Top Ten Disgorgements (March 2012)

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.

Click to read more ...

Graft Buster Enters French Politics

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? 

No Good Deed Goes Unpunished

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.

Voluntary Disclosures

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.

Involuntary Disclosures

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.

Remaining Questions

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.

Many thanks,

Bruce Hinchey

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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 bhinchey@law.gwu.edu

The FCPA's Top Ten

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.

They are:

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.

10. Titan Corporation: $28.5 million in 2005.

Editor's note: This post was updated here.

Clueless In Quito

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.
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Grease For Oil

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.
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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.
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Halliburton And KBR In Class Action

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.
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Iraq's Lawsuit Legacy

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.
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A Spectacular Leap

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.
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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.
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Hired Guns And The FCPA

A San Francisco jury on Tuesday refused to impose civil liability on Chevron for the deaths and injuries of Nigerian protesters caused by company-paid soldiers.

The plaintiffs in Bowoto v. Chevron Corp., (99-2506, U.S. District Court, Northern District of California) accused Chevron of wrongful death, torture, assault, battery and negligence. Chevron had hired Nigerian military personnel in 1998 to clear protesters from an offshore platform. The company said the soldiers decided to shoot on their own during their rescue of 150 company workers being held hostage. The plaintiffs, however, said the soldiers "swooped down in helicopters in a dawn raid and killed two men and shot and beat others holding a protest for jobs aboard the oil platform," according to Bloomberg.

The trial lasted four weeks and the verdict came during the second day of deliberations. “The jury upheld our position that our response was a reasonable one,” Don Campbell, a Chevron spokesman, told Bloomberg after the verdict. “Our employees have a right to be safe wherever they are at work.”

Bowoto’s lawyers said the villagers were unarmed and never threatened workers on the platform and an adjacent barge and tugboat. The protesters were seeking to negotiate with Chevron for jobs and community support after environmental damage caused by Chevron’s operations killed fish and other sources of food, the lawyers said. In addition to Bowoto, the plaintiffs included the three wives and 11 children of a villager killed on the platform and the wife and children of another protester who was detained by the military after the attack and hung by his wrists and tortured.

Chevron’s lawyers said at the trial that the case was about a company’s right to call law enforcement to protect workers. The protesters had knives, prevented workers from leaving the platform and threatened to set it on fire, the jury was told.

A statement by Chevron said, "Chevron Nigeria Ltd. requested the rescue as a reasonable response to a dangerous invasion of the Parabe platform and, the invaders were harmed when they attacked military personnel. It was never Chevron Nigeria Ltd.'s intent that anyone on the platform be harmed, and we deeply regret the loss of life and injuries that occurred."

What's the case got to do with the Foreign Corrupt Practices Act? Well, here's a comment we received from Andrew Woods, who blogs on the Huffington Post:

A trial in federal court in San Francisco with implications for the FCPA came to a close yesterday. Chevron was found not liable for damages caused by Nigerian security forces that were paid by the company. This verdict has led to calls to extend the reach of the FCPA to cover payments to military forces in addition to the current scope of the FCPA. I've outlined some of those arguments at my blog.

What do you think?

Mr. Woods, according to his Huffington bio, is "a lawyer working with the Amazon Defense Coalition in Ecuador suing Chevron over oil pollution. A graduate of Harvard Law School, he has been a teaching fellow at the Harvard College Department of Economics and has lectured at universities across the nation, including UCLA, NYU, Harvard and MIT."

Regarding his question, this we know: Using the FCPA to ban payments to local security forces for their services would move the statute way beyond its original "obtaining and retaining business" objectives. We don't know exactly how many American firms would feel the heat from the change, but the number is huge. It's very common for companies doing business overseas, particularly those in the exploration, production and mining segments, to pay local police and military for protection.

But do the payments also encourage -- and perhaps somehow endorse -- human rights abuses? And if that's true, shouldn't the payments be banned? So what if Chevron and other companies are then forced to leave places where their workers aren't safe? They shouldn't put their workers in harm's way to begin with. But then again, would Chevron's leaving a country like Nigeria do more damage to the local population than if it stays?

These aren't easy questions. Readers -- we'd appreciate hearing from you. Should the FCPA ban payments to local security forces for the protection of company people and property? Let us know what you think.

You can comment directly to this post or by sending us an email here.

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