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Richard L. Cassin Publisher and Editor

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Jessica Tillipman Senior Editor

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Elizabeth K. Spahn Editor Emeritus

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Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Thursday
Apr012010

The Daimler Settlement

The DOJ's release for Thursday, April 1, 2010 said:

WASHINGTON - Daimler AG, a German corporation, and three of its subsidiaries have resolved charges related to a Foreign Corrupt Practices Act (FCPA) investigation into the company’s worldwide sales practices, the Department of Justice announced today.

At a hearing today before U.S. District Court Judge Richard J. Leon in the District of Columbia, Daimler AG’s Russian subsidiary DaimlerChrysler Automotive Russia SAO (DCAR), now known as Mercedes-Benz Russia SAO, and its German subsidiary, Export and Trade Finance GmbH (ETF), each pleaded guilty to criminal informations charging the companies with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of violating those provisions. As part of the plea agreements, DCAR and ETF agreed to pay criminal fines of $27.26 million and $29.12 million, respectively.

Daimler AG entered into a deferred prosecution agreement and agreed to the filing of a criminal information charging that company with one count of conspiracy to violate the books and records provisions of the FCPA and one count of violating those provisions. Daimler AG’s Chinese subsidiary DaimlerChrysler China Ltd. (DCCL), now known as Daimler North East Asia Ltd., also entered into a deferred prosecution agreement and agreed to the filing of a criminal information charging it with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of violating those provisions. In total, Daimler AG and its subsidiaries will pay $93.6 million in criminal fines and penalties. . . .

In connection with its guilty plea, DCAR admitted that it made improper payments to Russian federal and municipal government officials to secure contracts to sell vehicles by over-invoicing the customer and paying the excess amount back to the government officials, or to other designated third parties that provided no legitimate services to DCAR or Daimler AG. When requested, DCAR or Daimler AG employees caused the wire transfer of payments from Daimler AG’s bank accounts in Germany to, among other destinations, U.S. and Latvian bank accounts held by shell companies with the understanding that the money, in whole or in part, was for the benefit of Russian government officials.

In connection with its guilty plea, ETF admitted that it made corrupt payments directly to Croatian government officials and to third parties, including two U.S.-based corporate entities, with the understanding that the payments would be passed on, in whole or in part, to Croatian government officials, to assist in securing the sale of 210 fire trucks.

In connection with its deferred prosecution agreement, DCCL admitted that it made improper payments in the form of commissions, delegation travel, and gifts for the benefit of Chinese government officials or their designees in connection with sales of commercial vehicles and Unimogs to various Chinese government customers. DCCL admitted that in certain cases it used U.S.-based agents to facilitate the bribe payments.

Today, Judge Leon also entered a separate judgment against Daimler AG resolving a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC). Daimler AG agreed to pay $91.4 million in disgorgement of profits relating to those violations.

*   *   *

Download the March 22, 2010 two-count criminal information in U.S. v. Daimler AG here.

Download a copy of the government's sentencing memorandum in U.S. v. Daimler AG here.

Download a copy of Daimler's deferred prosecution agreement here.

Download the civil complaint in SEC v. Daimler AG here.

Thanks to Marc Bohn for help with this and prior posts about Daimler.

*   *   *

Here's today's release (2010-51) from the SEC:

The Securities and Exchange Commission today announced a settlement with Daimler AG for violations of the Foreign Corrupt Practices Act (FCPA), alleging that the Stuttgart, Germany-based automobile manufacturer engaged in a repeated and systematic practice of paying bribes to foreign government officials to secure business in Asia, Africa, Eastern Europe and the Middle East

Daimler agreed to pay $91.4 million in disgorgement to settle the SEC's charges and pay $93.6 million in fines to settle charges in separate criminal proceedings announced today by the U.S. Department of Justice.

The SEC alleges that Daimler paid at least $56 million in improper payments over a period of more than 10 years. The payments involved more than 200 transactions in at least 22 countries. Daimler earned $1.9 billion in revenue and at least $90 million in illegal profits through these tainted sales transactions, which involved at least 6,300 commercial vehicles and 500 passenger cars. Daimler also paid kickbacks to Iraqi ministries in connection with direct and indirect sales of motor vehicles and spare parts under the United Nations Oil for Food Program. . . .

The SEC's complaint, filed in U.S. District Court for the District of Columbia, alleges that Daimler used bribes to further government sales in such countries as Russia, China, Vietnam, Nigeria, Hungary, Latvia, Croatia, and Bosnia. . . .

The SEC alleges that bribes also were made through phony sales intermediaries and corrupt business partners, as well as through the use of cash desks. Sales executives would obtain cash from the company in amounts as high as hundreds of thousands of dollars, enabling Daimler to obscure the purpose and recipients of the money paid to government officials.

Daimler violated Section 30A of the Securities Exchange Act of 1934 by making illicit payments to foreign government officials in order to obtain or retain business. Daimler violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments, and it violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records. . . .

 *   *   *

Daimler's statement said:

Stuttgart/Germany, April 1, 2010

Daimler AG announced today that it has reached a settlement of the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) investigations of violations of the Foreign Corrupt Practices Act (FCPA). Under the terms of the settlements, Daimler will pay a fine of USD 93.6 (approx. EUR 70) million and civil disgorgement of profits of USD 91.4 (approx. EUR 68) million. Sufficient provisions have been made to cover these charges.

Daimler cooperated with the SEC and the DOJ regarding the investigation into the past conduct. In the course of the investigation, which began in the fall 2004, Daimler took appropriate personnel and remedial actions to ensure that its conduct going forward complies with the Company’s Integrity Code and with all applicable laws.

"Compliance has high priority at Daimler,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG. “We have learnt a lot from past experience. Today, we are a better and stronger company, and we will continue to do everything we can to maintain the highest compliance standards." . . .

The deferred prosecution agreements of Daimler AG and Daimler North East Asia Ltd. are premised upon the requirement that no further FCPA violations occur during the two year term of the agreements and that a comprehensive compliance program is maintained. This program is designed to ensure, among other things, compliance with anti-bribery laws such as the FCPA. Upon successful satisfaction of the terms set forth in the deferred prosecution agreements, the matters against Daimler AG and Daimler North East Asia Ltd. will be dismissed without further action.

In addition, Judge Louis Freeh, will serve as a corporate compliance monitor for three years. . . .

Thursday
Apr012010

Enforcement Report For Q1 '10

It was the busiest three months ever for FCPA-related enforcement. Here's what happened since January 1st:

Indictments, guilty pleas, and sentencings. Some aren't strictly FCPA actions, as in the Haiti telecom bribe case. But they're all related to or part of an FCPA prosecution. 

Natco (January 6) resolved civil books and records and internal controls charges with the SEC. Agreed to a $65,000 civil penalty.

Shot-Show Indictments (January 19) charged 22 individuals:

•    Daniel Alvirez, 32, Arkansas

•    Lee Allen Tolleson, 25, Arkansas

•    Helmie Ashiblie, 44, Woodbridge, Va.

•    Andrew Bigelow, 40, Sarasota, Fla.

•    R. Patrick Caldwell, 61, Sunrise, Fla.

•    Stephen Gerard Giordanella, 50, Sunrise, Fla.

•    Yochanan R. Cohen, a/k/a Yochi Cohen, 47, San Francisco

•    Haim Geri, 50, North Miami Beach, Fla.

•    Amaro Goncalves, 49, Springfield, Mass.

•    John Gregory Godsey, a/k/a Greg Godsey, 37, Decatur, Ga.

•    Mark Frederick Morales, 37, Decatur, Ga.

•    Saul Mishkin, 38, Aventura, Fla.

•    John M. Mushriqui, 28, Upper Darby, Penn.

•    Jeana Mushriqui, 30, Upper Darby, Penn.

•    David R. Painter, 56, U.K.

•    Lee M. Wares, 43, U.K.

•    Pankesh Patel, 43, U.K.

•    Ofer Paz, 50, Israel

•    Jonathan M. Spiller, 58, Ponte Vedra Beach, Fla.

•    Israel Weisler, a/k/a Wayne Weisler, 63, Stearns, Ky.

•    Michael Sachs, 66, Stearns, Ky.

•    John Benson Wier III, 46, St. Petersburg, Fla.

Richard T. Bistrong (January 21), the key intermediary identified as “Individual 1” in the Shot Show indictments (above) was charged with conspiracy to violate the FCPA.

Jim Bob Brown (January 28), 48, former Willbros employee, was sentenced in federal court in Houston to one year and one day in prison and fined $17,500 for conspiracy to violate the FCPA.

Jason Edward Steph (January 28), 40, former Willbros employee, was sentenced to 15 months and fined $2,000 for conspiracy to violate the FCPA.

John W. Warwick
(February 10), 64, of Virginia Beach, Va., pleaded guilty to one count of conspiracy to violate the FCPA.

Jean Fourcand (February 19), 62, of Miami, pleaded guilty to laundering money used to bribe former officials at Haiti's state-owned telecommunications company.

BAE Systems plc (March 1) pleaded guilty to conspiring to defraud the U.S. by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was fined $400 million.

Robert Antoine (March 12), 62, pleaded guilty to a money-laundering conspiracy (see Jean Fourcand above).

Nexus Technologies, Inc. (March 16) pleaded guilty to conspiracy, and to violating the Foreign Corrupt Practices Act, and the Travel Act in connection with commercial bribes and money laundering.

Nam Nguyen (March 16), 54, the president and owner of Nexus Technologies, pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act, and money laundering.

An Nguyen (March 16), 34, an employee of Nexus Technologies, pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act, and money laundering.

Kim Nguyen (March 16), 41, another sibling, pleaded guilty to conspiracy, a substantive FCPA violation, and money laundering.

Innospec (March 18) pleaded guilty to wire fraud and FCPA violations. In its DOJ, settlement, it will pay a $14.1 million criminal fine and retain an independent compliance monitor for three years. In its SEC settlement, It will disgorge $11.2 million in profits for violating the FCPA's anti-bribery, internal controls, and books and records provisions.

Daimler AG (March 24) charged in a criminal information with one count of conspiracy to violate the FCPA (18 U.S.C. §371) and one count of violating the books and records provisions (15  U.S.C. §§78m(b)(2)(A), 78m(b)(5), and 78ff(a), and 18 U.S.C. §2). Daimler is expected to pay $185 million -- $93.6 million for a criminal fine and $91.4 million in civil penalties. Hearing on April 1, 2010.

Sentencing delays:

Gerald and Patricia Green's sentencing in Los Angleles was postponed from January 21 to April 1, 2010 at 8:00 am.

Hans Bodmer (SDNY 03-947): sentencing was scheduled for February 23, 2010. Docket indicates a sealed document was placed in vault on March 25, 2010 (2004 - Bourke/Kozeny – Note: Was not convicted on FCPA count against him). Sentencing may be delayed until the outcome of Bourke's appeal.

Albert "Jack" Stanley's sentencing in Houston was rescheduled from February 24 to May 26, 2010 at 10:30 am.

Leo Winston Smith (CDCA 07-69): sentencing delayed from March 22, 2010; currently scheduled for May 10, 2010 (2007 - Pacific Consolidated).

Charles Paul Edward Jumet (EDVA 09-397): sentencing delayed from March 26, 2010; currently scheduled for April 19, 2010 (2009 - Panama; PECC).

Juan Diaz (SDFL 09-20346): sentencing delayed from March 31, 2010; sentencing currently scheduled for May 27, 2010 (2009 - Haiti Telecom).

Antonio Perez (SDFL 09-20347): sentencing delayed from March 31, 2010; sentencing currently scheduled for May 27, 2010 (2009 - Haiti Telecom).

Extraditions:

Viktor Kozeny (January 26), 46, the Czech-born fugitive wanted in the United States for conspiracy to violate the FCPA won a decision in the Bahamas court of appeal that continues to block his extradition to the U.S. The U.S. may appeal to the U.K. Privy Council.

Jeffrey Tesler (March 25), 61, a U.K. citizen indicted in February 2009 by a federal grand jury in Houston for being KBR's middleman in Nigeria. A judge in London ruled he should be extradited to the U.S. to face trial. His appeal is expected to be lengthy.

In the pipeline. Here are companies that during the quarter announced possible FCPA settlements:

ABB reserve of $850 million

Alcatel-Lucent reserve of $137.4 million

ENI reserve of €250 million

Pride International, Inc. reserve of $56.2 million

Technip reserve of €245 million

Veraz reserve of $300,000

Civil suits. Private parties have no right of action under the FCPA. Only the DOJ and SEC can enforce it. Plaintiffs bring FCPA-related claims under RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, civil conspiracy, breach of fiduciary duties, and others.

A couple of noteworthy FCPA-related civil suit developments during the quarter were:

Dow Chemical A Delaware chancery court cited Dow's corporate compliance program as a reason for dismissing a shareholder derivative suit against the company's current directors that alleged they failed to prevent overseas bribery.

BAE A 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 trial court applied English law to the case.

If we've missed any companies or individuals that should be included in FCPA-related actions, please let us know.

Special thanks to Marc Bohn for some of the sentencing information.

Wednesday
Mar312010

The Thing About Foreign Officials

Some of our favorite websites are asking whether employees of government-linked companies are really "foreign officials" under the FCPA. The DOJ has always insisted they are. But that interpretation has never been tested in court, allowing proponents to say the DOJ has taken improper liberties with the statute's text.

We've never thought that argument had much promise. Our plain reading of the words in question is that employees of companies owned or run by foreign governments, or even greatly influenced by them, fit within the intended meaning of "foreign officials." How so? The law defines them to include employees of a government or any instrumentality of it. Is a government-linked company an instrumentality?

According to the free dictionary, an instrumentality is "a subsidiary organ of government created for a special purpose." Or it's "the tools or means by which an organization or subset of that organization accomplishes its projects and goals." That might describe a government-linked company. And in the Supreme Court cases we've checked, instrumentality is a catch-all word, like "thing." It pops up in tax cases -- to mean ships, containers, cars, roads, canals, etc. It wouldn't be a stretch to include a state-owned enterprise as another thing.

Proponent Mike Koehler points out, correctly, that the DOJ's expansive view of "foreign official" can produce strange results -- "employees of a Delaware company perhaps being Venezuelan 'foreign officials' and an American citizen perhaps being a Dubai 'foreign official.'" Spot on. The world is now thoroughly corporatized and, yes, globalized. Strange is the new normal.

Beyond that, would a federal judge be willing to abridge FCPA enforcement and presumably unleash a wave of "private" bribery by Americans overseas? Imagine the scolding from China's rulers and our OECD anti-corruption partners. Even if a judge performed such radical surgery, we think Congress (in either party's hands) would act before lunch to restore order.

Nonetheless, this debate has people talking, and that's a good thing.

*   *   *

Here's the FCPA's definition of "foreign official." You be the judge of what's intended and let us know what you think:

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

Tuesday
Mar302010

Risk-Based Compliance: First Steps

Scott Moritz: Risk-based compliance can work, even for the world's biggest companies. By Scott Moritz

Who are your highest-risk third parties and what are you doing about them? Most FCPA enforcement actions involve payments through agents and other intermediaries. That's why the DOJ and SEC and their overseas counterparts are watching what companies do to identify high-risk third parties, and the standard of care used to manage the relationships.

Global companies -- often with tens of thousands of suppliers and other third parties to keep track of -- can and should use risk-based compliance. Here are some first steps to make it work:

1.    Knowing what you don't know.

Typical vendor-information files are thin -- the company's legal name, billing address, tax ID number, and payment instructions. But to evaluate compliance risk, more is needed. Basic information can often be extracted from proprietary databases, such as the names of owners and key executives, standard industry code (SIC), and parent / subsidiary relationships. Going further may require a questionnaire covering any ties with current or former government officials; foreign government ownership; sales commission percentages (if applicable); ultimate customer names; annual sales volumes; and the like. 

2.    Privacy, please.

EU countries and many others now have laws protecting personal information. Before transmitting any data, consider privacy laws in each potentially relevant jurisdiction. Data should be subjected to some level of formal privacy review, scrubbing, storage, and transmission using encryption. 

3.    Categorization is key.

A consistent way to categorize third-party relationships, and the relative risk each category represents, is a critical success factor. Labels describing relationships should be functional -- how do they interact with your company? Creating accurate labels requires input from finance, procurement and individual business units. Common relationships include: reseller (sometimes referred to as channel partner), distributor, joint venture partner, agent (or sales agent), freight forwarder, customs broker, lobbyist, law firm, accounting firm, consultant, and so on. Once established, the categories need to be sorted by risk and assigned an appropriate point value as a precursor to final risk scoring.

4.    Do some spring cleaning.

Most master-vendor files contain entries that are no longer active, are duplicates, or are other forms of clutter. Remove duplicates. Delete dormant entities -- those inactive for two years or more. Try a first round of replacing high-risk entries with less risky alternatives. And after due diligence investigations, relationships showing unresolvable red flags should be ended as well.

5.    Education and accountability.

Radar detectors don't just reveal police locations. Over time, they teach you where police officers are likely to be. A well implemented third-party FCPA compliance program can do the same thing -- over time, it teaches business people to recognize the causes of risk in third-party relationships. Such awareness doesn't come easy. Most often, it's a result of driving accountability by compelling business units to make a case to retain a high-risk third party despite red flags, and forcing them to accept responsibility for any liability that follows.

Scott Moritz is an executive director with Daylight Forensic & Advisory LLC where he leads their FCPA and Investigative Due Diligence practices. He's a former FBI Special Agent with 23 years experience investigating international corruption, transnational crime and money laundering. He can be emailed here.

Monday
Mar292010

Headwinds In London

SFO Director Richard Alderman: Good job, don't do it again. A senior Crown Court judge on Friday warned the head of Britain's Serious Fraud Office (SFO) that he doesn't have the legal authority to settle corruption prosecutions with plea bargains.

The judge's comments raise doubts about the SFO's ability to cooperate with the DOJ and SEC in crafting global settlements for companies that agree to plead guilty. And companies seeking joint settlements may now fear being fined twice for the same offenses.

Lord Justice Thomas, Britain's second-ranking criminal judge, was speaking during a hearing involving the British division of Innospec, Inc., the Delaware-based chemical maker that in mid-March reached a global settlement with U.S. prosecutors and the SFO.

The judge approved the U.K. plea deal and penalty but said the $12.7 million fine the SFO agreed with Innospec was inadequate and went beyond the SFO's authority. In the U.S., Innospec agreed with the DOJ to pay a $14.1 million criminal fine and disgorge $11.2 million in profits to the SEC. It also agreed to pay $2.2 million to the U.S. Office of Foreign Assets Control for violating America's embargo against Cuba.

According to the Independent, the judge, who's the deputy head of criminal justice, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.”

The Financial Times (registration required) reported Lord Justice Thomas as saying that "while [SFO director] Alderman's 'vigorous prosecution' of Cheshire-based Innospec was praiseworthy, the director had exceeded his powers in the course of striking a joint deal with the U.S. authorities over the total penalty of just over $40 million the company would pay. The judge said he confirmed the U.K. part of the fine 'reluctantly,' as it was 'wholly inadequate' and should have been in the tens of millions for a 'very serious' offence."

The judge said under English law only judges can impose sentences. “This has always been the position under the law of England and Wales. Agreements and submissions of the type put forward in this case can have no effect,” he said, according to the Times.

Judge Thomas' remarks also open the possibility that BAE's settlement with the SFO may come under judicial fire. The company agreed in February to a U.K. penalty of £30 million. At the same time, it agreed with the DOJ to a U.S. criminal fine of $400 million.

In the U.S., plea bargains also need court approval. However, judges usually defer to the DOJ and SEC and accept the terms those agencies agree with defendants.

Friday
Mar262010

Not All Corruption Is Created Equal

In the latest edition of Foreign Policy magazine, Ray Fisman, a professor at the Columbia Business School, has a short commentary with an unusual slant: Corruption that's predictable and stable is easy for investors to deal with and may not do that much harm to local economies.

He's not saying corruption is ever a good thing. Just that some corruption -- the knowable kind -- isn't as damaging as graft that surprises and spooks investors. His example of the latter: China's arrest and trial of four Rio Tinto employees.

"The Bad Kind of Corruption" can be found here. Here's the lead:

By the end of President Suharto's 30-year rule in 1998, Indonesia ranked as one of the half-dozen most corrupt economies on the planet, according to Transparency International (TI). Yet in those three decades, the country also experienced growth in per capita income of 6 percent per year, a rate almost unparalleled in recorded human history. The past 30 years have seen comparable economic progress in China: since the 1976 death of Mao Zedong, the Chinese economy has eclipsed even Suharto-level growth rates despite also holding position 79 in TI's latest ranking, tied with Burkina Faso.

We hit a similar note in the Wall Street Journal's Asia edition in 1998, saying:

An American executive working in Jakarta complained to me in 1992 that every time he tried to do anything, one of Mr. Suharto’s kids or cronies would show up and demand a piece of the action. He said it happened on everything, from a $100 million project to routine purchase orders. It was easy to do business in the Philippines during Marcos’s time, likewise in Iran during the Shah’s or Nicaragua during Somoza’s. Foreign investors cut through the red tape by working with one of the few wired local partners. Well-greased insider deals always look good at the time, but are usually too good to be true.

Ray Fisman is right. No corruption is good but it's not all created equal.

Thursday
Mar252010

Tesler Loses Extradition Hearing

A judge in London said Thursday the U.K. lawyer accused of being a middleman in KBR's bribery of Nigerian officials should be extradited to the U.S. to face trial.

Jeffrey Tesler, 61, a U.K. citizen, was indicted in February 2009 by a federal grand jury in Houston. He was charged with one count of conspiring to violate the Foreign Corrupt Practices Act and ten substantive FCPA offenses. If convicted on all counts, he faces up to 55 years in prison. U.K. police, acting at the request of U.S. authorities, arrested Tesler in March 2009.

The Guardian newspaper's Rob Evans said the judge "rejected Tesler's argument that it would be 'unjust and oppressive' to send him to America as prosecutors had taken a long time to charge him. He argued that he would no longer be able to get a fair trial in the US. However the judge pointed out that he was responsible for part of this delay, as he had hired lawyers to block prosecutors obtaining evidence from Switzerland. Prosecutors, who have been investigating the allegations for at least seven years, say that the corrupt payments were laundered via bank accounts there and in Monaco."

The U.S. indictment charged Tesler with using his Gibraltar company, Tri-Star Investments, to funnel about $132 million in bribes to Nigerian officials. The payments were intended to secure contracts worth more than $6 billion to build liquefied natural gas facilities on Nigeria's Bonny Island. The DOJ said Tesler was acting for a joint venture known as TSKJ, equally owned by KBR, Technip of France, Snamprogetti of Italy, and JGC of Japan.

A year ago, Houston-based KBR pleaded guilty to one conspiracy count and four substantive counts of violating the Foreign Corrupt Practices Act through its role in TSKJ. It also settled civil charges with the SEC. KBR's criminal fine was $402 million and, with its former parent Halliburton, it agreed to pay the SEC $177 million in disgorgement.

French company Technip said last month it has reserved €245 million for a potential settlement of FCPA offenses with the Justice Department and SEC for its role in the TSKJ Nigeria joint venture. A few weeks later, Italian energy giant ENI, Snamprogetti's former owner, said it had reserved €250 million for a possible FCPA settlement.

Tesler has argued that the case against him has no connection to the U.S. because the bribery didn't originate or happen there. But lawyers for the U.K. and U.S. governments argued that U.S.-based companies were involved and money had been channelled through U.S. bank accounts.

In his indictment, the U.S. also said Tesler was subject to the FCPA as an "agent" of an "issuer," of a "domestic concern," and of a "person," all within the meaning of the FCPA (Title 15, U.S.C. §§78dd- 1, 78dd-2, and 78dd-3). 

The Guardian said Tesler's lawyers plan to appeal and that the review process would be "lengthy."

Thursday
Mar252010

Freeh Named Daimler Monitor

Former FBI director Louis Freeh will act as compliance monitor to German vehicle-maker Daimler AG, which is expected to obtain court approval on April 1st for its settlement with the Justice Department of two FCPA-related charges.

Freeh is nominated to be monitor in the deferred prosecution agreement the government filed in federal district court in Washington on Wednesday. His term will be three years.

Daimler is expected to pay $185 million to resolve bribery-related charges with the DOJ and SEC -- $93.6 million for a criminal fine and $91.4 million in civil penalties.

Download a copy of the government's sentencing memorandum in U.S. v. Daimler AG here.

Download a copy of Daimler's deferred prosecution agreement here.

Download the March 22, 2010 two-count criminal information in U.S. v. Daimler AG here.

Our thanks to Washington, D.C.'s Marc Alain Bohn for his help with this post.

Thursday
Mar252010

Where To Look

Be sure to check out Shearman & Sterling's searchable data base here. It's utterly amazing and free to use. Searches return cases, pleadings, dollar amounts, countries involved, dispositions, and related actions. It's like their original FCPA Digest, but in liquid form. A wonderful new public resource.

Philip Urofsky, who heads the project, told us "the new 'Digest 2.0' should be a useful tool for companies in evaluating risk by region, industry, and enforcement trends." He said his group will keep the data base current and as comprehensive as possible with original pleadings.

On top of that, the latest version of the firm's "Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act" is now available, along with the March 10, 2010 .pdf edition of the FCPA Digest. Both are here.

Authors Urofsky and Dan Newcomb always bring a fresh perspective. In the latest Trends, they wonder how the DOJ's FCPA trial teams will cope with the recent indictment of so many individuals:

Senior DOJ and SEC officials of the Obama Administration have repeatedly promised a robust program of enforcement, including proactive initiatives focusing on specific business sectors, particularly the pharmaceutical industry. Nevertheless, the DOJ’s focus on individuals will undoubtedly have an impact on enforcement in the coming year. As of March 1, the DOJ has 38 individuals awaiting trial; some, such as the six Control Components defendants charged with a single conspiracy, will potentially be tried together, while others, such as the 22 defendants in the law enforcement supply cases, are likely to stand trial separately. Trials drain resources, and although we expect that the DOJ’s Fraud Section will call upon other parts of the Department for assistance, it is likely to be stretched thin in the near future.

And somehow anticipating the DOJ's comments about Daimler, they ruminate on the questionable role played by corporate law departments, as described in some pre-Daimler enforcement actions:

The SEC similarly expressed concerns about the fairly passive role of AGCO’s legal department. For example, the SEC noted that, in addition to allowing the Iraqi contracts to be executed without legal review, the legal department was aware that the company was doing business in Iraq, a country then subject to U.S. economic sanctions, yet it “failed to ensure that the sanctions or the U.N. rules and regulations were followed.” Further, the company did not conduct any due diligence on the agent nor did it provide or require the agent to take FCPA training nor did its agreement with the agent accurately describe his services and payment terms or include FCPA language.

We're grateful to Philip Urofsky and Dan Newcomb, as we have been for years, for making these resources available to the compliance community.

Wednesday
Mar242010

Daimler Deal Reported

The New York Times's DealBook says in a post today that "Daimler has agreed to pay about $185 million in fines, and two of its subsidiaries will plead guilty to bribing foreign government officials, to settle a multiyear corruption investigation." Parent-company Daimler AG "will avoid indictment," the report said.

The DealBook post was based on a story in the Times by Charlie Savage. He reported that "Daimler has agreed to pay a $96.3 million criminal fine and a $91.4 million civil fine, along with entering a consent decree with the Securities and Exchange Commission." His source requested anonymity.

The government hasn't commented. A hearing is scheduled for April 1 before U.S. district judge Richard J. Leon in Washington.

A possible $200 million settlement involving two subsidiaries was first reported in February. A Daimler spokesperson said then: “We are in discussions with the DOJ and the SEC regarding consensually resolving the agencies’ investigations.”

See our posts here, here and here.

Wednesday
Mar242010

Code Named Ruthenium

The U.K.'s Serious Fraud Office today reported in dramatic fashion the arrest of three top executives of French industrial giant Alstom's British unit. They're suspected of paying bribes overseas to win contracts.

After today's arrests, the company said:

Several Alstom offices in the United Kingdom have been raided on Wednesday 24 March by police officers and some of its local managers are being questioned. The police apparently executed search warrants upon the request of the Swiss Federal justice. Alstom has been investigated by the Swiss justice for more than 3 years on the motive of alleged bribery issues. Within this frame, Alstom’s offices in Switzerland and France have already been searched in the past years. Alstom is cooperating with the British authorities.

In August 2008, we reported that Swiss police had arrested a former Alstom manager 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.

Another international investigation of Alstrom involving suspected corrupt payments in Asia and South America between 1995 and 2003 has been ongoing. Reports in May 2008 said 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.

The press said in June 2008 that 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.

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 80,000 employees. Revenues last year were €18.7 billion. It has an office in Windsor, Connecticut and its securities trade in the pink sheets (Other OTC: AOMFF.PK).

Here's the full text of the today's SFO release:

Three members of the Board of Alstom in the U.K. have been arrested on suspicion of bribery and corruption, conspiracy to pay bribes, money laundering and false accounting, and have been taken to police stations to be interviewed by the Serious Fraud Office.

Earlier this morning search warrants were executed at Alstom business premises and residential addresses at locations in Warwickshire, Leicestershire, Cheshire, Shropshire, Derbyshire, Staffordshire and London. This operation has involved 109 SFO staff and 44 police officers and Accredited Financial Investigators from Warwickshire, Leicestershire, Cheshire, West Mercia and Staffordshire Police Forces and the Metropolitan Police Service. The three men arrested during this operation are aged 52, 51 and 44.

Code-named Operation Ruthenium, the investigation by the SFO is into the suspected payment of bribes by companies within the Alstom group in the U.K. It is suspected that bribes have been paid in order to win contracts overseas, and that this has involved associated money laundering and other offences. The SFO has been working closely with the Office of the Attorney General and Federal Police in Switzerland and a number of Police Forces in the U.K.

Commenting on today's action, SFO Director Richard Alderman said, "The SFO is committed to tackling corruption. We are working closely with other criminal justice organisations across the world and are taking steps to encourage companies to report any suspicions of corruption, either within their own business or by other companies or individuals."

Wednesday
Mar242010

Daimler Charged For Bribery [Updated]

Germany's Daimler AG has been charged in a criminal information with Foreign Corrupt Practices Act-related violations involving "at least 22 countries over almost a decade." China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia, Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, and Vietnam are among the countries mentioned.

The company faces one count of conspiracy to violate the FCPA (18 U.S.C. §371) and one count of violating the books and records provisions (15  U.S.C. §§78m(b)(2)(A), 78m(b)(5), and 78ff(a), and 18 U.S.C. §2).

The 76-page information recounts years of systematic payments and gifts made through third-parties, many of them shell companies, to state-owned customers and government officials, including Changquing Petroleum Exploration Bureau, and Sinopec, both in China. In Turkmenistan, it gave a government official "an armored Mercedes Benz S class passenger car, valued at more than €300,000, for his birthday." Bribes in Iraq also violated the U.N.'s oil for food program.

Daimler's top brass knew about the bribery. The criminal information describes a 1999 meeting of the Board of Management:

[P]articipants in the meeting discussed that adopting such policies (and stopping the practice of making "useful payments") would result in Daimler losing business in certain countries. At that meeting, an integrity code with anti-bribery provisions was adopted. However, Daimler subsequently failed to make sufficient efforts to enforce the code, train employees on compliance with the FCPA or other applicable anti-bribery statutes, audit the use of [third-party accounts], or otherwise attempt to ensure that the company was not continuing to make improper payments in order to obtain or retain government business overseas.

In February, Daimler was reported to be close to settlement with U.S. authorities and ready to pay about $200 million.

The DOJ's filing of a criminal information instead of an indictment usually indicates a settlement has been reached, subject to court approval. A hearing is scheduled for April 1 in U.S. District Court in Washington, D.C.

A Daimler spokesperson said in February: “We are in discussions with the DOJ and the SEC regarding consensually resolving the agencies’ investigations.” See our posts here and here.

The information says before 2005, Daimler -- despite being an "issuer" since 1993 and subject to the FCPA, despite having by then "more than 270,000 employees and 60 affiliates and business units that sold vehicles to governments and government-related entities in many high-risk countries for corruption" -- had a feeble compliance program. There was no head of compliance; legal and accounting people reported directly to sales executives; the audit department was small and chronically understaffed; cash controls were absent -- employees could draw tens of thousands of dollars with little justification or oversight; the selection, use, and payment of agents was largely unregulated; employees received inadequate compliance training, and whistleblower hotlines were decentralized.

The FCPA investigation into Daimler began in 2004, triggered by the firing of an alleged whistleblower from the audit group at DaimlerChrysler Corp., Daimler's former U.S. affiliate.

"In total," the information alleges, "the transactions with a territorial connection to the United States resulted in over $50,000,000 pre-tax profits for Daimler."

Download the March 22, 2010 two-count criminal information in U.S. v. Daimler AG here.

Our thanks to Washington, D.C.'s Marc Alain Bohn for his help with this post.