Armor Holdings settles DOJ, SEC actions

By Squire Patton Boggs on Posted in Foreign Corrupt Practices Act

Armor Holdings, Inc., a military, security, and law enforcement equipment manufacturer, has agreed to pay a total of approximately $16 million to settle FCPA enforcement actions brought by the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).

Conduct

  • From 2001 to 2006, a subsidiary of Armor Holdings paid a third party (the “UN Agent”) more than $200,000 in “sales commissions” in the belief that a portion of the money would be provided to a UN procurement officer. The UN procurement officer had provided non-public, confidential bid information to the UN Agent, who then used the confidential information to assist in submitting the lowest priced tenders, which resulted in the procurement of UN contracts for the purchase of body armor worth an aggregate of $6 million.
  • In addition, notwithstanding warnings from internal and external accounting professionals, Armor Holdings falsely recorded the nature and purpose of these payments and further failed to record $4.4 million in payments to agents and other intermediaries in its books and records.

Penalty

  • Pursuant to the two-year non-prosecution agreement into which it entered with the DOJ, Armor Holdings agreed to pay a $10.29 million penalty, continue to implement rigorous internal controls, report to the DOJ on its compliance efforts every six months for the duration of the agreement, and otherwise cooperate fully with the DOJ.
  • Armor Holdings also agreed to disgorge $5.7 million to settle the SEC’s pending civil action against it.

Notes

  • In 2007, Armor Holdings was acquired by BAE Systems, Inc., an indirect wholly owned U.S. subsidiary of UK-based BAE Systems, PLC. The DOJ elected not to impute culpability to BAE for Armor Holdings’s conduct.
  • The DOJ’s non-prosecution agreement uncharacteristically does not require Armor Holdings to retain a corporate compliance monitor.
  • The DOJ elected to enter into the non-prosecution agreement in light of Armor Holdings’s cooperation with the DOJ and SEC; the fact that the conduct at issue occurred prior to BAE’s acquisition of the company; and the remedial conduct that Armor Holdings undertook in the wake of the conduct at issue, including termination of culpable employees and the implementation of internal controls to preempt future FCPA violations.

German Banker charged with receipt of bribe payments after sale of Formula One – Bernie Ecclestone’s involvement investigated

By Squire Patton Boggs on Posted in Germany

On Monday, July 18th, Munich prosecutors indicted Gerhard Gribkowsky, former board member of the Bavarian Regional Bank (Bayerische Landesbank, also known as BayernLB), for tax evasion, breach of trust and receipt of corrupt payments. The accusations include failing to pay taxes in Germany trying to conceal payments of bribery money. The defendant has been in jail for seven months.

The case attracts worldwide attention since Mr. Gribkowsky allegedly received $ 41M from Bernie Ecclestone, Formula One’s Billionaire Chief Executive. Several sources report Mr. Gribkowsky obtained the payment in return for supervising the sale of the 48 percent stake in Formula One BayernLB held without updating the assessment of the value of the interest. The bribes were disguised as consulting contracts.

The timing of the prosecutors pressing charges is particularly interesting since the next Formula One Grand Prix is scheduled for Sunday in Germany. Mr. Ecclestone is expected to come to Germany and attend the event. Although Mr. Ecclestone already cooperated with the prosecutor’s office and expects to be disburdened it is yet to turn out whether Mr. Ecclestone is to face charges for aiding and abetting illegal payments to Mr. Gribowsky disguised as phony advisory contacts.

According to a prosecutor BayernLB sustained damages of $ 66.5M in connection with the illegal proceedings. In case of a conviction Mr. Gribowsky faces up to 10 years in prison.

Tightening Restrictions for US Companies

By Squire Patton Boggs on Posted in Foreign Corrupt Practices Act, UK Bribery Act

It has been interesting to see the reactions around the world to the UK’s new Bribery Act 2010 (“Bribery Act”) which came into force earlier this month. Perhaps unsurprisingly, eyes have been on what the US has made of it given its long history in this area and the application of the Foreign Corrupt Practices Act of 1977 (as amended) (“FCPA”).

One major area of departure between the two pieces of legislation is in relation to facilitation payments, that is, payments to a foreign official, political party or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party or party official. The FCPA permits such payments but the Bribery Act makes no distinction between facilitation or expediting payments and bribes. Furthermore, in addition to public officials, the Bribery Act outlaws facilitation payments to private individuals.

This increased scope is obviously causing concerns for those that had comfort in availing of the exception for routine governmental action under the FCPA and Reuters reports that:

“U.S. companies, already sweating under heightened enforcement of anti-corruption laws at home, are nervously reviewing their policies on how they wine and dine business contacts abroad in the wake of tough new regulations imposed in Britain.”

However, one should not ignore the far reaching impact of the FCPA itself. This is particularly relevant in light of Rupert Murdoch, chairman and CEO of News Corporation, and his son, James, facing a hearing of the UK’s House of Commons Culture, Media and Sport Select Committee this week to answer questions in connection with phone hacking alleged to have been conducted by News of the World journalists. There are suggestions that payments may have been made to police who would be likely to fall within the definition of public official for the purposes of the FCPA. Given that the company running the News of World newspapers is a subsidiary of the NASDAQ-listed News Corporation, this would bring the newspaper’s activities squarely into the ambit of the FCPA.

Whilst US companies may be used the prohibitions against certain payments under the FCPA, the Bribery Act will no doubt set some hares running due to its more restrictive nature.

FCPA-Inspired UK Bribery Act Projected to Hit the Oil and Gas Industry Hardest

By Gabriel Colwell on Posted in UK Bribery Act

With the UK Bribery Act 2010 taking effect last Friday, we here at the Anticorruption Blog have decided to share a guest post we did for Forbes on the subject back in May of this year, “FCPA-Inspired UK Bribery Act Projected to Hit the Oil and Gas Industry Hardest.”

Now that the UK Bribery Act has arrived, companies doing business in both the UK and United States—or whose operations have a “close connection to the UK—should take note of the differences between the UK Bribery Act and FCPA, and will need to revise their existing compliance programs to reflect the more expansive provisions of the UK Bribery Act and the distinctions between the two.

More information on the UK Bribery Act and resources for compliance with it can be found on our previous posts on the subject.

Anti-Bribery and Corruption: A Special Report

By Squire Patton Boggs on Posted in UK Bribery Act, United Kingdom

Thomson Reuters Accelus has recently published a special report (PDF/1.43MB/28 pages) on anti-bribery and corruption and the increased burden on senior management. It is particularly pertinent in light of the Bribery Act 2010 (“Act”) coming into force tomorrow. Among other things, it contains some useful discussion on:

  • sector specific issues and guidance;
  • whether foreign issuers with a London listing escape the ambit of the Act following the recent MOJ guidance; and
  • facilitation payments and hospitality.

Definitely worth a read.

Germany: Recent Developments in Major Bribe Cases

By Squire Patton Boggs on Posted in Germany

Second former Siemens board member charged

According to reports in several newspapers, Munich prosecutors indicted a former Siemens Manager in connection with the Siemens bribery scandal. Multiple sources allege the affected person to be former Siemens board member Uriel Sharef. He would be the second Siemens Manager within a few months having to stand trial.

Already in May 2011, the lawsuit against the former Siemens board member Thomas Ganswindt was dropped without court decision in return for payment of KEUR 175.  Ganswindt was inter alia charged with deliberate infringement of his obligatory supervision (Section 130 of the German Law on Regulatory Offenses). He pled not guilty.

Sharef is accused of being enmeshed in a system of illicit accounts and bribe payments in South America and might be found guilty of embezzlement (Section 266 para. 1 of the German Criminal Code). The former Argentine president Carlos Menem, several members of his cabinet, State Secretaries and further hierarchs allegedly were to accept payments of at least US $ 27 million and conversely award Siemens a contract to produce forgery-proof identity cards for every Argentinean citizen.

Although the project failed and the deal fell through former government officials in Argentina insisted on payments amounting to US $ 27 million of which de facto about one-third was paid from clandestine accounts. Sharef allegedly filled up these accounts afterwards by transferring further millions of Siemens’ capital.

Moreover, the prosecutors assume that Sharef was informed in early 2004 by the then head of the Argentinean Siemens subsidiary about several accounts kept by bogus companies on Argentine banks with a total sum of US $ 40 million. Although the local Siemens manager planned to transfer this money back to consolidated accounts, Sharef allegedly declined that. Apparently Sharef also failed to disclose the existence of clandestine accounts to other board members of Siemens AG, a way of proceeding he would have been obliged to under German Law. Currently, the Munich district court reviews the allegations and decides whether to instigate court proceedings.

In the meantime another recent incident concerning Siemens occurred. Siemens managers initiated investigations of incidents involving employees of the company. The investigations led to the arrest of three managers in Kuwait. After an attempt to bribe representatives of the Department of Energy became known to responsible Siemens personnel, public prosecutor’s office in Munich as well as US Stock Exchange Supervisory body SEC were informed immediately.

Major industrial group agrees on compensatory payment of EUR 35 million

Furthermore a second incident was reported by several newspapers. On June 8, 2011, Linde AG, a major German producer of industrial gases, and Munich state prosecutors agreed on the company paying EUR 35 million. to German treasury as a compensation for bribery, according to a Linde press officer. Linde allegedly benefited from illegal practices generating purchase orders.

Investigations against Linde were initiated after suspicions arose during legal proceedings against MAN AG, a German automotive group.

During the investigations against MAN presumptions of suspicious transactions involving Linde leaked and the chairman of the board Wolfgang Reitzle had joint transactions with a MAN-subsidiary investigated by the public prosecutor as a precaution. As a result, preliminary proceedings against several Linde employees were initiated. Board members were not included.

These recent developments could be suggestive of a tendency towards an increased willingness of companies to comply with anti-corruption rules and to cooperate with prosecutors in cases of alleged attempts of bribery by employees. This is also made plain not only by an undersupply of people trained and experienced in the area of compliance on the German job market but also by a noticeable tendency of medium-sized companies to devote attention to compliance.

District Judge Issues Unprecedented Limitation on FCPA’s Jurisdictional Reach

By Squire Patton Boggs on Posted in FCPA, Foreign Corrupt Practices Act

In an unprecedented blow to the government’s assertion of jurisdiction under the Foreign Corrupt Practices Act (FCPA), United States District Judge Richard Leon, presiding over the so-called Shot Show Sting cases, granted the Rule 29 acquittal motion of Defendant Pankesh Patel on the ground that the government could not establish that jurisdiction over “persons other than issuers or domestic concerns” under the FCPA reached the defendant.

The Court rejected the government’s argument for FCPA jurisdiction over Patel, the managing director of a U.K. company that acted as a sales agent for companies in the law enforcement and military products industries, founded on Patel’s mailing a DHL package containing a purchase agreement in furtherance of a corrupt scheme from the United Kingdom to the United States.

Although Judge Leon has not issued a written opinion detailing his rationale, this ruling represents the first successful challenge to the government’s expansive interpretation of the FCPA’s jurisdictional reach and therefore will likely serve as a catalyst for similar jurisdictional challenges in the future.

FIFA, Meet the UK Bribery Act

By Gabriel Colwell on Posted in UK Bribery Act

Our sister blog here are Squire Sanders & Dempsey, Employment Law Worldview, recently published a tremendously informative and entertaining article on the corruption scandal currently surrounding FIFA.

It is not so often that the world of sports and entertainment graces the Anticorruption Blog, but this one, “UK Bribery Act – a whole new ball game?”, is too good to miss. 

Former Senior Officials Plead Guilty In Latinode Bribe Case

By Rachael Harris on Posted in Honduras

Juan Pablo Vasquez and Manuel Caceres, both former senior executives of Miami-based Latin Node, Inc. (Latinode) recently pleaded guilty to conspiring to pay bribes to government officials in Honduras.  These guilty pleas are part of the ongoing story of Latinode and its former executives who allegedly violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to officials of state owned Honduran telecommunications companies.

Conduct

  • Vasquez and Caceres each pleaded guilty to one count of conspiracy to violate the FCPA for their respective roles in a scheme to bribe officials at Honduras’ state-owned Empresa Hondureña de Telecomunicaciones (Hondutel).
  • Latinode provided telecommunications services to Honduras and Yemen. From March 2004 to June 2007, Latinode paid or caused to be paid US$2,249,543 directly or through third-parties, knowing that at least some of the funds would be passed on as bribes to “foreign officials” including officials of Honduran telecommunications companies, which were state-owned entities (SOE) under the FCPA. Latinode admitted that it made these payments in exchange for obtaining an agreement with the Honduran SOE and for reducing the rate charged under the agreements with the Honduran SOE. 
  • From the end of 2000 until 2007 Vasquez served as a Latinode senior official, holding such titles as the Chief Commercial Officer and Vice President of Sales. Officially, Vasquez was responsible for, among other things, Latinode’s commercial and sales relationships with long distance carriers. His principal role in the scheme was to facilitate payments to the three officials to secure rate reductions to the existing interchange agreement
  • From September 2004 to 2007, Caceras also was a senior executive, who held titles such as Vice President of Business Development. Caceres was responsible for, among other things, developing LatiNode’s business in Honduras. His principal role in the scheme was to negotiate the payment of bribes with Hondutel officials in exchange for securing rate reductions and other benefits.

Penalty

  • Vasquez and Caceres each face up to five years in prison and a fine of $250,000 or more.

Notes

  • Latinode has paid a $2 million fine as part of its 2009 agreement to plead guilty to a one-count information charging the company with a criminal violation of the FCPA. The DOJ represented that the investigation’s resolution reflected, “in large part,” the acts of eLandia International, Inc. (eLandia), Latinode’s corporate parent, in disclosing the potential violations to the DOJ after eLandia’s acquisition of Latinode. eLandia voluntarily disclosed to the DOJ the conduct after discovering it, conducted an internal investigation, shared the internal investigation’s factual results with the DOJ, cooperated fully with the DOJ, and took remedial action including terminating senior Latinode management with involvement in or knowledge of the violations.
  • Previously, Manuel Salvoch (another ex-senior official) and Jorge Granados (the ex-CEO and founder of Latinode) each pleaded guilty to one count of conspiracy for his role in the conspiracy.  At sentencing each faces five years in prison and a fine of at least $250,000.

Food for Thought

By Squire Patton Boggs on Posted in India

India is no stranger to hunger strikes being used as a form of non-violent resistance. Perhaps the most famous example of this is that of Gandhi during his protest against British rule in India. More recently, as reported by The Telegraph, we see fasting being used by the Indian yoga guru, Swami Ramdev, to object to corrupt practices in India. This protest follows on the heels of the five day hunger strike by Anna Hazare earlier this year which led to India finally ratifying the United Nations Convention against Corruption six years after signing it.

Legislation designed to enshrine various principals of the UN Convention in Indian law remains outstanding. Similarly, a longstanding bill to establish an ombudsman with jurisdiction over corrupt practices and grievances is still out to consultation. At present, there are no laws applying to the bribery of foreign officials, although a bill has been tabled in the Indian parliament that would criminalise such acts. In addition, private commercial bribery is not yet outlawed by statute.

Currently, the primary legislation in India dealing with anti-corruption is the Prevention of Corruption Act 1988 (PCA) (PDF/127KB/17 pages). The PCA prohibits the receipt of illegal gratification by ‘public servants’ and gratification is not limited to pecuniary gratifications or to gratifications estimable in money.

Chapter III of the PCA contains the relevant offences and penalties and of particular note:

  • section 7 of the PCA provides that if a public servant accepts or obtains or agrees to accept or attempts to obtain from any person, for himself or for any other person, any gratification (other than legal remuneration), as a motive for doing or forbearing to do any official act or for showing or forbearing to show, in the exercise of his official functions, any favour or disfavour to any person or for rendering or attempting to render any service or disservice to any person specified in the section, he would be punished with imprisonment which shall not be less than six months but may extend to five years along with a fine; and
  • section 11 of the PCA provides that, where a public servant receives any valuable thing (without consideration, or for a consideration, which he knows to be inadequate), from any person whom he knows to have been, or to be, or to be likely to be concerned in any proceedings or business transacted or to be transacted by such public servant or having any connection with the official functions of himself, he may be punished with imprisonment for a term which shall not be less than 6 months but may extend to five years, along with a fine.

Whilst the PCA’s focus is on the bribe taker, the bribe giver may be caught through the offence of abetment. In respect of offences under sections 7 and 11 of the PCA, the payer of the illegal gratification is liable as an ‘abettor’ under section 12 of the PCA. Sections 107 to 116 of the Indian Penal Code 1860 provide that ‘instigation’ is considered as the key element of abetment.

In terms of record keeping, Indian companies are required to maintain their books of accounts and other business records under, as is typical, various company and tax legislation laws including the Companies Act 1956 and the Income Tax Act 1961.

Certain regulated companies are also subject to requirements to maintain records under the Prevention of Money Laundering Act 2002 (PML). It is worth noting that Part B of the Schedule to the PML treats the proceeds of offences under sections 7 to 10 of the PCA as ‘proceeds of crime’.

In addition, we are seeing piecemeal legislation that is expected to have the effect of reducing corrupt behaviours and practices. In this regard, the Foreign Contribution (Regulation) Act 2010 (FCRA), which came into force in May, is intended to consolidate the law regulating the acceptance and utilisation of foreign contributions in India. Whilst any step to try and eradicate bribery is welcome, TrustLaw reports that, in a country where corruption is part of the tapestry, enforcement of the FCRA could pose a problem.

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