities unfairly point the finger at 40,000 employees who did nothing wrong. Instead, Canada should allow corporate settlements outside the court system so that SNC-Lavalin and other Canadian businesses are not at a disadvantage when competing against rival firms in other G7 countries, Bruce said.
[…]
The company has said it will plead not guilty to the charges but is willing to pay a fine for the alleged transgressions of former employees.”
Scrutiny Alerts and Updates
Affinia Group
As noted in this May 2015 post, Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) has been under FCPA scrutiny and the company disclosed:
“As previously disclosed, the Company conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raised issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review was supervised by the Audit Committee of Affinia’s Board of Directors and conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and cooperated fully with the U.S. government. The U.S. Department of Justice has advised that it has decided to decline to prosecute the Company in this matter.”
Several companies have been under scrutiny based on alleged improper relationships with Petrobras. Three such companies: Ensco, Transocean, and Vantage Group recently made disclosures.
Ensco
The company recently disclosed:
“Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil during 2001 and, in 2008, entered into a drilling contract with Petrobras for DS-5, a rig Pride had ordered from a shipyard in South Korea.
Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition, Ensco conducted similar compliance reviews, the most recent of which commenced in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras.
While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to DS-5 – specifically, that Petrobras overpaid under the drilling contract. We believe this allegation is inaccurate, as publicly available data show that the contract’s compensation terms were in line with other contracts signed by Petrobras and other customers with our competitors during the same timeframe (late 2007 and early 2008). We provided this information to Petrobras in June 2015. We continue to operate DS-5 under its existing contract. In addition, all our other rigs contracted to Petrobras – ENSCO 6001, 6002, 6003 and 6004 – continue to work under their contracts.
Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Subsequently, the internal audit report and the alleged irregularities were referenced in Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including a former marketing consultant who provided services to Pride in connection with DS-5. The former marketing consultant entered into a plea agreement with the Brazil authorities. This plea agreement was referenced in a Brazilian court proceeding relating to a project for a competitor having no connection to us. This court proceeding document states that another court action would be made public in due course with respect to DS-5; to date no further proceedings relating to DS-5 have been released.
Independent counsel, under the direction of our Audit Committee, has substantially completed the investigation of these allegations by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the contracting of DS-5 as well as the former marketing consultant.
To date, our Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant. Although the investigation is substantially complete, we cannot predict whether any new or additional allegations will be made and what impact those allegations will have on the timing or conclusions of the investigation. Our Audit Committee will examine any new or additional allegations and the facts and circumstances surrounding them. To date, we have not been contacted by Brazil authorities, and no authority has alleged wrongdoing by Pride or Ensco or any of their current or former employees. In June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”), respectively, to advise them of this matter and our Audit Committee’s independent investigation, and we provided them an update on the investigation in September 2015. We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”
As highlighted in this previous post, in 2010 Pride International resolved a $56 million FCPA enforcement action based on alleged conduct in Nigeria, India, Mexico, Venezuela and other countries.
Transocean
The company recently disclosed:
“We are currently investigating allegations made by a former Petrobras employee relating to the award of a drilling services contract to us. These allegations were made public through an investigation being conducted by Brazilian authorities in response to allegations of corrupt practices involving Petrobras business. To date, we have not identified any wrongdoing by any of our employees or agents in connection with our business in Brazil. We will continue to investigate these types of allegations and, if contacted, will cooperate with governmental authorities. Through the process of monitoring and proactive investigation, we strive to ensure no violation of our policies, code of integrity or law has, or will, occur; however, there can be no assurance as to the outcome of these matters.”
As highlighted in this previous post, in 2010 Transocean resolved a $20.7 million FCPA enforcement action based on alleged conduct in Nigeria.
Vantage Drilling
The company recently disclosed:
“In July 2015, we became aware of media reports that the Brazilian agent that we used in the contracting of the Titanium Explorer drillship, Mr. Padilha, had entered into a plea arrangement with the Brazilian authorities in connection with his role in obtaining bribes for former Petrobras executives. Mr. Padilha, who simultaneously has represented several international companies in their contracts with Petrobras, provided evidence to the Brazilian prosecutors of an alleged bribery scheme between former Petrobras executives and Mr. Su, a former member of our Board of Directors and a significant shareholder. Mr. Su was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid. At the same time we learned of Mr. Padilha’s plea agreement, we voluntarily contacted the SEC and the DOJ to advise them of these recent developments. We subsequently terminated his advisory contract with us. Our internal and independent investigations, which are still ongoing, to date have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by Mr. Padilha.
We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”
Reading Stack
“The (Unintended) Consequences of the Yates Memo” here from Kurt Wolfe (Allen & Overy).
“The Yates Memo’s Chilling Effect on FCPA Self-Disclosure” here from Alison Tanchyk and Melissa Coates (Morgan, Lewis & Bockius). “Ironically, the unintended consequence [of the Yates Memo] may be fewer companies opting to self-disclose FCPA concerns, leading to fewer individual corruption prosecutions.”
*****
A good weekend to all.
Friday Roundup
More on the Yates Memo, scrutiny alerts, survey says, and FCPA reform. It’s all here in the Friday roundup.
More on the Yates Memo
Once again a private company has marketed a public official to drive attendance to its paid event.
Earlier this week, Assistant Attorney General Leslie Caldwell delivered this speech reiterating various aspects of the “Yates Memo.” Caldwell stated:
“[O]ur focus on individuals stems from the reality that corporations act through human beings, and that justice usually requires identifying those responsible for criminal conduct and holding them personally accountable. Prosecuting the corporate entity, and imposing a fine and other impersonal conditions, simply is not enough – in most instances – to fully punish and, more importantly, deter corporate misconduct.”
Regarding the cooperation credit aspects of the “Yates Memo,” Caldwell stated:
“We recognize, however, that a company cannot provide what it does not have. And we understand that some investigations – despite their thoroughness – will not bear fruit. Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit. We will make efforts to credit, not penalize, diligent investigations. On the flip side, we will carefully scrutinize and test a company’s claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.
As I have said before, it is not our intent to outsource our investigation of corporate wrongdoing to companies and their outside advisors. As in the past, we will not sit idle, waiting for a company to conduct or complete its investigation. Regardless of a company’s cooperation, federal agents and prosecutors will conduct thorough investigations. If, through this process, we are able to identify the culpable individuals when the company itself did not do so, as well as evidence that would support the charging and prosecution of those individuals, we will assess whether that evidence truly was unavailable to the company.
We, of course, recognize that we sometimes can obtain evidence that a company cannot. We often can obtain from third parties evidence that is not available to the company. Also, we know that a company may not be able to interview former employees who refuse to cooperate in a company investigation. Those same employees may provide information to us, whether voluntarily or through compulsory process. Likewise, there are times when, for strategic reasons, we may ask that the company stand down from pursing a particular line of inquiry. If so, the company will not be penalized for failing to identify facts subsequently discovered by government investigators.”
Caldwell also answered questions after the speech. It appears that this Q&A was recorded and the same private company put the Q&A behind its paywall.
It’s just plain wrong that a private company is selling the words of public officials. It ought to stop.
Scrutiny Alerts
Transocean
As highlighted here, in 2010 as part of the CustomsGate enforcement actions, Transocean resolved a $20.7 million FCPA enforcement action (involving a DOJ and SEC component) concerning alleged conduct in Nigeria.
Bloomberg reports:
“Transocean Ltd., the world’s largest offshore rig contractor, is being linked for the first time to the corruption probe of Petroleo Brasileiro SA, the state-owned energy giant at the center of Brazil’s biggest corporate scandal. A former executive at Brazil’s state-run oil company has testified to receiving what he says were payments made by someone claiming to be a Transocean agent in exchange for a rig-operation contract from Petrobras.”
SNC-Lavalin
This CBCNews report goes in-depth regarding new allegations in a civil suit concerning SNC-Lavalin. According to the article:
“Top executives for years endorsed bribes and lavish gifts — including a yacht and even prostitutes — to win contracts from Libya’s Gadhafi regime.”
To cement ties, [the complaint] alleges specific SNC executives signed off on or approved numerous favours to help Gadhafi, including:
- providing SNC staff and hiring university professor as tutors;
- helping to obtain a Canadian visa;
- considering appointing Saadi Gadhafi an SNC vice-president;
- officially sponsoring his Italian Serie A professional soccer team.
One of the largest expenses included the purchase of a Palmer Johnson yacht worth $38 million for Saadi Gadhafi “organized and validated by CFO Laramée and approved by the then CEO Lamarre.” Saadi Gadhafi visited Canada in 2008, and SNC Lavalin picked up the bill — more than $2 million.”
Survey Says
KPMG recently conducted a worldwide online survey of corporate risk leaders to find out the strengths and weaknesses of their companies’ programs to combat bribery and corruption. According to the survey responses:
“There is a sharp increase in the proportion of respondents who say they are highly challenged by the issue of Anti-Bribery Compliance (ABC) compared with a survey KPMG conducted four years earlier.
As companies continue to globalize, management of third parties poses the greatest challenge in executing ABC programs.
Despite the difficulty of monitoring their business dealings with third parties, more than one third of the respondents do not formally identify high-risk third parties. More than half of those respondents with right to-audit clauses over third parties have not exercised the right.
ABC considerations are accorded too low a priority by companies preparing to acquire, or merge with, other corporations across borders.
Respondents complain they lack the resources to manage ABC risk.
A top-down risk assessment would help companies set priorities, but executives admit that an ABC risk assessment is one of their companies’ top challenges.
Data analytics is an increasingly important and cost-effective tool to assess ABC controls. Yet only a quarter of respondents use data analysis to identify violations and, of those that do so, less than half continuously monitor data to spot potential violations.”
FCPA Reform
The U.S. Chamber of Commerce recently released this document outlining its policy priorities. Included in the lengthy document was the following: “work to reform the Foreign Corrupt Practices Act by supporting changes to enforcement practices.”
*****
A good weekend to all.
SNC-Lavalin Should Be Grateful And Not Pout
But Mom / Dad, when Johnny gets into trouble his parents do things a little bit differently, why can’t I benefit from that?
As I told The Globe and Mail in this article, that is my reaction to SNC-Lavalin’s unusual statement upon being criminally charged by Canadian authorities for alleged improper payments to Libyan officials.
As noted in this previous post, last week the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.
Upon being charged, SNC-Lavalin issued this release, which as relevant here, stated:
“It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.”
SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout.
For starters SNC-Lavalin can only be found guilty of the charges alleged to the extent one of its “senior officials” engaged in improper conduct. This is a much more exacting standard than the very lenient U.S. standard of respondeat superior corporate criminal liability in which a business organization can face criminal liability to the extent any employee engaged in improper conduct within the scope of employment and intended, at least in part, to benefit the organization.
Perhaps most importantly, SNC-Lavalin should be grateful, and not pout, that Canadian authorities will have to prove the facts and legal theories alleged in the enforcement action. In the U.S., FCPA enforcement agencies are rarely put in the position of having to prove anything in a corporate FCPA enforcement action. Rather, the DOJ (or SEC) occupy the position of prosecutor, judge and jury all at the same time and use resolution vehicles such as non-prosecution and deferred prosecution agreements (NPAs / DPAs) or administrative settlements – all of which are not subjected to any meaningful judicial scrutiny.
In short, SNC-Lavalin should be grateful, and not pout, that Canadian law enforcement authorities have not abandoned (as U.S. authorities have) traditional legal principles in the name of ease and efficiency. Accusing a person – whether a natural person or a legal person such as SNC-Lavalin – was never meant to be easy or efficient and it is interesting that SNC-Lavalin appears to be begging for such a system.
In other portions of its recent statement, SNC-Lavalin stated that the criminal charges “are without merit.” In other words, SNC-Lavalin seems to be saying that even though the criminal charges “are without merit,” it would have gladly forked over tens of millions – or perhaps hundreds of millions of dollars – of shareholder money to make the RCMP go away. How would that benefit SNC-Lavalin’s employees and shareholders?
It is also worth nothing that SNC-Lavalin’s statement casts several opinion statements as fact.
For instance, many would disagree that companies subject to the FCPA “benefit” from the common enforcement approach in which the DOJ (or SEC) are not put in a position to prove anything in relation to the facts and legal theories alleged. Many would also disagree that companies subject to the FCPA “benefit” from the excessive leverage the DOJ (or SEC) have over companies in extracting corporate settlement. Moreover, many would disagree that the U.S. approach to resolving corporate FCPA enforcement actions through NPAs and DPAs or administrative SEC actions have “been effectively used in the public interest.”
In short, SNC-Lavalin should be grateful, and not pout, that it is subject to a legal system in which law enforcement has to prove facts and legal theories to someone other than itself.
And let’s face it, the problem with SNC-Lavalin’s predicament has little to do with Canada’s legal regime for prosecuting companies, but rather Canada’s recent – and foolish – automatic debarment rules (see here and here).
Friday Roundup
Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.
It’s all here in the Friday roundup.
Wal-Mart Related
Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.
“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”
“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”
Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.
Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny. Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.
While $563,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past five quarters have been approximately $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.
In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.
FY 2013 = $157 million.
FY 2014 = $282 million.
FY 2015 = $173 million.
FY 2016 = $160 – $180 million (projected)
North of the Border
Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.” As stated in the release:
“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.
The charges laid are the following:
In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad
- Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
- Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”
In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”
Upon being charged, SNC-Lavalin issued this release which states in full as follows.
“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.
“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”
It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.
These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.
While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.
Becoming a benchmark in ethics and compliance
Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:
- Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
- Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
- Appointing compliance officers in all of the company’s business units and regional offices worldwide
- Creating a dedicated Ethics and Compliance team
- Further reinforcing internal controls and procedures
- Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
- Producing a dedicated Anti-Corruption Manual
- Offering annual compliance training to all employees, with a special focus on those working in strategic roles
- Developing and distributing a world-class Business Partners Policy to employees
- Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry
Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.
Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.
“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”
The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.
Scrutiny Alerts and Updates
Flowserve
In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq. As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.
Earlier this week, Flowserve disclosed as follows.
“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”
Eli Lilly
In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia. At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.
Earlier this week, Eli Lilly made this official when it disclosed:
“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”
Rolls-Royce
As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”
As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”
As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.
U.K. Sentences
The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:
Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates. Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.
Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.
Both men were disqualified from acting as company directors for six years.
Director of the SFO, David Green CB QC commented:
“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”
In passing sentence HHJ Higgins commented:
“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”
The briberyact.com published in full the Judge’s sentencing remarks.
Issue to Watch
This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action. While outside the FCPA context, the editorial nevertheless notes:
“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”
*****
A good weekend to all.
Friday Roundup
Scrutiny alerts, coming clean, coming off a monitor, and for the reading stack. It’s all here in the Friday roundup.
Scrutiny Alerts
Hyperdynamics
This previous post, regarding the arrest and charging of Frederic Cilins for obstruction of justice in connection with an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea, highlighted that while Cillins has been associated with BSG Resources, the charging documents make clear that BSG is not the sole focus of the U.S. investigation.
Earlier this week, Houston-based Hyperdynamics Corporation issued this release. It states:
“[On] September 2013 [the company] received a subpoena from the United States Department of Justice (DOJ) requesting that the Company produce documents relating to its business in Guinea. In 2006, a Production Sharing Contract was signed by the Company and the government of Guinea granting rights to an oil and gas concession offshore Guinea. The Company understands that the DOJ is investigating whether Hyperdynamics’ activities in obtaining and retaining the concession rights and its relationships with charitable organizations potentially violate the U.S. Foreign Corrupt Practices Act or U.S. anti-money laundering statutes. The Company has retained legal counsel to represent it in this matter and is cooperating fully with the government. The Company is unable to predict when the investigation will be completed, what outcome may result and what costs the Company will incur in the course of the investigation.”
On the day of Hyperdynamics disclosure, the company’s stock fell approximately 15%. As sure as the sun rises, a few days later, not one but two, plaintiffs firm issued releases (here and here) announcing an “investigation.”
Vinci
As noted in this article, “French prosecutors have opened a preliminary enquiry into allegations that a subsidiary of construction firm Vinci bribed officials in Russia […] to win the contract for a toll motorway linking Moscow to Saint Petersburg.” Vinci has American Depository Receipts that are traded on a U.S. exchange.
Coming Clean
This previous post highlighted the employee amnesty program created by SNC-Lavalin (a Canada-based engineering and construction company
mired in a bribery and corruption scandal concerning projects in Bangladesh and certain countries in Africa). The company recently announced as follows.
“A total of 32 employees made amnesty requests. While no new information of a material nature was revealed, the information the Company received did confirm its previous assessment of corruption risks.”
The release also highlights other compliance enhancements and policies and procedures the company has implemented.
Coming Off a Monitor
In August 2010, Alliance One International resolved an FCPA enforcement concerning conduct in Kyrgyzstan and Thailand by agreeing to pay approximately $9.5 million (see here for the prior post). Even though Alliance One’s entire exposure was based, not on anything it did, but rather successor liability theories and even though the enforcement action was the product of a voluntary disclosure, the non-prosecution agreement required the company to engage a corporate monitor for a three-year period.
In this recent release Alliance One stated:
“On September 30, 2013, the Company fulfilled its obligations under its settlement agreements, including the successful and on-time completion of its compliance monitorship. On May 7, 2013, the Monitor filed his third and final of his required reports with the DOJ and the SEC. In the third report, the Monitor evaluated the long-term sustainability of the Company’s compliance program, in addition to risk-based themes and the implementation of recommendations from previous years. The Monitor concluded the third report by certifying that the Company’s Compliance Program, including its policies and procedures, is reasonably designed and implemented to detect and prevent violations of anti-corruption laws within the Company. The final report also states that all recommendations of the Monitor have been fully implemented by the Company. As per the schedule set forth in the aforementioned settlement agreements, the monitorship formally ended on time on September 30, 2013, and without any extensions of that date by the Monitor, the DOJ or the SEC.”
In the release, Alliance One President and CEO J. Pieter Sikkel stated:
“Over the past three years we have built a world-class compliance program supported by strengthened systems, policies, procedures and controls that address a variety of compliance areas. While the completion of the monitorship is an important milestone, our strong commitment to operating ethically and compliantly will continue indefinitely.”
Joe Warin (Gibson, Dunn & Crutcher) was the monitor. See here for a previous post concerning an article Warin and his colleagues wrote titled ““Somebody’s Watching Me: FCPA Monitorships and How They Can Work Better.”
Reading Stack
Much has been written in connection with GlaxoSmithKline in China about the arrest and detention of Peter Humphrey and his wife based on accusations in the course of background checks performed by their Shanghai-based firm ChinaWhys.
In a similar instance, this recent article in Barron’s profiles the plight of Canadian stock analyst Kun Huang has been locked up in China for more than a year for exposing alleged improper conduct concerning Silvercorp Metals. According to the article, “Canadian authorities have opened a bribery probe based on [Huang’s] allegations.”
*****
A good weekend to all.