The FCPA Blog

The fourth member of the TSKJ consortium -- JGC Corporation of Japan -- and the only one that hasn't settled Foreign Corrupt Practices Act charges with the U.S. government, disclosed in its latest annual report that it's in talks with the DOJ "about a potential resolution" of FCPA-related charges.

The company did not say how much it has reserved, if anything, for a settlement with the DOJ.

Last week, Snamprogetti and its parent company ENI of Italy agreed to pay $365 million to resolve FCPA-related charges for Snamprogetti's role in the TSKJ joint venture. The financial penalties included a $240 million criminal fine to the DOJ and $125 million in disgorgement to the SEC.

Two weeks ago, Paris-based TSKJ member Technip resolved FCPA-related charges with the DOJ and SEC for $338 million --  a $240 million criminal penalty and $98 million in disgorgement.

And in February 2009, consortium leader KBR and its former parent Halliburton paid $579 million to settle FCPA-related charges, including a $402 million criminal penalty and $177 million in disgorgement.

Technip, Snamprogetti, KBR, and JGC won contracts through the TSKJ joint venture from Nigeria LNG Ltd. between 1995 and 2004 to design and build LNG facilities on Bonny Island. The contracts were worth more than $6 billion. The joint venture bribed Nigerian government officials to win the work, including "top-level executive branch officials." The DOJ alleges TSKJ paid about $132 million to a Gibraltar corporation controlled by London lawyer Jeffrey Tesler and more than $50 million to a Japanese trading company, intending to use some of the money as bribes.

JGC, formerly Japan Gasoline Co., Ltd., was founded in 1928. It specializes in engineering projects related to refining and natural gas processing. Its shares trade in Tokyo but not the U.S., making it the only TSKJ partner that's not an "issuer" and not subject to the FCPA's books and records and internal controls provisions.

JGC did not disclose whether it is under investigation in Japan for the Nigeria bribery.

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Here's the complete disclosure from JGC's annual report for the year ended March 31, 2010. It was released on May 10, a month before the Technip and Snamprogetti settlements. JGC provided the English translation:

In or around 1995, JGC joined a consortium formed by M.W. Kellogg Company (a U.S. company that later became KBR), Technip (a French company), and Snamprogetti (an Italian company) in order to i) bid for the construction of liquefied natural gas plant in Bonny Island, Nigeria (“Project”) and ii) implement the Project if awarded. The consortium was called “TSJK”. TSKJ was awarded the contract for the first staged of the Project (trains 1 & 2) in 1995, and thereafter up to 2004 three additional contracts to build additional 4 trains.
               
In or around 2002, French authority initiated investigations into TSKJ after allegations that in relation to the Project bribery payments were made to Nigerian government officials, and, in 2004, U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) initiated investigations in respect of the alleged breach of the U.S. Foreign Corrupt Practices Act.
               
As publicly reported, in 2009, KBR reached settlements with DOJ and SEC as a result of the aforesaid investigations. Technip and ENI (the parent company of Snamprogetti) announced in their recent disclosure that they have created accounting reserves or a potential settlement of the U.S. investigation.
               
We hereby report that DOJ has been in contact with JGC regarding their investigation of the TSKJ matter and JGC and DOJ are engaged in discussions about a potential resolution of that investigation relating to JGC.
               
Under the current circumstances, the impact of the ongoing discussions with DOJ on JGC’s operations cannot be estimated.

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Special thanks to a reader in the U.S. who provided the research for this post.

Iran has all the ingredients to be an FCPA minefield. It's big -- 66 million people in an area about the size of Alaska -- and it's the world's 6th largest oil producer. On top of that, it has a corruption problem, ranking near the bottom of the latest Corruption Perception Index -- 168th, tied with Burundi, Equatorial Guinea, Haiti, and Turkmenistan.

But although the country routinely makes world headlines, it's hardly mentioned on the FCPA Blog. Why not?

Iran has been off limits to U.S. companies from around the time the FCPA became law in 1977. The U.S. first imposed sanctions on Iran in 1979. After the takeover of the American embassy in Teheran, President Carter banned  imports of Iranian oil and blocked all transfers of property in the U.S. owned by the Central Bank and Government of Iran. In 1980, he embargoed all U.S. exports to and imports from Iran, and stopped U.S. citizens from traveling or conducting financial transactions there.

Some of those sanctions were loosened after the U.S. hostages were released. But in 1987, President Reagan imposed a new embargo on Iranian-origin goods and services. And in 1995, after Iran was labelled a sponsor of international terrorism, President Clinton again banned U.S. involvement with Iran's oil and gas development. He later confirmed that "virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited," according to the Treasury Department. With some small adjustments, that's how things stand today.

Criminal penalties for violating the U.S. sanctions are stiff -- fines up to $1,000,000 and prison for up to 20 years, four times harsher than the FCPA's penalties.

Even without America's business, Iran was the focus of an important FCPA case. In 2006 the Norwegian company Statoil was hit with DOJ and SEC enforcement actions for bribery and books and records violations. Statoil in 2002 had paid $5.2 million in bribes to a modern-day prince of Persia -- the son of a former president of Iran, and promised to pay $20 million more for access to the giant Pars oil field. The company eventually self-disclosed the payments and paid $3 million to Norwegian prosecutors and $21 million in penalties and disgorgement to the DOJ and SEC (with credit for the $3 million it paid back home).

That was the first FCPA criminal enforcement action against a foreign company -- Statoil is an "issuer," trading on the NYSE under the symbol STO. Its three-year deferred prosecution agreement with the DOJ expired in November 2009.

We could be hearing more FCPA news involving Iran. Last week the Wall Street Journal said the SEC's enforcement and corporation finance divisions have sent letters to several pharmaceutical and energy companies that work in Iran, as well as in Cuba, Sudan, and Syria -- which all appear on the State Department's list of countries that sponsor terrorism. (Some medicines and medical devices are licensed for export from the U.S. to Iran.) The letters reportedly asked the companies, which haven't been named, what they are doing in the four countries to ensure compliance with the FCPA.

There's been more FCPA action in the past month than in most prior years since enactment in 1977. What's the rest of 2010 going to bring? Photo by Patrick BourThe FCPA-related news just keeps coming -- faster and faster. Even before last week's head-spinning mega bust, there was enough news from the past month to keep us busy till summer. The hard part has been keeping it all straight.

So let's take some quiet time to gather our thoughts about what's happened over the past 30 days:

1. Oh Crikey! In late December, the D.C. federal appeals court affirmed the dismissal of a shareholder derivative suit against some current and former directors and executives of U.K.-based BAE Systems PLC. The complaint alleged BAE's payment of more than $2 billion in bribes and kickbacks to Prince Bandar Bin Sultan of Saudi Arabia. The suit claimed the defendants breached their fiduciary duties and wasted corporate assets.

The U.S. federal courts applied English law to the case. A fossilized 1843 case they unearthed called Foss v. Harbottle, 2 Hare 461, 67 E.R. 189 said "the company, not a shareholder, is the proper plaintiff in a suit seeking redress for wrongs allegedly committed against the company."

The appeals court saw no reason to create an exception to promote the U.S. public policy of protecting shareholders and the company itself from law-breaking directors and executives. It gave the BAE directors even more comfort by noting that under English law, paying bribes isn't necessarily an ultra vires act “beyond the corporate capacity of a company.”

Our take: Even in civil courts, shouldn't directors of foreign companies that do business in and from the U.S. be held to the same standards as U.S.-company directors?

2. Others have said so what. But we thought this was a nifty piece of news: A U.S. company with no securities traded on an exchange but that files periodic reports with the Securities and Exchange Commission disclosed an internal investigation into possible Foreign Corrupt Practices Act violations and said it had self-disclosed to the SEC and DOJ.

Tampa-based PBSJ Corporation is a "domestic concern" subject to the anti-bribery provisions. It has no publicly traded securities but because it has so many shareholders -- about 4,000 mainly current and former employees -- it files periodic reports with the SEC. That makes it an "issuer" subject to the books and records and internal controls provisions. We think it's the first "issuer" without shares traded on an exchange to announce an FCPA investigation self-reported to the feds.

OK, it's not momentous. But we're amazed that apparently fresh FCPA enforcement scenarios are still popping up more than 30 years after the law's enactment.

 3. Your money or your HR director. The SEC kicked off the FCPA-enforcement year with civil books and records and internal controls charges against Texas-based oil and gas services firm NATCO Group Inc. The company was hit with a $65,000 civil penalty because its subsidiary, TEST Automation & Controls, Inc., "created and accepted false documents while paying extorted immigration fines and obtaining immigration visas in the Republic of Kazakhstan."

Extorted is the important word.

Companies and expat employees regularly face demands for cash from foreign police, bureaucrats and regulators that are backed by threats. The case is a reminder that extorted payments may not violate the FCPA's antibribery provisions but can be the basis for accounting offenses if not accurately recorded.

Our take: Although technically correct, the SEC looked petty dinging Natco for $65K. A warning letter about the accounting lapses (with some sympathy for the extortion) would have been fine.

4.  Directors 2, Plaintiffs 0. In dismissing a shareholder deriviative suit that alleged Dow Chemical's directors failed to prevent bribery in Kuwait, a Delaware chancery court said Dow's corporate compliance program was evidence the board had met its fiduciary duty of supervision.

Tucked in a footnote, the court's important message said: "Plaintiffs cannot simultaneously argue that the Dow board 'utterly failed' to meet its oversight duties yet had 'corporate governance procedures' in place without alleging that the board deliberately failed to monitor its ethics policy or its internal procedures."

Our take: Spot-on decisions like this are what make the Delaware chancery court so respected.

5, 6, 7 And that brings us to  . . . last week's FCPA mega bust. Which was immediately followed by a one-count criminal information against "Individual 1" from the mega-bust indictments -- revealed to be Richard T. Bistrong. For a nice account of his first court appearance in D.C. on Friday, take a look at this dispatch from Christopher Matthews at Main Justice.

And let's not forget last week's indictment of the Thai official and her daughter who allegedly took bribes from Gerald and Patricia Green. Juthamas Siriwan, the ex-governor of the Tourism Authority of Thailand, becomes one of the few foreign officials charged in the U.S. for a corruption-related offense. As for the Greens, their sentencing on FCPA and related charges was postponed last week until March 11.

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Not long ago, it would have taken a year or more to rack up this much FCPA-type action. That makes us wonder what the rest of 2010 will look like. It's going to be a wild ride.

In what may be the first case of its kind, a U.S. company that has no securities traded on an exchange but files periodic reports with the Securities and Exchange Commission has disclosed an internal investigation into possible Foreign Corrupt Practices Act violations.

In a December 30, 2009 SEC filing (here), Tampa-based PBSJ Corporation said it will miss the filing deadline for its Annual Report on Form 10-K for the year ended September 30, 2009 "due to an internal investigation being conducted by the Audit Committee of the Board of Directors." The company said the purpose of the internal investigation "is to determine whether any laws have been violated, including the Foreign Corrupt Practices Act, in connection with certain projects undertaken by PBS&J International, Inc., one of the Company’s subsidiaries, in certain foreign countries."

The FCPA's antibribery provisions apply to "domestic concerns," which include all U.S. companies; the books and records and internal controls provisions apply only to "issuers" -- corporations that have issued securities that have been registered in the United States or who are required to file periodic reports with the SEC. See 15 U.S.C. §§ 78c(a)(8), 78dd-1(a) and our post here.

PBSJ Corporation is a "domestic concern" subject to the anti-bribery provisions. It has no publicly traded securities. But because it has so many shareholders -- about 4,000 mainly current and former employees  -- it must file periodic reports with the SEC. That makes it an "issuer" subject to the books and records and internal controls provisions.

The Company said it self-reported to the SEC and Justice Department "the circumstances surrounding this internal investigation. Should the SEC or DOJ decide to conduct its own investigation, the Company will cooperate fully."

PBSJ provides engineering and construction management for government agencies worldwide, usually for road-building projects. It has 80 offices and 3,900 employees.

The company has had other compliance problems and internal controls lapses. The Tampa Business Journal said in March 2005 PBSJ discovered "what eventually was determined to be a $36.6 million embezzlement scheme by the former CFO and two other workers. Discovery of the scheme triggered a series of events, including repayments to clients that had been overbilled in an effort to cover the missing funds and a restatement of financial information for several years."

The company was also investigated by the Federal Election Commission. The FEC said for years PBSJ hid  campaign contributions to political candidates. It also encouraged employees to contribute to campaigns, then secretly reimbursed them for their payments, which violates the law.

Two U.K. citizens who allegedly helped Houston-based Kellogg Brown & Root (KBR) bribe Nigerian officials have been indicted for violating the Foreign Corrupt Practices Act. Jeffrey Tesler, 60, of London, England, and Wojciech Chodan, 71, of Maidenhead, England, were indicted on Feb. 17, 2009 by a federal grand jury sitting in Houston. The Justice Department didn't unseal the indictments until after yesterday's arrest of Tesler by British police, who acted at the request of U.S. authorities. Chodan hasn't been arrested but faces an outstanding U.S. warrant. The DOJ said it will try to extradite Tesler and Chodan from the U.K. to stand trial in the U.S.

Tesler, a lawyer in London, and Chodan, a former employee and consultant of KBR's U.K subsidiary, were charged with one count of conspiracy to violate and ten counts of violating the FCPA. They face up to 55 years in prison if convicted on all counts. The indictment also seeks forfeiture from them of more than $132 million.

The indictment says a joint venture that included KBR entered into consulting contracts with a Gibraltar corporation allegedly controlled by Tesler called Tri-Star Investments. The joint venture paid Tri-Star about $132 million to be used to bribe Nigerian government officials. The bribes were intended to secure contracts worth more than $6 billion to build liquefied natural gas facilities on Bonny Island, Nigeria. The joint venture, known as TSKJ, was equally owned by KBR, Technip, SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy) and JGC of Japan. Chodan allegedly participated in meetings where the bribery was discussed and he wired $50 million from KBR-controlled accounts to a Japanese trading company to be used to bribe Nigerian officials.

Among the details in the indictment: In August 2002, a KBR representative, using money KBR provided to Tesler, "delivered a pilot's briefcase containing one million U.S. dollars in one-hundred dollar bills to the [Nigerian] Official at a hotel in Abuja, Nigeria, for the benefit of a political party in Nigeria." And in April 2003, a KBR representative "delivered a vehicle containing Nigerian currency valued at approximately $500,000 to the hotel of the [Nigerian] Official in Abuja, Nigeria, for the benefit of a political party in Nigeria, leaving the vehicle in the hotel parking lot until the . . . Official caused the money to be removed."

Last month, KBR pleaded guilty to violating the Foreign Corrupt Practices Act. It agreed with the DOJ to pay a $402 million fine. KBR and its former parent company, Halliburton Company, also agreed to pay $177 million in disgorgement to the Securities and Exchange Commission to settle the FCPA offenses. KBR's former CEO, Albert "Jack" Stanley, pleaded guilty in September 2008 to conspiring to violate the FCPA and to mail and wire fraud charges. He has been cooperating with prosecutors. His sentencing is now scheduled for Aug. 27, 2009.

The DOJ said it had help in the case from "authorities in France, Italy, Switzerland and the United Kingdom, including in particular the Serious Fraud Office’s Anti-Corruption Unit, the London Metropolitan Police and the City of London Police."

The indictment against Tesler and Chodan contains only FCPA charges. Usually the DOJ adds other criminal counts, such as money-laundering, mail and wire fraud. Relying strictly on alleged antibribery offenses will test the jurisdictional reach of the FCPA over foreign citizens who apparently were not in the U.S. at any times relevant to the charged conduct.

The FCPA asserts jurisdiction over foreign companies and nationals that take any act in furtherance of a corrupt payment while within the territory of the United States. See §78dd-3(a), (f)(1). This part of the FCPA is untested in court, but the DOJ interprets it expansively as conferring jurisdiction whenever a foreign company or national acting as an agent of an issuer or domestic concern causes an act to be done within the territory of the United States. (See the United States Attorneys' Manual, Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” here.) The indictment says Tesler and Chodan were agents of KBR and sent some of the bribe money through U.S. bank accounts.

Another unusual aspect of the indictment is the use of the forfeiture remedy against Tesler and Chodan. (See 28 USC Section 2461, and Title 18 USC Section 981 (a)(l )(C), "all property, real and personal, which constitutes or is derived from proceeds traceable to the violations.") The U.S. government says it wants the entire $132 million that KBR transferred to Tesler's Gibraltar company or the property derived from it. The DOJ apparently isn't distinguishing the KBR money Tesler allegedly paid out in bribes from amounts he may have kept.

Jeffrey Tesler was identified in KBR's 2007 annual report. British and French authorities investigated him two years ago but didn't file any charges. In 2007, British authorities searched his London office at the request of U.S. officials. He is listed as a consultant to a small North London law firm called Kaye Tesler & Co. Among other things, the firm offers anti-money laundering training. 

As the Justice Department says: Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.

The DOJ's March 5, 2009 release can be downloaded here.

The federal grand jury's February 17, 2009 indictment of Jeffrey Tesler and Wojciech Chodan can be downloaded here.