This article was reprinted with permission
from FCPA Professor
[This post is part of a periodic series
regarding "old" FCPA enforcement actions]
In 1986 the SEC brought this civil
injunctive action against Ashland Oil, Inc. (a Kentucky based oil refining
company) and its Chairman and CEO Orin Atkins for engaging in conduct in
violation of the FCPA's anti-bribery provisions.
The complaint began by noting that in 1975, prior to the
passage of the FCPA, the defendants consented to final judgments of permanent
injunction enjoining them from using corporate funds "for unlawful political
contributions or other similar unlawful purposes." As noted in "The Story of
the Foreign Corrupt Practices Act" Ashland Oil's payments to Albert Bernard
Bongo, the President of Gabon, were among a group of payments that drew
Congressional attention to the foreign corporate payments problem and motivated
Congress to pass the FCPA in 1977.
The 1986 Ashland Oil enforcement action is thus notable
as the first instance of an FCPA "repeat
As highlighted in more detail below, the enforcement
action is also notable for the following reasons: (i) the thing of value
consisted of buying a "foreign official's" interest in a largely worthless
mine); (ii) the conduct at issue lead to an FCPA-related civil
suit in which two terminated company employees were awarded $70 million in
damages; and (iii) there was controversy both as to the DOJ's and SEC's
handling of the conduct at issue.
In the 1986 action, the SEC alleged that Ashland Oil and
Atkins "paid $25 million in principal plus approximately $4 million in
interest, and by virtue of the acquisition of an interest in Midlands Chrome [a
largely worthless Zimbabwe mine owned by the "foreign
official" and his family], gave something of value to James
Landon [a British national seconded (detailed) to the government of Oman who
served as a special adviser to the Sultan of Oman on Omani intelligence and
security matters] ... for the purpose of inducing Landon to use his
influence with the government of Oman ... in order to assist Ashland in obtaining
and retaining business with the government of Oman ... namely certain business
related to crude oil."
According to the complaint, Atkins was told that Midlands
Chrome "could be purchased from persons who could be sympathetic to Ashland's
desire to become a purchaser of crude oil from Oman." Even though a
company lawyer advised that the transaction raised issues under the FCPA,
the SEC alleged that the "board of directors of Ashland held a meeting at which
Atkins presented for the Board's approval the acquisition of Midland Chrome."
According to the complaint, Atkins viewed the acquisition as a "high risk
project" but one that had "potential of being more than offset by a potential
crude oil contract ...". According to the complaint, initial board meeting
minutes show that Atkins said "the corporation was interested [in the Midlands
Chrome acquisition] for the reason that it might thereby be enabled to obtain a
contract to purchase crude oil from Oman" but that "this statement was deleted
from the final version of the minutes at Atkins' direction."
Based on the above core conduct, in a detailed 35 page
complaint, the SEC alleged three substantive FCPA anti-bribery violations.
Atkins resigned as chairman of Ashland in 1981 after an
internal investigation into a number of questionable foreign payments.
According to media reports, when the 1986 matter was resolved Atkins
issued a statement which read as follows. "Although it would be my
personal preference to litigate this matter, I have agreed to settle this
action so that the company can put this lingering dispute behind it, and
because to contest this matter would have involved disproportionate trouble and
expense." For more on the life of Orin Atkins, see here and here.
In media reports, Richard Murphy, an SEC enforcement
lawyer, said the Ashland case was significant because it demonstrated that
the SEC will go beyond the traditional "cash cases" and scrutinize more
complicated transactions to determine if they represent violations.
In 1995, Ashland Oil changed its name to Ashland Inc.
In an interesting side note, former Ashland employees
Bill McKay and Harry Williams sued the company for breach of contract and
wrongful discharge, asserting that Ashland's pattern of corrupt practices
amounted to a violation of the Racketeer Influenced and Corrupt Organizations
law. McKay alleged that he was terminated because he refused to
take part in any bribery schemes and that he refused in subsequent
investigations to hide Ashland's conduct from officials at the IRS and
SEC. According to a 1989 ABA Journal report, "Williams had not been asked
to take part in any foreign payments, but he'd become sympathetic to McKay's
efforts to change Ashland's policy." According to the report,
Williams "made an anonymous phone call to the SEC and spoke freely about
Ashland's recent actions abroad." A jury returned a verdict of
approximately $70 million. According to the ABA report, McKay was awarded
over $44.5 million, and the rest was apportioned to Williams. According
to the report, Ashland threatened to appeal and the parties settled for $25
Set forth below, in pertinent part, is an interesting
article published in the Washington Post on July 10, 1988. about the DOJ's and
SEC's handling of the conduct at issue.
Lawyers for two former executives who won a $ 69.5
million award from Ashland Oil Co. contend that their victory shows the
Securities and Exchange Commission pulled its punches in handling charges of
overseas bribery and other illegal conduct by Ashland. The two former
vice presidents had said in wrongful-dismissal lawsuits and in SEC testimony
that Ashland paid tens of millions of dollars in bribes to foreign officials to
get scarce crude oil and then tried to cover up the illegal conduct. They said
they lost their jobs after refusing to participate in conspiracies, perjury and
other crimes. Last month, a U.S. District Court jury in Covington, Ky.,
awarded Bill E. McKay $ 44.6 million and Harry D. Williams $ 24.9 million after
a 35-day trial. The jury said the liability should be shared by Ashland; its
former chairman and chief executive, Orin E. Atkins; John R. Hall, who
succeeded Atkins in 1981, and Richard W. Spears, senior vice president for
human resources and law.
The SEC filed a much narrower civil lawsuit in July 1986
charging that Ashland and Atkins had bribed an official of Oman to get oil from
the sultanate. The suit was filed in tandem with a consent decree, a final
court judgment in which Ashland and Atkins neither admitted nor denied past
violations while agreeing to face criminal penalties for future ones.
The jury and the SEC each had essentially the same
evidence of possible violations of the Foreign Corrupt Practices Act (FCPA) of
1977. The gap between the jury's verdict and the SEC action shows that the SEC
dealt with the matter too lightly, according to John R. McCall and Kenneth M.
Robinson, the lawyers for McKay and Williams. 'I can understand how
counsel for McKay and Williams are proud of their achievement, and they
certainly have the right to crow about it,' said SEC enforcement chief Gary G.
Lynch. 'But any criticism of the commission's investigation, or of the results
that we achieved, is simply unwarranted.'
Punitive damages accounted for only $ 3 million of the
awards to McKay and Williams. Compensatory damages were tripled - to $66.5
million - for conspiring to violate, and for violating, the Racketeer
Influenced and Corrupt Organizations Act. RICO makes it unlawful for any
person associated with an enterprise affecting commerce to lead or to join in
'conduct of [the] enterprise's affairs through a pattern of racketeering
activity.' The jury found that the three individual defendants had all
conducted or participated in 'a pattern of racketeering activity' principally
through multiple violations of the FCPA antibribery section and of a law
prohibiting travel for the purpose of violating the section.
The SEC's 1986 lawsuit, which followed months of
negotiations with Ashland's law firm, Cravath, Swaine & Moore, named
only one person paid by the oil company, James T.W. (Tim) Landon of Oman, as a
foreign government official under the FCPA's antibribery provisions.
The complaint also alleged only one bribe, described by Ashland as a $ 25
million investment in a Landon-controlled chromium mine in Rhodesia. But
the jury found that Ashland, 'with corrupt intent to bribe,' had made
payments to three figures it said were foreign officials under the FCPA: Landon
and Yehia Omar of Oman, and Hassan Y. Yassin of Saudi Arabia (who
also has operated a consulting firm in McLean). With the same corrupt
intent, the jury said, Ashland had made payments to a fourth recipient,
Sadiq Attia, 'knowing or having reason to know that' all or a portion of
the money - $ 17 million - 'would be used to bribe a government official of Abu
The SEC complaint and consent decree did not mention
Yehia Omar or cite any Abu Dhabi and Saudi Arabia payments. Last
December, SEC Chairman David S. Ruder told Senate Banking Committee Chairman
William Proxmire (D-Wis.) that the Division of Enforcement 'concluded that
the evidence was ... insufficient to support further charges of violations' of
the FCPA. In an interview after the jury verdict, Lynch said 'there was not
sufficient evidence that we felt comfortable we could prevail' if charges were
brought based on Ashland payments to Omar. 'Even before we sat down to
negotiate, we had decided privately to exclude Omar, Abu Dhabi, and Saudi
Arabia from the consent decree. 'It was clear to us that the Landon
transaction was the strongest, because we believed we could establish that Landon
was a government official at the time the chrome transaction occurred.' Lynch
said. He called a multiple-count complaint unnecessary. 'We were suing
for injunctive relief,' and 'we could get it with Landon,' he said. 'There was
no need to push and take on a litigation risk in a case that was much less
certain.' He extended this argument to the omission of the Abu Dhabi and
Saudi Arabia cases.
But lawyers McCall and Robinson disagreed. 'The finest
judicial scrutiny our American judicial system can provide has now determined
that the earlier government efforts were incomplete,' McCall said. It's
'ridiculous' for the SEC to claim the evidence was insufficient to convince a
jury that bribery far beyond that which it alleged hadn't occurred, he said.
Lynch also defended the SEC's decision not to ask a
federal court to find Ashland and Atkins had violated a 1975 consent decree and
to hold them in criminal contempt. 'We did have a concern about meeting
the higher burden of proof in order to prove criminal contempt,' Lynch
said. [...] One difficulty in going the criminal route was that 'the major
thrust' of the 1975 decrees involved unlawful political contributions, and
'these were foreign bribes,' Lynch said.
But the lawyers for McKay and Williams dismissed this
explanation. They pointed out that the 1975 consent decrees prohibited false or
fictitious bookkeeping entries, and said the $ 25 million Oman item that the
SEC called a bribe, as well as the Abu Dhabi and Saudi Arabia payments, all
were recorded by Ashland as ordinary outlays. 'It was like shooting ducks
in a barrel,' Robinson said. 'There was no answer that any Ashland official
could give on the stand to explain the fraud that was in the documents that
they wrote. And how the SEC could miss that is beyond description.' 'The
SEC should have seen it. These were indictable offenses ... I don't see the
evidence that the SEC even slapped Ashland's wrist. They just closed the book
by executing another consent decree - a promise to pay, which is all that it
Arthur F. Mathews, who was an SEC deputy enforcement
chief in 1969, said in an interview that 'in the horse-trading for not
litigating,' Cravath, Swaine 'got the staff to strike Yehia Omar ...
If I had to guess, they did not include Yehia Omar in their action
because they thought it was a toss-up whether you could prove it, and they gave
it up in the bargain.'
McCall said the SEC staff may well have done all it
could have, particularly in light of the Reagan administration's apparent
reluctance to enforce the FCPA's antibribery provisions.' The SEC
commissioners, for example, voted 3 to 2 to reject the division's initial
recommendation for a lawsuit that named only Landon as the recipient of a
bribe. Only after the division reargued its case did the commission reverse
itself, allowing Lynch to file the lawsuit. Lynch said the SEC
disregarded a report by an outside counsel who concluded that the Oman
transactions had not violated the FCPA or the 1975 consent decree.
Williams and McKay had challenged the independence of the outsider, Pittsburgh
attorney Charles J. Queenan. Queenan is a friend of Cravath,
Swaine presiding partner and Ashland director Samuel C. Butler, who
submitted the report to the SEC as the work of an independent counsel.
'We did not accept the conclusion that it was an 'independent counsel'
report," Lynch said. The SEC staff 'did our own very thorough investigation of
the matter,' he said. 'It is clear that if we had accepted the Queenan report's
findings, we would not have filed an action.
Sen. Proxmire, who monitors FCPA enforcement, also
has raised questions about the Justice Department's role in the Ashland case.
The department had full access to the SEC's files from the start of the SEC
staff investigation in May 1983. Last October, after a Washington Post series
on Ashland's payments to overseas consultants, Proxmire asked the
department if it had investigated the matter and if 'it has concluded that
violations of the FCPA have taken place.' If the conclusion was that
there'd been no violations, 'I would like an explanation of the rationale
underlying such a judgment,' Proxmire said. 'If the department has not
investigated these allegations, I request that you do so and let me know the
results.' Assistant Attorney General John R. Bolton said on Jan. 20 that
he would respond when he received a report from the fraud section of the
Criminal Division. On June 20, Proxmire, having heard nothing more for
six months, sent Attorney General Edwin Meese III a news story on the jury verdict
in Kentucky and asked 'whether the Department of Justice will now initiate a
criminal action.' If not, Proxmire said he wanted to know why. A
department spokesman said a response is being prepared.
Read more articles
on the FCPA by Mike Koehler at FCPA Professor.
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