Last week, in a post entitled “Supermarket to the World – The ADM FCPA Enforcement Action”, I reviewed the Securities and Exchange Commission (SEC) Compliant brought in connection with the Foreign Corrupt Practices Act (FCPA) investigation of Archer-Daniels-Midland Company (ADM). There was also a criminal Plea Agreement entered into by the ADM subsidiary, Alfred C. Toepfer International (Ukraine) Ltd. (the Ukraine subsidiary) with the Department of Justice (DOJ), who was the defendant in this criminal action. In addition to the SEC Complaint, ADM entered into a Non-Prosecution Agreement (NPA) with the DOJ. This post will review some of the requirements found in the NPA and other information found in the Plea Agreement which the company entered into to resolve the FCPA investigation.
I. The Fine
As set out in the Plea Agreement, the base fine which the defendant was looking at receiving was $45MM based upon the US Sentencing Guidelines. The culpability score had a -5 based upon some or all of the following factors: “The organization, prior to imminent threat of disclosure or government investigation and within a reasonably prompt time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.” Based upon the culpability score the fine range was listed from a low of $27.3MM to a high of $54.6MM. However the company paid only a fine of $17.7MM, which was noted to be approximately a 33% reduction from the low end of the fine range, with an additional reduction of “of $1,338,387 commensurate with the fine imposed by German authorities on Alfred C. Toepfer International G.m.b.H”; ADM’s German subsidiary which pled guilty and was involved in the bribery scheme. Additional factors in the reduction of the fine were “(a) the Defendant’s timely, voluntary, and thorough disclosure of the conduct; (b) the Defendant’s extensive cooperation with the Department; and (c) the Defendant’s early, extensive, and unsolicited remedial efforts already undertaken and those still to be undertaken.”
II. The NPA
ADM entered into a three year NPA regarding the resolution of this matter. In a letter to ADM confirming the NPA, the DOJ stated that it was entering into the agreement with the ADM because of its conduct in self-disclosing the FCPA violations and the company’s conduct thereafter. The letter set out the following: “(a) the Company’s timely, voluntary, and thorough disclosure of the conduct; (b) the Company’s extensive cooperation with the Department, including conducting a world-wide risk assessment and corresponding global internal investigation, expanding the scope of the investigation where necessary to ensure the review was effective and thorough, making numerous presentations to the Department on the status and findings of the internal investigation, voluntarily making current and former employees available for interviews, voluntarily producing documents to the Department, and compiling relevant documents by category for the Department; (c) the Company’s early and extensive remedial efforts already undertaken at its own volition, and the agreement to undertake further enhancements to its compliance program as described in Attachment B (Corporate Compliance Program); and (d) the Company’s agreement to provide annual, written reports to the Department on its progress and experience in monitoring and enhancing its compliance policies.”
III. Best in Class Compliance Program
Under Attachment B of the NPA, the company agreed to maintain a best practices compliance program which it had created during the pendency of the investigation. ADM agreed to maintain this compliance program at least during the length of the NPA. It included the following components.
- High level commitment from company officials and senior management to do business in compliance with the FCPA.
- A substantive written anti-corruption compliance code of conduct.
- Written policies and procedures to implement this code of conduct.
- A robust system of internal controls, including accounting and financial controls.
- Risk assessments and risk reviews of its ongoing business.
- No less than annual assessments of its overall compliance program.
- Appropriate oversight and responsibility of a Chief Compliance Officer.
- Effective training for all employees and relevant third parties.
- An effective compliance function which can provide guidance to company employees.
- A robust internal reporting system.
- Effective investigations of any reported compliance issue.
- Appropriate incentives for employees to do business ethically and in compliance.
- Enforced discipline for any employee who violates the company’s compliance program.
- Suitable due diligence and management of third parties and business partners.
- A correct level of pre-acquisition due diligence for any merger or acquisition candidate, including a risk assessment and reporting to the DOJ if the company uncovers and FCPA-violative conduct during this pre-acquisition phase.
- As soon as practicable, ADM will integrate any newly acquired entity into its compliance regime, including training of all relevant new employees, a FCPA forensic audit and reporting of any ongoing violations.
- Ongoing monitoring, testing and auditing of the company’s compliance function, taking into account any “relevant developments in the field and the evolving international and industry standards.”
IV. Ongoing Reporting
Under the NPA, ADM was not required to sustain an external corporate monitor. However the company did agree that it would report to the DOJ on no less than an annual basis during the pendency of the NPA, specified as “an initial review and submit an initial report, and (2) conduct and prepare at least two (2) follow-up reviews and reports.” Further, the company is required to “submit to the Department a written report setting forth a complete description of its remediation efforts to date, its proposals reasonably designed to improve the Company’s internal controls, policies, and procedures for ensuring compliance with the FCPA and other applicable anti -corruption laws, and the proposed scope of the subsequent reviews.”
V. Facilitation Payments
I engaged with a colleague on whether the payments made by the ADM subsidiaries were simply facilitation payments because they were made to simply speed up the tax refund process. Whatever the payments were, they were not in any way, shape or form, facilitation payments. Initially, it should be noted that the FCPA says that the anti-bribery provisions “shall not apply to any facilitating or expediting payment 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 . . .” The statute itself provided a list of examples of facilitation payments in the definition of routine governmental actions. It included the following:
- Obtaining permits, licenses, or other official documents;
- Processing governmental papers such as visas and work orders;
- Providing police protection, mail services, scheduling inspections;
- Providing utilities, cargo handling; or
- Actions of a similar nature.
In addition to this language, the payments must be properly recorded on a company’s books and records; not disguised as payments for insurance premiums or other false entries that the ADM subsidiaries used in connection with the Ukraine tax authorities. When does a facilitation payment become a bribe? There is no clear monetary line of demarcation. The test seems to turn on the amount of money involved, to whom it is paid and the frequency of the payments. In the ADM matter, there were payments of approximately $22MM to receive tax refunds of $33MM. Whatever you might call the payments made by the ADM subsidiaries, they were certainly not facilitation payments.
The ADM FCPA settlement is extremely useful for the compliance practitioner for several reasons. The first is that it sets out some sophisticated mechanisms which are used to fund bribes. In addition to bribery schemes I discussed in the post entitled “Supermarket to the World – The ADM FCPA Enforcement Action” the NPA discussed another bribery scheme used ADM in Venezuela. All of the bribery schemes that the company’s subsidiaries engaged in were discussed or uncovered by the corporate office at some time before it began an official internal investigation. This once again shows the claim of the ‘rogue employee(s)’ is not something that stands up in criminal FCPA enforcement actions.
Equally important is that ADM received clear and very substantive credit for the actions that it took after it began its internal investigation. It self-disclosed, it cooperated extensively, it remediated thoroughly to put together a best practices compliance program. Lest anyone think these actions are for naught, or that the DOJ does not take such actions into account, note the 33% reduction in fine that ADM received, the NPA it received for the corporate parent and the lack of an external corporate monitor. These are clear signs from the DOJ as to the types of conduct and actions that it not only approves of but will be taken into account in the calculation of any fines and penalties. In other words, self-disclose, extensively cooperate, and remediate if your company finds itself in this situation.
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© Thomas R. Fox, 2013