Earlier this week the Department of Justice (DOJ) announced it had resolved an ongoing Foreign Corrupt Practices Act (FCPA) with German entity Bilfinger SE (Bilfinger). This case involved the same background facts and events as the Willbros corporate FCPA enforcement action and the related individual enforcement actions with some of its former employees. The facts in this case were bad, bad, bad. The FCPA Professor went into a deep dive on the case in a blog post, entitled “German Company Resolves FCPA Enforcement Action Based On Conduct From “The Distant Past””. In another blog post, entitled “Of Note From The Bilfinger Enforcement Action”, he questioned why this particular enforcement action took so long to resolve. Whatever the answer to that question might be, there are several interesting aspects to the matter which are of significance to the compliance practitioner, which I will highlight in this post.
I. DOJ Fine Calculation
To resolve the criminal aspects of this case, Bilfinger agreed to pay a $32 million criminal penalty as part of a Deferred Prosecution Agreement (DPA) with the DOJ. The thing that I found interesting about the fine calculation, as set out in the DPA, was the large increase in the amount due to the size of the bribery paid which increased the point calculation under the US Sentencing Guidelines by +18 and the increase for the payment of multiple bribes by +2.. The company only received a -2 for its cooperation in the investigation, clearly demonstrating recognition and affirmative acceptance of responsibility for its criminal conduct. The company did not self-disclose so it did not receive any credit under the US Sentencing Guidelines for that affirmative conduct. The calculated fine range was between $28MM to $56MM so the company received a fine at the lower end of the range. But not less than the lower end or event at the end.
II. Landscaping Account to Pay Bribes
One of the interesting techniques that the company used to physically pay the bribes was through a petty cash account in the Joint Venture’s (JV) office in Nigeria. The DOJ has long cautioned companies about maintaining significant amounts of petty cash in offices or the undocumented use of petty cash accounts as a mechanism to funnel bribes. In this case, Bilfinger ingeniously said the cash was going to the Nigeria operation to pay “landscaping expenses”. With $6MM in bribes paid out, one might think the company was landscaping the Gardens at Versailles but the lesson learned for the compliance practitioner is that accounts which might appear to be legitimate business expenses need to be scrutinized though monitoring and auditing.
III. Political Parties
Most compliance practitioners are well aware that the FCPA applies to government officials, their family members and similarly situated officers, directors and employees of state owned enterprises. However, in the Bilfinger enforcement action, the company paid bribes to “the dominant political party in Nigeria” which was not named in the Information of the DPA. The Anti-Bribery Provisions of the FCPA states:
§ 78dd-1. Prohibited foreign trade practices by issuers
(a) Prohibition (b)
It shall be unlawful for any issuer which has a class of securities registered pursuant to section 78l of this title or which is required to file reports under section 78o(d) of this title, or for any officer, director, employee, or agent of such issuer or any stockholder thereof acting on behalf of such issuer, to make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to–
(2) any foreign political party or official thereof or any candidate for foreign political office for purposes of–
(A) (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in violation of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or
(B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person; or.
IV. Best in Class Compliance Program
During the pendency of the investigation, Bilfinger moved to create a best practices compliance program. They appear to have done so and agreed in the DPA to continue to maintain such a compliance program. Under Schedule C to the DPA, it set out the compliance program which the company had implemented and continued to keep in place, at least during the length of the DPA. 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 any FCPA-violative conduct during this pre-acquisition phase.
- As soon as practicable, Bilfinger 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.”
Bilfinger also agreed to an external monitor. However, the term of the monitor is not the entire length of the three-year DPA; the term of the monitor is only 18 months. The monitor’s primary function is to assess the company’s compliance with the terms of the DPA and report the results to the DOJ at least twice during the terms of the monitorship. After this 18 month term the DOJ will allow the company to self-report to the regulators. It should be noted that the term of the external monitor can be extended by the DOJ.
VI. Who Pays the Cost of Bribery
The final point that I wish to raise is about the insidiousness of bribery and corruption and the true cost. To facilitate its illegal conduct Bilfinger (and Willbros) increased their charges to the various Nigerian entities which were paying for the project in question by 3%. So it was not Bilfinger and Willbros paying the bribes out of their collective corporate pocket but it was the people of Nigeria who were funding the western companies’ bribes. It does not get much worse or arrogant than that in the corporate world.
The Bilfinger enforcement action moves towards the ending of one of the sorriest examples of corporate malfeasance in the FCPA world. While it took a long time, justice has certainly been a long time coming. With the continued flight from justice of former Willbros employee James Tillery who renounce his US citizenship to try and escape prosecution by taking refuge in Nigeria; perhaps things are coming to an end. But with the conclusion of this corporate enforcement action against Bilfinger, perhaps there may be additional individual enforcement actions.
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 email@example.com.
© Thomas R. Fox, 2013