Yesterday, the DOJ and SEC announced (here) and (here) a Foreign Corrupt Practices Act enforcement action against Total S.A., a French oil and gas company that has American Depositary Shares registered with the SEC and traded on the New York Stock Exchange.
The enforcement action involved a DOJ criminal information resolved via a deferred prosecution agreement and a SEC administrative cease and desist order. Total agreed to pay approximately $398 million to resolve its alleged FCPA scrutiny ($245.2 million to resolve the DOJ enforcement action and $153 million to resolve the SEC enforcement action). The $398 million enforcement action is the third largest in FCPA history in terms of fine / penalty amount.
DOJ
The DOJ enforcement action involved a criminal information (here) resolved through a deferred prosecution agreement (here).
Information
In the criminal information, the DOJ charged Total with conspiracy to violate the FCPA’s anti-bribery provisions and violating the FCPA’s books and records and internal controls provisions. The conduct at issue centered on Total’s negotiation of a contract with the National Iranian Oil Company (“NIOC”) in 1995 and 1997 for the development of the certain oil and gas fields. NIOC is described in the information as a “government-owned corporation operating under the direction and control of the Ministry of Petroleum of Iran.”
The information alleges as conspiracy “to obtain and retain lucrative contracts related to [the oil and gas fields] through the promise and payment of tens of millions of dollars in unlawful payments to the Iranian Official and others. The Iranian Official is described in the information as “the Chairman of an Iranian engineering company that was more than 90% owned by the Government of Iran and substantially controlled by the Government of Iran.” The information further states that “from at least early 2001, the Iranian Official was the head of an Iranian organization concerned with fuel consumption, which was a wholly owned subsidiary of NIOC, and was a government advisor to a high-ranking Iranian official.”
The information alleges that Total caused Total International Ltd. (a wholly-owned subsidiary of Total registered in Bermuda) to execute purported consulting agreements with Intermediary One (described as an employee of a Swiss private bank who acted at the direction of the Iranian Official) and Intermediary Two (described as a British Virgin Islands company that acted at the direction of the Iranian Official) as a “mechanism for Total to pay at the direction of the Iranian Official millions of dollars in unlawful payments.”
According to the information, Total paid approximately $60 million to accounts designated by Intermediary One and Two. The information allegations that “Total mischaracterized the payments under the various consulting agreements as ‘business development expenses,’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with the granting of development rights” in the oil and gas projects.
The information then alleges 20 overt acts in furtherance of the conspiracy. 19 of the overt acts (95%) are alleged to have taken place between 10 to 18 years ago. The most recent alleged overt act is a November 2004 wire transfer. The only alleged overt act with a U.S. nexus is a 1995 wire transfer of $500,000 (.8% of the overall bribe payments) from Total International’s account at Banker’s Trust in New York to an account in Switzerland.
As to the FCPA books and records charge, the information states as follows.
“… Total knowingly falsified and caused to be falsified books, records, and accounts, required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Total, to wit: Total (a) mischaracterized the unlawful payments under the various consulting agreements as ‘business development expenses’ and (b) improperly characterized the unlawful consulting agreements as legitimate consulting agreements.”
As to the FCPA internal controls charge, the information states as follows.
“… Total knowingly circumvented and knowingly failed to implement a system of internal accounting controls sufficient to provide reasonable assurances that transactions and dispositions of Total’s assets complied with applicable law, including the FCPA, to wit: Total: (a) failed to implement adequate anti-bribery compliance policies and procedures; (b) failed to maintain an adequate system for the selection and approval of consultants; (c) failed to conduct adequate audits of payments to purported consultants; (d) failed to establish a sufficiently empowered and competent corporate compliance office; (e) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed; (f) failed to evaluate regularly the effectiveness of the company’s compliance and ethics program; (g) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program; (h) concealed the consulting agreements’ true nature and true participants; (i) performed no due diligence concerning the named or unnamed parties to these agreements; and (j) lacked controls sufficient to provide reasonable assurances that the consulting agreements complied with applicable laws.”
DPA
The above charges against Total were resolved via a DPA in which Total admitted, accepted, and acknowledged that it was responsible for the acts of its officers, employees, agents, and subsidiaries as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states as follows.
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and Total. Among the facts considered were the following: (a) the related investigation by French criminal enforcement authorities of the same conduct that forms the basis of this resolution and to which the Department has been providing assistance; (b) the evidentiary challenges presented to both parties by this matter, in which most of the underlying conduct occurred in the 1990s and early 2000s; and (c) Total’s production of relevant documents from abroad and disclosure of the results of its internal investigation into the misconduct described in the Information.”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $235.2 to $470.4 million. The $245.2 million that Total agreed to pay pursuant to the DPA is a rare instance of an FCPA corporate penalty being within the Guidelines range. Most corporate FCPA criminal fines are approximately 25% below the minimum amount suggested by the Guidelines range.
Pursuant to the DPA, Total agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA, the anti-corruption provisions of French law, and other applicable anti-corruption laws. The specifics are detailed in Attachment C to the DPA. The DPA also requires Total to engage a corporate compliance monitor who is a French national for a three year term. The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.
In the DOJ’s release (here) Acting Assistant Attorney General Mythili Raman stated as follows.
“Today we announce the first coordinated action by French and U.S. law enforcement in a major foreign bribery case. Our two countries are working more closely today than ever before to combat corporate corruption, and Total, which bought business through bribes, now faces the criminal consequences across two continents.”
The DOJ release further states as follows.
“In addition, French enforcement authorities announced earlier today that they had requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the Criminal Court for violations of French law, including France’s foreign bribery law.”
In this Wall Street Journal article, “Total said the company and [its CEO] acted in accordance with all applicable French laws. The decision to send [Total] and its CEO to trial now rests with the magistrate in charge of the investigation.” Total’s CFO is quoted as follows concerning he U.S. settlement. “These settlements, the outcome of which are customary in the U.S., allow us to put an end to this investigation.”
SEC
The SEC’s administrative cease and desist order (here) is based on the same core set of facts alleged in the above DOJ action.
The Order states, in summary fashion, as follows.
“During the relevant time period, Total and others violated the anti-bribery provisions of the Foreign Corrupt Practices Act by making payments at the direction of the Iranian Official in connection with obtaining contracts. In addition, Total lacked sufficient internal controls and, by mischaracterizing the payments as legitimate consulting fees, Total violated the books and records [and internal controls] provisions of the federal securities laws.”
Under the heading “Total’s Steps to Conceal the Payments” the Order states as follows.
“From the inception of Total’s relationship with the Iranian Official Total mischaracterized the expenses under the Consulting Agreements as ‘business development expenses’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with granting rights to Total for the development of the [oil and gas] fields. Total improperly characterized the unlawful consulting agreements as legitimate consulting agreements. Total ceased making payments to the Iranian Official’s designated intermediary in approximately November 2004.”
As noted in this SEC release, the Order requires Total to pay disgorgement of $153 million in illicit profits and to cease and desist from committing future FCPA violations. In the release, Andrew Calamari (Director of he SEC’s New York Regional Office) stated as follows. “Total used illicit payments to win business in Iran, and reaped substantial financial benefits as a result. Total must now pay back all of its profits from the company’s corrupt conduct and additionally pay criminal penalties on top of that.”
Robert Luskin (Patton Boggs) represented Total.
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Total’s most recent SEC filing states, in pertinent part, as follows.
“In 2003, the SEC followed by the DOJ issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies, including among others, Total.”
“Since 2010, the Company has been in discussions with U.S. authorities (DOJ and SEC)” to resolve the case.
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The Total enforcement action is not the first FCPA enforcement action against a foreign oil and gas company focused on conduct in Iran’s oil and gas fields. In 2006, the DOJ and SEC brought a coordinated FCPA enforcement action against Norway-based Staoil by which the company agreed to pay $21 million in combined fines and penalties. Like the Total enforcement action, the Statoil enforcement action was also based on a slim US jurisdictional nexus – that the company received an invoice from a U.K. consulting company instructing that money “be routed through a United States bank in New York, New York to a bank account in Switzerland” which the company paid.
