DOJ Releases Two So-Called “Declination” Letters, Yet “Pursuant To” The Letters, HMT LLC And NCH Corp. Agree To Disgorge $2.7 Million And $335,000
Just when you think you’ve seen it all in connection with Foreign Corrupt Practices Act enforcement, along comes yesterday’s development.
In an e-mail to media, the DOJ stated that it sent letters to “counsel for HMT LLC and NCH Corporation outlining the department’s decision to close its inquiry into potential FCPA violations.”
But, and this is a big but, “pursuant to” the letters, HMT agreed to disgorge $2,719,412 “which represents the profit to HMT from the illegally obtained sales in Venezuela and China” and NCH Corp. agreed to disgorge $335,342 “which represents the profit to NCH from the illegally obtained sales in China.”
Further Details Regarding The DOJ’s Recent Individual FCPA Enforcement Action In Connection With PDVSA Procurement
This previous post briefly mentioned the DOJ’s recent Foreign Corrupt Practices Act enforcement action against Roberto Rincon and Abraham Shiera for alleged improper business practices with officials at Petroleos de Venezuela S.A. (PDVSA), Venezuela’s alleged state-owned and state-controlled oil company.
This post goes in-depth regarding this recently unsealed criminal indictment.
In the indictment, Rincon is described as a U.S. lawful permanent resident and a resident of Texas who controlled, together with others, a number of closely held companies, including several U.S. companies, that he used to secure contracts with PDVSA.
Shiera is described as a Venezuelan national who resided in Florida who controlled, together with others, a number of closely held companies, including several U.S. companies, that he used to secure contracts with PDVSA.
Both Rincon and Shiera, along with their respective unnamed Texas or Florida-based companies, are alleged to be “domestic concerns.”
The “foreign officials” are described as follows.
Official A – employed by PDVSA, including as a buyer at PDVSA and a supervisor of other PDVSA buyers. Official A’s job responsibilities including assigning bidding panels to PDVSA buyers, including Official C and Official D, who would then be responsible for selecting companies for the bidding panels, which allowed those companies to submit bids on individual PDVSA projects.
Officials B – employed by PDVSA, including as a purchase analyst for PDVSA. Official B’s job responsibilities included selecting companies for bidding panels, which allowed those companies to submit bids on individual PDVSA projects.
Official C – employed by PDVSA, including as a purchasing manager and superintendent of purchasing at PDVSA. Official C’s job responsibilities included selecting companies for bidding panels, which allowed those companies to submit bids on individual PDVSA projects, and selecting which companies would win the economic portion of the bid process.
Official D – employed by PDVSA, including as a buyer for PDVSA. Official D’s job responsibilities included selecting companies for bidding panels, which allowed those companies to submit bids on individual PDVSA projects.
Official E – employed by PDVSA, including as a purchasing manager. Official E’s job responsibilities included selecting companies for bidding panels, which allowed those companies to submit bids on individual PDVSA projects.
The indictment refers to various PDVSA entities collectively as PDVSA including PDVSA Services Inc. (a U.S. based affiliate of PDVSA located in Houston, Texas that was, at various times, responsible for international purchasing on behalf of PDVSA) and Bariven S.A. (a PDVSA procurement subsidiary responsible for equipment purchases).
The indictment alleges that Rincon and Shiera “referred to the PDVSA officials who were assisting them in obtaining and retaining contracts with PDVSA in exchange for the bribes as ‘aliados,’ which translates into English as ‘allies’ or “allieds.”
The indictment alleges a conspiracy between 2009 and 2014 in which Rincon, Shiera and others enriched themselves “by obtaining and retaining lucrative energy contacts with PDVSA through corrupt and fraudulent means, including by paying bribes to PDVSA officials.” The alleged bribes to PDVSA officials were to “influence acts and decisions of the PDVSA officials in their official capacities and to induce the PDVSA officials to do and omit to do certain acts, including, but not limited to:
- assisting Rincon’s and Shiera’s companies in winning PDVSA contracts;
- providing Rincon and Shiera with inside information concerning the PDVSA bidding process;
- placing one or more of Rincon’s and Shiera’s companies on certain bidding panels for PDVSA projects;
- helping to conceal the fact that Rincon and Shiera controlled more than one of the companies on certain bidding panels for PDVSA projects;
- supporting Rincon’s and Shiera’s companies before an internal PDVSA purchasing committee;
- preventing interference with the selection of Rincon’s and Shiera’s companies for PDVSA contracts;
- updating and modifying contract documents, including change orders to PDVSA contracts awarded to Rincon’s and Shiera’s companies;
- assisting Rincon’s and Shiera’s companies in receiving payment for previously awarded PDVSA contracts, including by requesting payment priority for projects involving Rincon’s and Shiera’s companies.
The indictment alleges that “in addition to monetary bribes, Rincon and Shiera, together with others, bribed PDVSA officials by providing things of value, including recreational travel (including stays at the Fontaineblue Hotel in Miami Beach), meals (including whiskey), and entertainment, in order to obtain and retain business on behalf of Rincon’s and Shiera’s companies.”
The indictment also alleges that money was transferred from a bank account in the name of one of Rincon’s companies “to pay off the balance of a mortgage loan in Official E’s name for a residence in the Southern District of Texas, in exchange for Official E’s assistance in connection with PDVSA contracts” as well as money to “a close personal associate of Official E, but over which Official E held power of attorney.”
According to the indictment, Rincon and Shiera “provided to certain PDVSA officials who were receiving bribes proposed bidding panel lists that would include more than one company controlled by Rincon or Shiera to create the false appearance that the bidding process was competitive.” The indictment also alleges that Rincon and Shiera “attempted to conceal the bribes to certain PDVSA officials, which they referred to as ‘commissions,’ by creating false justifications for the bribes, including requesting or receiving invoices for equipment that was not provided and services that were never rendered in order to disguise the bribe payments to PDVSA officials.”
In addition to the conspiracy charge, the indictment also charges: (i) Rincon with four substantive violations of the FCPA’s anti-bribery provisions; (ii) Shiera with five substantive violations of the anti-bribery provisions; and (iii) Rincon and Shiera with money laundering conspiracy as well as seven substantive money laundering offenses.
An Order of Detention Pending Trial against Rincon states that the DOJ’s investigation “covered 730 bank accounts; of those 108 were related to Rincon, his family and his companies.” According to the filing, “the indictment seeks forfeiture of three Swiss bank accounts” that the Government has “traced $100 million from the scheme.” The filing further states that “from 2009 to 2014, over one billion dollars was traced to this conspiracy.”
In response to the U.S. allegations, PDVSA released the below statement.
Potpourri
Individual FCPA Charges
Reuters reports:
“Two men including an oil equipment supply firm executive have been arrested on charges related to an alleged scheme to corruptly secure energy contracts from Venezuela’s state-owned energy company, the U.S. Justice Department said Sunday. Roberto Rincon, the president of Texas-based Tradequip Services & Marine, was arrested on Wednesday in Houston on charges including that he violated the Foreign Corrupt Practices Act and engaged in money laundering, a Justice Department spokesman said. A second defendant, Abraham Jose Shiera Bastidas of Coral Gables, Florida, was arrested on Wednesday in Miami on the same charges plus one count, said the Justice Department spokesman, Peter Carr. The charges relate to what the Justice Department called a fraudulent and corrupt scheme to secure energy contracts from Petroleos de Venezuela S.A. (PDVSA), Venezuela’s state-owned energy company. Lawyers for Rincon, 55, and Shiera, 52, could not be identified on Sunday. Further details on the case were not immediately available. No charging documents have been made public yet. It was also not clear if case related to Tradequip, which describes itself as an oil field supply company. The firm on its website lists PDVSA as a client, and it is registered on Venezuela’s national contractors registry. Tradequip did not respond to a call and email seeking comment. PDVSA did not respond to a request for comment.”
See here for the criminal indictment.
Sweet Group
A follow-up to a U.K. SFO enforcement action previously announced in early December (see here).
Last Friday, the SFO announced:
“Sweett Group PLC has … pleaded guilty at Southwark Crown Court to an offence under Section 7 of the Bribery Act 2010 regarding conduct in the Middle East. The Serious Fraud Office charged Sweett Group PLC earlier this month, having opened an investigation on 14th July 2014 into the company in relation to its activities in the UAE and elsewhere. Sweett Group PLC will be sentenced on 12th February 2016 at Southwark Crown Court.”
The only publicly available document at this point states:
“Between 1 December 2012 and 1 December 2015 Sweet Group PLC, being a relevant commercial organisation, failed to prevent the bribing of Khaled Al Badie by an associated person, namely Cyril Sweet International Limited, their servants and agents, which said bribing was intended to obtain or retain business, and/or an advantage in the conduct of business, for Sweet Group PLC, namely securing and retaining a contract with Al Ain Ahia Insurance Company for project management and cost consulting services in relation to the building of a hotel in Dubai, contrary to Section 7(1) of the Bribery Act 2010.”
The Sweet Group action closely follows the Standard Bank failure to prevent bribery enforcement action (see here for prior posts) and represents the second instance under the Bribery Act of a business organization being held accountable for “failure to prevent”foreign bribery.
Global Fraud Survey
According to Kroll’s annual Global Fraud survey (a survey of 768 senior executives worldwide from a broad range of industries and functions from January through March 2015):
11% of companies have been affected by corruption and bribery during the past 12 months (the 6th highest type of fraud on the list) and 40% of companies describe themselves as highly or moderately vulnerable to this type of fraud (the 5th highest on the list).
Corruption and bribery were the highest among companies in India, Russia and China.
Further To The Clustering Phenomenon
Earlier this week, the DOJ announced that two additional individual defendants have been added to the Foreign Corrupt Practices Act (and related) enforcement action against individuals associated with broker dealer Direct Access Partners. (See here for the original May 2013 enforcement action against Jose Hurtado and Tomas Clarke and here for an additional individual, Ernesto Lujan, being added to the enforcement action in June 2013).
Like in the previous enforcement actions, the additional defendants (Benito Chinea and Joseph DeMeneses, the Chief Executive Officer and a managing partner, respectively of Direct Access Partners) were criminally charged 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).
As noted in the DOJ’s release, Chinea and DeMeneses were each charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and five counts of violating of the Travel Act. Chinea and DeMeneses were also charged with one count of conspiracy to commit money laundering and three counts of money laundering. DeMeneses was further charged with one count of conspiracy to obstruct justice. (See here for the SEC’s announcement of a related enforcement action against Chinea and DeMeneses. Like the SEC’s prior enforcement actions against the other individuals, Chinea and DeMeneses are charged with various securities law violations, but not FCPA offenses as the individuals – while associated with a broker dealer – are not associated with an issuer).
As noted in the DOJ’s release, in August 2013 Lujan, Hurtado and Clarke each pleaded guilty to conspiring to violate the FCPA, to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.
The DOJ’s enforcement action against Chinea and DeMeneses is further to the curious clustering phenomenon clearly observable in FCPA enforcement.
As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.
Of further note (and again with statistics calculated through the end of 2013), of the 89 individuals charged by the DOJ with FCPA criminal offenses since 2008, 61 of the individuals (69%) were employees or otherwise affiliated with private business entities (for instance – Haiti Teleco related enforcement actions, Control Components Inc. Latin Node, Nexus Technologies, BizJet, not to mention failed prosecutions against various Africa Sting defendants and individuals associated with Lindsey Manufacturing).
This is a striking statistic given that 48 of the 60 corporate DOJ FCPA enforcement actions since 2008 (80%) (again using statistics calculated through the end of 2013) were against publicly traded corporations. In short, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.
Thus far in 2014, the trends have been further magnified. In addition to this week’s action:
In Depth On The ADM Enforcement Action
On December 20th, the DOJ and SEC announced (here and here) that Archer Daniels Midland Company (“ADM”) agreed to resolve a Foreign Corrupt Practices Act based on the conduct of an indirect subsidiary in Ukraine and a joint venture partner in Venezuela. The enforcement action had been expected for some time (as noted in this prior post, in November the company disclosed that it had agreed in principle to the settlement).
[Although announced on December 20th, original source documents relevant to the enforcement action did not become publicly available until December 24th and the documents are still not on the DOJ’s FCPA website].
The enforcement action involved a DOJ criminal information against Alfred C. Toepfer International Ukraine Ltd. resolved via a plea agreement, a non-prosecution agreement involving ADM, and a SEC settled civil complaint against ADM.
ADM entities agreed to pay approximately $54 million to resolve alleged FCPA scrutiny ($17.7 million in criminal fines to resolve the DOJ enforcement action and $36.5 million to resolve the SEC enforcement action).
This post summarizes both the DOJ and SEC enforcement actions.
DOJ
Alfred C. Toepfer International Ukraine Ltd. (ACTI Ukraine)
The criminal information begins as follows.
“At certain times between in or around 2002 and in or around 2008, the Ukrainian government did not have the money to pay value-added tax (“VAT”) refunds that it owed to companies that sold Ukrainian goods outside of Ukraine.” (emphasis added).
Thereafter, the information alleges, in pertinent part, as follows.
“In order to obtain VAT refunds from the Ukrainian government, ACTI-Ukraine [an indirect 80%-owned subsidiary of ADM], with the help of its affiliate, Alfred C. Toepfer International GmbH (ACTI Hamburg) [an indirect 80%-owned subsidiary of ADM], paid third-party vendors to pass on nearly all of that money as bribes to government officials.”
“In order to disguise the bribes, ACTI Ukraine and ACTI Hamburg devised several schemes involving the use of Vendor 1 [a U.K. export company that used both truck and rail services for the export of goods from Ukraine] and Vendor 2 [a Ukrainian insurance company that provided insurance policies for commodities]. In some instances, ACTI Ukraine and ACTI Hamburg paid Vendor 1, a vendor that provided export-related services for ACTI Ukraine, to pass on nearly all the money they paid it as bribes to Ukrainian government officials in exchange for those officials’ assistance in obtaining VAT refunds for and on behalf of ACTI Ukraine. In addition, ACTI Ukraine purchased unnecessary insurance policies from Vendor 2 so that Vendor 2 could use nearly all of that money to pay bribes to Ukranian government officials in exchange for those officials’ assistance in obtaining VAT refunds for and on behalf of ACTI Ukraine.”
“In total, ACTI Ukraine, ACTI Hamburg, and their executives, employees, and agents paid roughly $22 million to Vendor 1 and Vendor 2 to pass on nearly all of that money to Ukrainian government officials to obtain over $100 million in VAT refunds. These VAT refunds gave ACTI Ukraine a business advantage resulting in a benefit to ACTI Ukraine and ACTI Hamburg of roughly $41 million.”
“In furtherance of the bribery scheme, employees from ACTI Ukraine and its co-conspirators, while in the territory of the United States, and specifically in the Central District of Illinois, communicated in-person, via telephone, and via electronic mail with employees of ACTI Ukraine’s and ACTI Hamburg’s parent company, Archer Daniels Midland Company (ADM), which owned an 80% share of the ACTI entities, about the accounting treatment of VAT refunds in Ukraine. During those communications, the ACTI employees mischaracterized the bribe payments as “charitable donations” and “depreciation.”
Based on the above allegations, the DOJ charged ACTI Ukraine with conspiracy to violate the FCPA’s anti-bribery provisions under 78dd-3. This prong of the FCPA has the following jurisdictional element.
“while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance” of a bribery scheme.
There is no allegation in the criminal information that anyone associated with ACTI Ukraine “while in the territory of the U.S.” made use of the mails or any means or instrumentality of interstate commerce.”
Rather, the information alleges, as to overt acts, as follows.
“[In July 2002 – 11 years prior to the enforcement action] executives from ACTI Hamburg [not the defendant ACTI Ukraine] traveled to ADM’s headquarters in Decatur, Illinois for business meetings. In one of those meetings, these ACTI executives met with executives from ADM’s tax department and discussed ACTI Ukraine’s ability to recover VAT refunds and the way in which ACTI Ukraine was accounting for the write-down of those refunds. During this discussion, the ACTI Hamburg executives stated that the way in which ACTI Ukraine was recovering its VAT refunds was by making charitable donations. ACTI Ukraine was not making such donations in conjunction with VAT recovery. In fact, ACTI Ukraine was writing down its VAT receivable based upon anticipated payments to Vendor 1.”
The other overt acts alleged in the information all concern e-mail traffic, none of which fits the jurisdictional element of “while in the territory of the U.S.”
The above charge against ACTI Ukraine was resolved via a plea agreement in which the company admitted, agreed, and stipulated that the factual allegations in the information are true and correct and accurately reflects the company’s “criminal conduct.”
As set forth in the plea agreement, the advisory Sentencing Guidelines calculation for the conduct at issue was between $27.3 million and $54.6 million and ACTI Ukraine agreed to a $17,711,613 criminal fine. The plea agreement states as follows.
“The parties have agreed that a fine of $17,771,613 reflects an approximately thirty-percent reduction off the bottom of the fine range as well as a deduction of $1,338,387 commensurate with the fine imposed by German authorities on ACTI Hamburg.”
The plea agreement further states that this fine amount is the “appropriate disposition based on the following factors”:
“(a) Defendant’s timely, voluntary, and thorough disclosure of the conduct; (b) the Defendant’s extensive cooperation with the Department; and (c) the Defendant’s early, extensive, and unsolicited remedial efforts already undertaken and those still to be undertaken.”
As is common in corporate FCPA enforcement actions, the plea agreement contains a “muzzle clause” prohibiting ACTI Ukraine or anyone on its behalf from making public statements “contradicting the acceptance of responsiblity” of ACTI Ukraine
ADM
The NPA between the DOJ and ADM concerns the above Ukraine conduct as well as alleged conduct in Venezuela. Only the Venezuela conduct is highlighted below.
The Statement of Facts attached to the NPA states as follows regarding “conduct relating to Venezuela.”
“From at least in or around 2004 to in or around 2009, when customers in Venezuela purchased commodities through ADM Venezuela [a joint venture between ADM Latin America (ADM Latin – a wholly owned subsidiary of ADM) and several individuals in Venezuela], the customers paid for the commodities via payment to ADM Latin. During this time period, a number of customers overpaid ADM Latin for the commodities by including a brokerage commission in the cost of the commodities. At the instruction of ADM Venezuela, including Executive A [a high-level executive at ADM Venezuela] and ADM’s Latin’s customers, rather than repaying these excess amounts to the customer directly, ADM Latin made payments to third-party bank account outside of Venezuela, which, in many instances, were used to funnel payments to accounts owned by employees or principles of the customer. In addition, ADM Venezuela personnel prepared invoices to ADM Latin’s customers that violated Venezuelan laws and regulations regarding foreign currency exchanges.”
The NPA states that in approximately 1998, “ADM identified the customer “commission” practice as a business risk and recognized that customers may attempt to engage in such transactions with ADM Latin through the prospective joint venture, and instituted a policy that prohibited the repayment of excess funds to any account other than that originally used by the customer to make the payment. However, although this policy was made known to Executive A and some ADM Venezuela employees, it was initially not formalized and from in or around 1999 until in or around 2004 the same practices continued. The customers submitted excess payments to ADM Latin, claiming that the overpayment was attributable to deferred credit expenses (“DCE”).”
The NPA further states as follows.
“In or around 2004, ADM conducted an audit of ADM Venezuela due to an issue pertaining to Executive A and uncovered the payments to third-party bank accounts being made through DCE. Although ADM took some remedial measures, including terminating the employment of the credit employee who had signed off on the refunds, conducting limited training on compliance for its joint venture partners, and instituting a written policy prohibiting refund payments of DCE to bank account different than the accounts from which the money came, the policy was narrowly drawn only to cover DCE payments. ADM did not train ADM Latin employees and did not take adequate steps to monitor ADM Latin and ADM Venezuela to prevent such payments in forms other than DCE. From in or around 2004 to in or around 2009, various customers, with the help of ADM Venezuela, including Executive A, began classifying these additional expenses as “commissions” or “commissions K,” rather than DCE, which were processed by the accounting department at ADM Latin, rather than the credit department. Therefore, when the customers instructed that the excess “commissions” be paid to third-party entities at third-party bank accounts, ADM Latin authorized and made the payments.”
The NPA further states that “in or around 2008, Executive A, and others at ADM Venezuela negotiated the sale of soybean oil from ADM Latin to Industrias Diana [an oil company headquartered in Venezuela that was wholly owned by Petroleos de Venezuela, Venezuela’s state-owned and controlled national oil company].” According to the NPA, in connection with this sale, “Broker 1 [a third-party agent that purportedly performed brokerage services for customers of ADM Latin, including Industrias Diana, in connection with the purchase of commodities] submitted an invoice to ADM Latin for the $1,735,157 commission amount, which ADM Latin paid to Broker 1’s bank account. Broker 1 then transferred this amount, in large part, to an account in the name of an employee of Industrias Diana.”
The NPA states as follows.
“On a number of other occasions, ADM Latin made payments to Broker 1’s bank account in connection with the purchase of commodities by other customers. Broker 1 then transferred those amounts, in large part, to bank accounts outside of Venezuela in the name of the principals of those customers. In total, ADM Latin transferred roughly $5 million to Broker 1.”
According to the NPA, certain of Broker 1’s transfers were to “accounts owned and controlled by Executive A, as well as numerous transfers to a company in which Executive A had ownership interests.”
The NPA states that the DOJ will “not criminally prosecute ADM … for any crimes … related to violations of the internal controls provisions of the FCPA arising from or related to improper payments by the Company’s subsidiaries, affiliates or joint ventures in Ukraine and Venezuela … and any other conduct relating to internal controls, books and records, or improper payments disclosed by the Company to the Department prior to the date on which this Agreement is signed.”
The NPA has a term of three years and ADM “agreed to pay a monetary penalty of $9,450,000 provided, however, that any criminal penalties that might be imposed by the Court on ACTI Ukraine in connection with its guilty plea and plea agreement … will be deducted from the $9,450,000 penalty agreed to under this Agreement.”
Pursuant to the NPA, ADM agreed to “report to the Department periodically regarding remediation and implementation of the compliance program and internal controls, policies, and procedures, as described in Attachment C” to the NPA.
In the DOJ release, Acting Assistant Attorney General Mythili Raman stated:
“As today’s guilty plea shows, paying bribes to reap business benefits corrupts markets and undermines the rule of law. ADM’s subsidiaries sought to gain a tax benefit by bribing government officials, and then attempted to deliberately conceal their conduct by funneling payments through local vendors. ADM, in turn, failed to implement sufficient policies and procedures to prevent the bribe payments, although ultimately ADM disclosed the conduct, cooperated with the government, and instituted extensive remedial efforts. Today’s corporate guilty plea demonstrates that combating bribery is and will remain a mainstay of the Criminal Division’s mission. We are committed to working closely with our foreign and domestic law enforcement partners to fight global corruption.”
The release further states:
“The agreements acknowledge ADM’s timely, voluntary and thorough disclosure of the conduct; ADM’s extensive cooperation with the department, including conducting a world-wide risk assessment and corresponding global internal investigation, making numerous presentations to the department on the status and findings of the internal investigation, voluntarily making current and former employees available for interviews, and compiling relevant documents by category for the department; and ADM’s early and extensive remedial efforts.”
SEC
The SEC’s complaint (here) is based on the same Ukraine allegations set forth in the above DOJ action.
In summary fashion, the complaint alleges:
“This matter involves violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by ADM. At certain times between 2002 and 2008, Alfred C. Toepfer, International G.m.b.H. (“ACTI Hamburg”) and its affiliate, Alfred C. Toepfer, International (Ukraine) Ltd. (“ACTI Ukraine”) paid approximately $22 million to two third-party vendors so that they could pass on nearly all of that money as bribes to Ukrainian government officials to obtain over $100 million in accumulated value added tax (“VAT”) refunds. These payments were recorded by ACTI Hamburg and ACTI Ukraine in their books and records as insurance premiums and other business expenses. ADM indirectly owns a majority of ACTI Hamburg and ACTI Ukraine through its 80% interest in Alfred C. Toepfer International B.V. (“ACTI”), and in 2002, ADM began consolidating ACTI’s financial results into its financial statements.
In order to disguise the purpose of these improper payments, ACTI Hamburg and ACTI Ukraine made certain payments for export-related services and insurance premiums to third parties, but, in fact, nearly all of these payments were intended to be passed on through these third parties as bribes to Ukrainian government officials in exchange for obtaining VAT refunds for and on behalf of ACTI Ukraine.
ACTI’s conduct went unchecked by ADM, and ACTI continued to make these improper payments for several years. ADM’s anti-bribery compliance controls in existence at the time were insufficient in that they did not deter and detect these payments. ACTI Hamburg and ACTI Ukraine created inaccurately described reserves in their books and records, manipulated commodities contracts that were kept open for an extended period of time, structured payments to avoid detection, and created fictitious insurance contracts to hide from ADM and others the payments to third-parties to secure VAT refunds in Ukraine.
Due to the consolidation of ACTI’s financial results, which included these inaccurately characterized payments, into ADM’s books and records, ADM violated [the FCPA’s books and records provisions]. ADM violated [the FCPA’s internal controls provisions] by failing to maintain an adequate system of internal controls to detect and prevent the illicit payments.”
Under the heading “ADM’s Violations,” the complaint states:
“ACTI Hamburg and ACTI Ukraine characterized their improper payments to the Shipping Company and the Insurance Company as insurance premiums and other business expenses even though nearly all of those payments were intended to be used for payment to Ukrainian government officials. Due to the consolidation of ACTI’s financial results into ADM’s, ADM’s financial records also failed to reflect the true nature of the payments.
Between 2002 and 2008, ADM’s anti-corruption policies and procedures relating to ACTI were decentralized and did not prevent improper payments by ACTI to third-party vendors in the Ukraine or ensure that these transactions were properly recorded by ACTI. In this respect, ADM failed to implement sufficient anti-bribery compliance policies and procedures, including oversight of third-party vendor transactions, to prevent these payments at ACTI Hamburg and ACTI Ukraine.
Through its various schemes, ACTI Ukraine and ACTI Hamburg paid roughly $22 million in improper payments to obtain more than $100 million in VAT refunds earlier than they otherwise would have. Getting these VAT refunds earlier—before the Ukraine endured a brief period of hyperinflation—gave ACTI Ukraine a business advantage resulting in a benefit to ADM of roughly $33 million.”
Under the heading “ADM’s Discovery and Subsequent Remedial Measures,” the complaint states:
“In mid-2008, after becoming aware of these insurance expenses, ADM controllers questioned ACTI executives regarding these expenses, particularly the basis for the accounting treatment of these expenses. An ACTI Ukraine employee disclosed to its outside auditors that the insurance payments were, in fact, made to secure VAT refunds. After ADM controllers received this information, ADM’s legal and compliance departments took action, which led to an immediate investigation in which ADM ultimately uncovered ACTI’s various schemes to secure VAT refunds.
Following discovery of these payments, ADM immediately retained outside counsel to conduct an internal investigation. As a result of the investigation, using its authority as majority shareholder through the ACTI supervisory board, ADM terminated certain ACTI executives. ADM then voluntarily conducted a world-wide risk assessment and corresponding global internal investigation, made numerous presentations to the Department of Justice and Securities and Exchange Commission, made current and former employees available for interviews, produced documents without subpoena, and implemented early and extensive remedial measures.”
As noted in the SEC’s release, ADM agreed to pay approximately $36.5 million to resolve the action (disgorgement of $33,342,012 plus prejudgment interest of $3,125,354), consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA books and records and internal control provisions, and to report on its FCPA compliance efforts for a three year period. The release states:
“The SEC took into account ADM’s cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.”
In the release, Gerald Hodgkins (Associated Director in the SEC’s enforcement division) stated:
“ADM’s lackluster anti-bribery controls enabled its subsidiaries to get preferential refund treatment by paying off foreign government officials. Companies with worldwide operations must ensure their compliance is vigilant across the globe and their transactions are recorded truthfully.”
William Bachman and Jon Fetterolf (Williams Connolly) represented ADM.
Robin Bergen (Clearly Gottlieb Steen & Hamilton) represented ATCI Ukraine.
In this press release, ADM’s Chairman and CEO stated:
“In 2008, soon after we became aware of some questionable transactions by a non-U.S. subsidiary, we engaged an outside law firm and an accounting firm to undertake a comprehensive internal investigation. In early 2009, we voluntarily disclosed the matter to appropriate U.S. and foreign government agencies and undertook a comprehensive anti-corruption global risk analysis and compliance assessment. We have also implemented internal-control enhancements, and taken disciplinary action, including termination, with a number of employees. The conduct that led to this settlement was regrettable, but I believe we handled our response in the right way, and that the steps we took, including self-reporting, underscore our commitment to conducting business ethically and responsibly.”