James Stewart’s first Common Sense column for Business Day at the New York Times (here) profiles the February 2011 FCPA enforcement action against Tyson Foods involving Mexican veterinarians. (See here for the prior post).
The column is silent as to the relevant fact (as indicated in the DOJ's charging document) that Mexican law permitted certain of the veterinarians at issue to charge the facility in which they work a fee for their services in addition to their official salary.
But that is besides the point, because Stewart's column once again raises the valid issue that so many FCPA enforcement actions involve corporate resolutions only - with no related individual prosecutions.
Stewart writes as follows. "It would seem self-evident that if Tyson engaged in a conspiracy and violated the Foreign Corrupt Practices Act, then someone at Tyson did so as well." Stewart further noted as follows. "But surely bribery, not to mention other forms of corporate wrongdoing, would be more effectively deterred if someone was actually held accountable for it."
Spot on.
In my November 2010 prepared statement (here) to the Senate Judiciary Committee I stated as follows.
"Key to achieving deterrence in the FCPA context is prosecuting individuals, to the extent the individual’s conduct legitimately satisfies the elements of an FCPA anti-bribery violation. For a corporate employee with job duties that provide an opportunity to violate the FCPA, it is easy to dismiss corporate money being used to pay corporate FCPA fines and penalties. It is not easy to dismiss hearing of an individual with a similar background and job duties being criminally indicted and sent to federal prison for violating the FCPA."
I further observed that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecuting individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, I asked, why is DOJ’s FCPA enforcement program largely a corporate fine-only program devoid of individual prosecutions?
As highlighted in this prior post, 70% of DOJ FCPA enforcement actions in 2010 have not involved (at least thus far) DOJ prosecutions of company employees.
What do the numbers look like thus far at the mid-point of 2011?
So far this year there have been six DOJ FCPA enforcement actions against companies (Maxwell Technlogies, Tyson Foods, Johnson & Johnson, Comverse Technologies, JGC of Japan, and Tenaris).
None of these FCPA enforcement actions have resulted (at least thus far) in DOJ prosecutions of company employees. Nor has the SEC brought civil charges against any employees of these companies. Nor has the SEC charged any employees (at least thus far) in the three SEC only FCPA enforcement actions this year (IBM, Ball Corporation, and Rockwell Automation).
As I noted in my Senate testimony, the high percentage of corporate FCPA enforcement actions that do not result in related enforcement actions against individuals legitimately causes one to wonder whether the conduct given rise to the corporate enforcement action was engaged in by ghosts.
Yet, I submit, there is an equally plausible reason why no individuals have been charged in some of the above-mentioned enforcement actions (and others) and that involves the quality of the corporate enforcement action.
Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ or SEC's theory of prosecution is questionable. [See here for a prior post detailing a former DOJ prosecutor's concern regarding NPAs and DPAs as to these issues].
Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ or SEC to satisfy its high burden of proof as to all FCPA elements.
Regardless of what you think about the possible reasons, the fact remains FCPA enforcement is, despite enforcement agency rhetoric, largely corporate enforcement only.
While on the topic of individual prosecutions, it must be noted that the bulk of such recent prosecutions are in the manufactured Africa Sting case where 22 individuals were criminally charged. Last week (see here for the prior post) Judge Richard Leon declared a mistrial in the trial of the first 4 defendants. The FCPA Blog had a stellar post yesterday (here) titled "Feds Should Forget Shot Show Defendants" and stated that instead of future sting operations to dig up FCPA individual defendants, the DOJ should focus "instead on the real bad apples [companies that have admitted to violating the FCPA and paid big fines] who paid real bribes to real foreign officials."
Spot on.
Showing posts with label Individual Enforcement Action. Show all posts
Showing posts with label Individual Enforcement Action. Show all posts
Monday, July 11, 2011
Monday, May 23, 2011
Uneven Justice: A Critical Look at FCPA Enforcement
The week starts with a guest post from Michael Volkov.
Volkov (here) is a partner at Mayer Brown LLP. His practice focuses on white collar defenses, FCPA enforcement and compliance, and litigation. The views expressed in this article are his own and do not represent those of his law firm, Mayer Brown LLP. He can be reached at mvolkov@mayerbrown.com.
*****
UNEVEN JUSTICE: A CRITICAL LOOK AT FCPA ENFORCEMENT
By Michael Volkov
The United States is a nation of laws: badly written and randomly enforced. ~Frank Zappa
Much has been written about the overall fairness of the Justice Department’s and the Securities and Exchange Commission’s aggressive FCPA enforcement program. Some have argued that DOJ and SEC have engaged in uneven justice: corporations plead to non-FCPA offenses, pay big fines, and continue business as usual. Others argue that DOJ has failed to prosecute individual executives and officers, or to ensure that corporations are debarred or suspended from continuing to sell to the federal government.
As a former federal prosecutor with nearly 20 years experience in the criminal justice system, I can assure you that some of the criticisms are accurate but some completely miss the mark. Last year, the Senate Judiciary Committee examined the controversy surrounding FCPA enforcement, and this year the House Judiciary Committee is planning to look at the issue.
DOJ is proud of its enforcement program. And rightly so – they have resuscitated a program which was dormant for years which now collects over one half of all criminal fines imposed each year in the United States. That is an impressive record.
Aside from the fundamental deficiencies inherent in DOJ’s voluntary disclosure process, DOJ claims that it gives adequate credit for corporate compliance programs, early cooperation and full disclosure. In response some suggest that plea agreements which are designed to protect companies from debarment and include pleas to non-FCPA charges are unfair. Part of that point is correct; the other part is flat out wrong.
Our criminal justice system operates day-to-day based on plea agreements. In the federal system, over 90 percent of federal cases are resolved through plea agreements. As part of that process, charge-bargaining is a critical component. DOJ’s decision to permit corporations, or typically country-specific subsidiaries to plead guilty to a non-FCPA offense, is in keeping with this long tradition. The underlying conduct as described in the plea agreement is known to all – the company engaged in systematic and widespread bribery. Nothing more, nothing less. To extrapolate from such a plea that DOJ is not enforcing the law is misguided and ignores the realities of the plea bargaining process.
On the other hand, DOJ’s willingness to forego debarment and/or suspension is certainly an issue that needs to be examined. As Professor Koehler testified at the Senate Judiciary Committee, BAE was awarded a government contract on the same day it plead guilty to a non-FCPA offense but paid a criminal fine over $400 million. That is certainly uneven justice, and Senators and policymakers should have taken note of this ironic enforcement twist.
Senator Specter and others have criticized the Justice Department for failing to include individual corporate executives and officers in its enforcement actions. The Justice Department’s Antitrust Division has a much better record on this score – corporations and individuals are prosecuted in criminal antitrust cases with equal vigor and results. Why has DOJ shied away from linking corporate cooperation to requiring cooperation against individual executives and officers at the offending company?
If the goal of DOJ’s enforcement program is corporate compliance, then the enforcement program needs to be recalibrated. Deterrence is an admirable objective and will certainly increase compliance, but DOJ has more tools available to it to encourage and promote cooperation. DOJ’s antitrust amnesty/leniency is an example of a program which has been incredibly successful on the enforcement and the compliance ends. While there are certainly problems with the application of a cartel-focused (multi-actor) model to FCPA cases, there are lessons which can be learned from the amnesty/leniency program.
We all aspire to equal justice and we all admire the image of justice that is blind as the hallmark of our judicial system. But right now what is needed is for justice to listen so that it operates with fairness and equal justice for all.
Volkov (here) is a partner at Mayer Brown LLP. His practice focuses on white collar defenses, FCPA enforcement and compliance, and litigation. The views expressed in this article are his own and do not represent those of his law firm, Mayer Brown LLP. He can be reached at mvolkov@mayerbrown.com.
*****
UNEVEN JUSTICE: A CRITICAL LOOK AT FCPA ENFORCEMENT
By Michael Volkov
The United States is a nation of laws: badly written and randomly enforced. ~Frank Zappa
Much has been written about the overall fairness of the Justice Department’s and the Securities and Exchange Commission’s aggressive FCPA enforcement program. Some have argued that DOJ and SEC have engaged in uneven justice: corporations plead to non-FCPA offenses, pay big fines, and continue business as usual. Others argue that DOJ has failed to prosecute individual executives and officers, or to ensure that corporations are debarred or suspended from continuing to sell to the federal government.
As a former federal prosecutor with nearly 20 years experience in the criminal justice system, I can assure you that some of the criticisms are accurate but some completely miss the mark. Last year, the Senate Judiciary Committee examined the controversy surrounding FCPA enforcement, and this year the House Judiciary Committee is planning to look at the issue.
DOJ is proud of its enforcement program. And rightly so – they have resuscitated a program which was dormant for years which now collects over one half of all criminal fines imposed each year in the United States. That is an impressive record.
Aside from the fundamental deficiencies inherent in DOJ’s voluntary disclosure process, DOJ claims that it gives adequate credit for corporate compliance programs, early cooperation and full disclosure. In response some suggest that plea agreements which are designed to protect companies from debarment and include pleas to non-FCPA charges are unfair. Part of that point is correct; the other part is flat out wrong.
Our criminal justice system operates day-to-day based on plea agreements. In the federal system, over 90 percent of federal cases are resolved through plea agreements. As part of that process, charge-bargaining is a critical component. DOJ’s decision to permit corporations, or typically country-specific subsidiaries to plead guilty to a non-FCPA offense, is in keeping with this long tradition. The underlying conduct as described in the plea agreement is known to all – the company engaged in systematic and widespread bribery. Nothing more, nothing less. To extrapolate from such a plea that DOJ is not enforcing the law is misguided and ignores the realities of the plea bargaining process.
On the other hand, DOJ’s willingness to forego debarment and/or suspension is certainly an issue that needs to be examined. As Professor Koehler testified at the Senate Judiciary Committee, BAE was awarded a government contract on the same day it plead guilty to a non-FCPA offense but paid a criminal fine over $400 million. That is certainly uneven justice, and Senators and policymakers should have taken note of this ironic enforcement twist.
Senator Specter and others have criticized the Justice Department for failing to include individual corporate executives and officers in its enforcement actions. The Justice Department’s Antitrust Division has a much better record on this score – corporations and individuals are prosecuted in criminal antitrust cases with equal vigor and results. Why has DOJ shied away from linking corporate cooperation to requiring cooperation against individual executives and officers at the offending company?
If the goal of DOJ’s enforcement program is corporate compliance, then the enforcement program needs to be recalibrated. Deterrence is an admirable objective and will certainly increase compliance, but DOJ has more tools available to it to encourage and promote cooperation. DOJ’s antitrust amnesty/leniency is an example of a program which has been incredibly successful on the enforcement and the compliance ends. While there are certainly problems with the application of a cartel-focused (multi-actor) model to FCPA cases, there are lessons which can be learned from the amnesty/leniency program.
We all aspire to equal justice and we all admire the image of justice that is blind as the hallmark of our judicial system. But right now what is needed is for justice to listen so that it operates with fairness and equal justice for all.
Friday, January 28, 2011
Once Slumbering FCPA is "Alive and Well"
Slumbering to alive and well is a good way describe it when a law, one that has not changed during a decade, goes from zero DOJ enforcement actions (2000) to the DOJ collecting approximately $1 billion in fines in enforcement actions (2010) during that same decade.
Earlier this week, Assistant Attorney General (Criminal Division) Lanny Breuer spoke before the Annual Meeting of the Washington Metropolitan Area Corporate Counsel Association (see here for his remarks). The focus of the meeting was individual liability for corporate executives and in-house counsel.
Breuer posted the following questions and then stated the following regarding the FCPA.
"So what kind of federal criminal liability might a corporation have to worry about? How might the Criminal Division’s enforcement efforts affect you?"
"As an initial matter, in the Criminal Division we have dramatically increased our enforcement of the Foreign Corrupt Practices Act in recent years. That statute, which was once seen as slumbering, is now very much alive and well. In fact, over the last two years, we have charged more than 50 individuals with FCPA-related offenses and collected nearly $2 billion in FCPA-related fines and penalties – by far the most people charged and penalties imposed in any similar period. We have brought these cases against some of the largest corporations in the world. As just one example, in November we resolved a wide-ranging FCPA investigation involving the freight forwarding company Panalpina World Transport, its U.S. subsidiary, and five oil and gas service providers. They agreed to pay combined criminal penalties of $156 million.
Just as important as the collection of fines and penalties, we have aggressively pursued individual executives under the FCPA. For example, we recently charged the president and the CFO of Lindsey Manufacturing Company with FCPA violations for participating in a scheme to bribe officials of the state-owned electrical utility in Mexico. We also recently arrested the former CEO and the former vice president of business development of LatiNode, a Miami-based telecommunications company, and charged them in connection with bribes made by LatiNode employees to officials of the state-owned telecommunications company in Honduras.
The Fraud Section of the Criminal Division has primary responsibility within the Department for enforcing the FCPA. We recently promoted a new head of the Section’s FCPA Unit and two assistant chiefs, and we have also increased the number of line prosecutors in the Unit, attracting high caliber attorneys with extensive experience – including Assistant U.S. Attorneys with significant trial and prosecutorial experience and attorneys from private practice with defense-side knowledge and experience. These changes have significantly increased our FCPA enforcement capabilities."
*****
A good weekend to all.
Earlier this week, Assistant Attorney General (Criminal Division) Lanny Breuer spoke before the Annual Meeting of the Washington Metropolitan Area Corporate Counsel Association (see here for his remarks). The focus of the meeting was individual liability for corporate executives and in-house counsel.
Breuer posted the following questions and then stated the following regarding the FCPA.
"So what kind of federal criminal liability might a corporation have to worry about? How might the Criminal Division’s enforcement efforts affect you?"
"As an initial matter, in the Criminal Division we have dramatically increased our enforcement of the Foreign Corrupt Practices Act in recent years. That statute, which was once seen as slumbering, is now very much alive and well. In fact, over the last two years, we have charged more than 50 individuals with FCPA-related offenses and collected nearly $2 billion in FCPA-related fines and penalties – by far the most people charged and penalties imposed in any similar period. We have brought these cases against some of the largest corporations in the world. As just one example, in November we resolved a wide-ranging FCPA investigation involving the freight forwarding company Panalpina World Transport, its U.S. subsidiary, and five oil and gas service providers. They agreed to pay combined criminal penalties of $156 million.
Just as important as the collection of fines and penalties, we have aggressively pursued individual executives under the FCPA. For example, we recently charged the president and the CFO of Lindsey Manufacturing Company with FCPA violations for participating in a scheme to bribe officials of the state-owned electrical utility in Mexico. We also recently arrested the former CEO and the former vice president of business development of LatiNode, a Miami-based telecommunications company, and charged them in connection with bribes made by LatiNode employees to officials of the state-owned telecommunications company in Honduras.
The Fraud Section of the Criminal Division has primary responsibility within the Department for enforcing the FCPA. We recently promoted a new head of the Section’s FCPA Unit and two assistant chiefs, and we have also increased the number of line prosecutors in the Unit, attracting high caliber attorneys with extensive experience – including Assistant U.S. Attorneys with significant trial and prosecutorial experience and attorneys from private practice with defense-side knowledge and experience. These changes have significantly increased our FCPA enforcement capabilities."
*****
A good weekend to all.
Thursday, January 27, 2011
DOJ Enforcement of the FCPA - Year in Review
A few weeks ago I ran a SEC FCPA enforcement year in review (here).
Today I highlight facts and figures from the DOJ's FCPA enforcement program in 2010.
And what it year it had.
As noted in this recent DOJ release, "the Criminal Division’s Foreign Corrupt Practices Act (FCPA) enforcement involved imposition of $1 billion in penalties in FY 2010, the largest in the history of FCPA enforcement."
In comparison, in 2000 the DOJ did not bring one FCPA enforcement action. The past decade has thus witnessed a remarkable transformation – not as to the FCPA itself (the statute has not changed since 1998), but as to FCPA enforcement and theories of prosecution both at the DOJ and the SEC.
As the DOJ’s former Assistant Chief for FCPA enforcement candidly stated (here), “the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”
This post highlights the 16 DOJ corporate FCPA enforcement actions from 2010. Not included are BAE (an enforcement action (see here) in which the DOJ did not even charge FCPA offenses) or Lindsey Manufacturing (see here) given that the company was indicted and thus the enforcement action remains open.
Of the 16 enforcement actions, 6 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions; and 2 were the related Alliance One and Universal actions. Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the DOJ broght 9 unique corporate FCPA enforcement actions in 2010.
In the 16 corporate FCPA enforcement actions from 2010, the DOJ brought in $870 million in criminal fines - thrown in the $400 million BAE enforcement action if you insist and the number is $1.27 billion.
Tack on the SEC's recovery (both civil penalties and disgorgement) in 2010 corporate FCPA enforcement actions of approximately $530 million and one finds $1.8 billion in corporate FCPA fines, penalties and disgorgement in 2010.
DOJ FCPA enforcement in 2010 was both large ($240 million in criminal fines against both Technip and Snamprogetti, $93.6 million in criminal fines against Daimler) and small ($32,000 against Mercator Corporation in the bizarre James Giffen related case involving two snowmobiles, and $1.7 million against RAE Systems).
The numbers present some interesting results.
Despite aggressive DOJ rhetoric and despite the DOJ seeking a sentencing guidelines enhancement applicable to FCPA offenses (see here) in 10 of 12 FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.
In these 10 cases, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina).
The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.
[Note - why are only 12 of the 16 enforcement actions included in the above analysis? I excluded Innospec because the company's claimed inability to pay (but see here) resulted in an invalid fine to guidelines analysis; I excluded Mercator Corp. because the DOJ and the company could not even agree on what guidelines to use; and I excluded Noble Corp. and RAE Systems (both enforcement actions resolved via an NPA) because the DOJ never set forth a guidelines range in the agreement or related documents].
During the November 2010 Senate FCPA hearing (see here) an issue discussed was the general lack of individual DOJ FCPA prosecutions.
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees (not talking agents here such as in Innospec) by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?
Of the 17 corporate DOJ enforcement actions or indictments (Lindsey Manufacturing is back in the mix here) 12 of the 17 enforcement actions (70%) have not involved (at least thus far) DOJ prosecutions of company employees. Included in the 12 enforcement actions are the top 3 from 2010 from a criminal fine perspective: Technip, Snamprogetti, and Daimler.
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?
2010 saw 15 such resolution vehicles (4 NPAs) and (11 DPAs).
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements.
Among the criticisms noted in the Gibson Dunn report is that "by continually entering DPAs and NPAs, the DOJ can shield its expansive interpretation of important statutes from judicial review." As to the FCPA the report states, "because FCPA allegations against corporations rarely, if ever, go to trial, and DPAs and NPAs are subject to only minimal judicial scrutiny, the DOJ's sometimes expansive interpretations of the FCPA is never truly tested."
Spot on!
As evident from the material below, a typical way for DOJ to resolve corporate FCPA enforcement actions in 2010 was for the parent company to enter into an NPA or DPA and for a subsidiary (usually a foreign subsidiary) to plea to a criminal charge. Daimler, Alliance One, Universal, ABB, Panalpina, Pride International, Royal Dutch Shell, and Alcatel-Lucent all involved such hybrid resolution vehicles.
In the SEC year in review piece, I noted that 97% of the $529,967,294 collected in SEC FCPA enforcement actions in 2010 appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ.
What does this number look like for DOJ FCPA enforcement actions in 2010 - recognizing that by disclosure I am talking about voluntary disclosure in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) as well as other forms of public disclosure (such as identification in the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies)?
Of the $870 million in criminal fines collected by the DOJ in FCPA enforcement actions, 97% would appear to fit this description as well.
Thus, much like the SEC, the DOJ also appears to be a reactive agency when it comes to corporate FCPA enforcement.
Set forth below are facts and figures from each 2010 DOJ corporate FCPA enforcement action.
Innospec (March 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to commit wire fraud and to violate the FCPA's anti-bribery and books and records provisions; wire fraud; and FCPA anti-bribery and books and records violations.
Resolution Vehicle: Plea.
Guidelines Range: $101.5 - $203 million.
Penalty: $14.1 million (based on claimed inability to pay).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Daimler (March 2010)
See here for the prior analysis and principal allegations.
Charges: Daimler AG (conspiracy to violate the FCPA's books and records provisions and violating the FCPA's books and records provisions); DaimlerChrysler China Ltd. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); DaimlerChrysler Automotive Russia SAO (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); Daimler Export and Trade Finance GmbH (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions).
Resolution Vehicle: Daimler AG (deferred prosecution agreement); DaimlerChrysler China Ltd. (deferred prosecution agreement); DaimlerChrysler Automotive Russia SAO (plea); Daimler Export and Trade Finance GmbH (plea).
Guidelines Range: $116 - $232 million.
Penalty: $93.6 million (20% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Technip (June 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $318.4 - $636.8 Million
Penalty: $240 million (25% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - two years.
Individuals Charged by DOJ: No.
Snamprogetti (July 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $300 Million - $600 Million
Penalty: $240 million (20% below the minimum guidelines range)
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Alliance One (August 2010)
See here for the prior analysis and principal allegations.
Charges: Alliance One International AG (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions, and violations of the FCPA's books and records provisions); Alliance One Tobacco Osh LLC (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions and books and records provisions).
Resolution Vehicle: Alliance One International Inc. (non-prosecution agreement); Alliance One International AG (plea); Alliance One Tobacco Osh LLC (plea).
Guidelines Range: $8.4 - $16.8 million.
Penalty: $9.45 million.
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: Yes.
Universal Corp. (August 2010)
See here for the prior analysis and principal allegations.
Charges: Universal Leaf Tabacos Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery provisions).
Resolution Vehicle: Universal Corporation (non-prosecution agreement); Universal Leaf Tabacos Ltd. (plea).
Guidelines Range: $6.3 - $12.6 million
Penalty: $4.4 million (30% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Mercator Corp. (August 2010)
See here for the prior analysis and principal allegations.
Charges: FCPA anti-bribery violations.
Resolution Vehicle: Plea.
Guidelines Range: The parties disagreed as to whether the 2009 or 2008 guidelines applied. If 2009, $650,000 - $1.3 million; If 2008, $30,000 to $60,000.
Penalty: $32,000.
Disclosure: Unclear.
Monitor: No.
Individuals Charged by DOJ: Yes (but Giffen pleaded to a misdemeanor tax violation).
ABB Ltd. (September 2010)
See here for the prior analysis and principal allegations.
Charges: ABB Inc. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); ABB Ltd. - Jordan (conspiracy to commit wire fraud and to violate the FCPA's books and records provisions).
Resolution Vehicle: ABB Ltd. (deferred prosecution agreement); ABB Inc. (plea); ABB Ltd. - Jordan (plea).
Guidelines Range: $30.42 - $60.2 million.
Penalty: $19 million (approximately 38% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Company agreed to follow the recommendations of an independent compliance consultant.
Individuals Charged by DOJ: Yes.
Lindsey Manuf. (October 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.
Resolution Vehicle: N/A
Guidelines Range: N/A
Penalty: N/A
Disclosure: Unclear.
Monitor: N/A
Individuals Charged by DOJ: Yes.
Panalpina (November 2010)
See here for the prior analysis and principal allegations.
Charges: Panalpina World Transport (Holding) Ltd. (conspiracy to violate and violating the FCPA's anti-bribery provisions) ; Panalpina Inc. (conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA books and records provisions).
Resolution Vehicle: Panalpina World (deferred prosecution agreement); Panalpina Inc. (plea).
Guidelines Range: 72.8 million to $145.6 million.
Penalty: 70.6 million (approximately 5% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Pride International (November 2010)
See here for the prior analysis and principal allegations.
Charges: Pride International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery and books and records provisions); Pride Forasol S.A.S. (conspiracy to violate the FCPA's anti-bribery and books and records provisions, violating the FCPA's anti-bribery provisions, and aiding and abetting violations of the FCPA's books and records provisions).
Resolution Vehicle: Pride International Inc. (deferred prosecution agreement); Pride Forasol (plea).
Guidelines Range: $72.5 - $145 million.
Penalty: $32.6 million (approximately 55% below the minimum guideline range).
Voluntary Disclosure: Yes.
Monitor: No.
Individuals Charged: No.
Tidewater (November 2010)
See here for the prior analysis and principal allegations.
Charges: Tidewater Marine International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $10.5 - $21 million.
Penalty: $7.4 million (30% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Transocean (November 2010)
See here for the prior analysis and principal allegations.
Charges: Transocean Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; violating the FCPA's anti-bribery provisions; and aiding and abetting FCPA books and record violations).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $16.8 - $33.6 million.
Penalty: $13.4 million (20% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Noble Corp. (November 2010)
See here for the prior analysis and principal allegations.
Charges: N/A
Resolution Vehicle: Non-prosecution agreement.
Guidelines Range: Not addressed.
Penalty: $2.6 million.
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Royal Dutch Shell (November 2010)
See here for the prior analysis and principal allegations.
Charges: Shell Nigeria Exploration and Production Company Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; aiding and abetting FCPA books and records violations).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $34.2 - $68.4 million.
Penalty: $30 million (approximately 15% below the minimum guidelines range).
Disclosure: No.
Monitor: No.
Individuals Charged by DOJ: No.
RAE Systems (December 2010)
See here for the prior analysis and principal allegations.
Charges: Although a non-prosecution agreement, the agreements states "knowing violations of the FCPA's books and records and internal controls provisions."
Resolution Vehicle: Non-prosecution agreement.
Guidelines Range: Not addressed.
Penalty: $1.7 million.
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Alcatel-Lucent (December 2010)
See here for the prior analysis and principal allegations.
Charges: Alcatel-Lucent S.A. (FCPA books and records and internal control provisions); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. (conspiracy to violate the FCPA's anti-bribery, books and records, and internal control provisions).
Resolution Vehicle: Alcatel-Lucent S.A. (deferred prosecution agreement); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. pleas.
Guidelines Range: $86.58 - $173.16 million.
Penalty: $92 million.
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: Yes.
Today I highlight facts and figures from the DOJ's FCPA enforcement program in 2010.
And what it year it had.
As noted in this recent DOJ release, "the Criminal Division’s Foreign Corrupt Practices Act (FCPA) enforcement involved imposition of $1 billion in penalties in FY 2010, the largest in the history of FCPA enforcement."
In comparison, in 2000 the DOJ did not bring one FCPA enforcement action. The past decade has thus witnessed a remarkable transformation – not as to the FCPA itself (the statute has not changed since 1998), but as to FCPA enforcement and theories of prosecution both at the DOJ and the SEC.
As the DOJ’s former Assistant Chief for FCPA enforcement candidly stated (here), “the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”
This post highlights the 16 DOJ corporate FCPA enforcement actions from 2010. Not included are BAE (an enforcement action (see here) in which the DOJ did not even charge FCPA offenses) or Lindsey Manufacturing (see here) given that the company was indicted and thus the enforcement action remains open.
Of the 16 enforcement actions, 6 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions; and 2 were the related Alliance One and Universal actions. Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the DOJ broght 9 unique corporate FCPA enforcement actions in 2010.
In the 16 corporate FCPA enforcement actions from 2010, the DOJ brought in $870 million in criminal fines - thrown in the $400 million BAE enforcement action if you insist and the number is $1.27 billion.
Tack on the SEC's recovery (both civil penalties and disgorgement) in 2010 corporate FCPA enforcement actions of approximately $530 million and one finds $1.8 billion in corporate FCPA fines, penalties and disgorgement in 2010.
DOJ FCPA enforcement in 2010 was both large ($240 million in criminal fines against both Technip and Snamprogetti, $93.6 million in criminal fines against Daimler) and small ($32,000 against Mercator Corporation in the bizarre James Giffen related case involving two snowmobiles, and $1.7 million against RAE Systems).
The numbers present some interesting results.
Despite aggressive DOJ rhetoric and despite the DOJ seeking a sentencing guidelines enhancement applicable to FCPA offenses (see here) in 10 of 12 FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.
In these 10 cases, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina).
The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.
[Note - why are only 12 of the 16 enforcement actions included in the above analysis? I excluded Innospec because the company's claimed inability to pay (but see here) resulted in an invalid fine to guidelines analysis; I excluded Mercator Corp. because the DOJ and the company could not even agree on what guidelines to use; and I excluded Noble Corp. and RAE Systems (both enforcement actions resolved via an NPA) because the DOJ never set forth a guidelines range in the agreement or related documents].
During the November 2010 Senate FCPA hearing (see here) an issue discussed was the general lack of individual DOJ FCPA prosecutions.
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees (not talking agents here such as in Innospec) by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?
Of the 17 corporate DOJ enforcement actions or indictments (Lindsey Manufacturing is back in the mix here) 12 of the 17 enforcement actions (70%) have not involved (at least thus far) DOJ prosecutions of company employees. Included in the 12 enforcement actions are the top 3 from 2010 from a criminal fine perspective: Technip, Snamprogetti, and Daimler.
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?
2010 saw 15 such resolution vehicles (4 NPAs) and (11 DPAs).
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements.
Among the criticisms noted in the Gibson Dunn report is that "by continually entering DPAs and NPAs, the DOJ can shield its expansive interpretation of important statutes from judicial review." As to the FCPA the report states, "because FCPA allegations against corporations rarely, if ever, go to trial, and DPAs and NPAs are subject to only minimal judicial scrutiny, the DOJ's sometimes expansive interpretations of the FCPA is never truly tested."
Spot on!
As evident from the material below, a typical way for DOJ to resolve corporate FCPA enforcement actions in 2010 was for the parent company to enter into an NPA or DPA and for a subsidiary (usually a foreign subsidiary) to plea to a criminal charge. Daimler, Alliance One, Universal, ABB, Panalpina, Pride International, Royal Dutch Shell, and Alcatel-Lucent all involved such hybrid resolution vehicles.
In the SEC year in review piece, I noted that 97% of the $529,967,294 collected in SEC FCPA enforcement actions in 2010 appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ.
What does this number look like for DOJ FCPA enforcement actions in 2010 - recognizing that by disclosure I am talking about voluntary disclosure in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) as well as other forms of public disclosure (such as identification in the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies)?
Of the $870 million in criminal fines collected by the DOJ in FCPA enforcement actions, 97% would appear to fit this description as well.
Thus, much like the SEC, the DOJ also appears to be a reactive agency when it comes to corporate FCPA enforcement.
Set forth below are facts and figures from each 2010 DOJ corporate FCPA enforcement action.
Innospec (March 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to commit wire fraud and to violate the FCPA's anti-bribery and books and records provisions; wire fraud; and FCPA anti-bribery and books and records violations.
Resolution Vehicle: Plea.
Guidelines Range: $101.5 - $203 million.
Penalty: $14.1 million (based on claimed inability to pay).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Daimler (March 2010)
See here for the prior analysis and principal allegations.
Charges: Daimler AG (conspiracy to violate the FCPA's books and records provisions and violating the FCPA's books and records provisions); DaimlerChrysler China Ltd. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); DaimlerChrysler Automotive Russia SAO (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); Daimler Export and Trade Finance GmbH (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions).
Resolution Vehicle: Daimler AG (deferred prosecution agreement); DaimlerChrysler China Ltd. (deferred prosecution agreement); DaimlerChrysler Automotive Russia SAO (plea); Daimler Export and Trade Finance GmbH (plea).
Guidelines Range: $116 - $232 million.
Penalty: $93.6 million (20% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Technip (June 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $318.4 - $636.8 Million
Penalty: $240 million (25% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - two years.
Individuals Charged by DOJ: No.
Snamprogetti (July 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $300 Million - $600 Million
Penalty: $240 million (20% below the minimum guidelines range)
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Alliance One (August 2010)
See here for the prior analysis and principal allegations.
Charges: Alliance One International AG (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions, and violations of the FCPA's books and records provisions); Alliance One Tobacco Osh LLC (conspiracy to violate the FCPA, violations of the FCPA's anti-bribery provisions and books and records provisions).
Resolution Vehicle: Alliance One International Inc. (non-prosecution agreement); Alliance One International AG (plea); Alliance One Tobacco Osh LLC (plea).
Guidelines Range: $8.4 - $16.8 million.
Penalty: $9.45 million.
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: Yes.
Universal Corp. (August 2010)
See here for the prior analysis and principal allegations.
Charges: Universal Leaf Tabacos Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery provisions).
Resolution Vehicle: Universal Corporation (non-prosecution agreement); Universal Leaf Tabacos Ltd. (plea).
Guidelines Range: $6.3 - $12.6 million
Penalty: $4.4 million (30% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: No.
Mercator Corp. (August 2010)
See here for the prior analysis and principal allegations.
Charges: FCPA anti-bribery violations.
Resolution Vehicle: Plea.
Guidelines Range: The parties disagreed as to whether the 2009 or 2008 guidelines applied. If 2009, $650,000 - $1.3 million; If 2008, $30,000 to $60,000.
Penalty: $32,000.
Disclosure: Unclear.
Monitor: No.
Individuals Charged by DOJ: Yes (but Giffen pleaded to a misdemeanor tax violation).
ABB Ltd. (September 2010)
See here for the prior analysis and principal allegations.
Charges: ABB Inc. (conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions); ABB Ltd. - Jordan (conspiracy to commit wire fraud and to violate the FCPA's books and records provisions).
Resolution Vehicle: ABB Ltd. (deferred prosecution agreement); ABB Inc. (plea); ABB Ltd. - Jordan (plea).
Guidelines Range: $30.42 - $60.2 million.
Penalty: $19 million (approximately 38% below the minimum guidelines range).
Disclosure: Yes.
Monitor: Company agreed to follow the recommendations of an independent compliance consultant.
Individuals Charged by DOJ: Yes.
Lindsey Manuf. (October 2010)
See here for the prior analysis and principal allegations.
Charges: Conspiracy to violate the FCPA's anti-bribery provisions and violating the FCPA's anti-bribery provisions.
Resolution Vehicle: N/A
Guidelines Range: N/A
Penalty: N/A
Disclosure: Unclear.
Monitor: N/A
Individuals Charged by DOJ: Yes.
Panalpina (November 2010)
See here for the prior analysis and principal allegations.
Charges: Panalpina World Transport (Holding) Ltd. (conspiracy to violate and violating the FCPA's anti-bribery provisions) ; Panalpina Inc. (conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA books and records provisions).
Resolution Vehicle: Panalpina World (deferred prosecution agreement); Panalpina Inc. (plea).
Guidelines Range: 72.8 million to $145.6 million.
Penalty: 70.6 million (approximately 5% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Pride International (November 2010)
See here for the prior analysis and principal allegations.
Charges: Pride International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's anti-bribery and books and records provisions); Pride Forasol S.A.S. (conspiracy to violate the FCPA's anti-bribery and books and records provisions, violating the FCPA's anti-bribery provisions, and aiding and abetting violations of the FCPA's books and records provisions).
Resolution Vehicle: Pride International Inc. (deferred prosecution agreement); Pride Forasol (plea).
Guidelines Range: $72.5 - $145 million.
Penalty: $32.6 million (approximately 55% below the minimum guideline range).
Voluntary Disclosure: Yes.
Monitor: No.
Individuals Charged: No.
Tidewater (November 2010)
See here for the prior analysis and principal allegations.
Charges: Tidewater Marine International Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $10.5 - $21 million.
Penalty: $7.4 million (30% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Transocean (November 2010)
See here for the prior analysis and principal allegations.
Charges: Transocean Inc. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; violating the FCPA's anti-bribery provisions; and aiding and abetting FCPA books and record violations).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $16.8 - $33.6 million.
Penalty: $13.4 million (20% below the minimum guidelines range).
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Noble Corp. (November 2010)
See here for the prior analysis and principal allegations.
Charges: N/A
Resolution Vehicle: Non-prosecution agreement.
Guidelines Range: Not addressed.
Penalty: $2.6 million.
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Royal Dutch Shell (November 2010)
See here for the prior analysis and principal allegations.
Charges: Shell Nigeria Exploration and Production Company Ltd. (conspiracy to violate the FCPA's anti-bribery and books and records provisions; aiding and abetting FCPA books and records violations).
Resolution Vehicle: Deferred prosecution agreement.
Guidelines Range: $34.2 - $68.4 million.
Penalty: $30 million (approximately 15% below the minimum guidelines range).
Disclosure: No.
Monitor: No.
Individuals Charged by DOJ: No.
RAE Systems (December 2010)
See here for the prior analysis and principal allegations.
Charges: Although a non-prosecution agreement, the agreements states "knowing violations of the FCPA's books and records and internal controls provisions."
Resolution Vehicle: Non-prosecution agreement.
Guidelines Range: Not addressed.
Penalty: $1.7 million.
Disclosure: Yes.
Monitor: No.
Individuals Charged by DOJ: No.
Alcatel-Lucent (December 2010)
See here for the prior analysis and principal allegations.
Charges: Alcatel-Lucent S.A. (FCPA books and records and internal control provisions); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. (conspiracy to violate the FCPA's anti-bribery, books and records, and internal control provisions).
Resolution Vehicle: Alcatel-Lucent S.A. (deferred prosecution agreement); Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. pleas.
Guidelines Range: $86.58 - $173.16 million.
Penalty: $92 million.
Disclosure: Yes.
Monitor: Yes - three years.
Individuals Charged by DOJ: Yes.
Tuesday, January 25, 2011
First Enforcement Action of 2011 Involves a Former Executive Officer
In March 2010, Innospec Inc. was charged on both sides of the Atlantic in a joint DOJ / SEC / U.K. Serious Fraud Office enforcement action. (See here and here).
In August 2010, the SEC charged David Turner, the Business Director of Innospec's TEL Group, and Ousama Naaman, the company's agent, for their role in the bribery scheme. (See here). Naaman was also charged by the DOJ, pleaded guilty, and awaits sentencing. (See here).
Yesterday, in the first FCPA enforcement action of the year, the SEC charged Paul Jennings, Innospec's former CFO and CEO, for his involvement in the bribery scheme. (See here). Jennings resigned from Innospec in March 2009 (see here).
Jennings name is now included on a rather short list of high-ranking executives of public companies (or affiliates) recently charged by the SEC in an FCPA enforcement action. In July 2009, Douglas Faggioli (the current President and CEO) and Craig Huff (the former CFO) of Nature's Sunshine Products were charged (see here); in September 2008, Albert Jackson Stanley (the former CEO of Kellogg Brown & Root Inc.) was charged (see here); in December 2007, Robert Philip (the former Chairman/CEO of Schnitzer Steel was charged (see here); and in September 2007, Monty Fu (the former Chairman of Syncor International Corp. was charged (see here).
The facts of the underlying bribery scheme in the Jennings enforcement action are detailed in the prior posts linked above and this post details the allegations in the SEC's complaint (here) regarding Jennings knowledge and involvement in the scheme.
In summary fashion, the complaint alleges as follows:
"This action arises from widespread bribery of foreign officials by Innospec, Inc., some of which occurred and was approved by Paul W. Jennings beginning in mid to late 2004 during his tenure as Chief Financial Officer ("CFO") and continuing after he became Chief Executive Officer ("CEO") in 2005."
"Beginning in mid to late 2004, Jennings, who held various senior roles at Innospec, including CFO and CEO, actively participated in the bribery schemes in Iraq and Indonesia."
"Jennings violated [the FCPA's anti-bribery provisions] by engaging in widespread bribery of government officials in Iraq during the post-Oil for Food period in order to sell TEL to the Iraqi Ministry of Oil ("MoO") and by engaging in bribery of Indonesian officials to sell TEL to state owned oil companies in Indonesia. Jennings aided and abetted Innospec's violations of [the FCPA's anti-bribery provisions] by substantially assisting in Innospec's bribery of Iraqi and Indonesian government officials."
"Innospec, a U.S. issuer, made use of U.S. mails and interstate commerce to carry out the scheme, and Jennings, a dual U.S. and U.K. national was complicit in the scheme. Jennings both sent and received e-mails to and from the United States to carry out the scheme. He also used interstate commerce and the mails as part of the scheme. Jennings obtained $116,092 in bonuses that were tied to the success of the TEL sales, which were procured through bribery."
"Jennings also violated Section13(b)(5)of the Exchange Act and Rule 13b2-1 thereunder by falsifying documents as part of the bribery scheme. Jennings also violated Exchange Act Rule 13b2-2 by making false statements to accountants and violated Exchange Act Rule 13a-14 by signing false personal certifications required by the Sarbanes-Oxley Act of 2002 that were attached to annual and quarterly Innospec public filings."
"Jennings also aided and abetted Innospec's violations of [the FCPA's books and records and internal control provisions] by substantially assisting in Innospec's failure to maintain internal controls to detect and prevent bribery of officials in Iraq and Indonesia, and the improper recording of the illicit payments in Innospec's books and records."
According to the SEC, "beginning in 2005, Jennings, along with other members of Innospec's management, approved bribery payments to officials at the Iraqi Ministry of Oil in order to sell TEL to Iraq. The complaint alleges that Innospec, with the approval of Jennings, used Naaman as its agent in Iraq to make improper payments and the complaint alleges that Jennings was copied on certain e-mails between Naaman and Turner discussing the bribery scheme. The complaint further alleges that Jennings approved certain payments to Naaman to facilitate the bribery scheme including certain payments Jennings approved "while in the United States." Many of the SEC's allegations as to the Iraqi conduct are phrased as Jennings had "general knowledge" or that Jennings was "generally aware" of the conduct at issue.
As to Indonesian payments, the complaint alleges that "Jennings became aware of and approved the improper payments to Indonesian government officials in order to win contracts for the sale of TEL to state owned oil and gas companies. Among other allegations, the complaint alleges that "in December 2004, Jennings and Executive B [the CEO of Innospec from 1998 to April 2005] discussed Innospec's bribery scheme in Iraq and Indonesia on a flight from Denver to New York" and that "while Indonesian Agent was in the United States during the holidays, various e-mails were sent to and from the United States that discussed Jennings' and Turner's continued efforts to support Indonesian Agent's payment of bribes on Innospec's behalf." The SEC also alleges that the "bribery scheme" was also discussed "during Jennings' performance review in January 2005."
As to Jennings false certifications, the complaint alleges as follows.
"From 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he complied with Innospec's Code of Ethics incorporating the company's Foreign Corrupt Practices Act policy, and that he was unaware of any violations of the Code of Ethics by anyone else. During that time frame, Jennings actively participated in bribery of Iraqi and Indonesian officials as described above. Jennings also signed annual and quarterly personal certifications pursuant to the Sarbanes-Oxley Act of 2002 in which Jennings made false certifications concerning the company's books and records and internal controls. Jennings also signed false management certifications to Innospec's auditors indicating that the books and records were accurate and that Innospec had appropriate internal controls."
As noted in the SEC release, without admitting or denying the SEC's allegations, Jennings agreed to disgorge $116,092 plus prejudgment interest of $12,945 and pay a civil penalty of $100,000. The SEC stated that the figures take into consideration Jennings's cooperation in this matter.
In the release, Cheryl Scarboro (Chief of the SEC's FCPA Unit) stated, "we will vigorously hold accountable those who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing."
In August 2010, the SEC charged David Turner, the Business Director of Innospec's TEL Group, and Ousama Naaman, the company's agent, for their role in the bribery scheme. (See here). Naaman was also charged by the DOJ, pleaded guilty, and awaits sentencing. (See here).
Yesterday, in the first FCPA enforcement action of the year, the SEC charged Paul Jennings, Innospec's former CFO and CEO, for his involvement in the bribery scheme. (See here). Jennings resigned from Innospec in March 2009 (see here).
Jennings name is now included on a rather short list of high-ranking executives of public companies (or affiliates) recently charged by the SEC in an FCPA enforcement action. In July 2009, Douglas Faggioli (the current President and CEO) and Craig Huff (the former CFO) of Nature's Sunshine Products were charged (see here); in September 2008, Albert Jackson Stanley (the former CEO of Kellogg Brown & Root Inc.) was charged (see here); in December 2007, Robert Philip (the former Chairman/CEO of Schnitzer Steel was charged (see here); and in September 2007, Monty Fu (the former Chairman of Syncor International Corp. was charged (see here).
The facts of the underlying bribery scheme in the Jennings enforcement action are detailed in the prior posts linked above and this post details the allegations in the SEC's complaint (here) regarding Jennings knowledge and involvement in the scheme.
In summary fashion, the complaint alleges as follows:
"This action arises from widespread bribery of foreign officials by Innospec, Inc., some of which occurred and was approved by Paul W. Jennings beginning in mid to late 2004 during his tenure as Chief Financial Officer ("CFO") and continuing after he became Chief Executive Officer ("CEO") in 2005."
"Beginning in mid to late 2004, Jennings, who held various senior roles at Innospec, including CFO and CEO, actively participated in the bribery schemes in Iraq and Indonesia."
"Jennings violated [the FCPA's anti-bribery provisions] by engaging in widespread bribery of government officials in Iraq during the post-Oil for Food period in order to sell TEL to the Iraqi Ministry of Oil ("MoO") and by engaging in bribery of Indonesian officials to sell TEL to state owned oil companies in Indonesia. Jennings aided and abetted Innospec's violations of [the FCPA's anti-bribery provisions] by substantially assisting in Innospec's bribery of Iraqi and Indonesian government officials."
"Innospec, a U.S. issuer, made use of U.S. mails and interstate commerce to carry out the scheme, and Jennings, a dual U.S. and U.K. national was complicit in the scheme. Jennings both sent and received e-mails to and from the United States to carry out the scheme. He also used interstate commerce and the mails as part of the scheme. Jennings obtained $116,092 in bonuses that were tied to the success of the TEL sales, which were procured through bribery."
"Jennings also violated Section13(b)(5)of the Exchange Act and Rule 13b2-1 thereunder by falsifying documents as part of the bribery scheme. Jennings also violated Exchange Act Rule 13b2-2 by making false statements to accountants and violated Exchange Act Rule 13a-14 by signing false personal certifications required by the Sarbanes-Oxley Act of 2002 that were attached to annual and quarterly Innospec public filings."
"Jennings also aided and abetted Innospec's violations of [the FCPA's books and records and internal control provisions] by substantially assisting in Innospec's failure to maintain internal controls to detect and prevent bribery of officials in Iraq and Indonesia, and the improper recording of the illicit payments in Innospec's books and records."
According to the SEC, "beginning in 2005, Jennings, along with other members of Innospec's management, approved bribery payments to officials at the Iraqi Ministry of Oil in order to sell TEL to Iraq. The complaint alleges that Innospec, with the approval of Jennings, used Naaman as its agent in Iraq to make improper payments and the complaint alleges that Jennings was copied on certain e-mails between Naaman and Turner discussing the bribery scheme. The complaint further alleges that Jennings approved certain payments to Naaman to facilitate the bribery scheme including certain payments Jennings approved "while in the United States." Many of the SEC's allegations as to the Iraqi conduct are phrased as Jennings had "general knowledge" or that Jennings was "generally aware" of the conduct at issue.
As to Indonesian payments, the complaint alleges that "Jennings became aware of and approved the improper payments to Indonesian government officials in order to win contracts for the sale of TEL to state owned oil and gas companies. Among other allegations, the complaint alleges that "in December 2004, Jennings and Executive B [the CEO of Innospec from 1998 to April 2005] discussed Innospec's bribery scheme in Iraq and Indonesia on a flight from Denver to New York" and that "while Indonesian Agent was in the United States during the holidays, various e-mails were sent to and from the United States that discussed Jennings' and Turner's continued efforts to support Indonesian Agent's payment of bribes on Innospec's behalf." The SEC also alleges that the "bribery scheme" was also discussed "during Jennings' performance review in January 2005."
As to Jennings false certifications, the complaint alleges as follows.
"From 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he complied with Innospec's Code of Ethics incorporating the company's Foreign Corrupt Practices Act policy, and that he was unaware of any violations of the Code of Ethics by anyone else. During that time frame, Jennings actively participated in bribery of Iraqi and Indonesian officials as described above. Jennings also signed annual and quarterly personal certifications pursuant to the Sarbanes-Oxley Act of 2002 in which Jennings made false certifications concerning the company's books and records and internal controls. Jennings also signed false management certifications to Innospec's auditors indicating that the books and records were accurate and that Innospec had appropriate internal controls."
As noted in the SEC release, without admitting or denying the SEC's allegations, Jennings agreed to disgorge $116,092 plus prejudgment interest of $12,945 and pay a civil penalty of $100,000. The SEC stated that the figures take into consideration Jennings's cooperation in this matter.
In the release, Cheryl Scarboro (Chief of the SEC's FCPA Unit) stated, "we will vigorously hold accountable those who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing."
Sunday, August 2, 2009
The FCPA ... It's Not Just For Americans
In 1998, the FCPA's antibribery provisions were amended to, among other things, broaden the jurisdictional reach of the statute to prohibit "any person" "while in the territory of the U.S." from making improper payments through "use of the mails or any means or instrumentality of interstate commerce" or from doing "any other act in furtherance" of an improper payment. (see 15 USC 78dd-3(a)). "Any person" is generally defined to include any person other than a U.S. national or any business organization organized under the laws of a foreign nation. (see 15 USC 78dd-3(f)).
Thus, since 1998, and contrary to a still widely-held misperception, foreign nationals can be subject to the FCPA.
Ousama Naaman apparently did not get the memo as the DOJ recently unsealed a criminal indictment charging him with violating the FCPA and conspiracy to violate the FCPA and commit wire fraud. According to a DOJ release (see here) Naaman (a Canadian citizen), acting on behalf of a U.S. public chemical company and its subsidiary, allegedly offered and paid kickbacks to the Iraqi government on five contracts under the United Nations Oil for Food Program. In addition, the indictment alleges that Naaman paid $150,000 on behalf of a U.S. company to Iraqi Ministry of Oil officials to keep a competing product out of the Iraqi market.
This is certainly not the first time a foreign national has been subject to an FCPA enforcement action. Other recent examples include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).
Thus, since 1998, and contrary to a still widely-held misperception, foreign nationals can be subject to the FCPA.
Ousama Naaman apparently did not get the memo as the DOJ recently unsealed a criminal indictment charging him with violating the FCPA and conspiracy to violate the FCPA and commit wire fraud. According to a DOJ release (see here) Naaman (a Canadian citizen), acting on behalf of a U.S. public chemical company and its subsidiary, allegedly offered and paid kickbacks to the Iraqi government on five contracts under the United Nations Oil for Food Program. In addition, the indictment alleges that Naaman paid $150,000 on behalf of a U.S. company to Iraqi Ministry of Oil officials to keep a competing product out of the Iraqi market.
This is certainly not the first time a foreign national has been subject to an FCPA enforcement action. Other recent examples include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).
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