This prior post  went in-depth into last week’s $29.2 million Foreign Corrupt Practices Act enforcement action against Halliburton and this post continues the analysis by highlighting additional issues to consider.
Halliburton disclosed to the DOJ / SEC in December 2010 or perhaps early 2011. Regardless of the precise date, Halliburton’s FCPA scrutiny lasted approximately 6.5 years.
If the SEC wants the public to have confidence in its FCPA enforcement program, it must resolve instances of FCPA scrutiny much quicker. Having FCPA scrutiny linger for 6.5 years is inexcusable particularly since Halliburton, in the words of the SEC, “[cooperated] including making foreign witnesses available, compiling financial data and analysis relating to the transactions at issue, and making substantive presentations on key topics at the staff’s request.”
Um, What About Iraq?
In Halliburton’s press release  contemporaneous with the SEC’s enforcement action, the company announced:
“[R]esolution of the previously disclosed investigations regarding the Company’s operations in Angola and Iraq. These investigations began after the Company received an anonymous allegation in December 2010 of possible violations of the Halliburton Code of Business Conduct and the Foreign Corrupt Practices Act (FCPA), principally through the use of a vendor to satisfy Angolan local content requirements. Halliburton promptly reported the allegation to the Department of Justice (DOJ), conducted a thorough internal investigation and cooperated with investigations by the Securities and Exchange Commission (SEC) and the DOJ. Over the intervening years, Halliburton also continuously enhanced its global ethics and compliance program.
To settle the SEC investigation regarding the alleged conduct in Angola and Iraq, Halliburton, without admitting or denying any of the factual findings, has consented to the entry of an administrative order stating that in connection with its use of a local content provider in Angola, the Company violated the books and records and internal controls provisions of the FCPA. The Company agreed to a total payment of $29.2 million for disgorgement, prejudgment interest and a civil penalty, and to engage an independent consultant to review aspects of its compliance program in Africa.
Separately, the DOJ has advised the Company that it has closed its investigation and will not be taking any action.” (Emphasis added).
What’s interesting about the above release is that in the SEC’s administrative order  there is no mention of Iraq.
Kokesh Only Matters to the Extent Companies Don’t Roll Over and Play Dead
As highlighted here , in June the Supreme Court unanimously held in SEC v. Kokesh that disgorgement is a penalty and thus disgorgement actions must be commenced within five years of the date the claim accrues. However, as highlighted in this post , Kokesh, not to mention other Supreme Court decisions and other legal principles, only matter to the extent companies under FCPA scrutiny do not roll over and play dead.
The Halliburton action concerned alleged conduct that took place between 2009 – 2011. In other words, 6-8 years prior to the enforcement action. Yet, Halliburton agreed to pay $14 million in disgorgement (plus $1.2 million in prejudgment interest) as well as a $14 million penalty.
In short, Kokesh is not going to matter one bit if companies role over and play dead when under FCPA scrutiny.
No-Charged Bribery Disgorgement
The disgorgement amount paid by Halliburton is controversial for another reason as well.
The Halliburton enforcement action involved findings that the company violated the FCPA’s books and records and internal controls provisions – not the FCPA’s anti-bribery provisions.
As highlighted in this  previous post, so-called no-charged bribery disgorgement is troubling.
Among others, Paul Berger (here ) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
It has been highlighted numerous times on these pages.
The root cause of many FCPA enforcement actions are foreign trade barriers and distortions. The narrative is rather simple.
- Trade barriers and distortions create bureaucracy.
- Bureaucracy creates points of contact with foreign officials.
- Points of contact with foreign officials create discretion.
- Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.
The following is not meant to excuse the conduct at issue in the Halliburton enforcement action, only to put it in the proper perspective.
For instance, in the Halliburton matter we learn:
“In early 2008, Sonangol officials told Halliburton management that Sonangol was considering vetoing further subcontract work for Halliburton in Angola because Halliburton had insufficient local content and was not compliant with Angola’s local content regulations governing foreign companies operating in Angola. Sonangol officials made it clear that Halliburton needed to partner with more local Angolan-owned businesses in order to satisfy local content requirements.”
If Angola did not have local content regulations governing foreign companies operating in Angola, the FCPA enforcement action likely would not have occurred.
In short, the way to reduce bribery is not just to bring more corporate enforcement actions. Rather, it is to address the root causes of bribery by seeking a reduction in trade barriers and distortions.
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