Why did one company escape prosecution in the Panalpina case when most of its peers did not? Here's the story.
Entries in Vetco (5)
Disgorging profits is a common and prominent feature these days in Foreign Corrupt Practices Act settlements with the Securities and Exchange Commission. Last year Siemens disgorged $350 million and this year KBR paid $177 million. Maybe because disgorgements now happen so often, or because the payments have become so enormous, we automatically accept them as a suitable remedy. We don't question why the SEC uses disgorgement, where the remedy came from, or where it's going.
But at least one person has asked those questions. He's David C. Weiss (Dartmouth College, Michigan Law School), student-author of an extended note in the January 17, 2009 edition of the Michigan Journal of International Law.
According to Weiss, disgorgement never appeared in an FCPA enforcement action until just five years ago. That's right -- 27 years passed without a single FCPA-related disgorgement order. Then, in 2004, ABB Vetco Gray, Inc. paid $16.4 million in disgorgement and prejudgment interest. Next came Titan Corp. in 2005, paying $15.5 million. That same year, Diagnostics Products Corp. disgorged $2.8 million and DPC (Tianjin) Co. Ltd. $2.8 million. In 2006, Schnitzer Steel Industries, Inc. disgorged $7.7 million and Statoil $10.5 million. In 2007, Baker Hughes Inc. disgorged $23 million, El Paso Corp. $5.5 million, and York International $10 million.
Want to hear the rest? In 2008, Fiat disgorged $7.2 million, Siemens $350 million, Faro Technologies $1.8 million, Willbros $10.3 million, AB Volvo $19.6 million, Flowserve $3.2 million, and Westinghouse Air Brake Technologies Corp. $289,000. And so far this year, ITT Corporation has disgorged $1.4 million, and KBR $177 million.
Disgorgement, then, has a short but intense history in FCPA enforcement actions, and it seems to have appeared out of the blue. As Weiss puts it, "The SEC has developed the 'law' of disgorgement with neither the input, contemplation, nor blessing of Congress, and it is for this reason that one should ask normative questions about the role of disgorgement in the future enforcement of the prohibition on foreign bribery."
He points out that the SEC began requiring disgorgement just when other countries (with U.S. encouragement) started enacting their own extra-territorial anti-corruption laws. So here's the question: When more than one country enforces antibribery laws against a single company, which jurisdictions, if any, should use disgorgement as a remedy? Who decides, for example, if Siemens should forfeit ill-gotten gains to the United States Treasury or the German Chancellery? How about Italy or Norway, Greece or Argentina?
Weiss looks at laws around the world aimed at punishing foreign public bribery, and particularly those with disgorgement-like remedies. "The penal codes of at least twenty-one countries," he says, "include provisions for 'forfeiture' or 'confiscation' of the proceeds of a crime, or they base the amount of a fine on such proceeds." His survey shows just how new most of the laws are -- the majority coming into force either following enactment of the OECD anti-corruption convention in 1998 or after the events of 9/11 in 2001.
There's no evidence, Weiss says, that "Congress intended that the SEC pursue disgorgement as it has done since 2004. This fact alone should at least make one question the normative function of disgorgement." Disgorgement, he says, wasn't mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. Weiss himself doesn't say the SEC lacks the legal mandate to pursue disgorgement or that the remedy is somehow improper. But he does point out that the "lack of any statement that disgorgement should be part of the SEC’s enforcement arsenal, and the rarity of the remedy at the time that Congress passed the FCPA and its amendments, are reasons that some commentators have used to question the impropriety of the remedy."
It's great to see the Foreign Corrupt Practices Act as the object of some fresh research and scholarship. And at 47 pages and 238 footnotes (a couple of which mention the FCPA Blog), Weiss' work is thorough and thoughtful.
The cite for the note is: Weiss, David C.,The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, Michigan Journal of International Law, Vol. 30, No. 2 (January 17, 2009).
It's available from SSRN here.
Our singular focus over the past week moved our spouse to ask whether we also plan to redo the walls in Siemens Blue. We're considering it. But what really comes to mind after the biggest FCPA enforcement action in history is that it involves not a U.S. company -- not a Boeing or an Exxon or a GE -- but "a corporation organized under the laws of Germany with its principal offices in Berlin and Munich." It was snared by the FCPA because, as the Justice Department's Information put it: "As of March 12, 2001, Siemens was listed on the New York Stock Exchange and was an 'issuer' as that term is used in the FCPA. 15 U.S.C. § 78dd-1(a). By virtue of its status as an issuer, Siemens was required to comply with the provisions of the FCPA."
We shouldn't be too surprised that the big hammer fell on a foreign company. Since 1998, the pace of investigations and enforcement actions involving foreign companies has accelerated. In addition to Siemens, overseas names in the FCPA news include ABB Ltd (Switzerland), Vetco Gray UK Ltd, Akzo Nobel, NV (the Netherlands), Statoil ASA (Norway), AstraZeneca (UK-Sweden), BAE Systems (UK), DaimlerChrysler (Germany), Innospec (UK), Magyar Telekom (Hungary), Norsk Hydro (Norway), Novo Nordisk (Denmark), Panalpina (Switzerland), Smith & Nephew (UK) and Total (France), among others.
Outside America's borders, its globo-cop role may not sit well with everyone (it makes a lot of Americans uneasy, too). But the FCPA's long reach and sharp teeth are changing global business practices. Our favorite pundit said it was probably the threat of criminal prosecution under the FCPA that finally scared Siemens enough to come clean. That's what Congress had in mind in 1998 when it expanded the FCPA to cover foreign companies that weren't issuers when they act unlawfully while within the territory of the U.S. ; American businesses needed a more level playing field.
But fighting public graft is also the right thing to do. A. A. Sommer, Jr., a commissioner of the SEC, said in 1976, a year before enactment of the FCPA, that "there are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multinational corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Thirty-two years later the Wall Street Journal could say that the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.
The DOJ's Matthew Friedrich summed up the case this week with these words:
For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.That's why the fight against international public corruption is worthwhile, and why the FCPA makes sense.
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.
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.
Aibel Group Ltd. of the United Kingdom pleaded guilty yesterday to violating the antibribery provisions of the Foreign Corrupt Practices Act and failing to comply with the terms of its prior deferred prosecution agreement. It admitted making previously undisclosed illegal payments to Nigerian customs officials through its freight forwarder in return for preferential treatment.
From 2002 to 2005, Aibel arranged at least 378 corrupt payments to Nigerian officials totaling about $2.1 million. The payments were coordinated largely through an affiliate's office in Houston and were paid through a freight forwarding company. Aibel's work in Nigeria involved a deepwater oil drilling operation known as the Bonga Project, for which the company provided engineering, procurement and subsea construction equipment.
At a hearing yesterday in the Southern District of Texas, Aibel pleaded guilty to single conspiracy and substantive counts of violating the FCPA. Aibel also admitted that it had not complied with a deferred prosecution agreement it had entered into with the Justice Department in February 2007 regarding the same underlying conduct. As part of the plea agreement, it will pay a $4.2 million criminal fine and serve two years on organizational probation. Among other things, it is required to report periodically its progress in implementing antibribery compliance measures.
Aibel is owned by Herkules Private Equity Fund and Ferd Capital, both of Norway. They acquired the company in June 2007 from a private equity group led by Candover, 3i and JPMorgan Partners, which bought Vetco Gray UK Ltd. and its affiliate Aibel in July 2004 from ABB Oil & Gas. When its current Norwegian owners acquired Aibel, it was already subject to the January 2007 deferred prosecution agreement. The new owners were required by the DOJ to ensure the company's compliance with the terms of the deferred prosecution agreement after the acquisition.
The Justice Department's release didn't name the "major international freight forwarding and customs clearance company" Aibel used to make the illegal payments. But it explained that this is the third time since July 2004 that entities affiliated with Aibel have pleaded guilty to violating the FCPA. On July 6, 2004, Vetco Gray UK Ltd. pleaded guilty to violating the FCPA's antibribery provisions by paying more than $1 million in bribes to officials of the National Petroleum Investment Management Services, a Nigerian government agency. And in February 2007, three wholly-owned subsidiaries of Vetco pleaded guilty to violating the antibribery provisions of the FCPA. As part of the February 2007 plea, the Vetco companies agreed to pay a combined $26 million criminal fine. Although Aibel, which was then also wholly-owned by Vetco, was not fined, it was required to enter into a deferred prosecution agreement whereby it accepted responsibility for similar conduct by its employees. It admtted Friday that it was not in compliance with the deferred prosecution agreement.
The DOJ said in February 2007 that Vetco's bribes in Nigeria were paid to customs officials through a "major international freight forwarding and customs clearance company," the same description used in the DOJ's release yesterday. Since February 2007, about a dozen leading oil and gas-related companies have received letters from the DOJ and SEC asking for details about their relationship with Swiss logistics giant, Panalpina. Companies that have said they received requests include Shell, Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp., Pride International and Global Industries.
Panalpina said in its 2008 half-yearly report (available here) that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction earlier this month. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.
Regarding yesterday's plea, the DOJ said Aibel self-disclosed the current FCPA violations as well as those in February 2007 and agreed to take significant remedial steps.
View the DOJ's November 21, 2008 release here.