It certainly seems like 2010 has been a busy year for FCPA enforcement actions. We’ve now tallied all the reported ones (including criminal, civil and SEC administrative actions) that have been resolved as of December 16th, and the grand tally is…71.
Read the highlights for yourself and kudos to Squire Sanders Anti-Corruption/FCPA Group members Rebekah Poston and Greg Bates for their efforts to prepare this update.
Panalpina et al
- Thirteen entities, including Panalpina World Transport (Holding) Ltd. (“Panalpina Ltd.”), Pride International Inc. (“Pride International”), Tidewater Inc., Transocean Inc., Royal Dutch Shell plc (“Shell”), and subsidiaries thereof, as well as Global SantaFe Corporation (“Global SantaFe”) and Noble Corporation (“Noble”), resolved allegations of FCPA violations brought by the DOJ and or SEC.
- Panalpina Ltd. and Panalpina Inc.
– The DOJ charged Panalpina Ltd. with conspiracy to violate and substantive violations of the FCPA’s antibribery provisions. The DOJ also charged Panalpina Inc., a U.S. subsidiary of Panalpina Ltd. (collectively “Panalpina”), with conspiracy to violate and aiding and abetting certain customers with violating the FCPA’s books and records provisions. The SEC charged Panalpina Inc. with violating and aiding and abetting violations of the FCPA’s antibribery provisions as well as violating the books and records and internal controls provisions.
– Panalpina Ltd. and Panalpina Inc. admitted they, through subsidiaries and affiliates, engaged in a scheme to pay bribes to numerous foreign officials on behalf of many of its customers in the oil and gas industry. They did so in order to bypass local rules and regulations relating to the import of goods and materials into numerous foreign jurisdictions. The companies admitted between 2002 and 2007 they paid thousands of bribes to foreign officials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan. The bribes were often authorized by Panalpina’s customers and then inaccurately described in customer invoices as “local processing,” “special intervention” or “special handling” fees.
- Pride International and Pride Forasol S.A.S. (“Pride SAS”).
– The DOJ charged Pride International with conspiracy to violate and substantive violations of the FCPA’s antibribery and books and records provisions. The DOJ further charged Pride SAS, a wholly owned subsidiary of Pride International, with conspiracy to violate and substantive violations of the FCPA’s antibribery provisions, and aiding and abetting violations of the books and records provisions. The SEC charged Pride International with violating the FCPA’s antibribery, books and records and internal controls provisions.
– The DOJ and SEC alleged Pride International and Pride SAS, collectively, paid bribes to government officials in Venezuela, India and Mexico. The bribes were paid to extend drilling contracts for rigs operating offshore in Venezuela, to secure favorable administrative judicial decisions relating to a customs dispute for a rig imported into India, and to avoid payment of customs duties and penalties relating to a rig and equipment in Mexico. The SEC further alleged that Pride International subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya made numerous improper payments which were not properly recorded in those subsidiaries’ books and records. Pride International failed to keep accurate books and records and failed to devise and maintain an adequate system of internal controls.
- Tidewater Inc. and Tidewater Marine International Inc. (“Tidewater Marine”).
– The DOJ alleged Tidewater Marine, a subsidiary of Tidewater Inc., conspired to violate the FCPA’s antibribery and books and records provisions, and substantively violated the books and records provisions. The SEC alleged Tidewater Inc. violated the FCPA’s antibribery, books and records and internal controls provisions.
– The charges filed against Tidewater Marine by the DOJ and against Tidewater Inc. by the SEC related to approximately $160,000 in bribes paid by employees and agents to tax inspectors in Azerbaijan to improperly secure favorable tax assessments and approximately $1.6 million in bribes paid through Panalpina to Nigerian customs officials to induce the officials to disregard customs regulations relating to the importation of vessels into Nigerian waters.
- Transocean Inc. and Transocean Ltd.
– The DOJ charged Transocean Inc., a Cayman Islands subsidiary of Transocean Ltd., with conspiracy to violate the FCPA’s antibribery and books and records provisions, substantively violating the antibribery provisions, and aiding and abetting violations of the books and records provisions. The SEC alleged Transocean Inc. violated the FCPA’s antibribery, books and records, and internal controls provisions.
– The DOJ alleged Transocean Inc.’s freight forwarding agents paid approximately $90,000 in bribes to Nigerian Customs Service (“NCS”) officials to circumvent Nigerian customs regulations regarding the import of goods, materials, and oil rigs into Nigerian waters. The SEC alleged, for example, Transocean Inc., paid NCS officials, through its customs agents, to extend temporary importation permits (“TIPs”), obtain false paperwork related to its drilling rigs, and receive clearance authorizations for its rigs. In addition, Transocean Inc. made payments through Panalpina Ltd.’s express courier service, Pancourier, to Nigerian officials to expedite the import of various goods, equipment, and materials into Nigeria. In respect to the Pancourier imported goods, applicable customs duties were not paid. Pancourier, rather, invoiced Transocean Inc. for “local processing charges,” which typically constituted 25-40% of the actual duties owed.
- Global SantaFe.
– The SEC alleged Global SantaFe violated the FCPA’s antibribery, books and records, and internal controls provisions. Specifically, the SEC alleged Global SantaFe, prior to its merger with Transocean Inc. (discussed above), through customs brokers, made illegal payments to NCS officials to secure documentation indicating its rigs had left Nigerian waters when TIPs expired. In fact, the rigs did not move. The SEC further alleged that Global SantaFe, through its customs brokers, made other suspicious payments, characterized as “interventions” to NCS officials, or “customs vacations,” “customs escort,” “costs extra police to obtain visa,” “official dues,” and “authorities fees” to officials in Gabon, Angola, or Equatorial Guinea. None of the payments were accurately reflected in Global SantaFe’s books and records and Global SantaFe did not maintain an adequate system of internal controls to detect and prevent these payments, according to the SEC.
– The DOJ agreed not to prosecute Noble. The SEC alleged Noble violated the FCPA’s antibribery, books and records, and internal controls provisions.
– Public documents indicate Noble paid approximately $74,000 to a Nigerian freight forwarding agent and acknowledged certain employees knew some of payments would be provided to NCS officials as bribes. The bribes were to induce NCS officials to grant TIPs and TIP extensions for Noble drilling rigs. Noble also used agents to submit false documentation to NCS officials to fabricate the export and re-import of drilling rigs when in fact the rigs never left Nigeria. Noble falsely recorded the agents’ payments as legitimate expenses. Noble also failed to maintain internal controls to detect and prevent these payments.
- Shell, Shell Nigeria Exploration and Production Company Ltd. (“SNEPCO”), and Shell International Exploration and Production Inc. (“SIEP”).
– The DOJ alleged SNEPCO conspired to violate the FCPA’s antibribery and books and records provisions, and aided and abetted violations of the books and records provisions. The SNEPCO charges related to approximately $2 million SNEPCO allegedly paid to its subcontractors with the knowledge that some or all of this money would be paid as bribes to NCS officials by a Panalpina entity to import materials and equipment into Nigeria.
– The SEC obtained a cease and desist order that found Shell violated the books and records and internal controls, and SIEP violated the antibribery provisions of the FCPA by using a customs broker to make payments from 2002 to 2005 to officials at NCS to obtain preferential customs treatment related to a project in Nigeria.
- In total, the above the Panalpina et al defendants will pay more than $236.5 million in criminal penalties, civil fines, disgorged profits and prejudgment interest.
- Several entities, including Panalpina Ltd., Pride International, Tidewater Inc. and Tidewater Marine, Transocean Inc. and Transocean Ltd., Shell and SNEPCO, entered into DPAs with the DOJ. One entity, Noble, entered into a NPA with the DOJ.
- Panalpina Inc. and Pride SAS entered guilty pleas to the charges discussed above.
- In terms of criminal penalties, Panalpina Ltd. and Panalpina Inc., combined, will pay more than $70.5 million; Pride International and Pride SAS, combined, will pay more than $32 million; Transocean Inc. will pay approximately $13.4 million; Noble will pay approximately $2.6 million; SNEPCO will pay approximately $30 million; and Tidewater Marine will pay approximately $7.4 million.
- In terms of civil fines, Panalpina Inc. will pay approximately $11.3 million; Pride International will disgorge profits and pay prejudgment interest in excess of $23 million; Tidewater Inc. will disgorge profits, pay prejudgment interest and a civil penalty totaling more than $8 million; Transocean Inc. will disgorge profits and pay prejudgment interest totaling approximately $7.3 million; Global SantaFe will disgorge profits, pay prejudgment interest and a civil penalty totaling approximately $5.9 million; Noble will disgorge profits and pay prejudgment interesting in excess of $5.6 million; and Shell and SIEP will disgorge more than $18 million.
- The Panalpina et al enforcement actions initially arose out of the government’s FCPA investigation of Vetco Gray UK Limited (“Vetco Gray”). Vetco Gray, in the course of negotiating a resolution to its own enforcement action, reportedly informed U.S. authorities it was a Panalpina customer. The investigation quickly spread to encompass Panalpina and (at least) the 13 entities discussed above. Reportedly, the 13 entities’ enforcement actions, represent only a fraction of the total pending Panalpina-related enforcement actions.
- The Panalpina et al enforcement actions once again highlight the need to conduct due diligence on third-parties, such as freight forwarders and customs clearance agents, when they interact with foreign government officials.
- It also bears noting that many of the criminal Panalpina et al enforcement actions were resolved by way of a DPA or, in the case of Noble, a NPA, and that none of these agreements included the requirement for an outside monitor. These agreements may reflect the DOJ’s continued emphasis on and possible reward for cooperation and remediation. Indeed, the DOJ and SEC specifically commended the Panalpina et al defendants for their cooperation and remediation efforts. While the monetary penalties are significant and may cause companies to consider the advantages and disadvantages of self-disclosing, such concerns may be balanced by enforcement authorities’ willingness to enter into DPAs and NPAs, particularly when the agreements do not require compliance monitors.
- Chodan, a former vice president and consultant to a UK subsidiary of Kellogg, Brown & Root Inc. (“KBR Inc.”) was extradited from the UK and pleaded guilty to conspiring to violate the FCPA. According to the plea agreement, Chodan was intimately involved in a decade-long conspiracy to bribe Nigerian government officials in order to obtain and retain engineering, procurement and construction (“EPC”) contracts for Bonny Island, Nigeria, liquefied natural gas (“LNG”) projects. KBR Inc., Technip, Snamprogetti, and an unnamed Japanese company formed a joint-venture that was awarded EPC contracts by Nigeria LNG Ltd. to build LNG facilities on Bonny Island. Chodan admitted he and his co-conspirators agreed to pay bribes to senior Nigerian government officials to obtain and retain the EPC contracts. Chodan further admitted he recommended and agreed to the joint-venture’s hiring of two agents, Jeffrey Tesler and the Japanese company, to pay the bribes. Over the course of the scheme, approximately $182 million in bribes were paid. At crucial junctures during the scheme, Chodan and others met with senior Nigerian government officials so the officials could designate individuals with whom the joint-venture should negotiate bribes.
- Sentencing is currently scheduled for February 22, 2011. At sentencing Chodan faces a maximum of five years in prison, a criminal fine of $250,000 or twice the gain or loss realized from the illegal conduct, and three years of supervised release.
- Chodan agreed, in his plea agreement, to forfeit $726,885 from frozen Swiss accounts.
- The Chodan guilty plea is another in a long line of Bonny Island enforcement actions. In 2010, Technip and Snamprogetti each resolved enforcement actions arising out of their role in the Bonny Island scheme. In 2009, the Halliburton Company, Kellogg Brown and Root LLC, and KBR Inc, all resolved FCPA enforcement actions arising out their roles in the Bonny Island conspiracy. In 2008, a former executive, Albert “Jack” Stanley, pleaded guilty to conspiring to violate the FCPA for his role in the Bonny Island scheme. Jeffrey Tesler, a British citizen, is fighting extradition from the UK to the US, where he has been indicted for his role in the projects.
RAE Systems Inc.
- RAE, a publicly-traded U.S. corporation, resolved FCPA enforcement actions brought by the DOJ and SEC, arising out of illegal payments made to Chinese government officials by employees of RAE joint-ventures.
- In the NPA, the DOJ alleged and RAE admitted it knowingly violated the FCPA’s books and records and internal controls provisions. The SEC, for its part, alleged RAE violated the antibribery, books and records and internal controls provisions of the FCPA.
- According to public documents, RAE developed and manufactured chemical and radiation detection monitors and networks. From 2005 to 2008, RAE had significant operations in the China, and sold its products and services primarily through two subsidiaries organized as joint-ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (“RAE-KLH”) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (“RAE Fushun”). A significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government entities and state-owned instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency.
- According to the NPA, as a result of due diligence conducted by RAE before acquiring the majority of the joint-venture that became known as RAE-KLH, RAE was aware of “under table greasing to get deals” by employees. Notwithstanding such knowledge, RAE chose to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments, including a notebook computer given to the son of a foreign official, money and entertainment, continued at RAE-KLH.
- In acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition anticorruption due diligence in spite of a number of red flags. It was later confirmed that corrupt benefits to foreign officials, including gifts of jade, fur coats, kitchen appliances, business suits, and high-priced liquor, entertainment, and payments, were being provided by RAE Fushun.
- The NPA and SEC’s complaint alleged RAE KLH and RAE Fushun sales personnel typically made the improper payments by obtaining cash from RAE KLH and RAE Fushun accounting personnel. RAE did not impose sufficient internal controls or make any meaningful changes to the practice of sales personnel obtaining cash advances to make the improper payments. In addition, the expenses associated with these cash advances were improperly recorded on the books of RAE-KLH and RAE-Fushun as “business fees” or “travel and entertainment” expenses.
- The SEC and DOJ alleged RAE learned of corrupt practices at RAE-KLH and RAE Fushun and knowingly failed to implement effective systems of internal controls and failed to properly classify the improper payments in its books and records.
- RAE entered into a three year NPA with the DOJ. Pursuant to the NPA, RAE will pay a criminal fine of $1.7 million. The NPA also requires RAE to follow a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the DOJ regarding its compliance with its obligations under the agreement.
- To resolve the SEC enforcement action, RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest.
- The RAE enforcement actions highlight the need to conduct pre-acquisition anticorruption due diligence of prospective joint-venture partners and, if red flags appear and the acquisition is completed, prompt and meaningful remediation undertaken.
- The relatively modest agreed upon penalties and NPA suggest potential benefits of voluntarily disclosure. The DOJ, in the NPA and press release, specifically acknowledged RAE’s timely, voluntary, and complete disclosure of relevant facts, real-time cooperation, extensive remediation, and commitment to provide periodic repots to the DOJ.