Entries in AB Volvo (13)
The authors say it's both a quick desk reference and -- at 241 pages -- an authoritative collection of FCPA resources. They're right.
There's exhaustive enforcement-related information -- DOJ and SEC actions, DOJ opinion procedure releases, civil suits and related litigation, and domestic and foreign investigations. There's also plenty of high-level analysis of what's going on with enforcement and compliance. (The "Lessons Learned" section is particularly strong.)
Kevin Abikoff, one of the partners responsible for the Alert, said: "We developed it originally as a comprehensive internal resource for our lawyers and clients. On reflection, we decided to open-source it to the compliance community and beyond. We hope people will find it useful. And we're happy to be able to make a contribution."
Here, for example, is what it says about a subject we've never covered -- management changes:
In certain circumstances, regulators may use enforcement actions as a tool to force a change in management where the regulators believe management is insufficiently attuned to FCPA concerns. Regulators may also reward companies that change management in response to findings of misconduct or seek lesser penalties where management changed before the misconduct came to light. For example, the DOJ praised Siemens for its remedial efforts, including that it “replaced nearly all of its top leadership.” Similarly, in the case of Bristow, the misconduct was discovered by the company’s newly-appointed CEO, and the SEC imposed no monetary penalty on the company. (See, e.g., Technip, Siemens, Schnitzer, Bristow)
On the puzzle of FCPA jurisdiction, it says:
As the Siemens settlement (among others) confirms, U.S. regulators continue to take an expansive jurisdictional view as to the applicability of the FCPA. The charging documents applicable to Siemens Venezuela, Siemens Bangladesh, and Siemens Argentina detail connections, but not particularly close or ongoing connections, between the alleged improper conduct and the United States. Similarly, the United States government has continued to seek the extradition of Jeffrey Tesler and Wojciech Chodan, both United Kingdom citizens who were indicted for their involvement in the Bonny Island, Nigeria bribery scheme and who are described in the charging documents as “agents” of a domestic concern. Clearly, regulators in what they deem to be appropriate circumstances, will look carefully for hooks to establish U.S. jurisdiction over perceived violations of anti-corruption legislation.
And on parent-company liability for foreign subsidiaries, it says:
The U.S. Government will prosecute parent companies based on the conduct of even far-removed foreign subsidiaries and even in the absence of alleged knowledge or direct participation of the parent company in the improper conduct. As a result, as the Willbros Group and several Oil-for-Food settlements make clear, companies must ensure that their anti-corruption compliance policies and procedures are implemented throughout the corporate structure and are extended quickly to newly acquired subsidiaries. (See, e.g., Fiat, Faro, Willbros Group, AB Volvo, Flowserve, Westinghouse, Akzo Nobel, Ingersoll-Rand, York, Bristow, Paradigm, Textron, Delta & Pine, Dow).
General Electric Company, whose compliance program is among the most respected and admired in the world, has settled civil violations of the Foreign Corrupt Practices Act with the Securities and Exchange Commission.
The company today agreed to pay $23.4 million to resolve claims that arose from a $3.6 million kickback scheme by four GE subsidiaries -- two of which were acquired after the offenses occurred. The kickbacks were paid under the United Nation's oil-for-food program. The GE subsidiaries were selling medical and water purification equipment to the Iraqi government.
The SEC charged GE and two subsidiaries -- Ionics Inc. and Amersham plc -- with civil violations of the books and records and internal controls provisions of the FCPA.
The kickbacks were paid from 2000 to 2003 and were not properly accounted for. They consisted of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Oil Ministry. GE acquired two of the subsidiaries in 2004 and 2005 and became liable for their securities law violations, including FCPA offenses.
Cheryl J. Scarboro, the head of the SEC's FCPA unit, said: "GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win oil for food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."
In the SEC settlement, GE was ordered to disgorge $18,397,949 of profits and pay $4,080,665 in prejudgment interest and a penalty of $1 million. GE and subsidiaries Ionics Inc. and Amersham plc agreed not to violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
The SEC said it has taken 15 FCPA enforcement actions against companies involved in the now discredited U.N. oil for food program and has recovered more than $204 million. The program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. It allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. The Iraqi government instructed vendors to use middlemen and to inflate prices to fund the kickbacks.
In addition to GE, other companies charged under the oil-for-food program include Chevron, Total SA, AB Volvo, Innospec, Ingersoll-Rand, Akzo-Nobel, and Fiat.
The DOJ did not join the enforcement action against GE or the subsidiaries. It usually prosecutes criminal antibribery offenses under the FCPA, which require payments to foreign officials. In GE's case, the kickbacks apparently went directly to Iraqi ministries and not to government officials.
The SEC said that in settling the case, it "considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation."
View the SEC's July 27, 2010 press release here.
View the SEC's Litigation Release No. 21602 and Accounting and Auditing Enforcement Release No. 3159 (both dated July 27, 2010) in Securities and Exchange Commission v. General Electric Company; Ionics, Inc.; and Amersham plc, Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR) here.
View the SEC civil complaint against GE, Ionics, and Amersham here.
Larry Buterman (left) from Chadbourne & Parke's New York office sent us an article he published in the Bloomberg Law Reports. It explains why the Justice Department's enforcement actions in the U.N. oil for food cases don't allege antibribery offenses under the Foreign Corrupt Practices Act. The reason: the kickbacks typically went directly to the Iraqi government and not to foreign officials. "[B]y their express terms," he says, "the FCPA's antibribery provisions apply only to payments made to those connected to the government. Payments to a government itself, in contrast, are not covered by the FCPA." (Also see our post here.)
The oil for food program probably helped a lot of average Iraqis. But it also funded the pre-war regime in a systematic, unaccountable and illegal way. Buterman says, "According to a United Nations' Independent Inquiry Committee, between 1999 and 2003, over 2,200 separate companies abused the [program] by making improper payments, totaling over $1.5 billion, to the Iraqi government in order to obtain goods contracts." The entities charged with violations have settled, taken deferred prosecution agreements, and paid about $170 million in fines, penalties and disgorgements. "And," he says, "given the DOJ's July 31, 2009 announcement that it plans to seek extradition of Ousama Naaman—a Canadian national charged with violating the FCPA in connection with the OFFP—it appears the government's vigorous enforcement efforts in the area are continuing."
We turned to footnote 3 in the article for the following list of OFFP-related enforcement actions by the DOJ and SEC (we've added last week's case involving AGCO Corporation). The Netherlands, Denmark, and the U.K have also punished companies for violating the U.N. Iraqi sanctions.
Here's the DOJ / SEC list (with related cases grouped together and linked to our original posts):
U.S. v. AGCO Limited, No. 09-cr-00249 (D.D.C. 2009); U.S. Sec. & Exch. Comm'n v. AGCO Corporation, No. 09-cv-01865 (D.D.C. 2009) (here)
U.S. v. Novo Nordisk A/S, No. 09-cr-00126 (D.D.C. 2009); U.S. Sec. & Exch. Comm'n v. Novo Nordisk A/S, No. 09-cv-00862 (D.D.C. 2009) (here)
U.S. v. Naaman, No. 08-cr-00246 (D.D.C. 2008); U.S. v. CNH Frances S.A., No. 08-cr-00379 (D.D.C. 2008) (here)
U.S. v. CNH Italia S.p.A., No. 08-cr-00378 (D.D.C. 2008); U.S. v. Iveco S.p.A., No. 08-cr-00377 (D.D.C. 2008); U.S. Sec. & Exch. Comm'n v. Fiat S.p.A., No. 08-cv-02211 (D.D.C. 2008) (here)
U.S. v. Volvo Constr. Equip., AB, No. 08-cr-00069 (D.D.C. 2008); U.S. v. Renault Trucks SAS, No. 08-cr-00068 (D.D.C. 2008); U.S. Sec. & Exch. Comm'n v. AB Volvo, No. 08-cv-00473 (D.D.C. 2008) (here)
U.S. Sec. & Exch. Comm'n v. Flowserve Corp., No. 08-cv-00294 (D.D.C. 2008) (here)
U.S. Sec. & Exch. Comm'n v. Akzo Nobel, N.V., No. 07-cv-02293 (D.D.C. 2007) (here)
U.S. Sec. & Exch. Comm'n v. Chevron Corp., No. 07-cv-10299 (S.D.N.Y 2007) (here)
U.S. v. Ingersoll-Rand Italiana S.p.A., No. 07-cr-00294 (D.D.C. 2007); U.S. Sec. & Exch. Comm'n v. Ingersoll-Rand Co. Ltd., No. 07-cv-01955 (D.D.C. 2007) (here)
U.S. v. York Int'l Corp., No. 07-cr-00253 (D.D.C. 2007); U.S. Sec. & Exch. Comm'n v. York Int'l Corp., No. 07-cv-01750 (D.D.C. 2007) (here)
U.S. Sec. & Exch. Comm'n v. El Paso Corp., 07-cv-00899 (S.D.N.Y. 2007) (here)
U.S. Sec. & Exch. Comm'n v. Textron Inc., No. 07-cv-01505 (D.D.C. 2007) (here)
A copy of "Enforcement Without a Violation: FCPA Lessons From the Government's Investigation Into the Oil for Food Program," by Lawrence E. Buterman, originally published in the Vol. 1, No. 3 edition of the Bloomberg Law Reports—White Collar Crime, can be downloaded here.
RIP Craig Johnson. A founder of both Venture Law Group and, more recently, Virtual Law Partners, Craig was an inspirational figure in Silicon Valley and far beyond. He was many things -- great lawyer, venture capitalist and entrepreneur. With Guy Kawasaki and Rich Karlgaard he co-founded the influential Garage Technology Ventures. We knew him as a warm and engaging colleague, a man with the courage to think for himself; to many others he was a generous, good-humored mentor, unstinting with his encouragement. Our sympathies to his wife, RoseAnn Rotandaro, and his entire family.
In July 2008, the government of Iraq launched a massive FCPA-related federal lawsuit in New York City. We first talked about it here. The complaint named 93 defendants in claims alleging bribery and fraud under the now-defunct United Nations oil-for-food program. Iraq sought more than $10 billion in damages, describing the U.N. program as "the largest financial fraud in human history." (Bernie Madoff hadn't yet reset the scale for measuring financial frauds.)
What's happening in the case today? After nearly a year, Iraq is still trying to serve some of the defendants. A claimant usually has 90 days to effect service of process; in this case, the court's been lenient by granting several extensions. Overseas service can be complicated. So Iraq asked the court to help by issuing letters rogatory (requests for assistance addressed to foreign courts). The non-binding letters are directed at courts in Austria, Jordan, Malaysia, South Africa, and the United Arab Emirates.
According to the federal court's most recent order, anyone not served by July 24, 2009 will be dropped from the suit. Until the deadline passes, none of the defendants have to file answers or raise their defenses.
The post-war Iraqi government alleged that kickbacks were paid to representatives of Saddam Hussein through illegal and undisclosed transportation and port fees, bogus after-sales service fees and overpricing of goods and services. Some of those named have already faced enforcement actions for violating the U.N. regulations or U.S. law, including the Foreign Corrupt Practices Act. Among them are ABB, AB Volvo, Flowserve, Akzo Nobel, Chevron, Siemens, Ingersoll-Rand, York International, Oscar Wyatt, El Paso and Textron.
There's no private right of action under the Foreign Corrupt Practices Act. So Iraq's claims are based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud, breach of fiduciary duty and illegal price discrimination.
Here's the full list (which may change after July 24) of everyone named as a defendant in the complaint:
AGCO Denmark A/S, AGCO S.A., Valtra do Brazil, Air Liquide Engineering, Akzo Nobel N.V., N.V. Organon ("Organon"), Intervet International B.V. (Intervet"), Mais Co. for Medical Products, Atlas Copsco CMT, AWB Ltd., B. Braun Medical France, B. Braun Melsungen A.G., B. Braun Medical Industries SDN BHD (Malaysia), Aesculap AG and KG, Aesculap Motric S.A., Aesculap Sugical Instruments SDN, Boston Scientific S.A., BNP Paribas USA, BNP Paribas (Suisse) SA, BNP Paribas Hong Kong, BNP Paribas Paris, BNP Paribas UK Holdings Limited, BNP Paribus London Branch, Buhler Ltd., David B. Chalmers, Jr, Chevron Corp., Daewoo International Corp., Daimler Chrysler AG, Dow Agrosciences, ABB AG, Eastman Kodak S.A., El Paso Corp. (successor to Coastal Corp.), Evapco (Austria), Evapco Europe S.R.L., Avio Flowserve Corp., Flowserve Corp., Flowserve Pompes (Formely Ingersoll-Dresser Pompes), Flowserve B.V.
And some more:
GlaxoSmithKline Walls House, Glaxo Smithkline Egypt SAE, ABB Automation, Glaxo Wellcome SA (South Africa) (PRY) Ltd., SmithKline Beecham International, ABG Allgemeine Baumaschinen-GesellschaftmbH, Dresser international, Ingersoll-Rand Italiana SPA, Thermo King Ireland Limited, Ingersoll-Rand Benelux N.V., Ingersoll-Rand World Trade Ltd., Cilag AG International, Janssen Pharmaceutical, ABB Elektric Sanayi AS, Kia Motors, Liebherr Export AG, Liebher France SA, Seono Pharma International, Merial, Novo Nordisk, Pauwels, Railtech International, ABB Industrie AC Machines, F. Hoffman La Roche, Roche Diagnostics GMBH, Rohm and Haas France S.A., Secalt S.A., Siemens S.A.A. of France, Siemens Sanayi ve Ticaret A.S. of Turkey, Osram Middle East FZE, Solar Turbines Europe,
And the final batch:
St. Jude Medical Export GMBH, ABB Industrie Champagne, Sulzer Buckhardt Engineering Works Ltd., Sulzer Pumpen Deutschland GMBH, Sulzer turbo Ltd., Textron Inc., David Brown Guinard Pumps S.A.S., David Brown Transmissions France S.A., Renault Trucks SAS, ABB Near East Trading Ltd., Renault Agriculture & Sonalika International, Renault V.I, Volvo Construction Equiptment AB, The Weir Group, Oscar S. Wyatt, Jr, Vitol S.A., Woodhouse International, York Air Conditioning and Refrigeration FZE, and ABB Solyvent-Ventec.
Download Iraq's June 27, 2008 complaint here.
Disgorging profits is a common and prominent feature these days in Foreign Corrupt Practices Act settlements with the Securities and Exchange Commission. Last year Siemens disgorged $350 million and this year KBR paid $177 million. Maybe because disgorgements now happen so often, or because the payments have become so enormous, we automatically accept them as a suitable remedy. We don't question why the SEC uses disgorgement, where the remedy came from, or where it's going.
But at least one person has asked those questions. He's David C. Weiss (Dartmouth College, Michigan Law School), student-author of an extended note in the January 17, 2009 edition of the Michigan Journal of International Law.
According to Weiss, disgorgement never appeared in an FCPA enforcement action until just five years ago. That's right -- 27 years passed without a single FCPA-related disgorgement order. Then, in 2004, ABB Vetco Gray, Inc. paid $16.4 million in disgorgement and prejudgment interest. Next came Titan Corp. in 2005, paying $15.5 million. That same year, Diagnostics Products Corp. disgorged $2.8 million and DPC (Tianjin) Co. Ltd. $2.8 million. In 2006, Schnitzer Steel Industries, Inc. disgorged $7.7 million and Statoil $10.5 million. In 2007, Baker Hughes Inc. disgorged $23 million, El Paso Corp. $5.5 million, and York International $10 million.
Want to hear the rest? In 2008, Fiat disgorged $7.2 million, Siemens $350 million, Faro Technologies $1.8 million, Willbros $10.3 million, AB Volvo $19.6 million, Flowserve $3.2 million, and Westinghouse Air Brake Technologies Corp. $289,000. And so far this year, ITT Corporation has disgorged $1.4 million, and KBR $177 million.
Disgorgement, then, has a short but intense history in FCPA enforcement actions, and it seems to have appeared out of the blue. As Weiss puts it, "The SEC has developed the 'law' of disgorgement with neither the input, contemplation, nor blessing of Congress, and it is for this reason that one should ask normative questions about the role of disgorgement in the future enforcement of the prohibition on foreign bribery."
He points out that the SEC began requiring disgorgement just when other countries (with U.S. encouragement) started enacting their own extra-territorial anti-corruption laws. So here's the question: When more than one country enforces antibribery laws against a single company, which jurisdictions, if any, should use disgorgement as a remedy? Who decides, for example, if Siemens should forfeit ill-gotten gains to the United States Treasury or the German Chancellery? How about Italy or Norway, Greece or Argentina?
Weiss looks at laws around the world aimed at punishing foreign public bribery, and particularly those with disgorgement-like remedies. "The penal codes of at least twenty-one countries," he says, "include provisions for 'forfeiture' or 'confiscation' of the proceeds of a crime, or they base the amount of a fine on such proceeds." His survey shows just how new most of the laws are -- the majority coming into force either following enactment of the OECD anti-corruption convention in 1998 or after the events of 9/11 in 2001.
There's no evidence, Weiss says, that "Congress intended that the SEC pursue disgorgement as it has done since 2004. This fact alone should at least make one question the normative function of disgorgement." Disgorgement, he says, wasn't mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. Weiss himself doesn't say the SEC lacks the legal mandate to pursue disgorgement or that the remedy is somehow improper. But he does point out that the "lack of any statement that disgorgement should be part of the SEC’s enforcement arsenal, and the rarity of the remedy at the time that Congress passed the FCPA and its amendments, are reasons that some commentators have used to question the impropriety of the remedy."
It's great to see the Foreign Corrupt Practices Act as the object of some fresh research and scholarship. And at 47 pages and 238 footnotes (a couple of which mention the FCPA Blog), Weiss' work is thorough and thoughtful.
The cite for the note is: Weiss, David C.,The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, Michigan Journal of International Law, Vol. 30, No. 2 (January 17, 2009).
It's available from SSRN here.
The Justice Department resolves corporate FCPA enforcement actions these days by using deferred and non-prosecution agreements. And the go-to guys for information about them are Ryan McConnell, an Assistant United States Attorney in Houston, and Larry Finder, a partner in Houston with Haynes and Boone. They've identified, cataloged, analyzed and published findings about every "corporate pre-trial agreement" (their term) used from 1993 to 2008 -- all 112 of them.
They were joined for their latest study by Scott Mitchell, the head of the high-profile Open Compliance & Ethics Group, a nonprofit organization that helps member companies improve their culture by "integrating governance, risk management, and compliance processes."
In 2008, the authors say, there were just 16 deferred and non-prosecution agreements, down 60% from the record-setting 40 agreements in 2007. (From 2003-2006, there were 47 agreements; before 2003, there were just 9.) Seven of the 16 agreements last year related to Foreign Corrupt Practices Act settlements, compared with about a third in 2007. Last year's pre-trial agreements involved Sigue Corp., Jackson Country Club, WABTEC, Flowserve, AB Volvo, Willbros Group, AGA Medical, Faro Technologies, ESI, Milberg Weiss, Lawson Products, Republic Services, American Italian Pasta Co, Penn Traffic, IFCO and Fiat.
We asked Larry Finder a couple of questions about the 2008 study. Here's what he had to say:
The FCPA Blog: Why were the DPA / NPA numbers down so much last year?
Lary Finder: Your guess is as good as mine. It's possible that the DOJ was distracted with Congressional hearings and the possibility of federal legislation on the monitor issue, but I truly can't divine the reasons. It is equally as possible that in the post-9/11 environment, more investigatory resources, e.g., FBI and U.S. Attorney, have been concentrated on terrorism-related matters rather than fraud cases. I just don't know.
The FCPA Blog: Your 2008 study talks about the Justice Department's recent clarification [at United States Attorneys Manual 9-28.710] that it won't require waivers of attorney-client or attorney work-product privileges when determining corporate "cooperation." You also talk about the DOJ's new internal rules on the appointment of monitors and the ban on "extraordinary restitution" payments by corporate targets. Do the DOJ's internal rules have the force of law?
LF: As I recall, the DOJ often states (in its published monographs, for example) that its policies are generally not enforceable against the government. The federal case the Department often cites as authority for that proposition is United States v. Caceres, a Supreme Court case from the late 1970s. That being said, our analysis suggests that the Department has been abiding by its own waiver policy. We saw that the privilege waiver language in DPAs was the exception (statistics from 2007 showed only 3 waivers, while in 2008 we found but two) . Further, the Department has every incentive to avoid the perception of violating its own policies on privilege and monitors, lest the organized white collar bar again lobby for curative federal legislation. We'll have to wait and see.
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Ellen Podgor at the White Collar Crime Prof Blog has already said, "This piece should be a must-read for in-house counsel and all attorneys working with companies on compliance programs." She's right. We don't know of any other way to get a clearer picture of what's going on with the DOJ's compliance agreements. This is practical information and a welcome bit of accountability.
The article can be downloaded now from SSRN here. It will appear in the May 2009 Corp. Counsel Rev. - Published by S. Tex. College Of Law, Volume XXVIII, No. 1.
In an earlier post here we said: "The Siemens Information included the first ever criminal internal controls charge brought by the Justice Department. Although the SEC routinely includes internal controls charges in its civil resolutions, the DOJ has never done so."
An astute reader responded: "I assume you say that because 15 U.S.C. Section 78m(b)(5) was listed in the charging documents? Have not other DOJ FCPA enforcement actions (i.e. Flowserve, AB Volvo etc.) included 78m(b)(5) charges as well?"
Here's the answer: The FCPA’s books and records provisions are found in 15 U.S.C. Section 78m(b)(2)(A), and are separate and distinct from the FCPA’s internal controls provisions, which are found in 15 U.S.C. Section 78m(b)(2)(B). The confusion is that the “knowing” failures to violate both those provisions fall within the same statutory provisions – 15 U.S.C. Section 78m(b)(5) and 78ff(a). However, the DOJ has never charged 78m(b)(5) and 78ff(a) as part of an internal controls violation – only as a books and records violation. Count 1 of the Siemens AG information charges violations of 78m(b)(2)(B), which has never been done, as well as 78m(b)(5) and 78ff(a). Count 2 charges violations of 78m(b)(2)(A), 78m(b)(5), and 78ff(a), which the DOJ has done many times before. The two counts have two statutory provisions in common – the difference is 78m(b)(2)(A) v. 78m(b)(2)(B).
The text of the Foreign Corrupt Practices Act can be found here.
Bob Beamon's long jump of 29 feet 2½ inches in Mexico City in the 1968 Olympics broke the world record by an astounding 21¾ inches. With that one jump Beamon became the first man to reach both 28 and 29 feet, and the word Beamonesque was born -- meaning a spectacular event. We'd describe Siemens' $800 million settlement on Monday of Foreign Corrupt Practices Act violations as Beamonesque, considering that it surpassed the existing FCPA settlement record by $755.9 million.
Before Siemens, Baker Hughes' April 2007 payment of $44.1 million (including penalties and disgorgement) was the biggest in an FCPA case. Baker Hughes, we think, won't be sorry to relinquish the top spot on the settlement list since being there gets you mentioned in the press about as often as Madonna.
Among other notable settlements, Willbros paid $32.3 million in May this year and Chevron's violations related to the U.N.'s oil for food program cost it $30 million last year. Titan Corporation held the record after it paid $28.5 million in 2005 for its FCPA settlement. Vetco's resolution cost it $26 million in 2007 and Lockheed paid $24.8 million in 1994, the biggest case of its time. York International spent $22 million last year to end its enforcement action. Statoil was close behind in 2006, paying $21 million. AB Volvo's 2008 case settled for $19.6 million, and ABB's violations cost it $16.4 million in 2004. Schnitzer Steel agreed to pay $15.2 million in 2006 and Flowserve $10.5 million this year.
Bob Beamon's great leap stood as a world record for 23 years and earned him a postage stamp in Burundi (pictured above). We're fairly sure Siemens won't be appearing soon on any postage stamps, but it could hold the FCPA settlement record for a very long time.
Our thanks to Joe Hixson for helping assemble the settlement data in this post. He's with the strategic communications firm The Abernathy MacGregor Group Inc., which has represented some very well-known companies in connection with FCPA enforcement actions. Despite Joe's help, any mistakes in what's written above are all ours.
The government of Iraq filed a civil suit in late June in federal district court in New York City against two individuals and about 50 companies and some of their related firms for bribery that allegedly occurred under the United Nations oil-for-food program. Referring to the U.N. program as "the largest financial fraud in human history," the 47-page complaint seeks more than $10 billion in damages.
Many of the defendants named in the complaint -- which relies heavily on the U.N.'s October 2005 internal report by former Federal Reserve Chairman Paul Volcker -- have already faced enforcement action for violating U.N. regulations or U.S. law, including the Foreign Corrupt Practices Act. Among those discussed in our prior posts are ABB, AB Volvo, Flowserve, Akzo Nobel, Chevron, Siemens, Ingersoll-Rand, York International, Oscar Wyatt, El Paso (successor to Coastal Corp.) and Textron. Others named in the complaint include Air Liquide, Atlas Copco, Boston Scientific, BNP Paribas, Buhler, Daewoo, Daimler-Chrysler, Dow, Eastman, Glaxo, Dresser, Kia Motors, Novo Nordisk and Vitol.
The complaint describes how kickbacks paid to representatives of Saddam Hussein were funded through illegal and undisclosed transportation and port fees, bogus after-sales service fees and overpricing of goods and services.
Although there is no private right of action under the Foreign Corrupt Practices Act, this is the third civil suit filed this year in U.S. federal court by alleged victims of overseas public corruption. In March, Bahrain-owned Alba sued Alcoa and its agent in Pittsburgh for allegedly inflating prices and using the money to bribe Bahraini officials. Then in April, Denver-based oilman Jack Grynberg and his company brought a suit in the District Of Columbia against their former consortium partners BP and Statoil, and their top executives, for allegedly using some of Grynberg's money to bribe government officials in Kazakhstan.
Similar to the Alba and Grynberg complaints, the Iraqi government's claims are based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud and breach of fiduciary duty. Iraq also alleges illegal price discrimination under the Robinson Patman Act ("It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section.").
The complaint says the federal court in New York should hear the case because the oil-for-food program was administered at the United Nations' headquarters there, all funds related to the program "were supposed to pass through an escrow account in New York," and all oil-for-food contracts were "approved in New York."
The last time it happened, North America was still deep in winter. On February 22nd, Flowserve agreed to appoint a monitor under a deferred prosecution agreement with the Department of Justice. Since then, just one corporate FCPA case is known to have settled. AB Volvo's agreement with the DOJ was announced on March 22nd. But -- typical of oil-for-food cases -- it didn't call for appointment of a monitor. In April and so far in May, no corporate FCPA settlements have made the news, with or without monitors.
What's going on? Last year -- even with fewer FCPA cases pending -- the DOJ still settled an average of one corporate case a month. Why the slowdown in 2008? Well, as we've mentioned before, there's an undeclared moratorium at the DOJ on new appointments of monitors. And since most corporate FCPA settlements involve a monitor, that means settlements must wait.
The de facto moratorium started after ex-U.S. Attorney General John Ashcroft's controversial appointment by his former subordinate, U.S. Attorney Chris Christie. Ashcroft became a monitor for orthopedic device maker Zimmer Holdings Inc. as part of Zimmer's settlement of a domestic bribery case. The news that Ashcroft's firm could rake in as much as $52 million from the appointment triggered sticker shock on Capitol Hill. Democratic lawmakers (and plenty of Republicans) were very unhappy to learn that Bush-appointed prosecutors, acting alone, could tap Republican big shots and other friends for such lucrative (part-time) posts. So Congress launched investigations into all aspects of the monitors -- their appointment, pay, oversight and reporting responsibilities -- and even whether deferred prosecution agreements make sense in the first place. Until the political firestorm is doused, nobody wants new appointments to happen -- not Congress, the DOJ, companies in trouble, or potential monitors themselves.
It's up to Attorney General Michael Mukasey to make peace with Congress and end the stalemate. Can he do it? A better question may be, is he willing to do it? According to a story in the Washington Post from April 17th, the AG's approach with lawmakers hasn't been . . conciliatory. The story focused not on the monitorship mess but on other disagreements between the DOJ and Congress -- warrantless wiretapping operations, the media shield law, updating the state secrets law, the use of national security letters, and attorney-client privilege for military detainees. Based on comments from Republican Sen. Arlen Specter, the story said on these issues the new Attorney General has been overly obstinate and unwilling to compromise. Ouch. If that's the attitude, it could be blocking resolution of the monitorship logjam as well.
For some companies, the delay is bad news. Siemens has been saying publicly since Christmas that it wants a quick resolution with U.S. authorities -- so it can concentrate on repairing its scandal-damaged business. Panalpina's bottom line is also hurting, in part, it says, because of the DOJ's pending FCPA case. Other companies, though, are sure to be using the delay to their advantage -- by conducting deep internal investigations, firing or demoting people who caused the FCPA violations, and adopting best practices to create effective compliance programs. Those companies should be in a better position to deal with the DOJ when the time finally comes.
For now, though, the strange season continues.
At the White Collar Crime Prof Blog, Ellen Podgor -- who's now the solo blog editor since Peter Henning placed himself on well-deserved blog editor emeritus status -- discusses some of the obligations imposed by the Department of Justice on AB Volvo and its two subsidiaries in their deferred prosecution agreement here. Those companies recently resolved Foreign Corrupt Practices Act violations that arose under the U.N. Oil for Food Program. (See our post here.)
She mentions a few aspects among many in AB Volvo's deferred prosecution agreement -- the requirement for the DOJ's pre-approval of any statements to the media by the companies about their agreement, and the right of the DOJ to take into account refusals by the companies to waive attorney-client privilege in determining their level of cooperation. And, she says, the DOJ alone has the right to decide if the agreement has been breached, generally without regard to the companies' statute of limitation rights. Prof Podgor posts the AB Volvo deferred prosecution agreement here.
We're fascinated, as usual, by the successor liability provision in the agreement. This feature has been common for a while -- it appeared in ABB's agreement with the DOJ, for example -- but we're still trying to work out the implications. The substance of it is that in any agreement by the companies to sell, merge or transfer all or substantially all of their business operations, whether structured as a stock or asset sale, merger or other transfer, the operative document must include provisions "binding the purchaser or any successor in interest thereto to the obligations described" in the deferred prosecution agreement.
The provision is intended, among other things, to prevent the companies from slipping out of their deferred prosecution agreements through a corporate transaction or restructuring of some kind. That makes good sense. And to be effective, the provision really does need to reach not only immediate but also subsequent buyers -- who could actually be the companies themselves or related entities.
The interesting part, however, is when bona fide third-party buyers show up. That has happened with other businesses subject to successor liability provisions. It doesn't matter, for example, if the buyer is non-American and not otherwise subject to the jurisdiction of the FCPA. The compliance obligations still travel with the business being sold, no matter where it comes to rest.
That helps level the playing field for American companies. Non-U.S. companies can't exploit businesses that may be distressed because of FCPA problems. They can't buy the assets, domicile them offshore, and free them from their compliance obligations. It protects American businesses from unfair competition. Also, successor liability provisions help disseminate and promote best practices around the globe by tying compliance obligations to the business assets, wherever they end up, and not to the original corporate entities that are parties to the deferred prosecution agreements. The process has already spread compliance best practices to European and other companies that have purchased businesses subject to the successor liability requirements.
But there's a price attached to successor liability provisions -- an unidentified penalty of sorts. Business assets subject to FCPA compliance obligations, including waivers of rights to media access, for example, and attorney-client privilege and statute of limitations, are likely to have a different valuation than similar, unencumbered assets.
How much impact successor liability provisions have on a business' valuation is anyone's guess. But the direct cost of compliance would be an element. Another aspect could be a diminution in the business' value because of the threat of further sanctions by the DOJ without the benefit of any judicial review or protections offered by attorney-client privilege and statute of limitations. These must have a price tag -- whatever it may be.