Scrutiny alert, some responsibility, repeat offender, proposed changes to whistleblower rules, and for the reading stack. It’s all here in the Friday roundup.
Glencore plc, an Anglo–Swiss mining company with headquarters in Switzerland and ADRs traded on a U.S. exchange recently announced:
“Glencore Ltd, a subsidiary of Glencore plc, has received a subpoena dated 2 July, 2018 from the US Department of Justice to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States money laundering statutes. The requested documents relate to the Glencore Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to present. Glencore is reviewing the subpoena and will provide further information in due course as appropriate.”
“In Congo, U.S. investigators are focused, at least in part, on Glencore’s ties with Dan Gertler … a former co-investor with Glencore in two Congolese mining operations.”
As highlighted in this previous post, Gertler was the “DRC Partner” at the center of the 2016 Och-Ziff FCPA enforcement action.
This recent post highlighted how the U.S. government bears some responsibility for certain FCPA enforcement actions. In other words, many Foreign Corrupt Practices Act enforcement actions do not occur in a vacuum. In certain instances, the road to FCPA violations is laid years, in some cases decades, earlier by government policy encouraging certain companies to do business in certain countries to accomplish certain political objectives.
Relevant to the above dynamic is this recent article which highlights:
“A U.S. delegation traveled to Kenya … to attend the inaugural economic summit of the American Chamber of Commerce, Kenya. About 500 delegates, including Kenyan President Uhuru Kenyatta and Gilbert Kaplan, U.S. undersecretary of commerce for international trade, other high-ranking government officials from both nations and representatives from nearly 30 major U.S. corporations, gathered at the summit, which was aimed at creating partnerships between the two nations’ public and private sectors in order to foster economic growth.
American companies in attendance were looking for opportunities to expand and to increase trade and investment in Africa.
But the U.S. delegation also had a strong message for Kenya: Real, meaningful economic growth can’t happen unless Kenya commits to fighting corruption. “Corruption is undermining Kenya’s future,” said Robert Godec, U.S. ambassador to Kenya. “It’s clearly a major problem for the country. We welcome President Kenyatta’s commitment and the push recently to address this problem. Corruption is theft from the people, and it’s got to stop.”
Separately, as reported here:
“The United States of America (USA) is committing over $5.4 billion through its agencies to expand commercial ties with four African countries: Ghana, Ethiopia, Kenya and Cote d’Ivoire. The United States Secretary of Commerce, Mr Wilbur Ross, who announced this in Accra on Thursday, said Africa was very important to the global economy and that the USA was taking a whole governmental approach to significantly deepen her commercial engagements with the continent to create new pathways for long-term trade and economic partnerships. Addressing the maiden USA-Ghana business forum at the Marriot Hotel in Accra, as part of his four-day visit to Ghana, Mr Ross said: “The agreement demonstrates our commitment to a sustainable high quality infrastructure development to benefit millions of Africans and create good jobs both in Africa and US.”
Members of the US delegation, led by Mr Ross, included executives of more than 20 leading American companies and leaders from virtually every government agency involved in Africa, including the Department of Commerce, the State Department, the Treasury Department, officials from the National Security Council, the USAID, the US Trade and Development Agency and the US Africa Development Foundation.
On corruption, the US Commerce Secretary urged African nations to be extremely comfortable engaging US companies because the American firms operating in Africa were required to abide by the US Foreign Corrupt Practices Act, which prohibited US companies from bribing foreign officials or engaging in other corrupt practices to win contracts.”
As noted in the prior post:
“Whether its leading trade missions, providing export financing or provide support through diplomatic channels, in certain instances the U.S. government encourages companies (for foreign policy and other strategic interests) to go to the edge of the cliff. As the passage of time occasionally shows, when the footing on the cliff becomes a bit loose, and the market participants fall over the edge, other segments of the U.S. government then launch a criminal inquiry seeking to discover why. Part of the answer is fairly obvious: the business organizations were acting pursuant to government policy.”
In 2009, KBR Inc. resolved an FCPA enforcement action in connection with Bonny Island, Nigeria issues. (See here and here). As part of the resolution, KBR consented to a court order permanently enjoining the company from violating the FCPA, including the books and records and internal controls provisions – a so-called “obey the law injunction.” (See here).
In the latest example that the FCPA is a law much broader than its name suggest, earlier this week KBR resolved another FCPA books and records and internal controls enforcement action that had nothing to do with foreign bribery. In summary fashion, this SEC order finds:
“On May 30, 2014, KBR filed a Form 10-K/A that: (a) restated and amended earnings in its consolidated financial statements for the fiscal year ended December, 31, 2013, and its unaudited consolidated financial statements for the third quarter of 2013; (b) reduced its disclosed backlog as of the fiscal year ended December 31, 2013; and (c) identified a material weakness in its internal control over financial reporting.
The restated earnings, which resulted in charges of $156 million, primarily arose from failures in KBR’s Canada business (“KBR Canada”) to make accurate and reliable estimates of the costs to complete seven pipe fabrication and modular assembly contracts in Canada. KBR Canada experienced rapid growth in 2012 and 2013, and it did not have sufficient resources or sufficiently trained project managers, project controls personnel, and accounting and executive management professionals to perform cost estimates and project oversight reviews. KBR’s internal accounting controls were not properly designed to identify or prevent the errors in the estimates of the costs to complete the company used to recognize revenue on these contracts.
The reduction in backlog relates to one of the seven contracts, a multi-year, multiuse agreement with a Canadian energy company (the “MUA contract”). In the second quarter of 2012, KBR included $459 million in its disclosed backlog for the MUA contract, despite the fact that KBR had yet to receive, and the Canadian energy company was not obligated to provide, KBR any orders under the contract. The backlog recording remained in place during the next six quarters, including after it became clear that KBR was receiving far fewer work authorizations under the contract than anticipated. KBR’s disclosed backlog for the MUA contract was not consistent with its disclosures, which attributed all of KBR’s backlog to “firm orders.” As a result, KBR overstated the amount of its backlog in reports filed with the Commission.”
Based on the above, the SEC found that KBR violated, among other securities law provisions, the FCPA’s books and records and internal controls provisions. Without admitting or denying the SEC findings, KBR agreed to pay a $2.5 million civil penalty and once again agreed to cease and desist from committing future violations of the books and records and internal controls provisions.
Proposed Changes to Whistleblower Rules
As highlighted here, the SEC recently “voted to propose amendments to the rules governing its whistleblower program.” Among the changes are the following:
“Allowing awards based on deferred prosecution agreements (“DPAs”) and non-prosecution agreements (“NPAs”) entered into by the U.S. Department of Justice (“DOJ”) or a state attorney general in a criminal case, or a settlement agreement entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws:
This proposed amendment will ensure that whistleblowers are not disadvantaged because of the particular form of an action that the Commission, DOJ, or a state attorney general acting in a criminal case may elect to pursue. Currently, the Commission’s whistleblower rules do not address whether the Commission may pay a related-action award when an eligible whistleblower voluntarily provides original information that leads to a DPA or NPA entered into by DOJ or a state attorney general in a criminal proceeding. Under the proposed amendment, the Commission would be able to make award payments to whistleblowers based on money collected as a result of such DPAs and NPAs, as well as under settlement agreements entered into by the Commission outside of the context of a judicial or administrative proceeding to address violations of the securities laws.”
This general issue was flagged in this 2010 post regarding the then new whistleblower provisions.
In certain FCPA enforcement actions resolved through NPAs, DPAs and other forms of resolution, it is widely known and accepted by sophisticated observers that the resolution reflected a risk averse business decision by the company under circumstances in which it is an open question whether the FCPA was even violated. To learn more about this dynamic, see this article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement.”
Thus, it is not sound policy to reward whistleblowers for these forms of resolution.
The most recent edition of the always informative FCPA Update from Debevoise & Plimpton is here with a dandy article about the recent Legg Mason enforcement action. The article states:
“The Legg Mason NPA … is noteworthy in that it assigns criminal liability to the corporate parent even though all of the wrongdoing allegedly took place at the level of a subsidiary. In this respect, … the NPA reflects an expansive application of the agency theory of liability and little regard for the principle of corporate limited liability (here, with respect to a parent’s liability for the acts of a subsidiary).
The NPA is explicit that neither Legg Mason nor its employees were involved in the scheme to make payments to Libyan officials. Categorized as a mitigating factor, the NPA states that “the misconduct … involved only two mid-to-lower level employees of [Permal] and was not pervasive throughout [Legg Mason].
Despite the DOJ’s express recognition that Legg Mason and its employees were not involved in the wrongdoing, did not conspire to commit an offense, and did not aid and abet an offense, the DOJ opted for a criminal resolution with Legg Mason.
[T]he DOJ has expanded its reliance on an agency theory, doing so in a manner that potentially could set a precedent for similarly aggressive applications in future cases.”
FCPA Institute - Zoom (April 5-7, 2022)
Elevate your FCPA knowledge and practical skills. Nine hours of integrated and cohesive instruction led by Professor Koehler (an FCPA expert with teaching experience). Learn more, spend less. Professional credential available.