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FCPA Blog Daily News

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Friday
Sep302016

DOJ breaks new ground with two ‘declinations with disgorgement’

The Justice Department released letters Thursday under the DOJ's Pilot Program to two Texas companies that won't be prosecuted for violating the FCPA but will each have to disgorge all profits they made from the bribery.

The DOJ letters, both dated September 29, are essentially a new category of FCPA enforcement actions -- declinations with disgorgement. Prior declinations from the DOJ didn't require companies to disgorge any profits.

Both companies involved in Thursday's declinations are based in Texas and both are privately held.

HMT LLC is headquartered in The Woodlands and makes above-ground liquid storage tanks for the oil and gas industry.

HMT paid about $500,000 in bribes in Venezuela and China and made about $2.7 million in profit from the bribery.

The DOJ required HMT to disgorge $2.7 million.

NCH Corporation is based in Irving, Texas and makes cleaning products.

A China subsidiary of NCH gave China officials about $44,000 in cash, gifts, meals, and entertainment.

NCH generated profits of $335,000 from the bribery.

The DOJ required NCH to disgorge the entire amount of the profits.

*     *     *

The DOJ announced the Pilot Program in April to encourage companies to self report potential FCPA violations and cooperate in federal investigations.

It previously issued declinations under the Pilot Program to Nortek, Akamai Technologies, and Johnson Controls.

Unlike HMT and NCH, all three are public companies and each had already agreed to disgorge profits to the SEC for their FCPA violations.

Our report about the Johnson Controls SEC enforcement action is here. The SEC used an internal administrative order to resolve the case.

Our report about the SEC actions involving Nortek and Akamai is here. The SEC used non-prosecution agreements with both companies.

*     *     *

In Thursday's declination, the DOJ said HMT used an agent in Venezuela who bribed officials at the state-owned oil company, PDVSA. The agent marked up the price of HMT's products and used the mark ups to bribe PDVSA officials.

HMT managers in Texas knew the Venezuela agent was paying bribes but approved the agent's invoices.

In China, a local distributor bribed officials to buy HMT products. "The China distributor paid bribes on almost all transactions in China," the DOJ said in the declination letter.

A regional HMT manager who was a U.S. citizen probably knew about the China bribes, the DOJ said.

*     *     *

In the NCH declination, the DOJ said employees of the company's China unit bribed employees of state-owned and state-controlled customers. Those customers were "instrumentalities" under the FCPA, the DOJ said.

NCH China described the bribes in internal accounting records as, among other things, "customer maintenance fees," "customer cooperation fees," and "cash to customer."

For example, NCH paid for several China officials from a government customer to travel to the United States and Canada for a 10-day sightseeing trip that cost $12,000. Only a half-day of the trip involved business-related activities.

"NCH had been advised that the proposed 10-day trip might violate the FCPA," the DOJ said.

*     *     *

The DOJ said it closed its investigations of the two companies despite FCPA antibribery violations because of several factors, including:

  • Timely, voluntary self-disclosure of the violations
  • Thorough and comprehensive global investigations of the violations
  • Full cooperation including providing all known relevant facts about the individuals involved in or responsible for the misconduct
  • Agreement to continue to cooperate in any ongoing investigations of individuals
  • The disgorgement of all profits made from the bribery
  • Enhancing compliance programs and internal accounting controls, and
  • Full remediation including terminating employees involved in the FCPA violations, sanctioning other employees through suspensions, pay freezes, bonus suspensions, and reductions of responsibilities, and severing business relationships with the intermediaries involved in the bribery.

Lawyers for the two companies signed the DOJ declination letters. The companies agreed not to take tax deductions for any part of the disgorgements.

*     *     *

The DOJ's September 29, 2016 declination letter to HMT LLC is here.

The DOJ's September 29, 2016 declination letter to NCH Corporation is here.

 ____

Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016