This past October, I asked (here) what will happen to Lindsey Manufacturing Company?
The company (a privately held manufacturer of electrical transmission towers and related products that employs approximately 100 individuals) was indicted along with its President, Keith Lindsey, and its Chief Financial Officer, Steven Lee. [Others outside the company were charged as well in connection with the case].
The case represented a rare instance of a criminal indictment of a company in the FCPA context.
Yesterday, after a five week trial in federal court in the C.D. of California, a jury returned guilty verdicts.
As noted in this DOJ release, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiracy to violate the FCPA and five counts of FCPA violations. The conduct at issue focused on commission payments made by Lindsey Manufacturing to Enrique and Angela Aguilar (directors of Grupo Internacional de Asesores S.A.) that "would be used to pay bribes to Mexican officials in exchange for [Comisión Federal de Electricidad (CFE), a state-owned utility company] awarding contracts to Lindsey Manufacturing." As noted in the DOJ release, Angela Aguilar was convicted of one count of money laundering conspiracy and the court entered a judgment of acquittal prior to the jury’s verdict on one substantive count of money laundering against her. Enrique Aguilar is currently a fugitive.
Sentencing for Lindsey Manufacturing, Lindsey and Lee is scheduled for Sept. 16, 2011. Angela Aguilar’s sentencing is scheduled for Aug. 12, 2011.
Reacting to the guilty verdicts, Assistant Attorney General Lanny Breuer stated as follows. "“Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”
The Lindsey case attracted much interest as it was one of the "foreign official" challenges. See here for the full briefing and here for the written decision.
Prior to the jury verdicts, on Monday, Jan Handzlik (here - attorney for defendants Lindsey Manufacturing and Keith Lindsey) and Janet Levin (here - attorney for defendant Steve Lee) filed a motion to "Dismiss the Indictment with Prejudice due to Repeated and Intentional Government Misconduct." Handzlik is quoted in this story by Samuel Rubenfeld at the Wall Street Journal as saying "we continue to believe in our clients' innocence and will pursue our motion to dismiss the indictment on grounds of prosecutorial misconduct." A hearing on that motion is set for June 6. Aguilar's attorney, Stephen Larson (here) reportedly intends to seek a motion of acquittal as to the one charge his client was found guilty of.
Another case concerning alleged payments to CFE is pending in the Southern District of Texas against John Joseph O'Shea. See here for more.
So the question remains - what will happen to Lindsey Manufacturing?
As a small privately held company, Lindsey Manufacturing was able to aggressively mount a legal defense that publicly traded companies are unwilling, or some would say are logistically unable, to mount. Whether one agrees with certain of the judge's pre-trial rulings or not, or whether one finds arguments about prosecutorial misconduct persuasive or not, the fact is, the Lindsey case, unlike the majority of FCPA enforcement actions, was subject to an adversary proceeding in which someone other than the enforcement agencies weighed in on the issues - and that is a good thing!
Showing posts with label Mexico. Show all posts
Showing posts with label Mexico. Show all posts
Wednesday, May 11, 2011
Friday, February 11, 2011
Tyson Foods Settles FCPA Enforcement Action Involving Mexican Veterinarians And Their No-Show Wives
Yet another FCPA enforcement action raises the issue of whether the FCPA's "obtain or retain business" element means anything anymore or whether the FCPA, contrary to Congressional intent, has morphed into an all-purpose corporate ethics statute and - in a game of chicken - companies opt to settle rather than mount a legal defense.
Yesterday, Tyson Foods, one of the world's largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians (and their no-show wives) responsible for certifying product for export.
The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $5.2 million ($4 million criminal fine via a DOJ deferred prosecution agreement; $1.2 million in disgorgement and prejudgment interest via a SEC settled complaint).
DOJ
The DOJ enforcement action involved a criminal information (here) against Tyson resolved through a deferred prosecution agreement (here).
Criminal Information
The information contains a background section which describes the following.
"The Government of Mexico administers an inspection program, Tipo Inspeccion Federal ("TIF"), for meat-processing facilities. Any company that exports meat products from Mexico must participate in the inspection program, which is supervised by an office in the Mexican Department of Agriculture ("SAGARPA"). The inspection program at each facility is supervised by an on-site veterinarian who is a government employee ("TIF veterinarian"), paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws." "There are two categories of TIF veterinarians: 'approved' and 'official.' Although all TIF veterinarians are foreign officials under the FCPA, Mexican law permits approved veteriarians to charge the facility in which they work a fee for their services in addition to their offcial salary. Official veterinarians receive all of their salary from the Mexican government and may not be paid by the facility they supervise."
The conduct at issue focuses on Tyson de Mexico ("TdM"), a wholly-owned subsidiary of Tyson that produces protein-based and prepared food products for sale in Mexico and foreign countries other than the U.S. TdM is headquartered in Mexico and maintains three meat-processing factories in Mexico.
The information charges that from July 2004 through November 2006, Tyson, TdM, and others were engaged in a conspiracy to "assist Tyson and TdM in the export of meat products from Mexico through the payment and promise of payment of things of value to Mexican government-employed TIF veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF Program."
The information does not give any detail as to how the payments sought to influence the veterinarians nor does it suggest that the product at issue was not qualified for export. In fact, as detailed below, Tyson's press release (a release the DOJ had to approve per the deferred prosecution agreement) states that there were no issues with the safety of the exported products.
Among other things, the information alleges that part of the conspiracy was "to place the wives of the TIF veterinarians on TdM's payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services for TdM ...". According to the information, upon "termination of the salaries to the wives of the TIF veterinarians" in November 2006 Tyson "agreed to increase the amount paid to the veterinarians based on false invoices by the same amount as the salaries previously paid to their wives."
The information alleges that the above payments were falsely recorded on company books and records as "professional fees" and salaries in order to conceal the true nature of the improper payments in the consolidated books and records of Tyson.
In addition to the above described payments, the information also alleges that from the time Tyson acquired TdM in 1994 through 2006, "Tyson made occassional additional improper payments to the TIF veterinarians on an ad-hoc basis."
Under the heading "Total Improper Payments" the information alleges as follows:
"Tyson, its executives, and its subsidiaries authorized the payment, directly or indirectly, of approximately $90,000 to Mexican government-employed veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF program, resulting in profits of approximately $880,000."
In addition, the information alleges that from the time of Tyson's acquisition of TdM until May 2004, "an additional $260,000 in improper payments were made to the TIF veterinarians, both indirectly and directly, including through payments to wives of TIF veterinarians."
Based on the above allegations, the information charges Tyson with conspiracy to violate the FCPA and substantive FCPA anti-bribery violations.
DPA
The DOJ's charges against Tyson were resolved via a deferred prosecution agreement.
Pursuant to the DPA, Tyson admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and wholly-owned subsidiaries as set forth above.
The term of the DPA is two years and it states that the DOJ entered into the agreement "based on the following factors":
(a) Tyson voluntarily disclosed the misconduct;
(b) Tyson conducted a thorough internal investigation of the misconduct;
(c) Tyson reported all of its findings to the Department;
(d) Tyson cooperated in the Department's investigation of the matter;
(e) Tyson has undertaken certain remedial measures;
(f-g) Tyson has agreed to continue to cooperate with the Department and the SEC in any investigation of the conduct of Tyson and its directors, offcers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA; and
(h) with respect to the corporate compliance reporting obligations, the Department considered the following facts and circumstances: (i) Tyson has already engaged in signficant remediation related to the misconduct and implemented an enhanced compliance program; (ii) approximately 85-90% of Tyson's sales are domestic; (iii) Tyson operates only six wholly-owned production facilities overseas, three in Mexico and three in Brazil, all of which have been subjected to rigorous FCPA reviews; (iv) Tyson's only direct government customers are domestic; and (v) the problematic operations in TdM comprised less than one percent of Tyson's global net sales.
As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $5.04 to $10.08 million. Pursuant to the DPA, Tyson agreed to pay a monetary penalty of $4 million (approximately 20% below the minimum amount suggested by the guidelines).
Pursuant to the DPA, Tyson agreed to self-report to the DOJ "periodically, at no less than six-month intervals" during the term of the DPA "regarding remediation and implementation of the compliance activities" described in the DPA. Given the factors the DOJ set forth in (h) above, this reporting obligation is a bit of a surprise.
As is standard in FCPA DPAs, Tyson agreed not to make any public statement "contradicting the acceptance of responsibility" as set forth in the DPA and Tyson further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
In the DOJ's release (here) Assistant Attorney General Lanny Breuer stated as follows: “Tyson Foods used false books and sham jobs to hide bribe payments made to publicly-employed meat processing plant inspectors in Mexico - the penalty and resolution announced today reflect the company’s disclosure of this conduct, its cooperation with the government’s investigation and its commitment to implementing enhanced controls.”
SEC
The SEC's civil complaint (here) is based on the same core conduct described above.
The complaint alleges that Tyson "authorized" TdM's illicit activities and that "in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to have effective internal controls, as the true nature of the payments were concealed through salary payments to phantom employees and through service invoices submitted by one of the veterinarians."
According to the SEC, "Tyson Foods realized net profits of more than $880,000 from export sales from [TdM] facilities in fiscal years 2004, 2005 and 2006.
Based on the above conduct, the SEC charged Tyson with FCPA's anti-bribery violations and FCPA books and records and internal control violations.
Without admitting or denying the SEC's allegations, Tyson agreed to an injunction prohibiting future FCPA violations and agreed to pay $1.2 million in disgorgement and pre-judgement interest.
In the SEC release (here), Robert Khuzami (Director of the SEC's Division of Enforcement) stated: “Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct."
Laurence Urgenson (here) of Kirkland & Ellis represented Tyson.
Tyson's press release (here) notes, among other things, that its voluntary disclosure occured in early 2007 and that "none of the products exported from Tyson de México during the time period involved were shipped to the U.S., nor were there any issues with the safety of the products."
David Van Bebber, the company's Executive Vice President and General Counsel stated as follows: “We’re committed to abiding by the law as well as our company’s Core Values, which call on all of our people to operate with integrity. While we’re disappointed mistakes were made, corrective action has been taken and the improper payments were discontinued. As our international operations have expanded, we continue to strengthen the compliance efforts of our international businesses including improved training and compliance programs, extensive retraining, and anti-corruption focused audits.”
Yesterday, Tyson Foods, one of the world's largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians (and their no-show wives) responsible for certifying product for export.
The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $5.2 million ($4 million criminal fine via a DOJ deferred prosecution agreement; $1.2 million in disgorgement and prejudgment interest via a SEC settled complaint).
DOJ
The DOJ enforcement action involved a criminal information (here) against Tyson resolved through a deferred prosecution agreement (here).
Criminal Information
The information contains a background section which describes the following.
"The Government of Mexico administers an inspection program, Tipo Inspeccion Federal ("TIF"), for meat-processing facilities. Any company that exports meat products from Mexico must participate in the inspection program, which is supervised by an office in the Mexican Department of Agriculture ("SAGARPA"). The inspection program at each facility is supervised by an on-site veterinarian who is a government employee ("TIF veterinarian"), paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws." "There are two categories of TIF veterinarians: 'approved' and 'official.' Although all TIF veterinarians are foreign officials under the FCPA, Mexican law permits approved veteriarians to charge the facility in which they work a fee for their services in addition to their offcial salary. Official veterinarians receive all of their salary from the Mexican government and may not be paid by the facility they supervise."
The conduct at issue focuses on Tyson de Mexico ("TdM"), a wholly-owned subsidiary of Tyson that produces protein-based and prepared food products for sale in Mexico and foreign countries other than the U.S. TdM is headquartered in Mexico and maintains three meat-processing factories in Mexico.
The information charges that from July 2004 through November 2006, Tyson, TdM, and others were engaged in a conspiracy to "assist Tyson and TdM in the export of meat products from Mexico through the payment and promise of payment of things of value to Mexican government-employed TIF veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF Program."
The information does not give any detail as to how the payments sought to influence the veterinarians nor does it suggest that the product at issue was not qualified for export. In fact, as detailed below, Tyson's press release (a release the DOJ had to approve per the deferred prosecution agreement) states that there were no issues with the safety of the exported products.
Among other things, the information alleges that part of the conspiracy was "to place the wives of the TIF veterinarians on TdM's payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services for TdM ...". According to the information, upon "termination of the salaries to the wives of the TIF veterinarians" in November 2006 Tyson "agreed to increase the amount paid to the veterinarians based on false invoices by the same amount as the salaries previously paid to their wives."
The information alleges that the above payments were falsely recorded on company books and records as "professional fees" and salaries in order to conceal the true nature of the improper payments in the consolidated books and records of Tyson.
In addition to the above described payments, the information also alleges that from the time Tyson acquired TdM in 1994 through 2006, "Tyson made occassional additional improper payments to the TIF veterinarians on an ad-hoc basis."
Under the heading "Total Improper Payments" the information alleges as follows:
"Tyson, its executives, and its subsidiaries authorized the payment, directly or indirectly, of approximately $90,000 to Mexican government-employed veterinarians, in order to obtain or retain business for TdM by influencing the decisions of veterinarians responsible for certifying TdM products for export under the TIF program, resulting in profits of approximately $880,000."
In addition, the information alleges that from the time of Tyson's acquisition of TdM until May 2004, "an additional $260,000 in improper payments were made to the TIF veterinarians, both indirectly and directly, including through payments to wives of TIF veterinarians."
Based on the above allegations, the information charges Tyson with conspiracy to violate the FCPA and substantive FCPA anti-bribery violations.
DPA
The DOJ's charges against Tyson were resolved via a deferred prosecution agreement.
Pursuant to the DPA, Tyson admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, agents, and wholly-owned subsidiaries as set forth above.
The term of the DPA is two years and it states that the DOJ entered into the agreement "based on the following factors":
(a) Tyson voluntarily disclosed the misconduct;
(b) Tyson conducted a thorough internal investigation of the misconduct;
(c) Tyson reported all of its findings to the Department;
(d) Tyson cooperated in the Department's investigation of the matter;
(e) Tyson has undertaken certain remedial measures;
(f-g) Tyson has agreed to continue to cooperate with the Department and the SEC in any investigation of the conduct of Tyson and its directors, offcers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA; and
(h) with respect to the corporate compliance reporting obligations, the Department considered the following facts and circumstances: (i) Tyson has already engaged in signficant remediation related to the misconduct and implemented an enhanced compliance program; (ii) approximately 85-90% of Tyson's sales are domestic; (iii) Tyson operates only six wholly-owned production facilities overseas, three in Mexico and three in Brazil, all of which have been subjected to rigorous FCPA reviews; (iv) Tyson's only direct government customers are domestic; and (v) the problematic operations in TdM comprised less than one percent of Tyson's global net sales.
As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $5.04 to $10.08 million. Pursuant to the DPA, Tyson agreed to pay a monetary penalty of $4 million (approximately 20% below the minimum amount suggested by the guidelines).
Pursuant to the DPA, Tyson agreed to self-report to the DOJ "periodically, at no less than six-month intervals" during the term of the DPA "regarding remediation and implementation of the compliance activities" described in the DPA. Given the factors the DOJ set forth in (h) above, this reporting obligation is a bit of a surprise.
As is standard in FCPA DPAs, Tyson agreed not to make any public statement "contradicting the acceptance of responsibility" as set forth in the DPA and Tyson further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
In the DOJ's release (here) Assistant Attorney General Lanny Breuer stated as follows: “Tyson Foods used false books and sham jobs to hide bribe payments made to publicly-employed meat processing plant inspectors in Mexico - the penalty and resolution announced today reflect the company’s disclosure of this conduct, its cooperation with the government’s investigation and its commitment to implementing enhanced controls.”
SEC
The SEC's civil complaint (here) is based on the same core conduct described above.
The complaint alleges that Tyson "authorized" TdM's illicit activities and that "in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to have effective internal controls, as the true nature of the payments were concealed through salary payments to phantom employees and through service invoices submitted by one of the veterinarians."
According to the SEC, "Tyson Foods realized net profits of more than $880,000 from export sales from [TdM] facilities in fiscal years 2004, 2005 and 2006.
Based on the above conduct, the SEC charged Tyson with FCPA's anti-bribery violations and FCPA books and records and internal control violations.
Without admitting or denying the SEC's allegations, Tyson agreed to an injunction prohibiting future FCPA violations and agreed to pay $1.2 million in disgorgement and pre-judgement interest.
In the SEC release (here), Robert Khuzami (Director of the SEC's Division of Enforcement) stated: “Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct."
Laurence Urgenson (here) of Kirkland & Ellis represented Tyson.
Tyson's press release (here) notes, among other things, that its voluntary disclosure occured in early 2007 and that "none of the products exported from Tyson de México during the time period involved were shipped to the U.S., nor were there any issues with the safety of the products."
David Van Bebber, the company's Executive Vice President and General Counsel stated as follows: “We’re committed to abiding by the law as well as our company’s Core Values, which call on all of our people to operate with integrity. While we’re disappointed mistakes were made, corrective action has been taken and the improper payments were discontinued. As our international operations have expanded, we continue to strengthen the compliance efforts of our international businesses including improved training and compliance programs, extensive retraining, and anti-corruption focused audits.”
Wednesday, December 29, 2010
Pride - A Little Bit Of Nigeria, And A Whole Lot Else ... Plus It Pays To Assist the DOJ!
Next up in the analysis of CustomsGate enforcement actions is Pride International.
As described below, the Pride enforcement action includes not only Nigeria - Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.
See here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Pride enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).
DOJ
The DOJ enforcement action involved a criminal information against Pride International Inc. ("Pride International") resolved through a deferred prosecution agreement and a criminal information against Pride Forasol S.A.S. ("Pride Forasol"), a wholly-owned subsidiary of Pride International resolved through a plea agreement.
Pride International Inc. Criminal Information
Houston based issuer Pride International Inc. (here) is one of the world's largest offshore drilling companies.
The criminal information (here) alleges bribery schemes in Venezuela, India and Mexico.
Venezuela
According to the information, "Pride International owned and operated numerous oil and gas drilling rigs throughout South America, including in Venezuela." In Venezuela, Petroleos de Venezuela S.A. ("PDVSA"), "a Venezuelan state-owned oil company," leased "the semi-submersible rig Pride Venezuela from Pride Foramer Venezula." Pride Foramer is described as a branch of Pride Forasol's wholly-owned subsidiary Prime Foramer operating in Venezuela. According to the information, PDVSA "also contracted with Pride Foramer Venezuela to operate two jackup rigs, the GP-19 and the GP-20."
The information alleges that between February 2003 and July 2003 Country Manager 1 [a U.S. citizen who was the Country Manager in Venezuela], the Marketing Manager [a Venezuelan citizen working for Pride Foramer Venezuela in Venezuela], the Operations Manager [a French citizen working for Pride Foramer Venezuela in Venezuela], and others known and unknown agreed to pay $120,000 to the Venezuela Intermediary [a company that provided catering services to Pride Foramer Venezuela] with the intent that the money would be paid to the PDVSA Director [a Venezuelan citizen appointed by the President of Venezuela as a member of the PDVSA Board of Directors] to secure a contract extension for the Pride Venezuela."
According to the information, "in order to conceal and to generate money to pay the bribes to the PDVSA Director" the above named individuals "agreed and instructed one of Pride Foramer Venezuela's vendors, Vendor A, to inflate certain of its invoices for its services" that "Pride Foramer Venezuela then paid Vendor A for the undelivered services relating to the inflated invoices" and that "Vendor A delivered the excess money it received from Pride Foramer Venezuela to the Venezuela Intermediary with the intent that it would be provided to the PDVSA Director."
According to the information, "on behalf of Pride International and Pride Foramer Venezuela, Vendor A wire transferred bribe payments of at least $120,000 to, or for the benefit of, the PDVSA Director to an account at a bank in Miami, Florida in the name of the Venezuelan Intermediary." According to the information, "in exchange for the corrupt payments, the Pride Venezuela contract was extended for approximately three months" and "the profits Pride International derived from extending the contract were approximately $2.45 million."
As to GP-19 and GP-20, the information alleges that between April 2004 and November 2004 "the Marketing Manager, the Operations Manager, and others known and unknown also agreed to pay at least $114,000 to the Venezuelan Intermediary with the intent that the money would be paid to the PDVSA Director to secure contract extensions for the GP-19 and GP-20." The information describes a similar payment scheme and payments made to an account in Miami, Florida in the name of the Venezuela Intermediary. According to the information, "in exchange for the corrupt payments, the PDVSA Director caused PDVSA to extend the GP-20 contract from July 2004 through June 2005 and the GP-19 contract from February 2005 through June 2005."
According to the information "the profits that Pride International derived from the contract extensions for the GP-20 were approximately $596,000" however, the "GP-19 extension was not profitable." The information further alleges that Senior Executive A [a U.S citizen located in Houston] "concealed information relating to the bribe payments to the PDVSA Director from reports submitted to Pride International auditors."
India
The information alleges that between January 2003 and July 2003, "Senior Executive B [a French citizen who served as the Director of International Finance for Pride International], the Legal Director [a French citizen who served as the Director of Legal Affairs for Pride Forasol], the Base Manager [a Canadian citizen working for Pride India], the Area Manager [a U.S. citizen with responsibility for the Asia Pacific region], the India Customs Consultant [an individual who provided customs consulting services to Pride India], and others known and unknown agreed to pay $500,000 into bank accounts in Dubai in the names of third party entities with the intent that it would be passed on to an Indian CEGAT [Customs, Excise, and Gold Appellate Tribunal - an Indian administrative judicial tribunal] judge to secure a favorable judicial decision for Pride India [a branch of Pride Forasol's wholly-owned subsidiary Pride Foramer] relating to a litigation matter pending before the official involving the payment of customs duties and penalties owed for a rig, the Pride Pennsylvania."
According to the information, "to pay the bribe, employees of Pride Forasol, including Senior Executive B and the Legal Director, caused false invoices for agent and consulting services to be created and submitted to Interdrill [a wholly-owned subsidiary of Pride International organized under the laws of the Bahamas] for payment." The invoices were processed, the payment was made and on June 30, 2003"Pride India received a favorable ruling from CEGAT" resulting in an "estimate gain to Pride Forasol" of "at least $10 million."
According to the information, "to conceal the bribe, the Finance Manager [a British citizen who was the Eastern Hemisphere Finance Manager for Pride International], who was located in Houston, Texas, with knowledge of the scheme to bribe the Indian CEGAT judge, sent an e-mail to the Assistant Controller [a U.S. citizen], who was located in Houston, Texas, authorizing the booking of the bribe payments by Pride International's subsidiary, Interdrill, as a 'regular fee' in a newly created 'miscellaneous fees' account."
Mexico
The information alleges that around December 2004, "Senior Executive A, the Logistics Coordinator [a U.S. citizen who was the Logistics Coordinator for Pride Mexico], Country Manager 2 [a U.S. citizen who was the Country Manager in Mexico], and others known and unknown agreed to pay approximately $10,000 to the Mexican Marketing Agent [an individual who provided marketing services to Pride Mexico] to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International."
According to the information, "to conceal the payments, the Mexico Marketing Agent caused false invoices purportedly for electrical maintenance services to be submitted to Pride Mexico [collectively Mexico Drilling Limited LLC, Pride Central America LLC, and Pride Drilling LLC - wholly owned subsidiaries of Pride International] in support of the payment."
The information then alleges that all of the above-described payments were falsely characterized in the books and records of various subsidiaries or branches that were consolidated into the books, records, and accounts of Pride International for purposes of financial reporting.
Under the heading "total corrupt payments paid and improper benefits received," the information alleges that between January 2003 through December 2004 "certain Pride International subsidiaries and their branches paid at least $804,000 in bribes to foreign government officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties."
According to the information, "the benefit that Pride International received as a result of these payments was at least $13 million."
Based on the above allegations, the DOJ charged Pride International with one count of conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records as to the Mexico payments; one count of violating the FCPA's anti-bribery provisions as to the Venezuela payments; and one count of FCPA books and records violations as to the India payments.
Pride International Inc. DPA
The DOJ's charges against Pride International were resolved via a deferred prosecution agreement (see here).
Pursuant to the DPA, Pride International admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.
The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and Pride International. Among the factors stated are the following.
(a) during a routine audit, Pride International discovered an allegation of bribery;
(b) Pride International voluntarily and timely disclosed to the Department and the SEC the misconduct;
(c) Pride International conducted a thorough internal investigation of that misconduct;
(d) Pride International voluntarily initiated a comprehensive anti-bribery compliance review of Pride International's business operations in certain other high-risk countries [as to this broader compliance review, this Joint Motion to Waive Presentence Investigation notes that the review included a number of "high-risk countries including Angola, Brazil, Kazakhstan, Libya, Nigeria, the Republic of Congo, and Saudi Arabia" and that outside counsel with assistance from forensic accounting professionals were involved in the review of approximately 20 million pages of electronic and hard copy documents gathered from approximately 350 custodians, and that more than 200 interviews of employees and agents took place;
(e) Pride International regularly reported its findings to the Department;
(f) Pride International cooperated in the Department's investigation of this matter, as well as the SEC's investigation;
(g) Pride International undertook, of its own accord, remedial measures, including the enhancement of its FCPA compliance program, and agreed to maintain and enhance, as appropriate, its FCPA compliance program; and
(h) Pride International agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Pride International and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.
As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $72.5 million to $145 million. Pursuant to the DPA, Pride International agreed to pay a monetary penalty of $32.625 million - approximately 55% below the minimum guideline amount.
Pursuant to the DPA, Pride International agreed to a host of compliance undertakings and to report to the DOJ on an annual basis (during the term of the DPA) "on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures."
As is standard in FCPA DPAs, Pride International agreed not to make any public statement "contradicting the acceptance of responsibility by Pride International as set forth" in the DPA and Pride International further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
Pride Forasol Criminal Information
The Pride Forasol criminal information (here) alleges the same scheme to bribe an administrative judge in India as described in the Pride International information. The information charges one count of conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records; one count of violating the FCPA's anti-bribery provisions; and one count of aiding and abetting the creating of false books and records.
Pride Forasol Plea Agreement
The above described charges against Pride Forasol were resolved via a plea agreement (see here). Even though the Pride Forasol information is limited to India conduct, the sentencing guidelines range, $72.5 million to $145 million, is the same as set forth in the above described Pride International DPA.
The agreement sets forth factors motivating the DOJ to resolve the criminal charges in the manner in which they were resolved.
Such factors include: "Pride International's and Pride Forasol's substantial assistance with other related Department investigations regarding the bribery of foreign government officials in Venezuela and Mexico, including providing: (1) the names of individuals involved; and (2) contact information for the individuals" and "Pride International's and Pride Forasol's substantial assistance with other Department investigations regarding the bribery of foreign government officials in Nigeria and Saudi Arabia, including providing documentation and access to individuals."
The above referenced Joint Motion to Waive Presentence Investigation states that Pride Forasol and Pride International "developed and timely provided detailed and significant information regarding third parties, including Panalpina Word Transport (Holding) Ltd. [...] that was used to pay bribes to foreign government officials by numerous companies around the world." The Joint Motion states that "the information provided by the Companies substantially assisted the Department because the extent of Panalpina's conduct was unknown by the Department at the time of the Companies' disclosure. It was only through the extensive, worldwide investigative efforts of the Companies that these complex criminal activities were uncovered and reported to the Department."
SEC
The SEC's civil complaint (here) alleges the same Venezuela, India, and Mexico payments described above.
As to Venezuela, the complaint alleges as follows:
"From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela's state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables." (See this prior post for a summary of the Summers enforcement action).
"In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride's U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made."
"In or about late 2004, Bobby Benton, Pride's Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat." (See here for a summary of the Benton enforcement action).
Based on these allegations, the SEC charged Pride International with FCPA anti-bribery violations. Based on these allegations, as well as the below allegations, the SEC charged Pride International with FCPA books and records and internal control violations.
The SEC's complaint also describes certain other "transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries' books."
As to Mexico, the complaint alleges that a $15,000 payment was made to a "Mexican customs official during the course of the export [of certain rigs] to ensure that the export of the rig would not be delayed due to claimed violations relating to non-conforming equipment on board the rig."
As to Kazakhstan, the complaint alleges that the Kazakhstan affiliate of Panalpina informed a Pride Forasol logistics manager "that Kazakh customs officials had identified irregularities during a customs audit of Pride Forasol Kazakhstan, but that the issue could be resolved by making a cash payment of approximately $45,000 and paying substantially reduced monetary penalties." According to the complaint, "certain Pride Forasol managers authorized the cash payment by [Panalpina] to resolve the customs irregularities." The complaint further alleges that Pride Forasol Kazakhstan made "three payments totaling approximately $204,000" to a Kazakh Tax Consultant while "knowing facts that suggested a high probability that the Kazakh Tax Consultant would give all or a portion of the payments to Kazakh tax officials" who previously threatened to levy substantial taxes and penalties against Pride Forasol Kazakhstan.
As to Nigeria, the complaint alleges that "certain Pride Forasol Nigeria and Pride Forasol managers were aware of information suggesting a high probability that [Panalpina] would give all or a portion of the lump-sum payments charged in connection with obtaining or extending Pride Forasl Nigeria temporary importation ("TI") permits to Nigerian customs officials in exchange for their cooperation in issuing the TI permits on favorable terms and/or without completing certain legally required steps." The complaint further alleges that Pride Forasol Nigeria records were incompete and that Pride Forasol Nigeria "did not have adequate assurances" that certain tax payments were not paid directly to tax officials. In addition, the complaint alleges that Pride Forasol Nigeria "authorized the payment of $52,000 to a Nigeria Tax Agent while knowing facts that suggested a high likelihood that the Nigeria Tax Agent would give all or a portion of the money to a Nigerian tax official."
As to Saudi Arabia, the complaint alleges that the Saudi Arabian affiliate of Panalpina informed a Pride Forasol Arabia manager that expedited customs clearance of a rig could be assured for a payment of $10,000. The complaint alleges that the manager "took $10,000 in cash from Pride Forasol Arabia's petty cash fund, describing on the petty cash voucher the purpose of the payment as 'freight forwarding services,' and gave the money to a Saudi customs official."
As to Congo, the complaint alleges as follows. "An inspection by the Congo Merchant Marine revealed that certain personnel abroad [a Pride Congo rig] lacked required maritime certification. A Merchant Marine official proposed that Pride Congo could resolve the paperwork defiiciency by making a payment for his personal benefit. A Pride Congo manager agreed to pay the Merchant Marine official $8,000 in lieu of an official penalty." According to the complaint, the "payments were recorded as travel expenses in Pride Congo's books and records."
As to Libya, the complaint alleges that Pride Forasol managers authorized payments to a Libya Tax agent in connection with unpaid social security taxes and penalties against Pride Forasol Libya "without adequate assurances that the Libyan Tax Agent would not pass some or all of these fees to" officials of Libya's social security agency.
According to the complaint, "Pride obtained improper benefits totaling approximately $19,341,870 from the conduct" described in the complaint. "Prejudgment interest on this amount is $4,187,848."
Without admitting or denying the SEC's allegations, Pride agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement and prejudgment interest of $23,529,718.
Pride's press release (here) notes, among other things, as follows: "In addition to self-reporting in February 2006 and voluntarily cooperating with the government, we have greatly strengthened and enhanced our antibribery compliance program and policies. Our current management and board are strongly committed to conducting the company's business ethically and legally, and we seek to instill in our employees the expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law."
Martin Weinstein (here) and Jeffrey Clark (here) both former DOJ enforcement attorneys with Willkie Farr & Gallagher, as well as Samuel Cooper (here) of Baker Botts, represented the Pride entities.
As described below, the Pride enforcement action includes not only Nigeria - Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.
See here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Pride enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).
DOJ
The DOJ enforcement action involved a criminal information against Pride International Inc. ("Pride International") resolved through a deferred prosecution agreement and a criminal information against Pride Forasol S.A.S. ("Pride Forasol"), a wholly-owned subsidiary of Pride International resolved through a plea agreement.
Pride International Inc. Criminal Information
Houston based issuer Pride International Inc. (here) is one of the world's largest offshore drilling companies.
The criminal information (here) alleges bribery schemes in Venezuela, India and Mexico.
Venezuela
According to the information, "Pride International owned and operated numerous oil and gas drilling rigs throughout South America, including in Venezuela." In Venezuela, Petroleos de Venezuela S.A. ("PDVSA"), "a Venezuelan state-owned oil company," leased "the semi-submersible rig Pride Venezuela from Pride Foramer Venezula." Pride Foramer is described as a branch of Pride Forasol's wholly-owned subsidiary Prime Foramer operating in Venezuela. According to the information, PDVSA "also contracted with Pride Foramer Venezuela to operate two jackup rigs, the GP-19 and the GP-20."
The information alleges that between February 2003 and July 2003 Country Manager 1 [a U.S. citizen who was the Country Manager in Venezuela], the Marketing Manager [a Venezuelan citizen working for Pride Foramer Venezuela in Venezuela], the Operations Manager [a French citizen working for Pride Foramer Venezuela in Venezuela], and others known and unknown agreed to pay $120,000 to the Venezuela Intermediary [a company that provided catering services to Pride Foramer Venezuela] with the intent that the money would be paid to the PDVSA Director [a Venezuelan citizen appointed by the President of Venezuela as a member of the PDVSA Board of Directors] to secure a contract extension for the Pride Venezuela."
According to the information, "in order to conceal and to generate money to pay the bribes to the PDVSA Director" the above named individuals "agreed and instructed one of Pride Foramer Venezuela's vendors, Vendor A, to inflate certain of its invoices for its services" that "Pride Foramer Venezuela then paid Vendor A for the undelivered services relating to the inflated invoices" and that "Vendor A delivered the excess money it received from Pride Foramer Venezuela to the Venezuela Intermediary with the intent that it would be provided to the PDVSA Director."
According to the information, "on behalf of Pride International and Pride Foramer Venezuela, Vendor A wire transferred bribe payments of at least $120,000 to, or for the benefit of, the PDVSA Director to an account at a bank in Miami, Florida in the name of the Venezuelan Intermediary." According to the information, "in exchange for the corrupt payments, the Pride Venezuela contract was extended for approximately three months" and "the profits Pride International derived from extending the contract were approximately $2.45 million."
As to GP-19 and GP-20, the information alleges that between April 2004 and November 2004 "the Marketing Manager, the Operations Manager, and others known and unknown also agreed to pay at least $114,000 to the Venezuelan Intermediary with the intent that the money would be paid to the PDVSA Director to secure contract extensions for the GP-19 and GP-20." The information describes a similar payment scheme and payments made to an account in Miami, Florida in the name of the Venezuela Intermediary. According to the information, "in exchange for the corrupt payments, the PDVSA Director caused PDVSA to extend the GP-20 contract from July 2004 through June 2005 and the GP-19 contract from February 2005 through June 2005."
According to the information "the profits that Pride International derived from the contract extensions for the GP-20 were approximately $596,000" however, the "GP-19 extension was not profitable." The information further alleges that Senior Executive A [a U.S citizen located in Houston] "concealed information relating to the bribe payments to the PDVSA Director from reports submitted to Pride International auditors."
India
The information alleges that between January 2003 and July 2003, "Senior Executive B [a French citizen who served as the Director of International Finance for Pride International], the Legal Director [a French citizen who served as the Director of Legal Affairs for Pride Forasol], the Base Manager [a Canadian citizen working for Pride India], the Area Manager [a U.S. citizen with responsibility for the Asia Pacific region], the India Customs Consultant [an individual who provided customs consulting services to Pride India], and others known and unknown agreed to pay $500,000 into bank accounts in Dubai in the names of third party entities with the intent that it would be passed on to an Indian CEGAT [Customs, Excise, and Gold Appellate Tribunal - an Indian administrative judicial tribunal] judge to secure a favorable judicial decision for Pride India [a branch of Pride Forasol's wholly-owned subsidiary Pride Foramer] relating to a litigation matter pending before the official involving the payment of customs duties and penalties owed for a rig, the Pride Pennsylvania."
According to the information, "to pay the bribe, employees of Pride Forasol, including Senior Executive B and the Legal Director, caused false invoices for agent and consulting services to be created and submitted to Interdrill [a wholly-owned subsidiary of Pride International organized under the laws of the Bahamas] for payment." The invoices were processed, the payment was made and on June 30, 2003"Pride India received a favorable ruling from CEGAT" resulting in an "estimate gain to Pride Forasol" of "at least $10 million."
According to the information, "to conceal the bribe, the Finance Manager [a British citizen who was the Eastern Hemisphere Finance Manager for Pride International], who was located in Houston, Texas, with knowledge of the scheme to bribe the Indian CEGAT judge, sent an e-mail to the Assistant Controller [a U.S. citizen], who was located in Houston, Texas, authorizing the booking of the bribe payments by Pride International's subsidiary, Interdrill, as a 'regular fee' in a newly created 'miscellaneous fees' account."
Mexico
The information alleges that around December 2004, "Senior Executive A, the Logistics Coordinator [a U.S. citizen who was the Logistics Coordinator for Pride Mexico], Country Manager 2 [a U.S. citizen who was the Country Manager in Mexico], and others known and unknown agreed to pay approximately $10,000 to the Mexican Marketing Agent [an individual who provided marketing services to Pride Mexico] to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International."
According to the information, "to conceal the payments, the Mexico Marketing Agent caused false invoices purportedly for electrical maintenance services to be submitted to Pride Mexico [collectively Mexico Drilling Limited LLC, Pride Central America LLC, and Pride Drilling LLC - wholly owned subsidiaries of Pride International] in support of the payment."
The information then alleges that all of the above-described payments were falsely characterized in the books and records of various subsidiaries or branches that were consolidated into the books, records, and accounts of Pride International for purposes of financial reporting.
Under the heading "total corrupt payments paid and improper benefits received," the information alleges that between January 2003 through December 2004 "certain Pride International subsidiaries and their branches paid at least $804,000 in bribes to foreign government officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties."
According to the information, "the benefit that Pride International received as a result of these payments was at least $13 million."
Based on the above allegations, the DOJ charged Pride International with one count of conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records as to the Mexico payments; one count of violating the FCPA's anti-bribery provisions as to the Venezuela payments; and one count of FCPA books and records violations as to the India payments.
Pride International Inc. DPA
The DOJ's charges against Pride International were resolved via a deferred prosecution agreement (see here).
Pursuant to the DPA, Pride International admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.
The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and Pride International. Among the factors stated are the following.
(a) during a routine audit, Pride International discovered an allegation of bribery;
(b) Pride International voluntarily and timely disclosed to the Department and the SEC the misconduct;
(c) Pride International conducted a thorough internal investigation of that misconduct;
(d) Pride International voluntarily initiated a comprehensive anti-bribery compliance review of Pride International's business operations in certain other high-risk countries [as to this broader compliance review, this Joint Motion to Waive Presentence Investigation notes that the review included a number of "high-risk countries including Angola, Brazil, Kazakhstan, Libya, Nigeria, the Republic of Congo, and Saudi Arabia" and that outside counsel with assistance from forensic accounting professionals were involved in the review of approximately 20 million pages of electronic and hard copy documents gathered from approximately 350 custodians, and that more than 200 interviews of employees and agents took place;
(e) Pride International regularly reported its findings to the Department;
(f) Pride International cooperated in the Department's investigation of this matter, as well as the SEC's investigation;
(g) Pride International undertook, of its own accord, remedial measures, including the enhancement of its FCPA compliance program, and agreed to maintain and enhance, as appropriate, its FCPA compliance program; and
(h) Pride International agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Pride International and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.
As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $72.5 million to $145 million. Pursuant to the DPA, Pride International agreed to pay a monetary penalty of $32.625 million - approximately 55% below the minimum guideline amount.
Pursuant to the DPA, Pride International agreed to a host of compliance undertakings and to report to the DOJ on an annual basis (during the term of the DPA) "on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures."
As is standard in FCPA DPAs, Pride International agreed not to make any public statement "contradicting the acceptance of responsibility by Pride International as set forth" in the DPA and Pride International further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
Pride Forasol Criminal Information
The Pride Forasol criminal information (here) alleges the same scheme to bribe an administrative judge in India as described in the Pride International information. The information charges one count of conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records; one count of violating the FCPA's anti-bribery provisions; and one count of aiding and abetting the creating of false books and records.
Pride Forasol Plea Agreement
The above described charges against Pride Forasol were resolved via a plea agreement (see here). Even though the Pride Forasol information is limited to India conduct, the sentencing guidelines range, $72.5 million to $145 million, is the same as set forth in the above described Pride International DPA.
The agreement sets forth factors motivating the DOJ to resolve the criminal charges in the manner in which they were resolved.
Such factors include: "Pride International's and Pride Forasol's substantial assistance with other related Department investigations regarding the bribery of foreign government officials in Venezuela and Mexico, including providing: (1) the names of individuals involved; and (2) contact information for the individuals" and "Pride International's and Pride Forasol's substantial assistance with other Department investigations regarding the bribery of foreign government officials in Nigeria and Saudi Arabia, including providing documentation and access to individuals."
The above referenced Joint Motion to Waive Presentence Investigation states that Pride Forasol and Pride International "developed and timely provided detailed and significant information regarding third parties, including Panalpina Word Transport (Holding) Ltd. [...] that was used to pay bribes to foreign government officials by numerous companies around the world." The Joint Motion states that "the information provided by the Companies substantially assisted the Department because the extent of Panalpina's conduct was unknown by the Department at the time of the Companies' disclosure. It was only through the extensive, worldwide investigative efforts of the Companies that these complex criminal activities were uncovered and reported to the Department."
SEC
The SEC's civil complaint (here) alleges the same Venezuela, India, and Mexico payments described above.
As to Venezuela, the complaint alleges as follows:
"From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela's state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables." (See this prior post for a summary of the Summers enforcement action).
"In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride's U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made."
"In or about late 2004, Bobby Benton, Pride's Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat." (See here for a summary of the Benton enforcement action).
Based on these allegations, the SEC charged Pride International with FCPA anti-bribery violations. Based on these allegations, as well as the below allegations, the SEC charged Pride International with FCPA books and records and internal control violations.
The SEC's complaint also describes certain other "transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries' books."
As to Mexico, the complaint alleges that a $15,000 payment was made to a "Mexican customs official during the course of the export [of certain rigs] to ensure that the export of the rig would not be delayed due to claimed violations relating to non-conforming equipment on board the rig."
As to Kazakhstan, the complaint alleges that the Kazakhstan affiliate of Panalpina informed a Pride Forasol logistics manager "that Kazakh customs officials had identified irregularities during a customs audit of Pride Forasol Kazakhstan, but that the issue could be resolved by making a cash payment of approximately $45,000 and paying substantially reduced monetary penalties." According to the complaint, "certain Pride Forasol managers authorized the cash payment by [Panalpina] to resolve the customs irregularities." The complaint further alleges that Pride Forasol Kazakhstan made "three payments totaling approximately $204,000" to a Kazakh Tax Consultant while "knowing facts that suggested a high probability that the Kazakh Tax Consultant would give all or a portion of the payments to Kazakh tax officials" who previously threatened to levy substantial taxes and penalties against Pride Forasol Kazakhstan.
As to Nigeria, the complaint alleges that "certain Pride Forasol Nigeria and Pride Forasol managers were aware of information suggesting a high probability that [Panalpina] would give all or a portion of the lump-sum payments charged in connection with obtaining or extending Pride Forasl Nigeria temporary importation ("TI") permits to Nigerian customs officials in exchange for their cooperation in issuing the TI permits on favorable terms and/or without completing certain legally required steps." The complaint further alleges that Pride Forasol Nigeria records were incompete and that Pride Forasol Nigeria "did not have adequate assurances" that certain tax payments were not paid directly to tax officials. In addition, the complaint alleges that Pride Forasol Nigeria "authorized the payment of $52,000 to a Nigeria Tax Agent while knowing facts that suggested a high likelihood that the Nigeria Tax Agent would give all or a portion of the money to a Nigerian tax official."
As to Saudi Arabia, the complaint alleges that the Saudi Arabian affiliate of Panalpina informed a Pride Forasol Arabia manager that expedited customs clearance of a rig could be assured for a payment of $10,000. The complaint alleges that the manager "took $10,000 in cash from Pride Forasol Arabia's petty cash fund, describing on the petty cash voucher the purpose of the payment as 'freight forwarding services,' and gave the money to a Saudi customs official."
As to Congo, the complaint alleges as follows. "An inspection by the Congo Merchant Marine revealed that certain personnel abroad [a Pride Congo rig] lacked required maritime certification. A Merchant Marine official proposed that Pride Congo could resolve the paperwork defiiciency by making a payment for his personal benefit. A Pride Congo manager agreed to pay the Merchant Marine official $8,000 in lieu of an official penalty." According to the complaint, the "payments were recorded as travel expenses in Pride Congo's books and records."
As to Libya, the complaint alleges that Pride Forasol managers authorized payments to a Libya Tax agent in connection with unpaid social security taxes and penalties against Pride Forasol Libya "without adequate assurances that the Libyan Tax Agent would not pass some or all of these fees to" officials of Libya's social security agency.
According to the complaint, "Pride obtained improper benefits totaling approximately $19,341,870 from the conduct" described in the complaint. "Prejudgment interest on this amount is $4,187,848."
Without admitting or denying the SEC's allegations, Pride agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement and prejudgment interest of $23,529,718.
Pride's press release (here) notes, among other things, as follows: "In addition to self-reporting in February 2006 and voluntarily cooperating with the government, we have greatly strengthened and enhanced our antibribery compliance program and policies. Our current management and board are strongly committed to conducting the company's business ethically and legally, and we seek to instill in our employees the expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law."
Martin Weinstein (here) and Jeffrey Clark (here) both former DOJ enforcement attorneys with Willkie Farr & Gallagher, as well as Samuel Cooper (here) of Baker Botts, represented the Pride entities.
Monday, November 15, 2010
Yet Another Noisy Exit
Rodolfo Michelon was the Director & Controller - Mexico of Sempra Global. Michelon was also the legal representative of various Sempra subsidiary companies located in Mexico and served as a member of the board of directors of the Mexican subsidiaries.
That is until March 10, when Michelon was terminated by Sempra.
In a lawsuit (here) recently filed in California state court, Michelon claims that his termination was wrongful for many reasons, including the following:
"Sempra regularly required Michelon to transfer funds, and account for illegitimate expenditures that boiled down to bribes of government officials - everything from fraudulent trusts ostensibly to purchase fire fighting equipment for Mexican governments, to paying off local fisherman to move their operations away from Sempra facilities, to demanding remediation of accounting that falsely stated Sepmpra's assets, to the outright wiring of huge amounts of money to 'consultants' throughout Mexico. As with his other attempts to ensure he was complying with his ethical requirements as a CPA, Michelon's repeated questioning and protests of the miscellaneous frauds and bribes was met with open hostility and threats of termination. The termination of the Controller employment was not only in retaliation for Michelon's complaints, but it was also meant to keep Michelon from reporting the frauds and bribes to governmental, law enforcement officials."
Sempra Global is described (here) as "the umbrella for Sempra Energy's businesses operating in competitive energy markets. Sempra Global companies acquire, develop and operate infrastructure assets related to the production and distribution of energy, including power plants, natural gas pipelines and liquefied natural gas (LNG) receipt terminals."
Various Sempra entities are publicly traded issuers (see here).
In this San Diego Union Tribune report Sempra officials "called Michelon a disgruntled ex-employee attempting to cash in by making 'outlandishly false claims and misrepresentations' after being let go in a routine reorganization." A Sempra spokesperson said that the “company first became aware of Mr. Michelon’s claims several months ago" and that “Sempra’s board of directors ordered an independent investigation, which found Mr. Michelon’s allegations to be completely without merit.”
Michelon's "noisy exit" is the fourth such exit publicly reported over the past three months that may implicate the FCPA. See here and here for the prior posts.
That is until March 10, when Michelon was terminated by Sempra.
In a lawsuit (here) recently filed in California state court, Michelon claims that his termination was wrongful for many reasons, including the following:
"Sempra regularly required Michelon to transfer funds, and account for illegitimate expenditures that boiled down to bribes of government officials - everything from fraudulent trusts ostensibly to purchase fire fighting equipment for Mexican governments, to paying off local fisherman to move their operations away from Sempra facilities, to demanding remediation of accounting that falsely stated Sepmpra's assets, to the outright wiring of huge amounts of money to 'consultants' throughout Mexico. As with his other attempts to ensure he was complying with his ethical requirements as a CPA, Michelon's repeated questioning and protests of the miscellaneous frauds and bribes was met with open hostility and threats of termination. The termination of the Controller employment was not only in retaliation for Michelon's complaints, but it was also meant to keep Michelon from reporting the frauds and bribes to governmental, law enforcement officials."
Sempra Global is described (here) as "the umbrella for Sempra Energy's businesses operating in competitive energy markets. Sempra Global companies acquire, develop and operate infrastructure assets related to the production and distribution of energy, including power plants, natural gas pipelines and liquefied natural gas (LNG) receipt terminals."
Various Sempra entities are publicly traded issuers (see here).
In this San Diego Union Tribune report Sempra officials "called Michelon a disgruntled ex-employee attempting to cash in by making 'outlandishly false claims and misrepresentations' after being let go in a routine reorganization." A Sempra spokesperson said that the “company first became aware of Mr. Michelon’s claims several months ago" and that “Sempra’s board of directors ordered an independent investigation, which found Mr. Michelon’s allegations to be completely without merit.”
Michelon's "noisy exit" is the fourth such exit publicly reported over the past three months that may implicate the FCPA. See here and here for the prior posts.
Friday, October 29, 2010
Friday Roundup
It has been a few weeks since my last Friday Roundup.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo ... it's all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens - The Year After, here for my post on BAE's recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA - see here).
Denis McInerney, Chief of the DOJ's Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney "sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which 'companies are allowed to bribe, but if caught they have to pay a fee.'" According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he "emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur." According to Inside U.S. Trade, McInerney said "I guarantee you that these firms do not view these are mere licensing fees."
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
"As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews."
Here is what Avon had to say in the fling about its net global expenses:
"The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation."
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts "for approximately one percent of the Company’s consolidated net sales and consolidated total assets."
Recently, Orthofix provided this update in an 8-K filing (here):
"Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico."
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled "Going After Graft." Among other things, the piece states:
"With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are 'four letters you need to be aware of if you’re doing business in the international marketplace.'"
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no "overzealous prosecutions," and there were no prosecutions undertaken as "publicity stunts."
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada's Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada's Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison "after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad."
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role "he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions."
According to the SFO release, "Messent authorized 41 corrupt payments" "to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS."
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.'s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, "the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund."
According to the Guardian, "the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida."
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a "global imperative" and he announced a "redoubled commitment on behalf of the United States Department of Justice to recover" funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative "aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations." Holder announced that the DOJ is "assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources."
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
"This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken."
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants "companies that uncover illegal conduct to come forward voluntarily."
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 "To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption" (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country "of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity" subject to an exception where denying such entry would be "contrary to the interests" of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) "seem[s] to lack the backbone to use this prohibition."
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
"The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States."
Joe Palazzolo (Wall Street Journal - Corruption Currents) followed up with Johnson and noted in a recent article that the "State Department is stepping up its game" in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to "step up the game" when "for a long time, one part-official [...] handled 7750 matters."
Palazzolo reports that the State Department recently hired two new employees and is "processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues." The article quotes a State Department official as saying, "it is our hope and intention that the new hires will result in greater capacity."
Son Fights to Keep New York Condo
This prior post discussed the DOJ's civil forfeiture complaint filed in July against certain U.S. properties "that represent a portion of illegal bribes paid to the former president of Taiwan and his wife."
Joe Palazzolo (Wall Street Journal - Corruption Currents) recently reported that "the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government."
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss "shortly."
*****
A good weekend to all.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo ... it's all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens - The Year After, here for my post on BAE's recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA - see here).
Denis McInerney, Chief of the DOJ's Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney "sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which 'companies are allowed to bribe, but if caught they have to pay a fee.'" According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he "emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur." According to Inside U.S. Trade, McInerney said "I guarantee you that these firms do not view these are mere licensing fees."
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
"As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews."
Here is what Avon had to say in the fling about its net global expenses:
"The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation."
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts "for approximately one percent of the Company’s consolidated net sales and consolidated total assets."
Recently, Orthofix provided this update in an 8-K filing (here):
"Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico."
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled "Going After Graft." Among other things, the piece states:
"With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are 'four letters you need to be aware of if you’re doing business in the international marketplace.'"
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no "overzealous prosecutions," and there were no prosecutions undertaken as "publicity stunts."
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada's Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada's Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison "after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad."
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role "he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions."
According to the SFO release, "Messent authorized 41 corrupt payments" "to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS."
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.'s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, "the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund."
According to the Guardian, "the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida."
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a "global imperative" and he announced a "redoubled commitment on behalf of the United States Department of Justice to recover" funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative "aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations." Holder announced that the DOJ is "assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources."
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
"This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken."
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants "companies that uncover illegal conduct to come forward voluntarily."
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 "To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption" (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country "of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity" subject to an exception where denying such entry would be "contrary to the interests" of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) "seem[s] to lack the backbone to use this prohibition."
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
"The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States."
Joe Palazzolo (Wall Street Journal - Corruption Currents) followed up with Johnson and noted in a recent article that the "State Department is stepping up its game" in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to "step up the game" when "for a long time, one part-official [...] handled 7750 matters."
Palazzolo reports that the State Department recently hired two new employees and is "processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues." The article quotes a State Department official as saying, "it is our hope and intention that the new hires will result in greater capacity."
Son Fights to Keep New York Condo
This prior post discussed the DOJ's civil forfeiture complaint filed in July against certain U.S. properties "that represent a portion of illegal bribes paid to the former president of Taiwan and his wife."
Joe Palazzolo (Wall Street Journal - Corruption Currents) recently reported that "the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government."
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss "shortly."
*****
A good weekend to all.
Friday, October 22, 2010
What Will Happen To Lindsey Manufacturing Co.?
The common way for a company to resolve an FCPA enforcement action is via a non-prosecution or deferred prosecution agreement. If the conduct is egregious, yet the company is cooperating, the company will generally plead guilty via a criminal information.
A criminal indictment of a company is rare. According to my records, it has not happened since September 2008.
It happened yesterday.
As noted in this DOJ release, "Lindsey Manufacturing Company (here), an Azusa, Calif., company and two of its executives (Keith E. Lindsey, 65 and Steve Lee, 60) were indicted today for their alleged roles in a conspiracy to pay bribes to Mexican government officials at the Comisión Federal de Electricidad (CFE), a state-owned utility company ...". Lindsey Manufacturing Co., Lindsey, and Lee each were charged in an eight-count superseding indictment with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and FCPA violations
Given the allegations in the recent Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar indictments (see here for the prior post) this is hardly a surprising development.
What is surprising is that Lindsey Manufacturing was criminally indicted. Previous media reports indicated that Lindsey Manufacturing was "cooperating with authorities and wasn't aware that its contracts were being used for bribes" according Lindsey attorney Jan Handzlik (here). According to this report, "attorneys for Lindsey and Lee said their clients had no knowledge of improper payments."
What will happen to Lindsey Manufacturing, a company that has previously secured U.S. Department of Energy contracts?
The conventional wisdom is this post-Arthur Anderson world is that NPAs and DPAs are necessary because a company will fail when it is criminally indicted.
The last company criminally indicted for violating the FCPA was Nexus Technologies Inc. (see here).
It does not exist today (see here).
A criminal indictment of a company is rare. According to my records, it has not happened since September 2008.
It happened yesterday.
As noted in this DOJ release, "Lindsey Manufacturing Company (here), an Azusa, Calif., company and two of its executives (Keith E. Lindsey, 65 and Steve Lee, 60) were indicted today for their alleged roles in a conspiracy to pay bribes to Mexican government officials at the Comisión Federal de Electricidad (CFE), a state-owned utility company ...". Lindsey Manufacturing Co., Lindsey, and Lee each were charged in an eight-count superseding indictment with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and FCPA violations
Given the allegations in the recent Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar indictments (see here for the prior post) this is hardly a surprising development.
What is surprising is that Lindsey Manufacturing was criminally indicted. Previous media reports indicated that Lindsey Manufacturing was "cooperating with authorities and wasn't aware that its contracts were being used for bribes" according Lindsey attorney Jan Handzlik (here). According to this report, "attorneys for Lindsey and Lee said their clients had no knowledge of improper payments."
What will happen to Lindsey Manufacturing, a company that has previously secured U.S. Department of Energy contracts?
The conventional wisdom is this post-Arthur Anderson world is that NPAs and DPAs are necessary because a company will fail when it is criminally indicted.
The last company criminally indicted for violating the FCPA was Nexus Technologies Inc. (see here).
It does not exist today (see here).
Friday, October 1, 2010
ABB
Earlier this week the DOJ and SEC announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. - Jordan.
Swiss-based ABB Ltd. (here) is a provider of power and automation technologies with American Depositary Shares publicly traded on the New York Stock Exchange.
This post summarizes the various aspects of the enforcement action in which ABB Ltd. and ABB Inc. agreed to pay a total of $58.3 million ($19 million in DOJ criminal penalties and $39.3 million in SEC disgorgement and civil penalties).
DOJ
ABB Ltd. Deferred Prosecution Agreement
As noted in this DOJ release, ABB Ltd. agreed to enter into a deferred prosecution agreement (DPA). ABB's press release (here) states that the DPA "includes provisions related to the involvement of a subsidiary in Jordan in the Oil for Food Program" and that "in lieu of an external compliance monitor, the DOJ and SEC have agreed to allow ABB to report on its continuing compliance efforts and the results of the review of its internal processes for a three-year period going forward."
In other words, the DPA appears limited to the conduct of ABB Ltd. - Jordan (summarized below) and not the conduct of ABB Inc. (summarized below).
[Note - to my knowledge the DPA has yet to be publicly released. Here is a request for DOJ readers of this blog. Under the DOJ's "old" website, the charging documents were released and linked along with the press release. With the revamped website, the charging documents are nowhere to be found requiring interested persons to go to Pacer or other sources. The charging documents ultimately end up on the DOJ's FCPA specific website, but in many cases it takes weeks. DOJ may want to consider the old system which provided real-time access to these important charging documents]
ABB Ltd. - Jordan Criminal Information
The information charges ABB Ltd. - Jordan ("ABB-Jordan") with one count of conspiracy to commit wire fraud and to violate the FCPA's books and records provisions.
According to the information (here), ABB-Jordan was a wholly-owned subsidiary of ABB Ltd. ABB-Jordan, through its 95% owned subsidiary ABB Near East Trading Ltd. ("ABB Near East") provided equipment and services to electrical utilities, including control measurement and protection systems, transducers, and metering equipment.
The information charges that ABB Near East "had three principle customers under the United Nations Oil-for-Food Program ("OFFP") ... the General Company for Electricity Energy Production, the Baghdad Mayoralty, and State Company Baghdad Electricity Distribution all of which were regional companies of the Iraqi Electricity Commission, an Iraqi government agency" (collectively the "Iraqi Electricity Companies").
The information charges that "from in or about April 2000 through in or about April 2004, ABB Near East, received eleven purchase orders for electrical equipment and services worth over $5.9 million with the Iraqi Electricity Companies, pursuant to the OFFP." According to the information, "to obtain these purchase orders, ABB Near East caused over $300,000 in kickbacks to be paid to the government of Iraq" and that "in order to generate the funds to pay the kickbacks to the Iraqi government and conceal those payments, ABB Near East would inflate the price of its contracts with the Iraqi government by approximately 10% before submitting the contracts to the U.N. for approval."
According to the information, the kickback payments were falsely characterized on ABB-Jordan's or ABB Near East's books and records which were "incorporated into the books and records of ABB Ltd. for purposes of preparing ABB Ltd's year-end financial statements."
According to the DOJ release, "ABB Ltd. admitted that [ABB-Jordan] agreed to pay kickback payments to the former Iraqi government" in connection with OFFP contracts and "agreed to pay a criminal penalty of $1.9 million."
ABB Inc. Criminal Information
According to the information (here) ABB Inc. is an "indirect subsidiary" of ABB Ltd. incorporated under Delaware law. The information charges that ABB Inc. "conducted business, in part, through a business unit called ABB Network Management ("ABB NM") that had its principal place of business in Sugar Land, Texas and was acquired by ABB Inc. in or around January 1999."
According to the information, "ABB NM's primary business was to provide products and services to electrical utilities for network management in power generation, transmission, and distribution." The information charges that "many of ABB NM's clients were foreign state-owned utilities" and that "ABB NM conducted business in a number of its foreign markets through sales representatives."
The information largely centers on the conduct of John Joseph O'Shea and Fernando Maya Basurto and business with Comision Federal de Electricidad ("CFE") - a Mexican electrical company. According to the information, O'Shea was the "General Manager of ABB NM" who "oversaw its operations both before and after its acquisition by ABB Inc." and was "responsible for approving payments to sales representatives." According to the information, Basurto was a "citizen of Mexico" who "performed work for ABB NM on its contracts with CFE."
O'Shea was criminally charged in November 2009 (see here). Basurto has pleaded guilty (see here). For more, see this prior post.
For additional FCPA enforcements involving CFE see this recent post.
The information details an elaborate scheme that is summarized in the DOJ release as the payment of bribes "from 1997 to 2004 that totaled approximately $1.9 million" to various officials at CFE and that "in exchange for the bribe payments ... ABB NM received contracts worth more than $81 million in revenue."
As noted in the DOJ release, "ABB Inc. pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violating these provisions of the FCPA." According to the release, the court "imposed a sentence that included a criminal fine of $17.1 million."
The information specifically states that "ABB Inc. terminated O'Shea in November 2004 and thereafter conducted a thorough internal investigation of the improper payments. It voluntarily disclosed the conduct to the DOJ and the SEC in April 2005."
SEC
The SEC's civil complaint against ABB Ltd. (see here) picks up both the Iraq and Mexico conduct mentioned above and charges ABB Ltd. with violating the FCPA's anti-bribery, books and records, and internal control provisions.
The complaint alleges in summary fashion as follows:
"From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB."
The complaint describes numerous payments, including payments to "pay for the Mediteranean cruise vacation for two CFE officials and their wives" and "tuition for the son of a CFE official" at a "private military school in Wisconsin."
As to the "Mexican bribery scheme", the SEC alleges that "ABB, which failed to conduct any due diligence on the use or payments to [a Mexican agent] and other companies, improperly recorded the illicit payments on its books as payments for commission and services on the projects."
As to the OFFP, the complaint alleges that "from approximately 2000 to 2004, ABB participated in the Oil for Food program through six of its subsidiaries" and that the "six subsidiaries developed various schemes to pay secret kickbacks to Iraq in order to obtain contracts. The kickbacks were characterized as after sales service fees but in reality they were nothing more than bribes paid to the Iraqi regime." According to the SEC, "kickbacks of approximately $810,793 were paid in connection with the subsidiaries' sales of goods on twenty-seven contracts with promises to pay additional kickbacks of $239,501 on three other contracts. The total revenues on the contracts were approximately $13,577,727 and profits were $3,801,367. ABB improperly disguised the [after sales service fees] on its books and records by mischaracterizing them as legitimate after sales services, consultation costs or commissions."
Further the SEC alleged as follows:
"as evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB's knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB's books and records, ABB's failure to detect these irregularities, and ABB's failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations."
In an SEC release (see here) SEC officials stated: "as the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials" and that "multi-national companies that make illicit payments through layers of subsidiaries will be held accountable."
Without admitting or denying the SEC's allegations, ABB Ltd. consented to the entry of a final judgment that permanently enjoins the company from future FCPA violations, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. According to the SEC release, "the order also requires the company to comply with certain undertakings regarding its FCPA compliance program."
In a press release (here), ABB noted that it "initiated these matters in a voluntary disclosure to the DOJ and SEC beginning in 2005." The company stated that it "cooperated fully with the DOJ and SEC and has put in place a global comprehensive compliance and integrity program the DOJ has said 'may become a benchmark for the industry.'"
Laurence Urgenson (here) and others from Kirkland & Ellis LLP represent the ABB entities.
Swiss-based ABB Ltd. (here) is a provider of power and automation technologies with American Depositary Shares publicly traded on the New York Stock Exchange.
This post summarizes the various aspects of the enforcement action in which ABB Ltd. and ABB Inc. agreed to pay a total of $58.3 million ($19 million in DOJ criminal penalties and $39.3 million in SEC disgorgement and civil penalties).
DOJ
ABB Ltd. Deferred Prosecution Agreement
As noted in this DOJ release, ABB Ltd. agreed to enter into a deferred prosecution agreement (DPA). ABB's press release (here) states that the DPA "includes provisions related to the involvement of a subsidiary in Jordan in the Oil for Food Program" and that "in lieu of an external compliance monitor, the DOJ and SEC have agreed to allow ABB to report on its continuing compliance efforts and the results of the review of its internal processes for a three-year period going forward."
In other words, the DPA appears limited to the conduct of ABB Ltd. - Jordan (summarized below) and not the conduct of ABB Inc. (summarized below).
[Note - to my knowledge the DPA has yet to be publicly released. Here is a request for DOJ readers of this blog. Under the DOJ's "old" website, the charging documents were released and linked along with the press release. With the revamped website, the charging documents are nowhere to be found requiring interested persons to go to Pacer or other sources. The charging documents ultimately end up on the DOJ's FCPA specific website, but in many cases it takes weeks. DOJ may want to consider the old system which provided real-time access to these important charging documents]
ABB Ltd. - Jordan Criminal Information
The information charges ABB Ltd. - Jordan ("ABB-Jordan") with one count of conspiracy to commit wire fraud and to violate the FCPA's books and records provisions.
According to the information (here), ABB-Jordan was a wholly-owned subsidiary of ABB Ltd. ABB-Jordan, through its 95% owned subsidiary ABB Near East Trading Ltd. ("ABB Near East") provided equipment and services to electrical utilities, including control measurement and protection systems, transducers, and metering equipment.
The information charges that ABB Near East "had three principle customers under the United Nations Oil-for-Food Program ("OFFP") ... the General Company for Electricity Energy Production, the Baghdad Mayoralty, and State Company Baghdad Electricity Distribution all of which were regional companies of the Iraqi Electricity Commission, an Iraqi government agency" (collectively the "Iraqi Electricity Companies").
The information charges that "from in or about April 2000 through in or about April 2004, ABB Near East, received eleven purchase orders for electrical equipment and services worth over $5.9 million with the Iraqi Electricity Companies, pursuant to the OFFP." According to the information, "to obtain these purchase orders, ABB Near East caused over $300,000 in kickbacks to be paid to the government of Iraq" and that "in order to generate the funds to pay the kickbacks to the Iraqi government and conceal those payments, ABB Near East would inflate the price of its contracts with the Iraqi government by approximately 10% before submitting the contracts to the U.N. for approval."
According to the information, the kickback payments were falsely characterized on ABB-Jordan's or ABB Near East's books and records which were "incorporated into the books and records of ABB Ltd. for purposes of preparing ABB Ltd's year-end financial statements."
According to the DOJ release, "ABB Ltd. admitted that [ABB-Jordan] agreed to pay kickback payments to the former Iraqi government" in connection with OFFP contracts and "agreed to pay a criminal penalty of $1.9 million."
ABB Inc. Criminal Information
According to the information (here) ABB Inc. is an "indirect subsidiary" of ABB Ltd. incorporated under Delaware law. The information charges that ABB Inc. "conducted business, in part, through a business unit called ABB Network Management ("ABB NM") that had its principal place of business in Sugar Land, Texas and was acquired by ABB Inc. in or around January 1999."
According to the information, "ABB NM's primary business was to provide products and services to electrical utilities for network management in power generation, transmission, and distribution." The information charges that "many of ABB NM's clients were foreign state-owned utilities" and that "ABB NM conducted business in a number of its foreign markets through sales representatives."
The information largely centers on the conduct of John Joseph O'Shea and Fernando Maya Basurto and business with Comision Federal de Electricidad ("CFE") - a Mexican electrical company. According to the information, O'Shea was the "General Manager of ABB NM" who "oversaw its operations both before and after its acquisition by ABB Inc." and was "responsible for approving payments to sales representatives." According to the information, Basurto was a "citizen of Mexico" who "performed work for ABB NM on its contracts with CFE."
O'Shea was criminally charged in November 2009 (see here). Basurto has pleaded guilty (see here). For more, see this prior post.
For additional FCPA enforcements involving CFE see this recent post.
The information details an elaborate scheme that is summarized in the DOJ release as the payment of bribes "from 1997 to 2004 that totaled approximately $1.9 million" to various officials at CFE and that "in exchange for the bribe payments ... ABB NM received contracts worth more than $81 million in revenue."
As noted in the DOJ release, "ABB Inc. pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violating these provisions of the FCPA." According to the release, the court "imposed a sentence that included a criminal fine of $17.1 million."
The information specifically states that "ABB Inc. terminated O'Shea in November 2004 and thereafter conducted a thorough internal investigation of the improper payments. It voluntarily disclosed the conduct to the DOJ and the SEC in April 2005."
SEC
The SEC's civil complaint against ABB Ltd. (see here) picks up both the Iraq and Mexico conduct mentioned above and charges ABB Ltd. with violating the FCPA's anti-bribery, books and records, and internal control provisions.
The complaint alleges in summary fashion as follows:
"From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB."
The complaint describes numerous payments, including payments to "pay for the Mediteranean cruise vacation for two CFE officials and their wives" and "tuition for the son of a CFE official" at a "private military school in Wisconsin."
As to the "Mexican bribery scheme", the SEC alleges that "ABB, which failed to conduct any due diligence on the use or payments to [a Mexican agent] and other companies, improperly recorded the illicit payments on its books as payments for commission and services on the projects."
As to the OFFP, the complaint alleges that "from approximately 2000 to 2004, ABB participated in the Oil for Food program through six of its subsidiaries" and that the "six subsidiaries developed various schemes to pay secret kickbacks to Iraq in order to obtain contracts. The kickbacks were characterized as after sales service fees but in reality they were nothing more than bribes paid to the Iraqi regime." According to the SEC, "kickbacks of approximately $810,793 were paid in connection with the subsidiaries' sales of goods on twenty-seven contracts with promises to pay additional kickbacks of $239,501 on three other contracts. The total revenues on the contracts were approximately $13,577,727 and profits were $3,801,367. ABB improperly disguised the [after sales service fees] on its books and records by mischaracterizing them as legitimate after sales services, consultation costs or commissions."
Further the SEC alleged as follows:
"as evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB's knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB's books and records, ABB's failure to detect these irregularities, and ABB's failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations."
In an SEC release (see here) SEC officials stated: "as the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials" and that "multi-national companies that make illicit payments through layers of subsidiaries will be held accountable."
Without admitting or denying the SEC's allegations, ABB Ltd. consented to the entry of a final judgment that permanently enjoins the company from future FCPA violations, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. According to the SEC release, "the order also requires the company to comply with certain undertakings regarding its FCPA compliance program."
In a press release (here), ABB noted that it "initiated these matters in a voluntary disclosure to the DOJ and SEC beginning in 2005." The company stated that it "cooperated fully with the DOJ and SEC and has put in place a global comprehensive compliance and integrity program the DOJ has said 'may become a benchmark for the industry.'"
Laurence Urgenson (here) and others from Kirkland & Ellis LLP represent the ABB entities.
Tuesday, September 21, 2010
The 30% Commission, The Dream Seeker, The Ferrari Spyder, and Consulting Fees for Mom
According to its website (see here) Mexico's Comision Federal de Electricidad ("CFE") "is a decentralized government agency, duly incorporated and which controls its own assets."
Does that make CFE's Sub-Director of Generation and Director of Operations "foreign officials" under the FCPA?
According to the DOJ, apparently so, as it alleges in this recent indictment against Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar. See here for the DOJ release.
According to the indictment, "Comision Federal de Electricidad ('CFE') was an electric utility company owned by Mexico. During the time period relevant to this Indictment, CFE was responsibile for supplying electricity to all of Mexico othern than Mexico City. CFE contracted with Mexican and foreign companies for goods and services to help supply electricity services to its customers."
"Company LM" according to the indictment, (a company identified as Lindsey Manufacturing in media reports - see here see here for more about Lindsey Manufacturing), is a "privately held company incorporated in California and headquartered in Azusa, California. According to the indictment, LM "manufactured emergency restoration systems and other equipment used by electrical utility companies" including "state-owned utilities, including CFE" "one of LM's most significant customers." According to the indictment, LM "conducted business in a number of foreign markets through sales representatives."
According to the indictment, "Grupo Internacional De Asesores S.A. ('Grupo') was a company incorporated in Panama and headquartered in Mexico" with a "brokerage account in Houston, Texas at Global Financial Services, Inc." The indictment alleges that "Grupo's purported business was to provide sales representation services for companies like LM that had business with CFE" and that "Grupo was LM's sales representative in Mexico and received a percentage of the revenue LM received from its contracts with CFE." According to the indictment, Grupo was an "agent of a domestic concern" under the FCPA.
According to the indictment, Enrique Aguilar, a lawful permanent resident of the U.S. "was a Director of Grupo and was hired by LM to obtain contracts from CFE" and a "an agent of a domestic concern" under the FCPA.
According to the indictment, Angela Aguilar, a citizen of Mexico, "served as an Officer and a Director of Grupo" and "managed Grupo's finances" and was "the sole signatory on Grupo's Global Financial brokerage account."
According to the indcitment, Enrique Aguilar, together with President KL (an individual identified as the President of LM), Vice President SL (an individual identified as the Vice President and Chief Financial Officer of LM), LM and others conspired to make improper payments to "foreign officials" to assist Aguilar, Grupo, President KL, Vice President SL, LM, and others in obtaining and retaining business in violation of the FCPA.
The indictment alleges that Aquilar offered to become LM's "sales representative in Mexico in exchange for a thirty percent commission on all of the goods and services" LM sold to CFE and that President KL and Vice President SL "would agree to pay" Aquilar "a thirty percent commission into Grupo's brokerage account at Global Financial, even though it was significantly higher than the commission LM paid to its previous sales representative in Mexico" knowing that Aquilar "had a close personal relationship with Official 1 and would use all or a portion of the thirty percent commission to pay Official 1 and others bribes in exchange for CFE awarding LM contracts."
Among other things, the indictment alleges that: (i) Grupo's Global Financial brokerage account was used to "pay the credit card bills for Official 1's American Express credit card 'in full every month, until further notice'"; (ii) Aquilar "aided Official 1 in purchasing an 82 foot yacht named the Dream Seeker for $1,800,010 ...;" (iii) Aquilar caused wire transfers to Official 2's female and male relatives for "payment for professional services advice" and Official 2's mother and brother for a "consulting fee;" and (iv) Aquilar caused the "issuance of a check to Ferrari of Beverly Hills from Grupo's Financial brokerage account for approximately $297,500 to purchase a 2005 Ferrari Spyder for Official 1."
Who are Official 1 and 2?
According to the indictment:
"Official 1 was a Mexican citizen who held a senior level position at CFE. Official 1 became the Sub-Director of Generation for CFE in 2002 and the Director of Operations in 2007. Official 1's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."
"Official 2 was a Mexican citizen who also held a senior level position at CFE. Official 2 was the Director of Operations at CFE until that position was taken over by Official 1 in 2007. Official 2's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."
[For more on Official 1 and CFE - see David Luhnow, "U.S. Probe Leads to Mexico Chief," Wall Street Journal (August 24, 2010)]
According to the indictment, Angela Aguilar assisted or otherwise caused many of the above referenced payments to be made.
Based on the above core conduct, Enrique Aquilar was charged in a seven-count indictment with conspiracy to violate the FCPA, FCPA violations, money laundering conspiracy and money laundering. Angela Aquilar was charged with money laundering conspiracy and money laundering.
As noted in the DOJ's release "an indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt."
Michael Zweiback (here), a former DOJ prosecutor currently with Seyfarth Shaw LLP, represents both Enrique and Angela Aquilar. He stated: "we intend to vigorously defend the charges and expect the Aguiliar's to be found not guilty."
With Lindsey Manufacturing and certain of its top executives implicated in the alleged conduct, it is likely that the above core allegations will be repeated in future enforcement actions.
*****
The Aquilar indictments continue a DOJ trend of holding agents, sales representatives etc. accountable for allegedly participating in bribery schemes. (See this prior post for other such enforcement actions).
*****
Does CFE ring a bell?
It should because this alleged "state-owned utility company" is at the center of the enforcement actions against John Jospeh O'Shea (see here and here) and Fernando Maya Basurto (see here).
Does that make CFE's Sub-Director of Generation and Director of Operations "foreign officials" under the FCPA?
According to the DOJ, apparently so, as it alleges in this recent indictment against Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar. See here for the DOJ release.
According to the indictment, "Comision Federal de Electricidad ('CFE') was an electric utility company owned by Mexico. During the time period relevant to this Indictment, CFE was responsibile for supplying electricity to all of Mexico othern than Mexico City. CFE contracted with Mexican and foreign companies for goods and services to help supply electricity services to its customers."
"Company LM" according to the indictment, (a company identified as Lindsey Manufacturing in media reports - see here see here for more about Lindsey Manufacturing), is a "privately held company incorporated in California and headquartered in Azusa, California. According to the indictment, LM "manufactured emergency restoration systems and other equipment used by electrical utility companies" including "state-owned utilities, including CFE" "one of LM's most significant customers." According to the indictment, LM "conducted business in a number of foreign markets through sales representatives."
According to the indictment, "Grupo Internacional De Asesores S.A. ('Grupo') was a company incorporated in Panama and headquartered in Mexico" with a "brokerage account in Houston, Texas at Global Financial Services, Inc." The indictment alleges that "Grupo's purported business was to provide sales representation services for companies like LM that had business with CFE" and that "Grupo was LM's sales representative in Mexico and received a percentage of the revenue LM received from its contracts with CFE." According to the indictment, Grupo was an "agent of a domestic concern" under the FCPA.
According to the indictment, Enrique Aguilar, a lawful permanent resident of the U.S. "was a Director of Grupo and was hired by LM to obtain contracts from CFE" and a "an agent of a domestic concern" under the FCPA.
According to the indictment, Angela Aguilar, a citizen of Mexico, "served as an Officer and a Director of Grupo" and "managed Grupo's finances" and was "the sole signatory on Grupo's Global Financial brokerage account."
According to the indcitment, Enrique Aguilar, together with President KL (an individual identified as the President of LM), Vice President SL (an individual identified as the Vice President and Chief Financial Officer of LM), LM and others conspired to make improper payments to "foreign officials" to assist Aguilar, Grupo, President KL, Vice President SL, LM, and others in obtaining and retaining business in violation of the FCPA.
The indictment alleges that Aquilar offered to become LM's "sales representative in Mexico in exchange for a thirty percent commission on all of the goods and services" LM sold to CFE and that President KL and Vice President SL "would agree to pay" Aquilar "a thirty percent commission into Grupo's brokerage account at Global Financial, even though it was significantly higher than the commission LM paid to its previous sales representative in Mexico" knowing that Aquilar "had a close personal relationship with Official 1 and would use all or a portion of the thirty percent commission to pay Official 1 and others bribes in exchange for CFE awarding LM contracts."
Among other things, the indictment alleges that: (i) Grupo's Global Financial brokerage account was used to "pay the credit card bills for Official 1's American Express credit card 'in full every month, until further notice'"; (ii) Aquilar "aided Official 1 in purchasing an 82 foot yacht named the Dream Seeker for $1,800,010 ...;" (iii) Aquilar caused wire transfers to Official 2's female and male relatives for "payment for professional services advice" and Official 2's mother and brother for a "consulting fee;" and (iv) Aquilar caused the "issuance of a check to Ferrari of Beverly Hills from Grupo's Financial brokerage account for approximately $297,500 to purchase a 2005 Ferrari Spyder for Official 1."
Who are Official 1 and 2?
According to the indictment:
"Official 1 was a Mexican citizen who held a senior level position at CFE. Official 1 became the Sub-Director of Generation for CFE in 2002 and the Director of Operations in 2007. Official 1's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."
"Official 2 was a Mexican citizen who also held a senior level position at CFE. Official 2 was the Director of Operations at CFE until that position was taken over by Official 1 in 2007. Official 2's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."
[For more on Official 1 and CFE - see David Luhnow, "U.S. Probe Leads to Mexico Chief," Wall Street Journal (August 24, 2010)]
According to the indictment, Angela Aguilar assisted or otherwise caused many of the above referenced payments to be made.
Based on the above core conduct, Enrique Aquilar was charged in a seven-count indictment with conspiracy to violate the FCPA, FCPA violations, money laundering conspiracy and money laundering. Angela Aquilar was charged with money laundering conspiracy and money laundering.
As noted in the DOJ's release "an indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt."
Michael Zweiback (here), a former DOJ prosecutor currently with Seyfarth Shaw LLP, represents both Enrique and Angela Aquilar. He stated: "we intend to vigorously defend the charges and expect the Aguiliar's to be found not guilty."
With Lindsey Manufacturing and certain of its top executives implicated in the alleged conduct, it is likely that the above core allegations will be repeated in future enforcement actions.
*****
The Aquilar indictments continue a DOJ trend of holding agents, sales representatives etc. accountable for allegedly participating in bribery schemes. (See this prior post for other such enforcement actions).
*****
Does CFE ring a bell?
It should because this alleged "state-owned utility company" is at the center of the enforcement actions against John Jospeh O'Shea (see here and here) and Fernando Maya Basurto (see here).
Friday, September 3, 2010
Friday Roundup
The DOJ appears not interested in Anadarko's allegations and more disclosure news ... its all here in the Friday roundup.
DOJ Appears Not Interested in Anadarko's Allegations
The Jubilee field is located off the coast of Ghana.
Participants in the West Cape Three Points Block include: Kosmos Energy LLC; Anadarko Petroleum Corporation; Tullow Oil PLC; Ghana National Petroleum Corporation; E.O. Group Ltd.; and Sabre Oil and Gas Limited.
Anadarko (here) apparently reported Kosmos (here) to U.S. authorities for possible violations of the FCPA "in connection with securing licensing and exploration and production agreements."
Anadarko apparently made similar allegations against EO Group.
Apparently, the DOJ is not interested - according to this Bloomberg article by David Wethe and and Jason McClure.
The article, which cites to a May 12 letter from the DOJ to Kosmos and June 2 letter from the DOJ to EO Group, states that the DOJ does not intend to "take any enforcement action" or pursue charges against either company and that the DOJ closed its inquiry into the matter.
According to the article, "Ghana is pressing ahead with its own criminal inquiry into alleged corruption in the development of the field."
Disclosure News
From Orthofix International N.V.'s Form 8-K filed August 31 (see here):
"During a recent internal management review of Promeca S.A. DE C.V. (“Promeca”), one of its Mexican subsidiaries, the Company received allegations of improper payments, allegedly made by certain of Promeca’s local employees in Mexico, to employees of a Mexican governmental health care entity. The Company has engaged Hogan Lovells US LLP and Deloitte Financial Advisory Services LLP to conduct an internal investigation focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”) and voluntarily contacted the U.S. Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. During 2009, Promeca accounted for approximately one percent of the Company’s consolidated net sales and consolidated total assets. The internal investigation is in its early stages and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations provide for potential criminal and civil sanctions in connection with FCPA violations, including criminal fines, civil penalties, and disgorgement of past profits."
From Diageo PLC's 2010 Preliminary Results Release, dated August 26th (see here)
"SEC investigation: As previously reported, Diageo Korea and several of its current and former employees have been subject to investigations by Korean authorities regarding various regulatory and control matters. Convictions for improper payments to a Korean customs official have been handed down against two former Diageo Korea employees, and a former and two current Diageo Korea employees have been convicted on various counts of tax evasion. Diageo had previously voluntarily reported the allegations relating to the convictions for improper payments to the US Department of Justice and the US Securities and Exchange Commission (SEC). The SEC has commenced an investigation into these and other matters, and Diageo is in the process of responding to the regulators‟ enquiries regarding activities in Korea, Thailand, India and elsewhere. Diageo‟s own internal investigation in Korea, Thailand, India and elsewhere remains ongoing. The US Foreign Corrupt Practices Act (FCPA) and related statutes and regulations provide for potential monetary penalties, criminal sanctions and may result in some cases in debarment from doing business with governmental entities in connection with FCPA violations. Diageo is unable to quantify meaningfully the possible loss or range of loss to which these matters may give rise."
*****
A good Labor Day weekend to all.
DOJ Appears Not Interested in Anadarko's Allegations
The Jubilee field is located off the coast of Ghana.
Participants in the West Cape Three Points Block include: Kosmos Energy LLC; Anadarko Petroleum Corporation; Tullow Oil PLC; Ghana National Petroleum Corporation; E.O. Group Ltd.; and Sabre Oil and Gas Limited.
Anadarko (here) apparently reported Kosmos (here) to U.S. authorities for possible violations of the FCPA "in connection with securing licensing and exploration and production agreements."
Anadarko apparently made similar allegations against EO Group.
Apparently, the DOJ is not interested - according to this Bloomberg article by David Wethe and and Jason McClure.
The article, which cites to a May 12 letter from the DOJ to Kosmos and June 2 letter from the DOJ to EO Group, states that the DOJ does not intend to "take any enforcement action" or pursue charges against either company and that the DOJ closed its inquiry into the matter.
According to the article, "Ghana is pressing ahead with its own criminal inquiry into alleged corruption in the development of the field."
Disclosure News
From Orthofix International N.V.'s Form 8-K filed August 31 (see here):
"During a recent internal management review of Promeca S.A. DE C.V. (“Promeca”), one of its Mexican subsidiaries, the Company received allegations of improper payments, allegedly made by certain of Promeca’s local employees in Mexico, to employees of a Mexican governmental health care entity. The Company has engaged Hogan Lovells US LLP and Deloitte Financial Advisory Services LLP to conduct an internal investigation focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”) and voluntarily contacted the U.S. Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. During 2009, Promeca accounted for approximately one percent of the Company’s consolidated net sales and consolidated total assets. The internal investigation is in its early stages and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations provide for potential criminal and civil sanctions in connection with FCPA violations, including criminal fines, civil penalties, and disgorgement of past profits."
From Diageo PLC's 2010 Preliminary Results Release, dated August 26th (see here)
"SEC investigation: As previously reported, Diageo Korea and several of its current and former employees have been subject to investigations by Korean authorities regarding various regulatory and control matters. Convictions for improper payments to a Korean customs official have been handed down against two former Diageo Korea employees, and a former and two current Diageo Korea employees have been convicted on various counts of tax evasion. Diageo had previously voluntarily reported the allegations relating to the convictions for improper payments to the US Department of Justice and the US Securities and Exchange Commission (SEC). The SEC has commenced an investigation into these and other matters, and Diageo is in the process of responding to the regulators‟ enquiries regarding activities in Korea, Thailand, India and elsewhere. Diageo‟s own internal investigation in Korea, Thailand, India and elsewhere remains ongoing. The US Foreign Corrupt Practices Act (FCPA) and related statutes and regulations provide for potential monetary penalties, criminal sanctions and may result in some cases in debarment from doing business with governmental entities in connection with FCPA violations. Diageo is unable to quantify meaningfully the possible loss or range of loss to which these matters may give rise."
*****
A good Labor Day weekend to all.
Tuesday, March 16, 2010
A Canadian Corruption Scandal?
A coalition of NGOs recently requested that Blackfire Exploration, a privately owned Canadian exploration and mining company headquartered in Calgary (here), be investigated for potential violations of Canada's Corruption of Foreign Public Officials Act (CFPOA) based on alleged improper payments made to the Mayor of Chicomueselo in the State of Chiapas, Mexico.
For more on the NGOs claims, including its letter to the Royal Canadian Mounted Police and documents the NGOs claim support its allegations, see here.
Among other things, the NGOs state in the letter that Blackfire "provided the mayor with [...] benefits including airline tickets for himself, his family and his associates. These payments and other benefits were apparently made in response to the Mayor’s demands for 'favours'". According to this report in The Calgary Herald, Blackfire "decided to stop the 'ridiculous propositions' after the mayor asked for Blackfire to set up a sexual affair with a Playboy model."
For more about the CFPOA, see here for a prior post.
For more on the NGOs claims, including its letter to the Royal Canadian Mounted Police and documents the NGOs claim support its allegations, see here.
Among other things, the NGOs state in the letter that Blackfire "provided the mayor with [...] benefits including airline tickets for himself, his family and his associates. These payments and other benefits were apparently made in response to the Mayor’s demands for 'favours'". According to this report in The Calgary Herald, Blackfire "decided to stop the 'ridiculous propositions' after the mayor asked for Blackfire to set up a sexual affair with a Playboy model."
For more about the CFPOA, see here for a prior post.
Wednesday, December 16, 2009
Lack of Pride (And That CITGO Sign Too)
If the SEC were to put titles on its complaints, the above may be fitting for the complaint released (see here) earlier this week against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.).
In its complaint (see here), the SEC alleges that "Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company's books and records were accurate."
Despite this position, the SEC alleges that: (i) "Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) "Benton learned that a customs agent engaged by Pride's Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride's internal and external auditors by "redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report."
The SEC further alleges that "[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery." The financial results of the Mexican and Venezuelan entities were consolidated with Pride's for purposes of financial reporting.
The "foreign officials" involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA's antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA's books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International's most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here - pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company's operations.
*****
The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC's interpretation of the "foreign official" element of an FCPA anti-bribery violation is well known by now - all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are "foreign officials" regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered "foreign officials" under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered "foreign officials" by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed "foreign officials" despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC's untested and unchallenged interpretation to PDVSA can, well, let's just say it can lead to some rather weird results.
Why?
One of PDVSA's wholly-owned subsidiaries is Citgo Petroleum Corporation ("CITGO") (see here).
Thus, under DOJ/SEC's view, all CITGO employees are "foreign officials" under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are "foreign officials." How's that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
In its complaint (see here), the SEC alleges that "Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company's books and records were accurate."
Despite this position, the SEC alleges that: (i) "Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) "Benton learned that a customs agent engaged by Pride's Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride's internal and external auditors by "redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report."
The SEC further alleges that "[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery." The financial results of the Mexican and Venezuelan entities were consolidated with Pride's for purposes of financial reporting.
The "foreign officials" involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA's antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA's books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International's most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here - pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company's operations.
*****
The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC's interpretation of the "foreign official" element of an FCPA anti-bribery violation is well known by now - all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are "foreign officials" regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered "foreign officials" under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered "foreign officials" by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed "foreign officials" despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC's untested and unchallenged interpretation to PDVSA can, well, let's just say it can lead to some rather weird results.
Why?
One of PDVSA's wholly-owned subsidiaries is Citgo Petroleum Corporation ("CITGO") (see here).
Thus, under DOJ/SEC's view, all CITGO employees are "foreign officials" under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are "foreign officials." How's that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
Monday, November 23, 2009
A Bribery Scheme Hatched at the "Eggs Benedict Place"
The DOJ announced today (see here) that John Joseph O'Shea was recently arrested for his alleged role in a conspiracy to bribe Mexican foreign officials to secure contracts with the Comision Federal de Electridad ("CFE"), an apparent Mexican state-owned utility company (see here). In addition to charging conspiracy to violate the FCPA, the indictment contains twelve substantive FCPA charges (among other charges).
According to the unsealed indictment (see here), O'Shea was the General Manager of Texas Business A, a business that provides products and services to electrical utilities in a number of foreign markets. According to the indictment, one of O'Shea's responsibilities was approving payments to sales representatives.
According to the indictment, Texas Business A is a business unit of Subsidiary A (a company with its principal place of business in Sugar Land, Texas) and Subsidiary A, in turn, is a subsidiary of Corporation A (a company headquartered and incorporated in Switzerland with publicly-traded American Depositary Shares on the NYSE).
In other words, both Subsidiary A and Corporation A are subject to the FCPA and may be the focus of a forthcoming enforcement action. Also of note is that Mexican Company X, Intermediary Company O (a company incorporated in and headquartered in Mexico) and Intermediary Company S (a company incorporated in Panama and headquartered in Mexico) are all alleged to be "an agent of a domestic concern" under 78dd-2(h)(1). DOJ recently noted (see here) that it is willing to go after agents and intermediaries which facilitate bribe payments and the "agent of a domestic concern" designation would seem to be setting the table for a possible enforcement action against such companies as well.
According to the indictment, one customer Texas Business A did business with is CFE and officials N,J,C and G at CFE had influence over decisions concerning Texas Business A's contracts with CFE
(Sorry for the alphabet soup, but this is how the indictment reads).
According to the indictment, Texas Business A obtained multiple contracts with CFE while using Mexican Company X (including its principal, Fernando Maya Basurto) as its sales representative under several commission-based agreements.
The indictment alleges that O'Shea conspired and agreed with Basurto, Subsidiary A, Texas Business A, and the intermediary companies and others to make improper payments to Mexican "foreign officials" to obtain or retain business for Subsidiary A and Texas Business A in violation of the FCPA and that O'Shea did indeed offer, authorize, or make the improper payments indirectly through others to the CFE officials in violation of the FCPA.
According to the indictment, the payments assisted Texas Business A secure two contracts with CFE worth approximately $81 million in revenue.
According to the indictment, the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the "foreign officials."
According to the indictment, after O'Shea was terminated from Texas Business A, he, Basurto, and others tried to cover up their conduct after learning that Corporation A had disclosed the suspected payments to the DOJ, SEC and Mexican authorities.
In describing O'Shea's cover up, the indictment states, "On or about April 27, 2005, O'Shea sent Basurto an e-mail that read, in part, "It seems my lawyer thinks it is OK to use a private e-mail such as yahoo, as it would seem much more difficult for anyone to get the exchanges - if it is a company email it belongs to them. I believe [sic] we should alter opur [sic] normal routine; meaning not meet at the 'eggs benedict' place."
Consistent with DOJ's recent statements on this issue, the indictment seeks from O'Shea forfeiture of approximately $3 million in proceeds derived from his improper conduct.
As noted in the DOJ's release, Basurto recently pleaded guilty to a one-count criminal information (see here) charging him with conspiracy to violate the FCPA. The DOJ news release also notes that a Mexican citizen had pleaded guilty for his role in the bribery scheme.
According to the unsealed indictment (see here), O'Shea was the General Manager of Texas Business A, a business that provides products and services to electrical utilities in a number of foreign markets. According to the indictment, one of O'Shea's responsibilities was approving payments to sales representatives.
According to the indictment, Texas Business A is a business unit of Subsidiary A (a company with its principal place of business in Sugar Land, Texas) and Subsidiary A, in turn, is a subsidiary of Corporation A (a company headquartered and incorporated in Switzerland with publicly-traded American Depositary Shares on the NYSE).
In other words, both Subsidiary A and Corporation A are subject to the FCPA and may be the focus of a forthcoming enforcement action. Also of note is that Mexican Company X, Intermediary Company O (a company incorporated in and headquartered in Mexico) and Intermediary Company S (a company incorporated in Panama and headquartered in Mexico) are all alleged to be "an agent of a domestic concern" under 78dd-2(h)(1). DOJ recently noted (see here) that it is willing to go after agents and intermediaries which facilitate bribe payments and the "agent of a domestic concern" designation would seem to be setting the table for a possible enforcement action against such companies as well.
According to the indictment, one customer Texas Business A did business with is CFE and officials N,J,C and G at CFE had influence over decisions concerning Texas Business A's contracts with CFE
(Sorry for the alphabet soup, but this is how the indictment reads).
According to the indictment, Texas Business A obtained multiple contracts with CFE while using Mexican Company X (including its principal, Fernando Maya Basurto) as its sales representative under several commission-based agreements.
The indictment alleges that O'Shea conspired and agreed with Basurto, Subsidiary A, Texas Business A, and the intermediary companies and others to make improper payments to Mexican "foreign officials" to obtain or retain business for Subsidiary A and Texas Business A in violation of the FCPA and that O'Shea did indeed offer, authorize, or make the improper payments indirectly through others to the CFE officials in violation of the FCPA.
According to the indictment, the payments assisted Texas Business A secure two contracts with CFE worth approximately $81 million in revenue.
According to the indictment, the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the "foreign officials."
According to the indictment, after O'Shea was terminated from Texas Business A, he, Basurto, and others tried to cover up their conduct after learning that Corporation A had disclosed the suspected payments to the DOJ, SEC and Mexican authorities.
In describing O'Shea's cover up, the indictment states, "On or about April 27, 2005, O'Shea sent Basurto an e-mail that read, in part, "It seems my lawyer thinks it is OK to use a private e-mail such as yahoo, as it would seem much more difficult for anyone to get the exchanges - if it is a company email it belongs to them. I believe [sic] we should alter opur [sic] normal routine; meaning not meet at the 'eggs benedict' place."
Consistent with DOJ's recent statements on this issue, the indictment seeks from O'Shea forfeiture of approximately $3 million in proceeds derived from his improper conduct.
As noted in the DOJ's release, Basurto recently pleaded guilty to a one-count criminal information (see here) charging him with conspiracy to violate the FCPA. The DOJ news release also notes that a Mexican citizen had pleaded guilty for his role in the bribery scheme.
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