This recent post highlighted the net $147.5 million Foreign Corrupt Practices Act enforcement action against ABB concerning conduct in South Africa. In resolving the matter, ABB became the first company to resolve three separate FCPA enforcement actions. (See here).
This post highlights additional issues to consider from the enforcement action.
Timeline
As highlighted in this prior post, in early 2017 it was reported that “ABB said it was cooperating with anti-fraud authorities in the United States and Britain and had reported past dealings with Monaco-based engineering and construction group Unaoil, including alleged improper payments to third parties.” This probe was seemingly dropped in mid-2020 (see here).
However, in early 2019, ABB separately disclosed:
“Based on findings during an internal investigation, ABB self-reported to the SEC and the DoJ, to various authorities in South Africa and other countries as well as to certain multilateral financial institutions potential suspect payments and other compliance concerns in connection with some of the Company’s dealings with Eskom and related persons. Many of those parties have expressed an interest in, or commenced an investigation into, these matters and we are cooperating fully with them. At this time, it is not possible for us to make an informed judgment about the outcome of these matters.”
Thus, from start to finish, ABB’s South Africa FCPA scrutiny appears to have lasted approximately 3.5 years. This lengthy period of FCPA scrutiny persisted despite the DOJ stating:
“the Company received full credit for its extraordinary cooperation with the Offices’ investigation … because it cooperated with the Offices and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the Company also received full credit for its cooperation … by, among other things: (i) promptly providing information obtained through its internal investigation, which allowed the Offices to preserve and obtain evidence as part of their own independent investigation; (ii) making regular and detailed factual presentations to the Offices; (iii) voluntarily making foreign-based employees available for interviews in the United States; (iv) producing relevant documents located outside the United States to the Offices in way that did not implicate foreign data privacy laws; and (v) collecting, analyzing, and organizing voluminous evidence and information that it provided to the Offices, including the translation of certain foreign language documents.”
Likewise, the SEC found:
“ABB’s cooperation included real-time sharing of facts learned during its own internal investigation, as well as the sharing of documents related to that investigation.”
Petty
The ABB resolution documents contain (relatively speaking) a rather long discussion of whether ABB “self-reported” as it disclosed in 2019. The DOJ stated:
“the Company did not receive voluntary disclosure credit … because it did not voluntarily and timely disclosed to the office the conduct …; although the Company did not receive voluntary disclosure credit, the Offices, in evaluating the appropriate disposition of this matter – including the appropriate form of the resolution – considered evidence that, within a very short time of learning of the misconduct, the Company contacted the Fraud Section and scheduled a meeting to discuss matters under investigation by the Fraud Section and the Company. The Company did not specifically identify the South Africa misconduct in that meeting request, but it disclosed the South Africa misconduct during the scheduled meeting, subsequently presented evidence to the Offices that it intended to disclose the misconduct related to South Africa during the scheduled meeting and did not know of any imminent media reports when the meeting was scheduled. However, before the scheduled meeting occurred and prior to making any such disclosure to the Fraud Section, a media report was published related the misconduct.”
The DOJ’s position that ABB did not voluntarily disclose is petty.
Per the DOJ, ABB “within a very short time of learning of the misconduct” contacted the DOJ to schedule a meeting. When FCPA lawyers schedule such a meeting with the DOJ/SEC there is often a meaningful gap (weeks if not more) between the meeting being scheduled and the meeting actually occurring. That a media report related to the misconduct was published prior to the scheduled meeting (a report that – per the DOJ – ABB did not know about), and given the DOJ acknowledgement that ABB intended to disclose the South Africa conduct at the scheduled meeting (even in the absence of the media report) makes the DOJ look like that bully kid in the sandbox.
Petty. Just plain petty.
Root Cause
It has been highlighted numerous times on these pages. The root cause of certain FCPA enforcement actions are a local law or regulation that force companies into a relationship that is not necessarily market driven – but a distortion of the market.
Pointing out this root cause is not meant to excuse the conduct at issue in an FCPA enforcement, but only to put it in the proper perspective.
The DOJ resolution documents state that ABB “engaged in extensive remedial measures, including hiring experienced compliance personnel and, following a root-cause analysis of the conduct … investigating significant additional resources in compliance testing and monitoring throughout the organization.”
However, the root-cause analysis of the ABB enforcement action does not require extensive work or the hiring of experienced compliance personnel.
Rather, it is fairly obvious.
As described by the DOJ, pursuant to South Africa’s Broad-Based Black Economic Empowerment Act of 2003 and the South African government policies implementing it, and other subsequently promulgated policies, including the Supplier Development & Localization Plan (collectively the BEE Program), ABB’s ability to obtain contracts with Eskom depended, in part, on the engagement of certain local South African subcontractors.
The ABB enforcement action is not the first FCPA enforcement action in which South Africa’s BEE program was an obvious root cause. As highlighted in this prior post, in 2015 Hitachi resolved a $19 million FCPA enforcement concerning conduct in South Africa.
As stated by the SEC:
“[I]n establishing a local presence in South Afiica, Hitachi [sought] to identify a local black-owned entity or entities with whom HPA could partner in connection with its submission of bids, or “tenders,” for government business. By partnering with a local black-owned entity, HPA would seek to qualify under the requirements of South Africa’s Black Economic Empowerment Act of 2003 (“BEE”), which promoted participation in the South African economy by companies that were at least 25% owned by black South Africans or black-owned South African entities. In general, companies that qualified under the terms of the BEE enjoyed preferential status in government procurements.”
Insanity?
It has been said that insanity is doing the same thing over again and expecting a different result.
When ABB resolved its first FCPA enforcement action in 2004 concerning conduct in Nigeria, Angola and Kazakhstan, ABB was “permanently” enjoined from violating the FCPA’s anti-bribery, books and records, and internal controls provisions.
When ABB resolved its second FCPA enforcement action in 2010 concerning conduct in Mexico and Iraq, ABB was “permanently” enjoined from violating the FCPA’s anti-bribery, books and records, and internal controls provisions.
When ABB resolved its third FCPA enforcement action last week, guess what? ABB was ordered to cease and desist from committing or causing any future violations of the FCPA’s anti-bribery, books and records, and internal controls provisions.
Piling On
As highlighted in this prior post, in 2018 the DOJ announced a non-binding policy discouraging “piling on” by instructing DOJ “components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.”
This prior post discussed how discouraging “piling on” sounds great, but it all depends on what “piling on” means.
As highlighted many times on these pages, much of the largeness of modern FCPA enforcement has resulted from corporate enforcement actions against foreign companies (based in many instances on mere listing of securities on U.S. markets).
A substantial majority of these enforcement actions have been against companies headquartered in countries that, like the U.S., are parties to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). In other words, “peer” countries with mature FCPA-like laws governing the conduct of their companies coupled with reputable legal systems to prosecute such offenses.
Given this reality, as well as the specific provision in Article 4 of OECD Convention that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution,” is it “piling on” when the U.S. brings FCPA enforcement actions against such foreign companies for their interactions with non-U.S. officials?
Consider the ABB enforcement action.
ABB is a Swiss company, the conduct at issue involved South Africa and ABB was subject to enforcement actions based on the same core conduct in the Switzerland, South Africa, and Germany.
Yes, similar to prior analogous enforcement actions, the DOJ did provide credits or offsets for foreign law enforcement actions based on the same conduct.
However, let’s call a spade a spade. The U.S. FCPA enforcement action against ABB was “piling on.”
In the minds of some, FCPA enforcement has become a convenient cash cow for the U.S. government. The Glencore enforcement action only amplifies these concerns.
From a historical perspective, it is worth noting that part of the FCPA reform discussion in the 1980’s were bills –introduced by Democrats – seeking to waive the FCPA’s provisions “in the case of any country which the Attorney General has certified to have (1) effective bribery or corruption statutes; and (2) an established record of aggressive enforcement of such statutes.” (See S. 1797, Competitive America Trade Reform Act of 1985, introduced on October 29, 1985 by Senator Gary Hart (D-CO) and H.R. 3813, Competitive America Trade Reform Act of 1985, introduced on November 21, 1985 by Representative Vic Fazio (D-CA)).
While waiving the FCPA’s provisions – as those bills sought to do – does not seem like a good idea, perhaps the time has come with the maturity of the OECD Convention – for U.S. enforcement agencies to adopt a policy of not bringing FCPA enforcement actions against foreign companies from peer OECD Convention countries.
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