Aon Pays $16.2 Million In Settlement

Aon Corporation, one of the biggest insurance brokerage firms in the world, agreed today to resolve FCPA charges with the DOJ and SEC.

It will pay a $1.76 million criminal penalty to the DOJ and $14.5 million in disgorgement and prejudgment interest to the SEC.

A U.K. subsidiary of Chicago-based Aon paid a penalty of £5.25 million to the U.K.'s Financial Services Authority in 2009 to resolve overseas bribery allegations. The fine was the largest the FSA had levied for financial crimes.

Citing Aon’s 'extraordinary cooperation,' the DOJ entered into a non-prosecution agreement with the company and its U.K. subsidiary, Aon Limited.

Aon’s subsidiaries, the SEC said, made over $3.6 million in improper payments between 1983 and 2007 to win or retain insurance business in Costa Rica, Egypt, Vietnam, Indonesia, the United Arab Emirates, Myanmar, and Bangladesh. The company made $11.4 million in profits from the bribes.

'[S]ome of the improper payments,' the SEC said, 'were made directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the company’s interests. . . . [T]hese payments were not accurately reflected in Aon’s books and records, and Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent the improper payments.'

The improper payments were for training, travel, and entertainment provided to employees of foreign government-owned clients, and to 'third-party facilitators.'

The DOJ said Aon was given a non-prosecution agreement because of 'its timely and complete disclosure of improper payments in Costa Rica and other countries that it discovered during its thorough investigation of its global operations; its early and extensive remedial efforts; the prior financial penalty of £5.25 million that Aon Limited paid to the United Kingdom’s Financial Services Authority (FSA); and the FSA’s close and continuous supervisory oversight over Aon Limited.'

Aon Corporation trades on the NYSE under the symbol AON.

View the DOJ's December 20, 2011 release here.

View the SEC's Litigation Release No. 22203 and Accounting and Auditing Enforcement Release No. 3348 (both dated December 20, 2011) in Securities and Exchange Commission vs. Aon Corporation, Civil Action No. 1:11-cv-02256 (D.D.C.) (filed Dec. 20, 2011) here.

From Canada, First Overseas Antibribery Plea Deal

Niko Resources, a publicly traded oil and gas company based in Calgary, was fined C$9.5 million (US$9.7 million) after pleading guilty to bribing a Bangladeshi minister.

It was the first plea deal struck by a corporate defendant under Canada's overseas antibribery law -- the Corruption of Foreign Public Officials Act (CFPOA).

The investigation into Niko Resources was disclosed last year. The International Anti-Corruption Unit of the Royal Canadian Mounted Police is in charge of investigations under the CFPOA.

The bribes included "a luxury SUV [Toyota Land Cruiser] and a trip to New York and Calgary," according to a report Friday in the Global and Mail.

Niko's conduct is "an embarrassment to all Canadians" and "a dark stain on Calgary's proud reputation as the energy capital of Canada," Justice Scott Brooker said at the sentencing.

The company cooperated in the investigation and spent C$900,000 to uncover the facts. No individuals have been charged. Niko's plea deal included three years of probation, according to the press reports.

Riyaz Dattu, a lawyer with Osler, Hoskin & Harcourt LLP in Toronto, sent us the story. He told the Globe and Mail: “It sends a very strong signal to Canadian companies that they can’t do business in the ‘local way.’”

“It’s an eye-opener. It’s a very significant case,” he said. “I think this is going to be a seminal case that Canadian companies that operate around the world are going to look at. And it gives an indication of the seriousness with which the Canadian government is going to be viewing the giving of bribes.”

Niko Resources Ltd trades on the Toronto Exchange under the symbol NKO.TO; it trades in the U.S. over the counter in the pink sheets under the symbol NKRSF.PK.

The Road To Corruption

By Richard E. Messick

A new World Bank study on corruption in the roads sector shows the challenges contractors and engineering firms working in developing countries face when trying to avoid being drawn into schemes that violate the Foreign Corruption Practices Act or the anti-corruption laws of other nations or both.

The study cites cases where government official have made participation in a bid rigging scheme the price of doing business in their country and other instances where consulting engineers refusing to go along with fraudulent schemes are blackballed.

Among the findings:

• World Bank investigators were told that foreign firms wanting to bid on roads contracts in Bangladesh were warned by a road agency official that they would be disqualified if they undercut the price local firms had agreed on.

• In India, a senior official reported that “road mafias” of contractors, engineers, the local police, civil servants, “and last but not least local politicians” all conspire to keep prices on road contracts above market rates; and in explaining roads sector corruption in the state of Jharkhand, a civil society activist told the New York Times that “the nexus of politicians, contractors and bureaucrats is very strong.”

• In Uganda, researchers found that “the tendering process has been turned into a business by politicians at the district to settle their economic problems. . . . [They] pressure evaluation teams” to select certain contractors.”

• In Indonesia, engineers admitted to investigators from the Bank’s Integrity Vice Presidency that they were bribed to ignore fraud, explaining that if they did not go along, local officials “in on” the fraud would refuse to hire them on future government projects.

• In a project in Africa, Bank staff received information that in return for approving inflated invoices the engineer received 15 percent of the amount overbilled. The practice is apparently widespread in that country; during the investigation Bank investigators learned that the builder had instructed its local affiliate to “develop partnerships with local consultants,” so that if they were appointed engineers on future projects, they would be sure to cooperate with similar schemes.

Titled "Curbing Fraud, Corruption, and Collusion in the Roads Sector," the study recommends a number of steps developing countries and the World Bank can take to reduce collusion in the tendering for road construction contracts and fraud and corruption in contract execution. It is available here.

Richard E. Messick, the study’s author, is a Senior Operations Specialist in the World Bank’s Integrity Vice Presidency where he advises Bank staff and policymakers in developing countries on anticorruption policies. He can contacted here.

Alcatel-Lucent Settles Bribery Case

In one of the biggest Foreign Corrupt Practices Act settlements of all time, Paris-based Alcatel-Lucent S.A. will pay $137 million for bribing officials in Costa Rica, Honduras, Malaysia, and Taiwan.

The company and three subsidiaries will pay $92 million to resolve criminal charges with the DOJ and $45 million in disgorgement to the SEC.

The settlement places Alcatel-Lucent seventh on the top-ten FCPA list. 

By agreeing to plead guilty, Alcatel-Lucent escaped substantive bribery charges. In a two-count criminal information, the DOJ charged the company with violating the internal controls and books and records provisions of the FCPA.

The DOJ and the company entered into a three-year deferred prosecution agreement. Among other things, Alcatel-Lucent pledged to stop using third-party sales and marketing agents in conducting its worldwide business. The DOJ said the unprecedented pledge was made on the company's "own initiative and at a substantial financial cost."

Three subsidiaries were also charged and each agreed to plead guilty to conspiring to violate the antibribery, books and records, and internal controls provisions of the FCPA.

Alcatel-Lucent -- which provides telecommunications equipment and services -- was formed in 2006 after U.S.-based Lucent Technologies merged with Alcatel, a French company. The new company is headquartered in Paris, France.

The illegal conduct started in the late 1990s and continued through 2006.

Prosecutors said Alcatel-Lucent’s three subsidiaries bribed foreign officials to win business in Costa Rica, Honduras, Malaysia, and Taiwan. The company also hired agents without proper controls in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda, and Mali. Overall, Alcatel-Lucent admitted making $48.1 million in profits as a result of its bribery.

In Costa Rica, a subsidiary wired about $18 million to two consultants. More than half of the money, the DOJ said, was then passed to Costa Rican government officials. The bribes produced contracts worth more than $300 million for Alcatel-Lucent and a profit of more than $23 million.

In Honduras, a company subsidiary hired a "consultant" who was a perfume distributor with no experience in telecommunications. He was personally selected by "the brother of a senior Honduran government official," the DOJ said. Alcatel-Lucent won contracts in Honduras worth $47 million, with profit of $870,000.

In Taiwan, the company and its joint venture there hired two consultants with no telecommunications experience. They passed some of their $950,000 payments to Taiwanese legislators. Alcatel-Lucent received a contract worth $19.2 million and earned $4.3 million.

In September 2008, former Alcatel executive Christian Sapsizian, 62, was sentenced to 30 months in prison, three years of supervised release, and forfeiture of $261,500 for bribing employees of the state-owned telecommunications authority in Costa Rica. He had pleaded guilty in June 2007 to two counts of violating the Foreign Corrupt Practices Act.

Sapsizian, a French citizen, was a 20-year Alcatel employee and served as the company's deputy vice president for Latin America. Before being fired in 2004, he caused Alcatel to wire $14 million in “commission” payments to a consultant, who then transferred $2.5 million to a government official in Costa Rica.

Sapsizian admitted to conspiring with Edgar Valverde Acosta, a citizen of Costa Rica who was Alcatel’s senior country officer there, to arrange the bribes. Acosta was indicted with Sapsizian on June 14, 2007. He's an FCPA fugitive, last known address: Costa Rica.

The U.S. indictments of Sapsizian and Acosta resulted from bribery investigations by Costa Rican authorities. In October 2004, Alcatel learned of the investigations. It fired Sapsizian and Acosta and disclosed to U.S. authorities that it had uncovered payments from employees and consultants to government officials and political parties.

Lucent, meanwhile, settled Foreign Corrupt Practices Act charges of its own in December 2007 with the DOJ and SEC. Its violations occurred before the merger with Alcatel. The settlement included a $1 million criminal fine and $1.5 million in civil penalties. Lucent's offenses involved payment of travel expenses for Chinese government officials from 2000 to 2003.

In April 2009, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom to help the Chinese companies roll out 3G technology.

In February this year, Alcatel-Lucent said in its consolidated financial statements that it had reached agreement in principle with the Justice Department and the Securities and Exchange Commission to settle Foreign Corrupt Practices Act offenses. 

Alcatel-Lucent also paid $10 million in January to settle corruption charges brought by the government of Costa Rica.

The SEC's civil complaint said all of Alcatel-Lucent's bribes were "undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct."

Alcatel-Lucent's common stock trades on the NYSE under the symbol ALU.

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View the DOJ's December 27, 2010 release here.

Download the criminal information in US v. Alcatel-Lucent, S.A. here.

Download the deferred prosecution agreement in US v. Alcatel-Lucent, S.A. here.

Download the criminal information in US v. Alcatel-Lucent France, S.A. et al here.

Download the plea agreement in US v. Alcatel Centroamerica, S.A. (Costa Rica) here.

View the SEC's Litigation Release No. 21795 (dated December 27, 2010) in SEC v. Alcatel-Lucent, S.A., Civil Action No. 1:10-CV-24620-GRAHAM (S.D. FL.) here.

Download the SEC's civil complaint here.

Chasing Dirty Money

The Foreign Corrupt Practices Act may frighten business people everywhere, but it has never been a big concern for crooked overseas officials. That's because they can't be prosecuted under the FCPA, which is aimed exclusively at punishing those who pay them bribes. But the Justice Department may have found one way to help plug that gap.

Last week it filed a forfeiture action against bank accounts in Singapore held by Arafat "Koko" Rahman (pictured above), the son of Bangladesh's former prime minister, Khaleda Zia. The accounts allegedly hold nearly $3 million in bribe money that Siemens AG and China Harbor Engineering Company paid to Rahman and other Bangladeshi officials.

Siemens and three of its subsidiaries were penalized $800 million after pleading guilty last month to violating the Foreign Corrupt Practices Act. One of the subsidiaries, Siemens Bangladesh, admitted that from 2001 to 2006, it paid $5.3 million in bribes through purported business consultants to Rahman and other local officials in order to win a mobile telephone project.

The Justice Department says it has forfeiture jurisdiction over the money because the proceeds of foreign offenses such as bribery and extortion that flow through the United States are covered by U.S. money laundering laws. Some of the money that ended up with Rahman came from a U.S. bank account, according to the DOJ, and the bribes paid in U.S. dollars were sent through the U.S. financial system before landing in the Singapore accounts.

The Singapore government, meanwhile, has reportedly received an official U.S. request for the funds. And last month, the head of Bangladesh's Anti-Corruption Commission said Singapore authorities had already frozen $1.6 million belonging to Rahman.

Acting Assistant Attorney General Matthew Friedrich said the Justice Department will not only "prosecute companies and executives who violate the Foreign Corrupt Practices Act, we will also use our forfeiture laws to recapture the illicit facilitating payments often used in such schemes."

View the DOJ's January 9, 2009 release here.

For a discussion about why foreign officials who take bribes cannot be prosecuted under the FCPA, see our earlier post here.
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