Foreign Corrupt Practices Act enforcement often seems more robust than it actually is because, in the relatively rare instances in which there is an individual prosecution in connection with a corporate action, the individual action often (but not always) occurs long before or long after the corporate action. Many FCPA Inc. participants, who have a vested interest in portraying more not less FCPA enforcement, count these occurrences as multiple enforcement actions when in reality they are the same core enforcement action. (This article highlights this dynamic as well as other dubious and haphazard FCPA Inc. counting methods).
Reflective of the above dynamic, as highlighted in prior posts here and here in January 2017 the DOJ and SEC announced a $30.5 million enforcement action against Sociedad Quimica y Minera de Chile S.A. (SQM), a chemical and mining company based in Chile, in relation to its interactions with Chilean officials. The bulk of the enforcement action involved use of the CEO’s “discretionary fund to direct payments to Chilean politicians, political candidates, and individuals connected to them “many of which violated Chilean tax law and/or campaign finance limits” and falsely recording such payments in SQM’s books and records.
This previous post went in-depth into the $30.5 million Foreign Corrupt Practices Act enforcement action against Sociedad Quimica y Minera de Chile S.A. (SQM) announced on January 13th. The action focused on the Chilean chemical and mining company’s conduct with Chilean officials.
As mentioned in the original post, there was no U.S. nexus alleged other than SQM having Series B shares, a form of American Depository Shares, listed on the New York Stock Exchange and thus being required to file periodic reports with the SEC.
This post highlights additional issues to consider.
Last week the DOJ and SEC announced (here and here) a $30.5 million Foreign Corrupt Practices Act enforcement action against Sociedad Quimica y Minera de Chile S.A. (SQM), a chemical and mining company based in Chile, in relation to its conduct with Chilean officials.
The enforcement action is rife with policy issues including the proper scope of FCPA enforcement given that there is no U.S. nexus alleged other than SQM having Series B shares, a form of American Depository Shares, listed on the New York Stock Exchange and thus being required to file periodic reports with the SEC.
The enforcement action included: (i) a DOJ criminal information charging SQM with violating the FCPA’s books and records and internal control provisions that was resolved via a deferred prosecution agreement in which the company agreed to pay a $15.5 million criminal penalty; and (ii) an SEC administrative order finding FCPA books and records and internal violations in which the company agreed to pay $15 million civil penalty.
Double standard (sports edition), recent sentencing activity, and scrutiny alerts. It’s all here in the Friday roundup.
Double Standard (Sports Edition)
A public official wants tickets to a high-profile sporting event. So, through his aides, he asks the entity hosting the event for free tickets. The entity obliges because it needs the public official’s support in a variety of contexts.
A prudent FCPA practitioner would spot the “red flags” as the free tickets (mostly certainly something of value) could be viewed as a way to curry favor with the public official. Indeed, the competent FCPA practitioner will recall that several FCPA enforcement actions have been based, in whole or in part, on free tickets to sporting events.
However, the public officials in the above example are not “foreign officials,” they are current U.S. officials who want tickets to high-profile college sporting events.
Bribery? Silly you for even mentioning the “b” word. This is the US of A.
Why do interactions with “foreign officials” seem to be subject to different standards than interactions with U.S. officials? Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home? Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax? Ought not there be some consistently between enforcement of the FCPA and the domestic bribery statute?
As you contemplate these questions, just remember in the words of the DOJ – “we in the United States are in a unique position to spread the gospel of anti-corruption”
For additional reading, see here for the recent article “The Uncomfortable Truths and Double Standards of Bribery Enforcement.” In addition, for approximately 50 other posts highlighting double standards, see this subject matter tag.
“Vicente Eduardo Garcia, 65, … was sentenced to 22 months in prison by U.S. District Judge Charles R. Breyer of the Northern District of California. On Aug. 12, 2015, Garcia pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA). On July 15, 2015, Garcia and the U.S. Securities and Exchange Commission (SEC) entered into a settlement of the parallel SEC investigation in which Garcia agreed, among other things, to pay disgorgement of $85,965 plus prejudgment interest. For this reason, the United States did not request, and the court did not order, forfeiture in the criminal action.”
For the specifics of the underlying actions, see this prior post.
Garcia’s sentencing memo contains a section titled “Why Vicente Did It.” It states:
“Vicente participated in the bribery scheme here for two reasons: first, to get $150,000 that Advanced [a Third Party] owed him and, second, to secure the Panamanian government as a new customer for his employer SAP.
Vicente’s did not start his business dealings with the Panamanian government intending to commit a crime. But Vicente ultimately did conspire to bribe Panamanian officials.
He has cooperated with authorities since FBI and IRS agents confronted him at his offices. Other than this instance, Vicente’s business dealings have all been above board and legal.
However, here, once the Minister of Technology made clear to Vicente and his colleagues that for Advanced to receive the contract he would require a bribe, Vicente, rather than refuse, acceded and assisted in the scheme—a decision that he deeply regrets. Though not an excuse, he rationalized it at the time as a way to correct his failure in trying to run his own business.”
Vadim Mikerin
This previous post highlighted the FCPA enforcement action against Daren Condrey, an owner and executive of a Maryland Transportation Company, for allegedly bribing Vadim Mikerin, an alleged foreign official employed by an alleged Russian state-owned / controlled entity.
As highlighted in the prior post, Mikerin was also criminally charged and pleaded guilty to money laundering offenses. Earlier this week, the DOJ announced that Mikerin was sentenced to four years in prison and order to forfeit approximately $2.1 million dollars.
As noted in the release, Condrey awaits sentencing.
Jose Hurtado
In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).
Recently Jose Hurtado was sentenced to three years in prison, followed by three years of supervised release, and consented to a $11.9 million forfeiture .
Previously:
Ernesto Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture.
Tomas Clarke was sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture.
Benito Chinea was sentenced to four years in prison, followed by three years of supervised release, and consented to a $3.6 million forfeiture; and
Joseph DeMeneses was sentenced to four years in prison, followed by three years of supervised release, and consented to a $2.7 million forfeiture.
Scrutiny Alerts
Sociedad Química y Minera de Chile S.A.
Santiago, Chile based Sociedad Química y Minera de Chile S.A. (SQM), a company with shares traded on the New York Stock Exchange, recently issued this release stating:
“[The] Company’s Board of Directors met … to receive and review a report presented by the U.S. law firm Shearman & Sterling LLP (the Report) for SQM’s AdHoc Committee, which was appointed by the Company’s board in a meeting held February 26, 2015.
[…]
SQM previously informed the relevant authorities and markets that this Committee had been formed and that it had hired the professional services of Shearman & Sterling LLP to investigate and analyze the possible liability for SQM under the Foreign Corrupt Practices Act (FCPA), a United States of America law that applies to the Company as an issuer of securities in the U.S. market. The Chilean law firm Grupo Vial / Serrano Abogados and the international forensic services firm FTI Consulting, Inc. assisted Sherman & Sterling.
The investigation specifically analyzed: (a) Whether the Company had made any payment defined as corrupt for FCPA purposes. (b) Whether the Company had breached the accounting provisions of the FCPA.
The Company’s Management was fully cooperative and transparent during the investigation. Among other procedures, investigators collected more than 3.5 million documents and selected approximately 930,000 for review. In addition, 24 individuals were interviewed, including members of the board prior to April 2015, as well as SQM’s senior executives and other relevant employees. A forensic analysis of the Company’s accounting since 2008 was also conducted. Interviews were also requested from Mr. Patricio Contesse G.—former CEO of SQM—and Mr. Patricio Contesse F.—former director of SQM, but they declined.
After close to nine months of investigation, Shearman & Sterling, assisted by Grupo Vial / Serrano Abogados and FTI Consulting, informed the Committee that for FCPA purposes: (a) payments were identified that had been authorized by SQM’s former CEO, Mr. Patricio Contesse G., for which the Company did not find sufficient supporting documentation; (b) no evidence was identified that demonstrates that payments were made in order to induce a public official to act or refrain from acting in order to assist SQM obtain economic benefits; (c) regarding the cost center managed by SQM’s former CEO, Mr. Patricio Contesse G., it was concluded that the Company’s books did not accurately reflect transactions that have been questioned, notwithstanding the fact that, based on the amounts involved, these transactions were below the materiality threshold defined by the Company’s external auditors determined in comparison to SQM’s equity, revenues, expenses or earnings within the reported period; and (d) SQM’s internal controls were not sufficient to supervise the expenses made by the cost center managed by SQM’s former CEO and that the Company trusted Mr. P. Contesse G. to make a proper use of resources.
Throughout this process, SQM has taken and will continue to take the proper measures to strengthen its corporate governance and internal controls in order to correct the issues identified in the Report. The measures that have already been adopted include: (i) dismissing Mr. P. Contesse G. from his position as SQM’s CEO; (ii) filing corrected tax returns with the Chilean Internal Revenue Service; (iii) creating SQM’s Corporate Governance Committee, which is comprised of three of its directors; (iv) separating and strengthening the team and responsibilities of the Internal Audit and Compliance departments, both of which report to SQM’s board of directors, while the latter also reports to the Company’s CEO; (v) hiring KPMG, the auditing firm, to review SQM’s payment process controls; (vi) improving the Company’s payment process controls and approvals; and, (vii) reformulating SQM’s Code of Ethics.
Lastly, after acknowledging receipt of the Report, the directors expressed that the Company will continue to cooperate with authorities and adopt the appropriate measures to improve its corporate governance and internal controls.”
SNC Lavalin
One reason SNC Lavalin has been pouting about Canada’s lack of deferred prosecution agreements is because of the collateral consequences of a criminal conviction.
On that front, the company recently announced:
“[The Company] has signed an administrative agreement with Public Services and Procurement of the Government of Canada (PSP) under the Government of Canada’s new Integrity Regime. The administrative agreement allows companies – that have federal charges pending against them – to continue to contract with or supply the Government of Canada
“This is another example of our commitment to move forward. I thank PSP for recognizing SNC-Lavalin’s significant efforts and dedication to continuous improvement in ethics and compliance, which have allowed us to meet the difficult criteria of the new Integrity Regime. I am proud of our ethics and compliance program that is an integral part of the way we work every day, here in Canada and globally. Our clients and partners have recognized our concrete actions, efforts and accomplishments over the past three years,” stated Neil Bruce, President and CEO, SNC-Lavalin. “This agreement is a milestone that allows us to continue to be an important contributor to the Canadian economy. It protects the public, and is good for our employees, clients, investors and all of Canada.”
The administrative agreement is due to the federal charges filed against three of the company’s legal entities in , which SNC-Lavalin contests. SNC-Lavalin confirms that, provided the company complies with the terms of the administrative agreement, it will be able to continue to bid on and win contracts to provide procurement goods and services to all Canadian government departments and agencies, in Canada and abroad, until the final conclusion of those charges.”
