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By Thomas Fox
The first half of 2013 saw some significant Foreign Corrupt Practices Act (FCPA) enforcement actions. These actions made clear that a company’s actions during the pendency of the investigation, in addition to the underlying FCPA violations, will be evaluated and assessed to determine the final penalty. The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) continue to communicate not only what they believe constitutes a best practices compliance program but equally importantly what actions a company can engage in which will significantly reduce a company’s overall fine and penalty.
As reported by both the FCPA Blog and the FCPA Professor, Total SA engaged in a nearly decade-long, breathtaking bribery scheme. In this scheme, Total paid approximately $60MM to an unnamed Iranian official of the National Iranian Oil Company (NIOC), who steered two major projects Total’s way. According to the FCPA Professor, in a post entitled “Total Agrees To Pay $398 Million To Resolve Its FCPA Scrutiny,” the Iranian official in question was described in the information as “the Chairman of an Iranian engineering company that was more than 90% owned by the Government of Iran and substantially controlled by the Government of Iran.” The projects for which Total paid the bribes were the Sirri A and E oil and gas fields and South Pars gas field.
In a blog post entitled “Total SA pays $398 million to settle U.S. bribe charges” the FCPA blog reported that “In the fourth biggest FCPA case ever, French oil giant Total S.A. agreed Wednesday to pay $398 million in penalties and disgorgement for bribing an Iran official to gain access to oil and gas fields. Total will pay a criminal penalty to the DOJ of $245.2 million. In its settlement with the SEC, Total will disgorge profits of $153 million.” For those of you keeping score at home that is Number 4 on the list of greatest FCPA fines in the history of the world and Number 2 on the list of the biggest profit disgorgements in FCPA history. Total also received a three-year Deferred Prosecution Agreement (DPA) that requires appointment of an independent compliance monitor. A separate requirement for a monitor was set out in Total’s settlement with the SEC.
The company was involved in a bribery scheme to pay off judges in a Nigerian tax court to allow Parker Drilling to pay lower than warranted tax assessments for its drilling rigs in the country. This bribery scheme was alleged to have involved the following persons employed at or associated with Parker Drilling: (1) a U.S. citizen based in Nigeria who, during the relevant time period, was the General Manager of Parker Drilling’s operations in Nigeria; (b) a U.S. citizen based in Nigeria who also was a General Manager of Parker Drilling’s operations in Nigeria; (c) a Houston-based executive of the company, who performed financial and compliance functions for Parker Drilling between 2002 through 2005; (d) another Houston-based executive of the company who performed a legal function for Parker Drilling; and (e) the company’s outside counsel.
Due to its efforts to create a gold-standard compliance program all the while undergoing its own internal investigation, Parker Drilling’s conduct earned it an “approximately 20 percent reduction off the bottom of the fine range” which suggested a fine of between $14.7MM to $29.4MM. The final DOJ fine was $11,760,000. The company also agreed to pay disgorgement of $3,050MM plus pre-judgment interest of $1,040,818, to the SEC. According to its DPA, “the Company has engaged in extensive remediation, including ending its business relationships with officers, employees, or agents primarily responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the company’s contracts.” Parker Drilling also hired “a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee, as well as staff to assist the Chief Compliance Officer and Counsel.” Lastly, the company worked to strengthen its internal controls.
The underlying facts of Parker Drilling are about as bad as it can get. The company had corporate head office involvement in the bribery scheme. Further, the company did not self-disclose to the DOJ, yet they were able to obtain a significant reduction in the overall fine and penalties from the sentencing range. Additionally the company was not required to have an external monitor. The message here is that a strong effort during the pendency of an investigation does pay off with the final result.
The Ralph Lauren Company received Non-Prosecution Agreements (NPA) granted by the SEC and DOJ. The illegal conduct at issue related to its Argentinian subsidiary and efforts by the General Manager of that operation, who conspired with a customs clearance agency to make payments “to assist in improperly obtaining paperwork necessary for goods to clear customs, to permit clearance of items without the necessary paperwork, to permit the clearance of prohibited items, and to avoid inspection.” For its conduct, Ralph Lauren agreed to pay $882K to the DOJ and $593K in disgorgement and $141K in pre-judgment interest to the SEC.
The DOJ detailed the company’s conduct by stating that “the Company’s extensive, thorough, and real-time cooperation with the Department, including conducting an internal investigation, voluntarily making employees available for interviews, making voluntary document disclosures, conducting a world-wide risk assessment, and making multiple presentations to the Department on the status and findings of the internal investigation and the risk assessment.”
This past spring I was on a panel with representatives from both the DOJ and SEC who discussed the Ralph Lauren enforcement action. They indicated that the company uncovered the bribery scheme during its first round of training, after the company’s initial implementation of its FCPA compliance program. This fact points out two key lessons to be learned. The first is that a company can discover many things about its compliance with the FCPA during live training. The second is that early detection and remediation can lead to a significant reduction in fines and penalties.
I believe that these corporate enforcement actions make clear that a company’s actions during the pendency of the investigation, in addition to the underlying FCPA violations, will be evaluated and assessed to determine the final penalty. The DOJ and SEC continue to communicate not only what they believe constitutes a best practices compliance program but equally importantly what actions a company can engage in which will significantly reduce a company’s overall fine and penalty. Both the DOJ and SEC continue to communicate, through their enforcement actions, to the compliance practitioner what they expect from companies in the way of a best practices compliance program and what a company should do if they discover a potential FCPA violation. These communications, through enforcement actions, DPAs, NPAs and Declinations, are consistent with the information provided by the DOJ/SEC in the FCPA Guidance. These enforcement actions demonstrate that if a company gets ahead of the curve, it can significantly lessen its overall penalty and pain.