Show Notes for Episode 36, week ending January 20, the Jeff Bagwell in the Hall of Fame edition

  1. Jeff Bagwell admitted into the Hall of Fame. See article in Houston Chronicle.
  2. Rolls Royce-stunning $800MM global settlement, including resolutions with the UK SFO, DOJ and Brazilian authorities. See Tom’s blog posts on the FCPA Compliance and Ethics Report, Part I and Part II.
  3. Orthofix-another recidivist FCPA enforcement action-see the FCPA Blog
  4. Las Vegas Sands concludes its FCPA enforcement action. On the FCPA Blog.
  5. Jay’s question answered. See Tom’s blog post on the FCPA Blog.
  6. NFL Conference Championship Predictions

Today I continue my exploration of the Rolls-Royce global corruption enforcement action by considering the company’s resolution in the US under the Foreign Corrupt Practices Act (FCPA).

Before we dive into that, I first want to honor Jeff Bagwell for his election into the baseball Hall of Fame (HOF). Bagwell is the second Astro to make the HOF following fellow original Killer-B, Craig Biggio, who entered two years ago. He was Rookie of the Year in 1991. He was 1994 National League MVP and a four-time All-Star. Bagwell is Houston’s all-time leader in home runs (449), RBI (1,529) and walks (1,401). Unfortunately for Bagwell, the Astros and Astros fan, his career was cut short by chronic arthritic right shoulder.

He was also the subject of probably the most one-sided trade in baseb all history as the Astros got him for journeyman Larry Anderson from the Boston Red Sox. Anderson played one-half season for Boston. Bagwell spent his entire 18-year career with the Astros. So thank you to the Boston Red Sox for sending a native New Englander to star for the Astros and lead us to our first and only World Series appearance.

According to the Department of Justice (DOJ) Press Release, Rolls-Royce entered into a Deferred Prosecution Agreement (DPA) in connection with a Criminal Information, filed on December 20, 2016, in the Southern District of Ohio, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. Pursuant to the DPA, Rolls-Royce agreed to pay a criminal penalty of $195,496,880, subject to a credit. This amount was 25% below the suggested bottom range of the US Sentencing Guidelines.

As I have previously blogged, Rolls-Royce also settled with the UK’s Serious Fraud Office (SFO) and the Brazilian Ministério Público Federal (MPF). In addition to the UK fine, Rolls-Royce also agreed to pay a penalty of approximately $25,579,170 for the company’s role in a conspiracy to bribe foreign officials in Brazil between 2005 and 2008. Because the conduct underlying the MPF resolution overlaps with the conduct underlying part of the department’s resolution, the department credited the $25,579,170 that Rolls-Royce agreed to pay in Brazil against the total US fine. Therefore, the total amount to be paid to the US is $169,917,710, and the total amount of penalties that Rolls-Royce has agreed to pay is more than $800 million.

As set out in the Criminal Information, Rolls-Royce admitted that between 2000 and 2013, the company conspired to violate the FCPA by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for their assistance in providing confidential information and awarding contracts to Rolls-Royce, RRESI and affiliated entities (collectively, Rolls-Royce):

In Thailand, Rolls-Royce admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded approximately seven contracts to Rolls-Royce during the same time period.

In Brazil, Rolls-Royce used intermediaries to pay approximately $9.3 million in bribes to bribe foreign officials at a state-owned petroleum corporation that awarded multiple contracts to Rolls-Royce during the same time period.

In Kazakhstan, between approximately 2009 and 2012, Rolls-Royce paid commissions of approximately $5.4 million to multiple advisors, knowing that at least a portion of the commission payments would be used to bribe foreign officials with influence over a joint venture owned and controlled by the Kazakh and Chinese governments that was developing a gas pipeline between the countries.  In 2012, the company also hired a local Kazakh distributor, knowing it was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-Royce’s ability to continue operating in the Kazakh market.  During this time, the state-owned joint venture awarded multiple contracts to Rolls-Royce.

In Azerbaijan, between approximately 2000 and 2009, Rolls-Royce used intermediaries to pay approximately $7.8 million in bribes to foreign officials at the state-owned and state-controlled oil company, which awarded multiple contracts to Rolls-Royce during the same time period.

In Angola, between approximately 2008 and 2012, Rolls-Royce used an intermediary to pay approximately $2.4 million in bribes to officials at a state-owned and state-controlled oil company, which awarded three contracts to Rolls-Royce during this time period.

In Iraq, from approximately 2006 to 2009, Rolls-Royce supplied turbines to a state-owned and state-controlled oil company.  Certain Iraqi foreign officials expressed concerns about the turbines and subsequently threatened to blacklist Rolls-Royce from doing future business in Iraq.  In response, Rolls-Royce’s intermediary paid bribes to Iraqi officials to persuade them to accept the turbines and not blacklist the company.

Even with this conduct Rolls-Royce was able to obtain the aforementioned 25% credit under the US Sentencing Guidelines. This credit was obtained through cooperation and remediation. The cooperation included conducting a thorough investigation, making factual presentations to the DOJ, facilitating witness interviews and document production, “collecting, analyzing, and organizing voluminous evidence and information” for the DOJ and providing facts learned during witness interviews conducted by the company. From the prior description laid out in the UK Approved Judgment, the UK court found the level of cooperation to be extraordinary.

Equally instructive was the extensive remediation engaged in by the company. While it was laid out in much greater detail in the UK Approved Judgment, the DOJ noted they terminated all 17 employees implicated in the corruption scheme who were still employed by Rolls-Royce. All corrupt third parties were terminated as well. The company implemented enhanced procedures to review and approve third parties while shifting its sales strategy away from a third party focus. The company engaged Lord Gold to serve as a compliance oversight advisor. Lord Gold also made compliance program and policy recommendations to the Board of Director’s Safety and Ethics Committee. Finally, the company implemented “new enhanced internal controls to address and mitigate corruption and compliance risks.”

One can only conclude that at some point the company got that old-time (compliance) religion and realized if it was to crawl out of the criminal hole it found itself in then cooperation and remediation was the only way forward. Bringing in Lord Gold, who was the DOJ approved Compliance Monitor for BAE Systems after its FCPA settlement, was widely lauded and turned out to be a propitious move by the company. One can only conclude from reading Justice Leveson’s Judgment, that bribery was part of the business plan of the company, with approval from the highest levels of the organization, for over 20 years. However, all three settlements make clear that a company can reduce the penalty through extensive cooperation and remediation.

Next week, I will conclude with what it all means.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

Show Notes for Episode 5, Year End Review, Part II

We turn to the 2016 year in review, in this Part II of a two-part series.

Jonathan Armstrong leads a discussion on Privacy Shield, information and data privacy issues the past year. Mike Volkov relates what he saw as the top enforcement highlights from 2016, the block-buster year for FCPA fines and penalties and the growing trend of globalization of enforcement. Matt Kelly discusses the arrival of front pay, and general escalation of retaliation risk for company’s vis-a-vis whistleblowers, ideas on auditing corporate culture and what types of data and information should go on a compliance dashboard.

For Matt Kelly’s posts on these topics see the following:

  1. Another Front in Retaliation Risk: Front Pay
  2. Ideas on Auditing Organizational Culture
  3. What Goes on a Compliance Dashboard?

Rants will return next week.

The members of the Everything Compliance panel include:

  • Jay Rosen (Mr. Translations) – Jay is Vice President of Legal & Corporate Language Solutions at United Language Group. Rosen can be reached at rosen@ulgroup.com.
  • Mike Volkov – One of the top FCPA commentators and practitioners around and is the Chief Executive Officer (CEO) and owner of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
  • Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of the noted Compliance Week Kelly can be reached at mkelly@radicalcompliance.com
  • Jonathan Armstrong – Rounding out is our UK colleague, who is an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com.

 

In this episode Matt Kelly and I take a deep dive into a couple of recent SEC enforcement actions. The first involved L-3 Technologies and accounting irregularities. The second involves BlackRock and the continued issues around pre-taliation. We connect these enforcement actions to broader issues involving the COSO 2013 Framework, the DOJ mandated expertise in compliance, a speak-up culture and remedial actions. For additional information, check out Matt’s blog posts on these topics:

  1. Lessons Galore in New SEC Internal Controls Case; and
  2. SEC Dings BlackRock for Pre-Taliation Clauses.

When most people across the globe think of Rolls-Royce, one word comes to mind – excellence. Yet that image largely relates to Rolls-Royce Limited, the automobile manufacturer, which was founded in 1909. Just a few years later, to support England’s efforts in the First World War, the company began to manufacture airplane engines. From those humble beginnings, Rolls-Royce Holdings plc was founded. It is a British multinational public holding company that, through its various subsidiaries, designs, manufactures and distributes power systems for aviation and other industries. It is the world’s second-largest maker of aircraft engines and also has major businesses in the marine propulsion and energy sectors. It was corporately separated from Rolls-Royce Limited and auto manufacturing in 1973. But to this date, when most folks hear the name Rolls-Royce they do not think of airplane engines but some of the world’s best autos.

Unfortunately for Rolls-Royce Holdings plc that may have forever changed yesterday when the company agreed to the largest fine to-date under the UK Bribery Act, with its total fines and penalties under three agreements being around £671 million (more than $800 million). These three agreements include a Deferred Prosecution Agreement (UK DPA) with the UK Serious Fraud Office (SFO) for violations of the UK Bribery Act; a criminal penalty of $170 million under a DPA (US DPA) with the US Department of Justice (DOJ) for a long-running global conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and, finally, in Brazil, Rolls-Royce will pay a $25.5 million criminal penalty under a leniency agreement with the Ministério Público Federal (MPF).

According to the SFO Press Release, “The agreement with the company follows the SFO’s four-year investigation into bribery and corruption, an investigation which continues into the conduct of individuals. The indictment, which has been suspended for the term of the DPA, covers 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery. The conduct spans three decades and involves Rolls-Royce’s Civil Aerospace and Defence Aerospace businesses and its former Energy business and relates to the sale of aero engines, energy systems and related services. The conduct covered by the UK DPA took place across seven jurisdictions: Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia.”

SFO Director David Green was quoted in the Press Release, “Bribery harms the reputation of the UK as a safe place to do business. I welcome this DPA, a significant enforcement action by the SFO, using relatively new statutory powers in respect of an important British company. It allows Rolls-Royce to draw a line under conduct spanning seven countries, three decades and three sectors of its business. I am grateful to the excellent SFO team who led on this case and for the assistance and cooperation of our trusted international partners. This is the largest ever single investigation carried out by the SFO, costing £13m and involving some 70 SFO personnel. It is the third use of a DPA since the power became available to prosecutors in 2014.”

In the US, as laid out in the Criminal Information, the company admitted that between 2000 and 2013, the company conspired to violate the FCPA by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for those officials’ assistance in providing confidential information and awarding contracts to Rolls-Royce and affiliated entities (collectively, Rolls-Royce):

In Thailand, Rolls-Royce admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded approximately seven contracts to Rolls-Royce during the same time period.

In Brazil, Rolls-Royce used intermediaries to pay approximately $9.3 million to bribe foreign officials at a state-owned petroleum corporation that awarded multiple contracts to Rolls-Royce during the same time period.

In Kazakhstan, between approximately 2009 and 2012, Rolls-Royce paid commissions of approximately $5.4 million to multiple advisors, knowing that at least a portion of the commission payments would be used to bribe foreign officials with influence over a joint venture owned and controlled by the Kazakh and Chinese governments that was developing a gas pipeline between the countries. In 2012, the company also hired a local Kazakh distributor, knowing it was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-Royce’s ability to continue operating in the Kazakh market. During this time, the state-owned joint venture awarded multiple contracts to Rolls-Royce.

In Azerbaijan, between approximately 2000 and 2009, Rolls-Royce used intermediaries to pay approximately $7.8 million in bribes to foreign officials at the state-owned and state-controlled oil company, which awarded multiple contracts to Rolls-Royce during the same time period.

In Angola, between approximately 2008 and 2012, Rolls-Royce used an intermediary to pay approximately $2.4 million in bribes to officials at a state-owned and state-controlled oil company, which awarded three contracts to Rolls-Royce during this time period.

In Iraq, from approximately 2006 to 2009, Rolls-Royce supplied turbines to a state-owned and state-controlled oil company. Certain Iraqi foreign officials expressed concerns about the turbines and subsequently threatened to blacklist Rolls-Royce from doing future business in Iraq.  In response, Rolls-Royce’s intermediary paid bribes to Iraqi officials to persuade them to accept the turbines and not blacklist the company.

Andrew Weissmann, Chief of the Fraud Section of the Justice Department’s Criminal Division, said in the DOJ Press Release, “For more than a decade, Rolls-Royce repeatedly resorted to bribes to secure contracts and get a competitive edge in countries throughout the world. The global nature of this crime requires a global response, and this case is yet another example of the strong relationship between the United States and U.K. Serious Fraud Office and Brazilian Ministério Público Federal, and the collective efforts to ensure that ethical companies can compete on an even playing field anywhere in the world.”

The Rolls-Royce global corruption enforcement action once again points up the changing nature of the international fight against bribery and corruption. The regulators have moved past simple cooperation in the investigation phases to working together in the enforcement component. Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office said in the DOJ Press Release, “This successful parallel investigation is a tremendous example of the central importance of working cooperatively alongside our international partners to achieve a fair and meaningful resolution. This outcome is a reflection of the immense reach and capabilities of the FBI’s Washington Field Office international corruption squad and the global impact of the anti-corruption program.” Further, in addition to the work of the SFO and MPF law enforcement authorities in Austria, Germany, the Netherlands, Singapore and Turkey provided significant assistance to the DOJ. Tomorrow, I will begin an exploration of the settlement documents.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017