Every so often it is interesting to go back into the archives and this post rewinds ten years to Spring 2013.
Enjoy the trip down FCPA memory lane.
Philips
A Netherlands-based company with shares listed on the New York Stock Exchange was the parent of a group of companies including a Polish subsidiary that sold medical equipment to Polish healthcare facilities. Between six and fourteen years prior to the enforcement “in at least 30 transactions” employees of the Polish subsidiary, without any mention of parent company knowledge or approval, “made improper payments to public officials of Polish healthcare facilities to increase the likelihood that public tenders for the sale of medical equipment would be awarded” to the subsidiary.
The end result?
The first corporate FCPA enforcement action of 2013 as Koninklijke Philips Electronics N.V. (“Philips”) resolved a $4.5 million SEC enforcement action.
As discussed here, Philips is again under FCPA scrutiny.
Parker Drilling
As highlighted here, as one of the last Panalpina related enforcement actions (the bulk of which were brought in 2010), Parker Drilling resolved a $15.9 million enforcement action for conduct in Nigeria.
Ralph Lauren
As highlighted here, Ralph Lauren Corporation (RLC) resolved a $1.6 million FCPA enforcement action concerning customs issues in Argentina through two non-prosecution agreements (one with the DOJ and another with the SEC).
The gist of the enforcement action was as follows. RLC has approximately 95 foreign subsidiaries. One subsidiary, PRL S.R.L, an indirectly wholly-owned subsidiary of RLC headquartered and incorporated in Argentina, had a General Manager who conspired with a customs clearance agency to make improper payments “to assist in improperly obtaining paperwork necessary for goods to clear customs, to permit clearance of items without the necessary paperwork, to permit the clearance of prohibited items, and to avoid inspection.” There is no allegation or suggestion that RLC was aware of, or participated in, the alleged conduct. The resolution documents merely say that “in the five years that General Manager A, Agent 1, and others at PRL S.R.L carried out this scheme, RLC did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to PRL S.R.L.”
As highlighted here, a former DOJ FCPA enforcement attorney blasted the RLC writing: ”
“The facts of the case … point to the steady entrenchment of a more ominous prosecution theory: an approach that appears to approximate strict criminal and civil liability of parent corporations for their subsidiaries’ corrupt acts. Although this disregard of corporate structures has been hinted at in previous SEC matters – and the theoretical underpinnings discussed in last year’s DOJ/SEC Resource Guide – the RLC case puts both agencies firmly in the camp of this aggressive and unprecedented expansion of corporate liability.”
“This approach, however, fails to honor the corporate form and the black-letter rule that to ‘pierce the corporate veil’ the government and other litigants must show that the parent operated the subsidiary as an alter ego, and itself paid no attention to the corporate form. Moreover, it is contrary to the language of the [FCPA’s] original history.”
Individuals Associated With Direct Access Partners
It is one of the more unusual origins of an FCPA enforcement action (see here).
In 2010, the SEC conducted a periodic examination of Direct Access Partners LLC (“DAP”), a broker-dealer registered with the SEC. DAP’s Global Markets Group (“DAP Global”) primarily executed fixed income trades for customers in foreign sovereign debt. One of its customers was Bandes, an alleged Venezuelan state-owned banking entity that acts as the financial agent of the state to finance economic development projects.
According to the DOJ and SEC, the SEC examination lead to the discovery of a “fraud that was staggering in audacity and scope” (see here for the SEC release). A component of the alleged fraud included payments by Tomas Clarke (a DAP Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami) to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes). According to this DOJ criminal complaint, Gonzalez oversaw Bande’s trading by DAP.
According to the criminal complaint, Clarke, Hurtado and others “directed kickback payments” to Gonzalez “in exchange for Gonzalez steering Bandes business to [DAP] and authorizing Bandes to execute bond trades with [DAP]. According to the complaint, between 2008 and 2010 “Gonzalez received at least $3.6 million in payments through insiders and affiliates of [DAP]. According to the complaint, during this time period, “with Gonzalez both acting as the authorized trading contact in regard to [DAP] and managing the relationship between Bandes and [DAP], Bandes directed substantial business to [DAP] and carried out bond transactions that resulted in [DAP] generating tens of millions of dollars in revenue.” The criminal complaint alleged various payments made or authorized by Clarke and Hurtado to an account in Switzerland held in the name of Gonzalez and/or a company owned in part by Gonzalez.
Based on the above core set of conduct, the criminal complaint charged Clarke and Hurtado with the following offenses: conspiracy to violate the FCPA, substantive FCPA violations, conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.
