Individual: Bachtiar Abdul Fatah
Company Involved: Chevron
Industry: Oil and Gas
Enforcement Action: Conviction and Sentencing
Individual: Bachtiar Abdul Fatah
Company Involved: Chevron
Industry: Oil and Gas
Enforcement Action: Conviction and Sentencing
Indonesia‘s Corruption Eradication Agency arrested the head of the country's oil and gas regulator late Tuesday at his home in Jakarta.
As part of its $398 million settlement Wednesday, Total S.A. agreed with the SEC to disgorge $153 million of profit made from its bribery in Iran. That's the second biggest disgorgement in FCPA history.
Since we first listed the top ten FCPA disgorgements a year ago, two new companies joined the list -- Johnson & Johnson and Magyar Telekom. They replaced GE and Baker Hughes.
Eva Joly, a Norwegian-born former French magistrate, is running for the French presidency under the Green Party banner.
She became famous across Europe for being a fearless anti-corruption campaigner, even taking on former minister Bernard Tapie and Crédit Lyonnais bank.
Her best-known case involved French oil giant Elf Aquitaine. She uncovered fraud leading to criminal convictions of Elf’s top two executives and to the resignation of Roland Dumas, president of France’s Constitutional Court. She received death threats during the eight-year investigation.
She moved from Norway to France at 18. After working her way through night law school and then practicing law, in 1990 she became an investigating magistrate in Paris.
She's also worked for the Icelandic government, helping it uncover white collar crime that contributed to the country's financial collapse.
Last year, Joly, 66, was elected as a French member of the European Parliament. Now she wants to run for president of France in the 2012 elections.
She told the France24 news site: “I am going into politics because I recognise the limitations of voluntary action … I have a strong desire to improve relations between the developed and developing world. I want to change power structures within society. I am desperate to see a more just and more united society.
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Why say it? It's fashionable these days for critics -- we won't name them -- to say there's no evidence the FCPA has reduced bribery. But saying there's no evidence of crimes not committed isn't exactly, you know, conclusive of anything.
Then again, there's plenty of evidence of less bribery because of the FCPA at companies like Siemens, BAE, Daimler, KBR, ABB, Baker Hughes, Willbros, Chevron, and so on. For us, that's the evidence that counts.
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In whose interests? Great post today from Kevin LaCroix at the D&O Diary -- Do Defendant Companies Financially Underperform Following Securities Lawsuit Settlements?
While looking at FCPA enforcement data, Bruce Hinchey, left, made a startling and disturbing discovery about the consequences of self reporting.
Here's his story:
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Dear FCPA Blog,
Many question the Department of Justice’s claim that there are tangible benefits to voluntary disclosure of a FCPA violation.
As a part of a yet unpublished paper, I consider the data from 40 FCPA cases from 2002 through 2009 and the differences between bribes paid and penalties levied against companies that do and do not self-disclose.
In the paper, linear regression analysis of the cases reveals a sound statistical relationship between the amounts a company bribes and the corresponding fine it receives. For now, I will focus on the fine-to-bribe ratio companies face for FCPA violations. The fine-to-bribe ratio is calculated by simply dividing the total penalty a company received by the amount it bribed.
Within the voluntary disclosure group the fine-to-bribe ratios ranged from encouragingly low (Bristow Group Inc. and Latinode Inc. stand out with a fine-to-bribe ratio of 0 and .89, respectively) to strikingly high (Baker Hughes Inc. and Schnitzer Steel Industries Inc. had fine-to-bribe ratios of 10.73 and 8.46, respectively). On average, this group faced a 4.53 fine-to-bribe ratio. Thus, it appears as though a voluntarily disclosing company might expect a fine of $4.53 for every dollar given as a bribe.
The involuntary disclosure group also had surprisingly high ratios (Flowserve Corp. and Akzo-Nobel NV had fine-to-bribe ratios of 17.37 and 13.42, respectively) and low ratios (the Chevron Corp. and El Paso Corp.’s fine-to-bribe ratios were 1.5 and 1.41, respectively). This group, however, faced an average fine-to-bribe ratio of 3.22, suggesting a non-voluntarily disclosing company might expect a fine of only $3.22 per dollar bribed, compared to the voluntary disclosure group’s 4.53. This ratio would be even lower had it included the disproportionately low fine-to-bribe ratios levied in the cases against Siemens AG and KBR, which I dismissed as outliers.
Given the bribe-to-fine ratios in the published cases in recent years, the Justice Department appears not to be following up with its promised benefits. The seemingly disproportionate bribe-to-fine ratios outlined above raise questions about whether current FCPA enforcement is fundamentally fair.
Bruce is a lawyer completing an LLM in government procurement law at the George Washington University Law School. His paper, "Punishing the Penitent: Disproportionate Fines in Recent FCPA Enforcements and Suggested Improvements," can be downloaded at SSRN here.
It was generous of Bruce to share his work with us and our readers. Thank you, Bruce, for blowing our mind.
He's currently looking for a position in an FCPA defense and government contracts practice and can be reached at email@example.com
Here are the top ten FCPA settlements of all time. If our math is right, the financial penalties (criminal fines, civil disgorgement, and prejudgment interest) add up to $2.8 billion, with almost 50% of that coming from the top two settlements. Five of the top six involve non-U.S. companies. The oldest case on the list is Titan Corporation's from 2005; the newest is Snamprogetti / ENI's from July 7, 2010.
1. Siemens: $800 million in 2008.
2. KBR / Halliburton: $579 million in 2009.
3. BAE: $400 million in 2010.
4. Snamprogetti Netherlands B.V. / ENI S.p.A: $365 million in 2010.
5. Technip S.A.: $338 million in 2010.
6. Daimler AG: $185 million in 2010.
7. Baker Hughes: $44.1 million in 2007.
8. Willbros: $32.3 million in 2008.
9. Chevron: $30 million in 2007.
Editor's note: This post was updated here.
Our assigned subject is bribery abroad. So naturally some have wondered why we haven't talked about Chevron's legal tangle in Ecuador and accusations it might have violated the Foreign Corrupt Practices Act there. A couple of readers -- apparently from Ecuador -- even sent us what they said was evidence against the American oil company. It wasn't. We only found news stories from local papers and a copy of our own post about Chevron's $30 million oil-for-food settlement (here).
The reason we haven't talked about the Ecuador case is because we have no idea what it's really about. Like a gargantuan version of Jon & Kate, the back-and-forth charges have left us completely confused -- too addled to have an opinion.
As for facts, here's what we know, or what we think we know:
The case started 16 years ago. A group of Amazon residents alleged that Texaco, which Chevron acquired in 2001, contaminated large areas of rain forest before ending its operations and leaving the country. In a civil suit in the local courts, Chevron is facing damages that could reach $27 billion. The FCPA allegations (coming from sources in Ecuador, including the attorney general) involve an alleged plot by the oil company to bribe the country's leaders and a judge hearing the case.
Chevron says it's the Ecuador government and courts that haven't been honest. As evidence, it released tapes in August that appeared to implicate politicians and the judge in a plot to take $3 million in kickbacks from clean-up contractors if Chevron is found liable. Just how and why the tapes were made and given to Chevron is a mystery. The New York Times quoted Steven Donziger, a lawyer representing the Ecuadorans suing Chevron, as saying: “I suspect this is a Chevron sting operation; there needs to be an investigation into Chevron’s role in this as much as the judge’s. I find it awfully odd that these individuals would secretly film meetings using James Bond devices like a spy watch and a spy pen."
One of the men who made the tapes -- yes, using "watches and pens implanted with bugging devices" -- Diego Borja, was a Chevron contractor providing logistics services. The company said it didn't pay him for the tapes but gave him money to leave Ecuador with his family because of safety concerns. “Chevron had no involvement in the videotaping,” Kent Robertson, a company spokesman, told the New York Times. “Chevron referred this matter to the U.S. Department of Justice and Ecuador’s prosecutor general after making every reasonable effort to verify the evidence that was presented.”
Professor Ralph Steinhardt at George Washington University Law School -- a heavyweight expert in international civil litigation -- told the Times: “For someone who is trying to figure out what you can learn from this, it’s not as though it yields a rational narrative. In trying to appreciate the complexities of this case, you need to have the skills of a poker player rather than the skills of a lawyer.”
OK then. We've often displayed to ourself and others a lack of poker-playing skills. So for now at least, we fold.
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.
Plaintiffs lawyers have filed a state derivative class action suit against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit in Houston alleges all sorts of malfeasance -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses in February this year. As the AmLaw's Litigation Daily put it, the defendants are accused of "everything from overbilling to human trafficking to covering up a gang rape."
There's no private right of action under the FCPA so private litigants seeking relief have to resort to other causes of action -- such as common law fraud, RICO, securities law violations or, as in this case, breach of fiduciary duties.
Why did the plaintiffs file their suit in state court? We're not sure, but a case decided last year could be part of the reason. In Glazer Capital Management v. Magistri, the Ninth Circuit raised the bar for federal class-action plaintiffs in FCPA-related litigation. The complaint against some of the officers of InVision Technologies under securities laws, the court said, didn't plead facts "that would either directly or indirectly give rise to a strong inference of scienter on the part of those officers responsible for making the false statements" about FCPA compliance in its disclosures. See our post, More Hurdles For Private Litigants.
The plaintiffs here allege that some of Halliburton's and KBR's officers and directors -- including former Chevron Corp. CEO Kenneth Derr and Robert Crandall, the former chairman of American Airlines -- breached their fiduciary duty to provide oversight, unleashing a corporate “reign of terror.” The complaint says: Under defendants’ watch, and supposedly under their control and supervision, the companies were permitted to engage in conduct so notorious that the name "Halliburton" has become virtually synonymous with "corruption.”
The named plaintiff in the suit is the Policemen and Firemen Retirement System of the City of Detroit pension fund.
Download a copy of the May 14, 2009 complaint in Policemen and Firemen Retirement System of the City of Detroit v. Cornelison here.