Scrutiny alerts and updates, reinstated, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alerts and Updates
Och-Ziff
The company recently disclosed the following regarding its long-standing FCPA scrutiny.
“As previously disclosed, since 2011, we have been investigated by the SEC and the DOJ concerning possible violations of the FCPA and other laws. While we are unable to predict the full scope, duration or outcome of the SEC and DOJ investigations, based on discussions with the SEC and DOJ, we believe that the government will pursue civil and criminal sanctions. We are in discussions with the SEC and DOJ concerning resolution of these matters. We accrued $200.0 million in the first quarter of 2016 in connection with the disclosed investigations and recorded an additional charge of $214.3 million in connection with the disclosed investigations for the second quarter of 2016. The probable estimated loss, which totals $414.3 million, may be subject to change based on the terms of any final settlement with the SEC and DOJ relating to those matters.”
“Since our last call, we have entered into advance settlement negotiations with the government, pinpointing the exact timing of the settlement remains difficult but we are hopeful that we will be able to resolve this matter in the near term. I want to emphasize that we are doing everything we can to bring this process to closure in the best way we can for the business, our shareholders, our LPs and our employee.”
General Cable
The company first disclosed its FCPA scrutiny approximately two years ago and recently stated:
“Government and internal investigations
We have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with, and certain other transactions involving, our operations in Angola, Thailand, India, China and Egypt (the “Subject Countries”). Our review has focused upon payments and gifts made, offered, contemplated or promised by certain employees in one or more of the Subject Countries, directly and indirectly, and at various times, to employees of public utility companies and/or other officials of state owned entities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. During 2015, we substantially completed our internal review in the Subject Countries and, based on our findings, we increased our outstanding FCPA-related accrual to$28 million in the year ended December 31, 2015. At this time, we are in early stages of discussions with the SEC and DOJ regarding the terms of a potential resolution of the ongoing investigations, and based on these discussions, we believe the amount of total disgorgement of profits, including pre-judgment interest, required to resolve the investigation is in the range of $33 million to $59 million. As a result, we have increased our existing accrual as of July 1, 2016 by $5 million to $33 million, which represents the low-end of the range. The amount accrued solely reflects profits and pre-judgment interest that may be disgorged, and does not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing, and we continue to cooperate with the DOJ and the SEC with respect to these matters. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. The amounts accrued and the additional range of reasonably possible loss solely reflect profits that may be disgorged based on our investigation in the Subject Countries, and do not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions.”
Orthofix International
The company disclosed the following concerning its additional FCPA scrutiny after it resolved a 2012 FCPA enforcement action regarding conduct in Mexico.
“In 2012, the Company entered into definitive agreements with the U.S. Department of Justice (the “DOJ”) and the SEC agreeing to settle a self-initiated and self-reported internal investigation of our Mexican subsidiary, Promeca S.A. de C.V. (“Promeca”), regarding non-compliance by Promeca with the U.S. Foreign Corrupt Practices Act (the “FCPA”). As part of the settlement, we entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ and a consent to final judgment (the “Consent”) with the SEC. Under the DPA, the DOJ agreed not to pursue any criminal charges against us in connection with the Promeca matter if we complied with the terms of the DPA. The DPA took note of our self-reporting of this matter to the DOJ and the SEC, and of remedial measures, including the implementation of an enhanced compliance program, previously undertaken by us. The DPA and the Consent collectively required, among other things, that with respect to anti-bribery compliance matters we would continue to cooperate fully with the government in any future matters related to corrupt payments, false books and records or inadequate internal controls. In that regard, we represented that we have implemented and will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws, which includes a system of internal controls. We periodically reported to the government during the terms of the DPA and Consent regarding such remediation and implementation of compliance measures.
In August 2013, during the terms of the DPA and Consent, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to its Brazilian subsidiary, Orthofix do Brasil Ltda. The Company engaged outside counsel to assist in the review of these allegations, focusing on compliance with applicable anti-bribery laws, including the FCPA. Consistent with the provisions of these agreements, the Company contacted both the DOJ and the SEC Enforcement Staff in August 2013 to voluntarily self-report the Brazil-related allegations.
On June 15, 2015, the Company and the DOJ agreed to extend the term of the DPA for two months (through September 17, 2015) to permit the DOJ additional time to evaluate the Company’s compliance with the internal controls and compliance undertakings in the DPA and to further investigate the Brazil-related allegations. On September 17, 2015, the DOJ extended the term of the DPA for an additional ten months (through July 17, 2016), stating that the Company’s efforts to comply with the internal controls and compliance requirements of the DPA during the first eighteen months of the DPA were insufficient. On July 17, 2016, the DPA expired. The terms of the DPA require that DOJ notify the court and file a dismissal of the underlying Promeca-related case within 30 days of such expiration. This dismissal was filed on July 28, 2016. Since the self-report regarding allegations in Brazil, the Company has cooperated fully with the DOJ’s investigation of those allegations.
The Company also has fully cooperated with the SEC’s investigations of the allegations in Brazil. We are currently engaged in discussions with the SEC Enforcement Staff regarding a resolution of the Brazil-related allegations as they relate to the SEC’s jurisdiction. The Company has recorded a charge of $4.6 million in the second quarter of 2016 to establish an accrual, which the Company believes represents the minimum range of loss, in connection with a potential negotiated resolution to this matter. Based on information available at this time, the Company estimates that the final resolution to the matter could result in an additional loss of up to $1.5 million in excess of the loss accrued. The Company will continue to evaluate the accrual pending final resolution of the matter and the related settlement discussions with the government.”
Dun & Bradstreet
The company recently disclosed the following regarding its long-standing FCPA scrutiny focused on its China business:
“As our investigation and our discussions with both the SEC and DOJ are ongoing, we cannot yet predict the ultimate outcome of the matter or its ultimate impact on our business, financial condition or results of operations. Based on our discussions with the SEC and DOJ, including indications from the SEC of its estimate of the amount of net benefit potentially earned by the Company as a result of the challenged activities, we continue to believe that it is probable that the Company will incur a loss related to the government’s investigation. The DOJ also advised the Company in February 2015 that they will be proposing terms of a potential settlement, but we are unable to predict the timing or terms of any such proposal. We continue to have follow-up meetings with the SEC and DOJ, most recently meeting with the SEC in June 2016 and with the DOJ in July 2016, and the parties are still discussing the evidence and other factors to help bring this matter to resolution. In our June 2016 meetings with the SEC, the SEC provided us with its current net benefit calculations, but has not indicated whether it will impose additional penalties. In accordance with ASC 450, an amount in respect of this matter has been accrued in the consolidated financial statements as of June 30, 2016. We are still in discussions with the DOJ to determine what range of penalties the DOJ might propose. Accordingly, we remain unable at this time to reasonably estimate the final amount or ultimate range of any loss, although it is possible that the amount of such additional loss could be material.”
Barclays
The company recent disclosed
Petrofac
In connection with the company being mentioned in connection with the Uanoil inquiry, Petrofac recently disclosed:
“Petrofac Limited (the “Company”) reports that it has concluded the independent investigation commissioned by the Board into allegations in the media related to the historical provision of services to the Company by Unaoil, a Monaco based company. The Board confirms that no evidence was found that any Director of the Company was aware of the alleged misconduct that is the subject of the allegations.
The independent investigation has thoroughly investigated the allegations, based solely on the information available to the Company, and recognising their historical nature and wider context beyond Petrofac. The Company confirms that it engaged Unaoil for the provision of local consultancy services primarily in Kazakhstan between 2002 and 2009. The independent investigation did not find evidence confirming the payment of bribes.
Freshfields Bruckhaus Deringer (FBD), with the support of forensic accountants KPMG LLP, carried out the independent investigation and reported to a sub-committee of the Board comprising the Chairman and three independent Non-executive Directors. The Board considers it appropriate to share the findings of the investigation with the Serious Fraud Office (SFO), and any other relevant authorities, and has noted the SFO’s general request for information in relation to its ongoing investigation into the activities of Unaoil.
Petrofac enforces strict anti-bribery and corruption standards and a compliance programme focused on training, monitoring, risk management and due diligence. The programme mandates compliance with all anti-bribery and corruption and anti-money laundering laws, rules and regulations.”
Reinstated
This March 2016 post highlighted a U.S. Court of Federal Claims opinion involving a successful post-award bid protest based on Louis Berger Aircraft Services Inc.’s failure to inform the Navy of its parent company’s involvement in corruption and fraud (see here for the prior post highlighting the July 2015 FCPA enforcement action against Louis Berger Int’l Inc.).
Recently, in this opinion the court reversed itself and ordered that its permanent injunction be lifted. In the words of the court:
“It is neither the task nor the desire of the Court to conduct the Navy’s procurement process. Despite its reservations, the Court defers to the Government’s assertion that the Navy’s contract award is consistent with the goals of its anti-corruption program. As this case demonstrates, where the Court may disagree with the ultimate award determination, it will not substitute its judgment for that of the agency.”
Regarding the 2015 FCPA enforcement action, the opinion states:
“Addressing another of the Court’s primary concerns, the Navy considered whether Berger Group Holdings was “otherwise criminally charged” in connection with a 2015 deferred prosecution agreement against Louis Berger Aircraft Services’ sister corporation Louis Berger International. Previously the Court concluded that Berger Group Holdings was “otherwise criminally charged” under FAR 52.209-5 for two reasons: (1) the Department of Justice formally accused Berger Group Holdings of engaging in a long-term scheme to bribe foreign officials to win public contracts; and (2) the company’s conduct presented adequate evidence of irregularities seriously reflecting on the propriety of further Federal Government dealings. In the briefs leading to the Court’s March 2016 opinion, the parties contested the scope of the 2015 deferred prosecution agreement. The disagreement arose from the agreement’s definition of “company.” The deferred prosecution agreement defined “company” to include Berger Group Holdings. Then, it detailed the alleged misconduct perpetrated by the “company.” See, e.g., AR 1372-73. After analyzing new evidence not previously before the Court, the Contracting Officer concluded that Berger Group Holdings was not included in the definition of “company” and therefore Berger Group Holdings was not otherwise criminally charged under either definition.
In a new declaration, one of the Assistant U.S. Attorneys who oversaw the drafting of the criminal complaint and deferred prosecution agreement stated that Berger Group Holdings was not included in the definition of “company.” In fact, the Department of Justice did not “accuse Berger Group Holdings of any . . . crimes.” AR 1821-22. Also, the prosecutorial team evaluated Berger Group Holding’s reorganization of its subsidiaries that led to creation of the Louis Berger International. Contrary to the Court’s finding, the team concluded that Berger Group Holdings did not create Louis Berger International as a shell company in which to dump its criminal liabilities. AR 1821-22. The Department of Justice’s Criminal Division confirmed the prosecutorial team’s contentions. AR 3546.
Algese argues that the Assistant U.S. Attorney’s explanation of the definition of “company” should be dismissed because other parts of the deferred prosecution agreement contradict it. Algese asserts that “company” encompasses more than just Louis Berger International because the deferred prosecution agreement mentions two Louis Berger Group executives’ culpable acts. However, the Contracting Officer decided that the 9 executives’ actions were properly attributable to Louis Berger International. Due to corporate restructuring, Louis Berger Group was collapsed into Louis Berger International. AR 1770; AR 3095, 3098. As the Department of Justice explained, it prosecuted Louis Berger International because it assumed all liability for the previous entity during the restructuring process. As previously explained, the Department of Justice did not intend to implicate Berger Group Holdings in its description of Louis Berger International’s misconduct.
In vacating its prior judgment and remanding for further consideration, the Court expressly invited the Navy to reconsider the facts surrounding the 2015 deferred prosecution agreement. The Court instructed that if the Navy reached a different conclusion from that of the Court, the Navy must fully explain its basis for doing so. The Navy has complied with this instruction. While the Court may disagree if it were in the shoes of the Contracting Officer, it will not substitute its judgment for that of the Navy, recognizing that reasonable minds could reach differing conclusions. Watts-Healy Tibbitts, 84 Fed. Cl. at 258 (citing another source). Relying on new facts, the Contracting Officer considered relevant factors and articulated a rational basis for his conclusions that Berger Group Holdings was not formally charged and the parent corporation’s conduct did not present irregularities seriously reflecting on the propriety of further Federal Government dealings. Thus, Louis Berger Aircraft Services may not have had an obligation to certify that it or one of its principals was “otherwise criminally charged.” As a result, the Court must stay its hand and not disturb the Navy’s determination. See, e.g., PricewaterhouseCoopers Public Sector, LLP v. United States, 126 Fed. Cl. 328, 350-51 (2016) (collecting cases).
Relatedly, the Contracting Officer’s revised responsibility determination properly weighed Louis Berger Aircraft Services’ misleading statement that Berger Group Holdings was not, and has not been, investigated, accused, or charged with any misconduct by the Government and is not subject to the 2015 deferred prosecution agreement. AR 1413. In its previous opinion, the Court concluded that this was a material misrepresentation. Algese, 125 Fed. Cl. at 443-44. Here too, the Contracting Officer carefully examined the facts surrounding the Court’s determination. The Navy asked Louis Berger Aircraft Services to address the issue on remand, and the awardee did so in a March 31, 2016 letter. AR 1971-72. The Contracting Officer concluded that Louis Berger Aircraft’s statement was “not viewed as misleading or a misrepresentation as the Navy already knew what the respective roles of the parties were in the 2015 [deferred prosecution agreement] from the prosecuting attorneys.” AR 1772-73. While the Navy’s explanation appears to address materiality instead of truthfulness, the Court “will uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.” Colo. Interstate Gas Co. v. Fed. Power Comm’n, 324 U.S. 581, 595 (1945).
To the extent Algese asserts Louis Berger Aircraft Services made other material misstatements, the Navy contends, and the Court agrees, that the Navy was fully aware of all pertinent facts before proceeding with its award to Louis Berger Aircraft Services. See, e.g., AR 2558 (Navy’s discussion of purported misrepresentations in awardee’s System Award Management certifications). The Navy disagrees that the statements were inaccurate, let alone material to its responsibility determination. Relying on new facts, the Contracting Officer reviewed relevant information and articulated a rational basis for his conclusion that Louis Berger Aircraft Services did not make material misstatements. That rational review process is all that is required for the Court to sustain the Navy’s conclusions. See Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000).”
Reading Stack
Miller & Chevalier’s Latin America Corruption Survey is here.
“More than three-quarters (77%) of respondents believe their country’s anti-corruption laws are ineffective, and about half (48%) say corruption is a significant obstacle to doing business. More than half (52%) believe they have lost business to corrupt competitors; of those, most (89%) say they did not report such misconduct to the authorities. 71% of those who did make reports say the government failed to investigate. These results are highly consistent with responses to the same questions in 2008 and 2012.”
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A good weekend to all.
