Today is the 74thanniversary of D-Day, the day the Allied powers crossed the English Channel and landed on the beaches of Normandy, France, beginning the liberation of Western Europe. The invasion was a success as some 155,000 Allied troops – Americans, British and Canadians – had successfully stormed Normandy’s beaches. This was in addition to the 18,000 paratroopers and glider troops who had landed the night before. While almost one year of more hard fighting was in store, it was the beginning of the end for Nazi Germany. Quora.com estimates there are only “A few thousand survivors, in their early to mid-90s. A very small number in their late 90s. A scattering of centenarians. And a very rapid rate of passing at the present time period. The “few thousand” will drop to a few hundred in a very short time span.” They are forever intertwined with history.
The Department of Justice (DOJ) announced two Foreign Corrupt Practices Act (FCPA) enforcement actions earlier this week and the intertwined nature of these two enforcement actions informs today’s blog post. The first involved SocGen S.A. (SocGen), a global financial services institution based in Paris, France, and its wholly owned subsidiary, SGA Société Générale Acceptance N.V. (SGA), who agreed to pay a combined total penalty of more than $860MM to resolve charges with criminal authorities in the US and France, including $585MM relating to a multi-year scheme to pay bribes to officials in Libya. One-half of this total was credited to a fine paid in France. This makes SocGen No. 5 on the Top Ten FCPA penalty list, displacing Halliburton and its 2009 FCPA penalty of $579MM. It also comes in at No. 10 in the Top 10 International anti-corruption enforcement actions.
SocGen also agreed to a financial penalty of $275MM for violations arising from its manipulation of the London Interbank Offered Rate (LIBOR). As noted in the DOJ Press Release, SGA “will plead guilty in the Eastern District of New York in connection with the resolution of the foreign bribery case. Together with approximately $475 million in regulatory penalties and disgorgement that Société Générale has agreed to pay to the Commodity Futures Trading Commission (CFTC) in connection with the LIBOR scheme, the total penalties to be paid by the bank exceed $1 billion.” The final resolution documents for SocGen will be a Deferred Prosecution Agreement (DPA) and Criminal Information.
According to the DOJ Press Release, between 2004 and 2009, SocGen paid bribes through a Libyan “broker” in connection with 14 investments made by Libyan state-owned financial institutions. For each transaction, SocGen paid the Libyan broker a commission of between 1 ½ to 3 percent of the nominal amount of the investments made by Libyan state institutions. In total, SocGen paid the broker over $90 million, portions of which were then paid to high-level officials in order to secure the investments from various Libyan state institutions for SocGen. As a result of the corrupt scheme, SocGen obtained 13 investments and one restructuring from the Libyan state institutions worth a total of approximately $3.66BN and earned profits of approximately $523MM.
The second involved the private equity firm Legg Mason, Inc. (Legg Mason), which entered into a Non-Prosecution Agreement (NPA) with the DOJ and agreed to pay $64.2MM to resolve an investigation into violations of the FCPA in connection with Legg Mason’s participation, through a subsidiary, in a Libyan bribery scheme. The bribery scheme was a part of the scheme used by SocGen so to some extent, the enforcement actions are related.
According to the DOJ Press Releasea Legg Mason subsidiary, Permal Group Ltd. (Permal), partnered with SocGen to solicit business from state-owned financial institutions in Libya, including the Central Bank of Libya, The Libyan Arab Foreign Bank, the Economic and Social Development Fund and the Libyan Investment Authority. During this time, SocGen paid bribes through a broker in connection with 14 investments. In seven of the transactions, SocGen paid commissions to the broker to benefit Legg Mason, through its subsidiary Permal, which managed funds invested by the Libyan state institutions. In total, SocGen paid the broker over $90MM, portions of which the Libyan broker paid to high-level officials in order to secure the investments from various Libyan state institutions for SocGen. As noted, SocGen obtained 13 investments and one restructuring from the Libyan state institutions and Legg Mason, managed seven of these investments through its subsidiary Premal, and earned profits of approximately $31.6MM.
Most interestingly, neither entity self-disclosed to the US government, so they lost the chance for a declination right off the bat. With regard to SocGen, when you couple the failure to self-disclose its misconduct to the DOJ; with its substantial, though not full, cooperation with the DOJ; laid upon the seriousness of the companies’ conduct, including the high value of the bribes paid to foreign officials, you can begin to understand the high amount of the penalty. Yet these factors were tempered by the company’s “significant remediation which, together with the company’s risk profile and ongoing monitoring by L’Agence Française Anticorruption, resulted in the” DOJ determining that a monitor was not necessary in this case.”
While Legg Mason did not voluntarily and timely disclose the conduct at issue, it fully cooperated in the investigation and fully remediated. Moreover, Legg Mason’s misconduct involved only mid-to-lower level employees of Permal and was not pervasive throughout Legg Mason or Permal. SocGen, and not Legg Mason or Permal, maintained the relationship with the Libyan broker and was responsible for originating and leading the scheme; the profits earned by Legg Mason and Permal were less than one-tenth of the profits earned by SocGen. Finally, neither Legg Mason nor Permal has a history of similar misconduct.
Tomorrow I will consider the Legg Mason NPA.
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© Thomas R. Fox, 2018