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.”
Are there now five ways for the DOJ to resolve alleged instances of corporate FCPA scrutiny: a criminal plea; a non-prosecution agreement; a deferred prosecution agreement; a so-called “declination” (in the mind of the DOJ) and now a declination & disgorge?
Let’s coin a new term of art for resolving corporate FCPA scrutiny: a D&D.
Think about it.
From 1977 to 2004, there were only two ways in which the DOJ resolved alleged instances of FCPA scrutiny: it either charged the company or did not charge the company.
In late 2004 and thereafter, the DOJ brought non-prosecution agreements and deferred prosecution agreements to the FCPA context.
In April 2016, the DOJ formally unveiled so-called “declinations.”
And then yesterday, the DOJ brought D&D’s to the FCPA context.
Given the four ways the SEC resolves alleges instances of corporate FCPA scrutiny: a civil complaint; a non-prosecution agreement; a deferred prosecution agreement; and an administrative action – are there now nine different potential options for resolving issuer FCPA scrutiny?
Is this law enforcement or a buffet line?
How long before we reach a baker’s dozen?
How is what the DOJ did yesterday all that different than a non-prosecution agreement which has traditionally required the relevant company to pay money?
How is what the DOJ did yesterday all that different than a deferred prosecution agreement which contains a settlement guidelines range with a key factor being the net financial benefit gained through the alleged conduct and against the backdrop of the DOJ historically offering companies that voluntary disclose and cooperate 25% or more off the sentencing guidelines range?
Yesterday’s release of the HMT and NCH letters is simply elevating form over substance and represents yet another attempt by the DOJ to market its FCPA Pilot Program.
Yesterday’s development also raises an important question.
Do the HMT and NCH matters represent an FCPA enforcement action? After all, as highlighted in this article , what is counted as an FCPA enforcement action has a very meaningful impact on all sorts of FCPA statistics such as:
- How many FCPA enforcement actions are there in a given year and compared to prior years?
- Which industry has been the subject of the most FCPA enforcement actions?
- What country has been the location of the most FCPA enforcement actions?
- How many corporate enforcement actions result in related individual actions against company employees?
- What is the average settlement amount of an FCPA enforcement?
In my opinion, HMT and NCH should be counted as FCPA enforcement actions. How could they not given that the companies, “pursuant to” a DOJ letter, agreed to pay money to the U.S. Treasury?
Yesterday’s DOJ letters invoke the April 2016 FCPA Pilot Program and thus represent the 4th and 5th examples of the DOJ releasing so-called “declination” letters since the Pilot Program was announced. See here  and here  for previous examples involving Nortek, Akamai Technologies and Johnson Controls.
However, the HMT and NCH letters were materially different than the prior three examples in at least three respects.
First and most importantly is the issue discussed above. Both HMT and NCH paid money “pursuant to” the letters whereas Nortek, Akamai Technologies and Johnson Controls did not.
Second, the prior three examples occurred against the backdrop of SEC enforcement actions against the issuer companies. However, HMT and NCH are both private business organizations not subject to SEC jurisdiction and thus the only information in the public domain is the information in the DOJ’s letters. Perhaps because of this difference, the HMT and NCH letters are comparatively more substantive than the prior three letters.
Third, and presumably the reason for the first difference noted above, the prior three examples involved “possible” FCPA violations by the companies involved that left significant open questions about whether any actual viable FCPA violations were declined. However, the HMT and NCH letters (certain statute of limitations issues aside) seemingly articulate viable FCPA violations against the companies based on the DOJ’s current enforcement theories.
The remainder of this post set forth in full the HMT and NCH letters.
Texas-based HMT LLC describes itself  as “the global leader in above ground storage tank solutions.” The letter is addressed to HMT’s counsel Steven Tyrrell  (Weil, Gotshal). Between 2006 – 2009, Tyrrell was the head of the DOJ’s Fraud Section.
The letter  states in full:
“Consistent with the FCPA Pilot Program announced April 5, 2016, the Department of Justice, Criminal Division, Fraud Section and the United States Attorney’s Office for the Southern District of Texas (collectively, the “Department”) are closing their investigation of your client, HMT LLC (“HMT”), a company incorporated in Delaware and based in Texas that manufactures, supplies, and services above ground liquid storage tanks for the petroleum, oil, and gas industries, concerning violations of the Foreign Corrupt Practices Act (the “FCPA”), 15 U.S.C. §§ 78dd-2 and 78dd-3.
The Department’s investigation found that HMT, through its employees and agents, paid approximately $500,000 in bribes to government officials in Venezuela and China in order to influence those officials’ current and future purchasing decisions and thereby secure $2,719,412 in net profits.
From approximately 2002 until approximately 2011, an HMT sales agent who was retained to promote and sell HMT’s products in Venezuela (“Venezuela agent”) illegally paid bribes to Venezuelan government officials in order to persuade Petroleos de Venezuela, S.A. (“PDVSA”), Venezuela’s state-owned and state-controlled energy company (an “instrumentality” under the FCPA), to purchase HMT products. To fund these bribes, the Venezuela agent frequently quoted prices to PDVSA that were substantially higher than the price HMT had quoted to the Venezuela agent. PDVSA paid the inflated prices to HMT, which kept the amount it had quoted the Venezuela agent and paid the Venezuela agent the remainder, purportedly as commission and subcontracting fees. HMT paid the Venezuela agent by wiring the purported commissions and subcontracting fees from its bank account in Texas to bank accounts designated by the agent in Panama, Curacao, and other locations. The Venezuela agent then used a portion of HMT’s payment to pay PDVSA employees and other Venezuelan government officials. On certain sales to PDVSA, the Venezuela agent acted as a reseller/distributor rather than a sales agent, and on those sales, the Venezuela agent paid HMT for the products, and then resold the products to PDVSA at a higher price, using the difference to pay bribes to PDVSA employees and other Venezuelan government officials.
Two regional HMT managers based in Houston, Texas, who were responsible for HMT’s Latin America sales operations during the relevant period, approved the commissions and subcontracting payments to the Venezuela agent. In 2008, one of the regional managers was explicitly told by the Venezuela agent that the Venezuela agent was paying bribes, and the other regional manager was subsequently provided with information from the Venezuela agent sufficient to notify him that the Venezuela agent was paying the bribes described above.
In addition, from approximately 1999 through approximately 2011, a distributor engaged by an HMT subsidiary to promote and sell HMT’s products in China (“China distributor”) illegally paid bribes to Chinese government officials in exchange for purchases of HMT products by various Chinese state-owned enterprises. The China distributor paid bribes on almost all transactions in China, An HMT regional manager responsible for overseeing sales of HMT products in China from February 2008 until at least approximately July 2010 received emails in connection with several of these transactions sufficient to provide notice that bribes were being paid by the China distributor. The regional manager is a U.S. citizen who was paid by HMT during the relevant time period and was an employee of HMI.
The Department’s decision to close its investigation into this matter is based on a number of factors, including but not limited to: (1) HMT’s timely, voluntary self-disclosure of the matters described above; (2) HMT’s thorough and comprehensive global investigation of the matter; (3) HMT’s full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals; (4) HMT’s agreement to disgorge to the Department all profits it made from the illegal conduct; (5) the steps HMT has taken and continues to take to enhance its compliance program and its internal accounting controls; and (6) HMT’s full remediation (including terminating eight employees — including two regional managers and a director of business development — involved in the conduct, sanctioning ten employees through suspensions, pay freezes, bonus suspensions, and reductions of responsibilities, and severing business relationships with the Venezuela agent and the China distributor who were involved in the conduct). HMT also severed business relationships with seven other agents/distributors based on the findings of its investigation.
Pursuant to this letter agreement, HMT agrees to disgorge $2,719,412 (the “Disgorgement Amount”), which represents the profit to HMT from the illegally obtained sales in Venezuela and China. HMT shall pay the Disgorgement Amount to the United States Treasury within ten business days of its execution of this letter. HMT acknowledges that no tax deduction may be sought in connection with any part of its payment of the Disgorgement Amount. HMT further agrees that it will not seek or accept directly or indirectly reimbursement or indemnification from any source with regard to the Disgorgement Amount. This letter agreement does not provide any protection against prosecution of any individuals, regardless of their affiliation with HMI. If the Department learns information that changes its assessment of any of the factors outlined above, it may reopen its inquiry.”
Texas-based NCH Corp. describes itself  “a global leader in industrial, commercial, and institutional maintenance products and services.” The letter is addressed to NCH’s counsel Paul Coggins  (Locke Lord). Coggins was former the U.S. Attorney for the Northern District of Texas.
The letter  states in full:
“Consistent with the FCPA Pilot Program announced April 5, 2016, the Department of Justice, Criminal Division, Fraud Section (the “Department”) is closing its investigation of your client NCH Corporation (“NCH”), an industrial supply and maintenance company based in Irving, Texas, and its subsidiaries concerning violations of the Foreign Corrupt Practices Act (the “FCPA”), 15 U.S.C. §§ 78dd-2 and 78dd-3.
Our investigation found that from in or about February 2011 until mid-2013, NCH’s subsidiary in China (“NCH China”) illegally provided things of value worth approximately $44,545 to Chinese government officials in connection with sales that generated profits to NCH of approximately $335,342. Specifically, from in or about February 2011 until mid-2013, employees of NCH China provided Chinese government officials—employees of NCH China’s state-owned and state-controlled customers, which were “instrumentalities” under the FCPA with cash and other things of value, including gifts, meals, and entertainment, in order to influence the officials’ purchasing decisions. NCH China described these bribes in internal accounting records as, among other things, “customer maintenance fees,” “customer cooperation fees,” and “cash to customer,” An NCH executive in the United States who had responsibility for overseeing NCH’s business in China reviewed these expenditures. Also, in June 2012, NCH paid expenses for several employees of an NCH China government customer for a 10-day trip to various cities in the United States and Canada, only one half-day of which involved business-related activities. The remainder of the trip involved sightseeing and other non-business activities. NCH paid approximately $12,000 for the non-business related expenses incurred by the officials during their trip, notwithstanding that NCH knew that: (1) the officials worked for a government entity; (2) NCH China had a sales bid pending before that entity while details of the trip were being discussed with the customer (although the bid was lost before the trip was taken); (3) various expenses were not for legitimate business activities; and (4) NCH had been advised that the proposed 10-day trip might violate the FCPA.
The Department’s decision to close its investigation into this matter is based on a number of factors, including but not limited to: (1) NCH’s voluntary self-disclosure of the matters described above; (2) NCH’s thorough and comprehensive internal investigation of the matter; (3) NCH’s full cooperation in this matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to fully cooperate in any ongoing investigations of individuals arising from this matter; (4) NCH’s agreement to disgorge to the Department all profits earned from the illegal conduct; (5) the steps NCH has taken and continues to take to enhance its compliance program and its internal accounting controls; and (6) NCH’s full remediation (including terminating and/or taking disciplinary action against the employees involved in the misconduct, including senior managers and lower-level employees involved in the misconduct, as well as high-level executives at NCH’s headquarters in the United States who oversaw the subsidiary in which the China misconduct occurred).
Pursuant to this letter agreement, NCH agrees to disgorge $335,342 (the “Disgorgement Amount”), which represents the profit to NCH from the illegally obtained sales in China. NCH shall pay the Disgorgement Amount to the United States Treasury within 10 business days of its execution of this letter. NCH acknowledges that no tax deduction may be sought in connection with any part of its payment of the Disgorgement Amount. NCH further agrees that it will not seek or accept directly or indirectly reimbursement or indemnification from any source with regard to the Disgorgement Amount.
This letter agreement does not provide any protection against prosecution of any individuals, regardless of their affiliation with NCH. If the Department learns information that changes its assessment of any of the factors outlined above, it may reopen its inquiry.”