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Entries in Brazil (224)


SEC Settles With Nature's Sunshine, Two Officers

The Securities and Exchange Commission filed a settled enforcement against Nature's Sunshine Products Inc. (NSP), its Chief Executive Officer Douglas Faggioli. 54, and its former Chief Financial Officer Craig D. Huff, 53. According to the SEC, the charges relate to cash payments made in 2000 and 2001 by the Brazilian subsidiary of NSP, a manufacturer of nutritional and personal care products, to import unregistered products into Brazil and the subsequent falsification of its books and records to conceal the payments.

NSP will pay a civil penalty of $600,000; Faggioli and Huff will each pay $25,000.

The SEC's civil complaint alleges that, faced with changes to Brazilian regulations which resulted in classifying many of NSP's products as medicines, NSP's Brazilian subsidiary made a series of cash payments to customs officials to import product into that country and then purchased false documentation to conceal the nature of the payments. The conduct violated the Foreign Corrupt Practices Act, and the antifraud, issuer reporting, books and records and internal controls provisions of the federal securities laws. The complaint also alleges that Faggioli and Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the securities laws in connection with the Brazilian cash payments. NSP also failed to disclose the payments to Brazilian customs agents in its filings with the SEC.

The civil injunctive action filed in the United States District Court for the District of Utah alleges that NSP violated Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1 and 13a-13, and that Faggioli and Huff violated Sections 13(b)(2)(A) and 13(b)(2)(B) as control persons pursuant to Section 20(a) of the Exchange Act.

In its own statement, NSP said "no current NSP officers, directors, or employees are alleged to have participated in or had knowledge of any of the improper conduct alleged in the complaint, which occurred approximately eight years ago. . . . Nature’s Sunshine now believes that all government investigations relating to potential FCPA violations by the Company or related persons have been fully resolved. The Company anticipates no action by the Department of Justice (“DOJ”) in a previously disclosed investigation relating to these events."

NSP said it self reported the results of its internal investigation to the SEC and the DOJ and "fully cooperated in the government investigations."

The DOJ has not indicated if it will pursue criminal prosecution of anyone involved in the case.

Nature's Sunshine Products Inc. trades on the Over-The-Counter Bulletin Board (OTCBB) under the symbol NATR.OB.

View the SEC's Litigation Release No. 21162 (July 31, 2009) in SEC v. Nature's Sunshine Products, Inc., Douglas Faggioli and Craig D. Huff, Case No. 09CV672 (D. Utah) here.

Download a copy of the SEC's civil complaint here.


Dirty Diamonds And The FCPA

We've all heard of people who call 9-1-1 to report that their cocaine's just been stolen. Well, something similar happened here -- under terrible circumstances.

The case in federal bankruptcy court in the Southern District of New York is called In re Mark Allen Kalisch. The docket includes a complaint filed by Kalisch, the debtor, against a creditor called Maple Trade Finance Corporation. Kalisch said Maple Trade loaned him money for a diamond mining venture in Brazil. He also said everyone in the deal, including Maple Trade, knew it was illegal under the Foreign Corrupt Practices Act. Therefore, Kalisch argued, Maple Trade shouldn't be entitled to demand repayment of the loan.

Kalisch also knew the diamond venture was illegal, Maple Trade said. He therefore had "unclean hands and is not entitled to any equitable relief." The amount of the loan was $600,000, with another $500,000 trade guarantee, all secured by Kalisch's New York apartment.

In December 2008, the bankruptcy court granted judgment for Maple Trade. But in January 2009, Kalisch appealed to the U.S. District Court for the Southern District of New York. The appeal is still pending.

Here's what happened. The mine was within Brazil's Cinta Larga Indian Reservation. So the diamonds would have to be smuggled away from the reservation and out of Brazil. The plot for the diamond-mining venture (or "business plan," as Kalisch called it) identified as a "silent partner" a government official in Brazil, and it involved bribery.

In March 2004, after the diamonds were paid for but before they could be moved, the Brazilian government arrested 14 people in the scheme, including the local "silent partner" and several agents from the Bureau of Indian Affairs. The police shut down the mine and the diamonds disappeared. Then, within a month, real tragedy struck.

There was a massacre at the reservation. The Indians killed 29 miners -- with "bows and arrows, spears and guns," because the miners were taking diamonds without permission. A Frontline story about the illegal trade and the massacre is here.

No word yet whether the Justice Department will investigate possible FCPA and other offenses by the complainant Kalisch and the lender Maple Trade. But stand by.

Download a copy of the complaint in In re Mark Allen Kalisch (consolidated with In re Mayra Diaz Kalisch) here.

Our thanks to the 2009 FCPA Digest for listing the case in its Parallel Litigation section, at page 361.


GE Resolves FCPA-Related Private Claims

General Electric and its former in-house counsel, Adriana Koeck, who claimed she was fired for telling her superiors about the company's possible Foreign Corrupt Practices Act violations in Brazil, have settled their litigation. GE had sued her for wrongfully disclosing its confidential information, while she claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law.

Koeck went to work for GE in January 2006 as the lead attorney for Latin America at its Consumer and Industrial Division in Louisville, Kentucky. She was fired a year later. With respect to the FCPA, Koeck said she was sent an article in March 2006 from a Brazilian newspaper alleging that GE and a GE / Brazilian joint venture were among a number of major corporations involved in a Brazilian “bribing club.” The corporate participants allegedly met regularly to agree on how they would allocate orders from the public sector throughout Brazil, and how much they would pay as bribes. Brazilian news reports, she said, indicated that more than $20 million in bribes had been paid to more than 150 Brazilian politicians. A copy of her SOX retaliation complaint can be downloaded here.

In June 2008, however, an administrative law judge at the Department of Labor dismissed Koeck's SOX complaint, saying it wasn't filed within the 90-day time limit. That same month, GE sued her in federal court in Alexandria, Virginia. It alleged she had wrongfully disclosed the company's confidential and privileged information contained in internal e-mails, memos, and legal opinions. She claimed the documents proving her retaliation case against GE weren't covered by the attorney-client privilege because of the crime-fraud exception. She also filed counterclaims against GE, alleging illegal retaliation for her whistleblowing activity. General Electric Company v. Adriana Koeck, Case No. 1:08-cv-00591-TSE-JFA)

GE's complaint has remained under seal, along with Koeck's reply and counterclaims. But GE's memorandum in support of its motion to dismiss the counterclaims isn't sealed and can be downloaded here.

In October 2008, the court dismissed Koeck's counterclaims. A month later, she joined the settlement of a federal gender discrimination class action suit against GE (Lorene F. Schaefer v. General Electric Company, et al., Case No. 3:07-CV-0858 (PCD)). With that settlement, she waived any further claims against her former employer, and GE agreed to withdraw its complaint that she wrongfully disclosed its confidential information. Financial terms of the settlement weren't disclosed. In January 2009, GE and Koeck filed a joint stipulation of dismissal, ending their federal court litigation with prejudice, with each party paying its own costs and attorney's fees.

Last year, the Corporate Crime Reporter said the information in Koeck's whistleblower retaliation complaint was also given to the Justice Department's Fraud Section, which was conducting an initial review of the case. The DOJ has never commented publicly on the matter and GE has said Koeck’s claims were without merit.

As an aside, Koeck discharged her D.C.-based trial counsel, Bernabei & Wachtel, in August 2008. She claimed in a subsequent court filing that the firm (1) failed to abide by her explicit instructions, (2) acted in the absence of her authority; and (3) failed to communicate with her about the case. Two months before she fired the firm, it had written to her, saying “we do not believe there is a basis for [your counter-claims] . . . the real settlement value of your case to GE is resolving it and buying peace, not the potential counter-claims.” She later retained another firm to help her. Meanwhile, Koeck has disputed Bernabei & Wachtel's assertion that it has a legal interest “in any monetary settlement payments" she may have received from GE through the Shaefer case.


Pride's Disclosure Tells The Story

We admire Pride International, Inc.'s approach to its Foreign Corrupt Practices Act disclosures. The company talks about the serious problems it had for years with sensitive payments, and how it's been dealing with them. The countries involved included Venezuela and Mexico, India and Malaysia, Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola and the Republic of the Congo, among others. Bribes apparently were paid directly or by intermediaries to clear rigs and equipment through customs, and to help solve problems with immigration, tax, and licensing authorities. Some of the payments in question involved global logistics firm Panalpina and other third parties.

Sadly, people near the top of the company probably knew what was going on. The ex-chief operating officer resigned his position in mid-2006 but has stayed as an employee during the FCPA investigation. If the audit committee or the board of directors think there's "cause" under his employment agreement to terminate his services, he could lose retirement benefits and maybe a lot more. Other senior people have already been fired or placed on administrative leave, and some resigned because of the FCPA investigation. The company says it has "taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law."

Who is Pride? It's a can-do Houston-based drilling contractor for the oil and gas industry. It has over 7,000 employees working around the world. "We have positioned our fleet," its website says, "in some of the world's largest and most active exploration and production areas, with a market presence in West Africa (Angola), Latin America (Brazil), the Gulf of Mexico, the Mediterranean and Middle East. Today, we operate a total of 45 rigs."

As we did a year ago here, we're reprinting below Pride International's FCPA disclosure from its annual report (Form 10-K), this one for the period ending December 31, 2008. Pride filed it with the Securities and Exchange Commission this week. It's a long read (for a blog post, anyway). But it's filled with details and admissions not usually found in similar disclosures. We think it also gives fair warning to shareholders and other stakeholders that an eventual resolution with the Justice Department and SEC could be expensive and disruptive.

Pride International, Inc. trades on the New York Stock Exchange under the symbol PDE.

Download Pride's February 25, 2009 Form 10K (annual report) here.

During the course of an internal audit and investigation relating to certain of our Latin American operations, our management and internal audit department received allegations of improper payments to foreign government officials. In February 2006, the Audit Committee of our Board of Directors assumed direct responsibility over the investigation and retained independent outside counsel to investigate the allegations, as well as corresponding accounting entries and internal control issues, and to advise the Audit Committee.

The investigation, which is continuing, has found evidence suggesting that payments, which may violate the U.S. Foreign Corrupt Practices Act, were made to government officials in Venezuela and Mexico aggregating less than $1 million. The evidence to date regarding these payments suggests that payments were made beginning in early 2003 through 2005 (a) to vendors with the intent that they would be transferred to government officials for the purpose of extending drilling contracts for two jackup rigs and one semisubmersible rig operating offshore Venezuela; and (b) to one or more government officials, or to vendors with the intent that they would be transferred to government officials, for the purpose of collecting payment for work completed in connection with offshore drilling contracts in Venezuela. In addition, the evidence suggests that other payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.

The Audit Committee, through independent outside counsel, has undertaken a review of our compliance with the FCPA in certain of our other international operations. In addition, the U.S. Department of Justice has asked us to provide information with respect to (a) our relationships with a freight and customs agent and (b) our importation of rigs into Nigeria. The Audit Committee is reviewing the issues raised by the request, and we are cooperating with the DOJ in connection with its request.

This review has found evidence suggesting that during the period from 2001 through 2006 payments were made directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola, and the Republic of the Congo in connection with clearing rigs or equipment through customs or resolving outstanding issues with customs, immigration, tax, licensing or merchant marine authorities in those countries. In addition, this review has found evidence suggesting that in 2003 payments were made to one or more third parties with the intent that they would be transferred to a government official in India for the purpose of resolving a customs dispute related to the importation of one of our jackup rigs. The evidence suggests that the aggregate amount of payments referred to in this paragraph is less than $2.5 million. We are also reviewing certain agent payments related to Malaysia.

The investigation of the matters described in the prior paragraph and the Audit Committee’s compliance review are ongoing. Accordingly, there can be no assurances that evidence of additional potential FCPA violations may not be uncovered in those or other countries.

Our management and the Audit Committee of our Board of Directors believe it likely that then members of our senior operations management either were aware, or should have been aware, that improper payments to foreign government officials were made or proposed to be made. Our former Chief Operating Officer resigned as Chief Operating Officer effective on May 31, 2006 and has elected to retire from the company, although he will remain an employee, but not an officer, during the pendency of the investigation to assist us with the investigation and to be available for consultation and to answer questions relating to our business. His retirement benefits will be subject to the determination by our Audit Committee or our Board of Directors that it does not have cause (as defined in his retirement agreement with us) to terminate his employment. Other personnel, including officers, have been terminated or placed on administrative leave or have resigned in connection with the investigation. We have taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.

We voluntarily disclosed information relating to the initial allegations and other information found in the investigation and compliance review to the DOJ and the Securities and Exchange Commission and are cooperating with these authorities as the investigation and compliance reviews continue and as they review the matter. If violations of the FCPA occurred, we could be subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 and a company that knowingly commits a violation can be fined up to $25 million. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions for these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA.

We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders, or other interest holders or constituents of our company. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. No amounts have been accrued related to any potential fines, sanctions, claims or other penalties, which could be material individually or in the aggregate.

We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our consolidated financial statements or on our business in the countries at issue and other jurisdictions.


California Exec Pleads Guilty

The Justice Department has announced its first Foreign Corrupt Practices Act enforcement action of 2009. Mario Covino, 44, an Italian citizen living in Irvine, California, pleaded guilty in federal court in Santa Ana to a single count of conspiring to violate the FCPA by paying at least $1 million in bribes to foreign officials in several countries. He's cooperating in an ongoing federal investigation and waiting to be sentenced in July. He faces up to five years in prison.

The DOJ said Covino was formerly the worldwide sales director for an unidentified Rancho Santa Margarita-based company that designs and makes valves used in the oil, gas, nuclear, coal and power plant industries. The plea agreement refers to the company as an "unnamed co-conspirator." A report from the Associated Press said online business directories list Covino as having worked for Control Components Inc. The company, also known as CCI, hasn't commented. It is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

Covino acknowledged that he arranged for company employees and agents to pay about $1 million to employees at state-owned foreign enterprises from March 2003 through August 2007. He said his company made about $5 million in profits from the business obtained through the bribes. According to the plea agreement, some of the corrupt payments went to officials at Petrobras (Brazil), Dingzhou Power (China), Datang Power (China), China Petroleum, China Resources Power, China National Offshore Oil Company, PetroChina, Maharashtra State Electricity Board (India), KHNP (Korea), Petronas (Malaysia), Dolphin Energy (UAE) and Abu Dhabi Company for Oil Operations (UAE).

Covino also said he provided false and misleading responses during a 2004 internal audit of the company’s commission payments. And to obstruct the audit, he deleted and told others to delete emails that referred to corrupt payments.

Download the DOJ's January 8, 2009 release here.

Download Covino's plea agreement here.


Japanese Executive Jailed

A Tokyo executive was sentenced to two years in jail and fined $80,000 for violating the Foreign Corrupt Practices Act and conspiring to rig bids for the sale of marine hose and other industrial rubber products.

Former Bridgestone manager Misao Hioki pleaded guilty to two felony counts filed on Dec. 8, 2008 in U.S. District Court in Houston. He was charged for his role in a conspiracy to violate the FCPA by making corrupt payments to government officials in Latin America and elsewhere. He was also charged with conspiring to rig bids, fix prices and allocate market shares of marine hose in the United States and other countries.

Marine hose is used to transfer oil between tankers and storage facilities. The marine-hose cartel fixed prices worldwide from 2004 to 2007 for products worth hundreds of millions of dollars.

Hioki was one of eight foreign executives arrested in May 2007 following their participation in a cartel meeting in Houston. The Justice Department said he's the ninth individual to plead guilty in the bid-rigging investigation but is the first person in the cartel to plead guilty to an FCPA charge.

The DOJ said Hioki and his co-conspirators:

* Negotiated with employees of government-owned businesses, who are foreign officials under the Foreign Corrupt Practices Act, in at least the following Latin American countries Argentina, Brazil, Ecuador, Mexico and Venezuela to make corrupt payments to those foreign officials to secure business for his company and its U.S. subsidiary;

* Approved the making of corrupt payments to the foreign government officials through the local sales agents, to secure business for his company and its U.S. subsidiary;

* Paid the local sales agents a commission for each sale and, if a corrupt payment to the customer through the local sales agent was involved with the sale, concealed that payment within the commission payment made to the local sales agent; and

* Coordinated these corrupt payments in Latin America through the U.S. subsidiary’s offices in the United States including its Houston office.

It's becoming more common to see FCPA charges in cases investigated primarily for other offenses. Last month, for example, Shu Quan-Sheng, a naturalized U.S. citizen who sold controlled space-launch technology to China, pleaded guilty to violating the Foreign Corrupt Practices Act and to two counts of violating the Arms Export Control Act.

And in September, U.S. citizens Nam Nguyen, Joseph Lukas, Kim Nguyen, and An Nguyen, along with their Philadelphia-based company, Nexus Technologies (see our post here) were charged with one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA. They're accused of bribing government officials in Vietnam to secure contracts to supply high-tech items -- including third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems. That case doesn't yet involve charges under U.S. export laws.

View the DOJ's Dec. 10, 2008 release here.



Swiss Police Raid Alstom

Swiss police last week arrested a former manager of French engineering giant Alstom and searched for evidence as part of a corruption and money-laundering investigation. Offices near Zurich and in Baden were raided, as were homes in several cantons.

Paris-based Alstom is a global leader in equipment and services for power generation and high-speed rail transport. It operates in more than 70 countries with about 76,000 employees. Revenues last year were €16.9 billion. It has an office in Windsor, Connecticut and its securities trade in the pink sheets (Other OTC: AOMFF.PK).

The raids and arrest last week are reported to be unrelated to another investigation involving suspected corrupt payments in Asia and South America between 1995 and 2003. Reports in May said that Swiss authorities found evidence Alstom paid around €20 million via shell companies to agents and others in Singapore, Indonesia, Venezuela and Brazil. Reports also mentioned payments of $6.8 million in connection with a $45 million contract for the Sao Paolo subway and a Brazilian energy plant.

In June this year, the press said French judges had charged a former Alstom consultant for his role in suspected overseas bribes. The company apparently appeared as a civil plaintiff in that case, claiming it may have been a victim of embezzlement.

Alstom said over the weekend that it's "cooperating fully with the judicial authorities in this [new] matter."

Forbes said "investors were cautious about painting [Alstom] with the same brush as Siemens, which has been embroiled in a slush fund scandal. Also, the previous investigation into Alstom was over infrastructure contracts in South America and Asia between 1995 and 2003, before the company's chief executive, Patrick Kron, took charge. If the previous investigation was over past contracts, chances are that this one is too, suggesting a limited impact on the company and its current management."

U.S. authorities haven't said whether they're investigating or planning to investigate Alstom for violations of the Foreign Corrupt Practices Act or other laws.

Thanks to CW for the heads up.



A Public Test For GE's Compliance Program

The Corporate Crime Reporter (CCR) has a story here about a Sarbanes Oxley whistleblower complaint filed against General Electric by former in-house counsel, Adriana Koeck. She says she was fired from GE for reporting fraud in Brazil to her superiors, including alleged tax cheating and potential violations of the Foreign Corrupt Practices Act. CCR posted her complaint here.

Koeck was hired in January 2006 as the lead attorney for Latin America for GE’s Consumer and Industrial Division (GE C & I) in Louisville, Kentucky. She was fired a year later. Her SOX complaint names as defendants GE, GE C & I, Raymond Burse, GE C & I’s general counsel, and Earl Jones, GE C & I’s compliance counsel.

GE is suing Koeck in federal court in Alexandria, Virginia for disclosing the company's confidential and privileged information. She claims the documents that prove her retaliation case against GE are not covered by the attorney-client privilege because of the crime-fraud exception.

With respect to the FCPA, Koeck says she was sent an article in March 2006 from a Brazilian newspaper alleging that GE and GEVISA (a GE / Brazilian joint venture) were among a number of major corporations involved in a Brazilian “bribing club.” The corporate participants allegedly met regularly to agree on which of them would be awarded which orders from the public sector throughout Brazil as well as the amounts that the corporations would pay as bribes. Brazilian news reports indicated that more than $20 million in bribes had been paid to more than 150 Brazilian politicians.

CCR says Koeck's information was also given to the Department of Justice's Fraud Section, which is conducting an initial review of the case. The DOJ hasn't commented.

GE says Koeck’s claims are without merit.

General Electric Co. (NYSE: GE) has 327,000 employees. It operates world wide as a technology, media, and financial services company, with total revenues in 2007 of $173 billion. The company was founded in 1892 -- with roots back to Thomas Edison -- and is headquartered in Fairfield, Connecticut.


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