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.

  1. High level commitment from company officials and senior management to do business in compliance with the FCPA.
  2. A substantive written anti-corruption compliance code of conduct.
  3. Written policies and procedures to implement this code of conduct.
  4. A robust system of internal controls, including accounting and financial controls.
  5. Risk assessments and risk reviews of its ongoing business.
  6. No less than annual assessments of its overall compliance program.
  7. Appropriate oversight and responsibility of a Chief Compliance Officer.
  8. Effective training for all employees and relevant third parties.
  9. An effective compliance function which can provide guidance to company employees.
  10. A robust internal reporting system.
  11. Effective investigations of any reported compliance issue.
  12. Appropriate incentives for employees to do business ethically and in compliance.
  13. Enforced discipline for any employee who violates the company’s compliance program.
  14. Suitable due diligence and management of third parties and business partners.
  15. 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.
  16. 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.
  17. 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.”

V.                 Monitor

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 tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

About the best thing that you can say for the Houston Texans is that they did not lose on Sunday. Of course they did not play on Sunday, pathetically losing Week 14’s game last Thursday. For their season’s effort, the head coach was fired the next day. At least in the National Football League (NFL) there is accountability.

On the other hand, the hits just keep on coming for JP Morgan Chase. On the front page of Sunday’s New York Times (NYT), in an article entitled “Bank Tracked Business Linked to China Hiring”, reporters Ben Protess and Jessica Silver-Greenburg reviewed yet more potentially damning evidence in the Bank’s Foreign Corrupt Practices Act (FCPA) investigation. They were able to view documents which had been recently disclosed by JP Morgan Chase to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in connection with the bank’s ongoing internal investigation into its ‘Sons and Daughters’ hiring program which apparently targeted the children of communist party officials and high ranking officials of state owned enterprises for employment in order to obtain business from their parents. The reporters noted, “Until now, the indications of a connection between the hires and business deals have not been so explicit.”

Emails, Spreadsheets and Whistleblowers

The reporters studied both documents and emails which seemed to indicate that the bank thought hiring of these sons and daughters would and did contribute in bringing business to the bank. The documents included spreadsheets “that list the bank’s “track record” for converting hires into business deals”. Another set of documents discussed in the article were described as “historical deal conversion” spreadsheets. The article went on to detail that in one column there was a list of the job candidates and in another column “the bank recorded its track record for winning business from the companies tied to the candidates.” There were other spreadsheets which listed the hires of well-connected children and the revenue that the bank earned from deals involving with hires linked to those companies. These other documents included spreadsheets which discussed “about 30 employees with ties to state-owned companies or Communist Party officials, including the daughter of the deputy minister of propaganda, a relative of a Chinese financial regulator and the nephew of the executive chairman at Sinotruk, which is part of a state-owned trucking enterprise.”

There were also emails cited in the article which seemed to indicate that depth and pervasiveness of the ‘sons and daughters’ hiring program. One email discussed “the “existing and potential business opportunities,” a senior JPMorgan executive in Hong Kong emphasized that the father of a job candidate was the chairman of the China Everbright Group, a state-controlled financial conglomerate. The executive also extolled the broader benefits of the hiring program, telling colleagues in another email: “You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship” with winning assignments to advise Chinese companies.”

In addition to these emails and documents discussed in the NYT article, the reporters also interviewed current and former bank employees. Apparently at least two whistleblowers came forward to identify the hiring scheme, “with one filing a complaint in April 2011 with the Hong Kong stock exchange and another coming forward to American authorities this year.” It has not been clear when JP Morgan Chase began its internal investigation or what was the genesis of the investigation.

The Tang Xiaoning Hiring

The article went into specifics with one of the hiring’s, that of “Tang Xiaoning, a onetime Goldman and Citigroup employee whose father is the chairman of the China Everbright Group, appeared to encapsulate the spirit of the “Sons and Daughters” program for state-owned clients. The father, approached a JPMorgan executive in Hong Kong in March 2010 about a position for his son, records and interviews show. The executive, who led JPMorgan’s China investment banking unit, welcomed the request and urged his colleagues in an email a day later to discuss “how we can leverage more on this account going forward.” But in an internal compliance form, the executive played down the significance of hiring Mr. Tang, documents show, saying there was “no expected benefit.”

Tang Xiaoning was subsequently hired on a one-year employment agreement. Thereafter his father, Tang Shuangning, who had done little if any business with the bank prior to the hiring of his son. But thereafter, “a China Everbright subsidiary hired the bank to advise on a $300 million private offering of shares, according to interviews. And in 2011, after Mr. Tang worked at JPMorgan for several months, China Everbright’s banking subsidiary hired JPMorgan as one of several financial advisers on its decision to become a public company, a deal that was delayed amid turmoil on the world’s markets.” In 2012, after two successive one-year extensions of his employment agreement, “China Everbright International, a subsidiary focused on alternative energy businesses, hired JPMorgan to advise on a $162 million sale of shares, according to Standard & Poor’s Capital IQ, a research service.” When the issue of a third one-year employment agreement it was clear what bank officials in China thought of the situation. The NYT article quoted an email which read, ““Given where we are on China Everbright, I think we may need another contract for Xiaoning,” the executive wrote.”

The article notes that the origins of the ‘Sons and Daughters’ hiring program was to comply with the FCPA. The reporters noted, “According to documents and interviews with current and former employees, JPMorgan created the “Sons and Daughters” program in 2006 with the expectation that the hires would receive heightened scrutiny. But by 2009, the “Sons and Daughters” program was putting the job candidates on the fast track to employment. The documents show that applicants from prominent Chinese families faced less stringent hiring standards — and fewer job interviews — than the average junior-level hire.” Moreover, there has apparently been no direct evidence of knowledge by the program at the corporate headquarters in New York.

Ongoing Monitoring is Critical

So for the compliance professional what are some of the lessons that can be drawn from this matter? First and foremost is that there needs to be ongoing monitoring to determine whether employees are staying within the compliance program. Even after all the important ethical messages from management have been communicated to the appropriate audiences and key standards and controls are in place, there should still be a question of whether the company’s employees are adhering to the compliance program. Two of the seven compliance elements in the Federal Sentencing Guidelines call for companies to monitor, audit, and respond quickly to allegations of misconduct. These three highlighted activities are key components enforcement officials look for when determining whether companies maintain adequate oversight of their compliance programs.

Your company should establish a regular monitoring system to spot issues and address them. Effective monitoring means applying a consistent set of protocols, checks, and controls tailored to your company’s risks to detect and remediate compliance problems on an ongoing basis. To address this, your compliance team should be checking in routinely with local Finance departments in your foreign offices to ask if they’ve noticed recent accounting irregularities. Regional directors should be required to keep tabs on potential improper activity in the countries in which they manage. Additionally, the global compliance committee should meet or communicate as often as every month to discuss issues as they arise. These ongoing efforts demonstrate that your company is serious about compliance.

This means that you may want to walk down the hall and talk to your company’s Human Resources (HR) Department to see if there is anything around hiring of the children or family members of government officials. You might also do some transaction monitoring to see if there are new clients, customers or projects which popped up suddenly as new business for the company. Or take it a step further to see if there were contracts or business retained because of any hiring.

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, 2013

Yesterday, I reviewed the conduct which Weatherford International Limited (Weatherford) engaged in over a period from 2002-2011 in connection with its Foreign Corrupt Practices Act (FCPA) investigation, noted the deficiencies in its compliance program and its internal controls and even how the company intentionally impeded the investigations of both the Department of Justice (DOJ) and Securities and Exchange Commission (SEC). Today, I want to look at how the company changed course in mid-stream during the investigation, brought in a top-notch and well respected lawyer as its Chief Compliance Officer (CCO), created a best-in-class compliance program; all of which saved the company millions of dollars in potential fines and penalties.

  1. I.                    DOJ Fine Calculation

To resolve the criminal aspects of this case, Weatherford agreed to pay an $87.2 million criminal penalty as part of a Deferred Prosecution Agreement (DPA) with the DOJ. There was also another $65.6 million paid to the SEC. However the figure paid to the DOJ was at the very bottom range of a potential criminal penalty. The range listed in the DPA was from $87.2 to $174.3 million. In coming up with this range under the Federal Sentencing Guidelines, it is significant for the actions that Weatherford did not receive credit for during the pendency of the investigation. The company did not receive a credit for self-reporting. The company only received a -2 for its cooperation because prior to 2008 the company engaged in activities to impede the regulators’ investigation.

So the fine range could have been more favorable to the company. But the key is that Weatherford received the low end of the range. How did they do this?

A.     New Sheriff in Town

One of the key things Weatherford did was bring in Billy Jacobson as its CCO and give him a seat at the table of the company’s Executive Board. He was a Federal Prosecutor in the Fraud Section, Criminal Division, US Department of Justice. He also served as an Assistant Chief for FCPA Enforcement Department so we can assume he understood the FCPA and how prosecutors think through issues. (Jacobson also worked as a State Prosecutor in New York City, with my former This Week in FCPA co-host Howard Sklar, so shout out to Howard.) Jacobson was not hired directly from the DOJ but after he had left the DOJ and had gone into private practice. There is nothing that shows credibility like bringing in a respected subject matter expert and giving that person the tools and resources to turn things around.

But more than simply bringing in a new sheriff, Weatherford turned this talk into action by substantially increasing its cooperation with the government, thoroughly investigating all issues, turning over the results to the DOJ and SEC and providing literally millions of pages of documents to the regulators. The company also cleaned house by terminating officers and employees who were responsible for the illegal conduct.

B.     Increase in Compliance Function

In addition to establishing Jacobson in the high level CCO position, the company significantly increased the size of its compliance department by hiring 38 compliance professionals and conducted 30 anti-corruption compliance reviews in the countries in which Weatherford operates. This included the hiring of outside consultants to assess and review the company’s compliance program and beefing up due diligence on all third parties, including those in the sales and supply chain, joint venture (JV) partners and merger or acquisition (M&A) candidates. The company also agreed to continue to enhance its internal controls and books and records to prevent and/or detect future suspect conduct.

If you have ever heard any of the current Weatherford compliance professionals speak at FCPA conferences, you can appreciate that they are first rate; that they know their stuff and the company supports their efforts on an ongoing basis.

C.     Best in Class Compliance Program

During the pendency of the investigation, Weatherford 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.

  1. High level commitment from company officials and senior management to do business in compliance with the FCPA.
  2. A substantive written anti-corruption compliance code of conduct.
  3. Written policies and procedures to implement this code of conduct.
  4. A robust system of internal controls, including accounting and financial controls.
  5. Risk assessments and risk reviews of its ongoing business.
  6. No less than annual assessments of its overall compliance program.
  7. Appropriate oversight and responsibility of a Chief Compliance Officer.
  8. Effective training for all employees and relevant third parties.
  9. An effective compliance function which can provide guidance to company employees.
  10. A robust internal reporting system.
  11. Effective investigations of any reported compliance issue.
  12. Appropriate incentives for employees to do business ethically and in compliance.
  13. Enforced discipline for any employee who violates the company’s compliance program.
  14. Suitable due diligence and management of third parties and business partners.
  15. 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.
  16. As soon as practicable, Weatherford 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.
  17. 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.”

D.    Monitor

Weatherford 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.

II.                Conclusion

It certainly has been a long, strange journey for Weatherford. I should note that I have not discussed at all the Oil-For-Food aspect of this settlement, which was an additional $100MM penalty to the company. However, with regard to the FCPA aspects of the matter, there are some very solid and telling lessons to be drawn from this case. First and foremost is that cooperation is always the key. But more than simply cooperating in the investigation is that a company should take a pro-active approach to putting a best-in-class compliance program in place during, rather than after the investigation concludes. Also, a company cannot simply ‘talk-the-talk’ but must come through and do the work to gain the credit. The bribery schemes that the company had engaged in and the systemic failures of its compliance program and internal controls, should serve as a good set of examples for the compliance practitioner to use in assessing a compliance program.

The settlement also sends a clear message from both the DOJ and SEC on not only what type of conduct will be rewarded under the US Sentencing Guidelines, but what they expect as a compliance program. One does not have read tea leaves or attempt to divine what might be an appropriate commitment to compliance to see what the regulators expect these day.

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, 2013

Yesterday, I reviewed the Weatherford International Limited (Weatherford) Foreign Corrupt Practices Act (FCPA) settlement. Today I will take a more focused look at the bribery schemes involved and the failure of the company to bring internal controls up to standard or even follow its own compliance program. Weatherford’s compliance program was a joke but worse was its conduct, which many in the company knew was illegal and reported internally but the company did not stop the conduct. The company also, early on in the investigation, actively impeded regulators access to personnel and documents. However, and this is one of the key messages from the Weatherford FCPA enforcement action, the company truly ‘turned it around’. Tomorrow we will explore how the company made this dramatic turnaround.

The bribery schemes had four basic scenarios and, for those of you keeping score at home, I have summarized them below.

I.                   Corrupt Conduct

Weatherford Bribery Box Score

Country Bribery Scheme Government or SOE Official Involved Amount of Bribe Paid
Angola Payments through 3rd parties Sonagol Drilling Manager $250K
Angola JV Partners Government Ministers, wives and other relatives $810K
Congo Payments thru 3rd parties SOE officials $500K
Middle East Countries Unauthorized distributor discounts SOE officials $11.8MM
Algeria Improper travel and entertainment SOE officials $35K
Albania Misappropriation of company funds Tax Auditors $41K

Angola

In Angola two separate bribery schemes were used. The first involved payment of a $250,000 bribe to the Sonagol Drilling Manager. To funnel the bribe the company retained a Swiss agent who paid the money. This Swiss agent billed Weatherford for non-existent and fraudulent services. He would retain a percentage of the total he billed as a commission and would pass the remainder to the Sonagol Drilling Manager. The bribery of the Drilling Manager also included a week long, all-expenses paid trip to Italy and Portugal, where only one of the days was business related.

The company continued this further creativity when it set up a joint venture (JV) which had two local JV partners, JV Partner A and JV Partner B. Partner A consisted of Sonagol government officials, their wives and other relatives and held a 45% stake in the overall JV. JV Partner B’s principals included the relative of an Angolan Minister, the relative’s spouse, and another Angolan official. It held 10% of the overall JV interest. Neither of these JV Partners contributed capital, expertise or labor to the JV. In addition to the straight quid pro quo of awarding Weatherford 100% of the Angolan well screens market, these JV Partners had contracts which were awarded to Weatherford competitors, revoked after the initial award and then awarded them to Weatherford.

Congo

In the Congo, Weatherford made over $500,000 in commercial bribe payments through the same Swiss Agent they had utilized in the initial Angolan bribery scheme to employees of a commercial customer, a wholly-owned subsidiary of an Italian energy company, between March 2002 and December 2008. The Swiss Agent’s role in the scheme included submitting false invoices and sending payments to individuals as directed by Weatherford Services Limited (WSL) employees and others. WSL employees created and sent false work orders to the Swiss Agent. The Swiss Agent, WSL employees and others knew the services would not be performed and that the work orders were a pretext to funnel money to the Swiss Agent. The Swiss Agent forwarded the money, less a commission, once again based on fraudulent invoices for non-existent services.

The Middle East

In certain un-named Middle Eastern countries between the years of 2005 and 2011 another Weatherford subsidiary employed another bribery scheme to funnel payments to officials of state owned National Oil Company (NOC). This bribery scheme entailed the awarding of improper “volume discounts” to a company that served as an agent, distributor and reseller which supplied Weatherford products to a state-owned and controlled NOC, believing that those discounts were being used to create a slush fund with which to make bribe payments to decision makers at the NOC.

The Securities and Exchange Commission (SEC) Complaint noted that as early as 2001, officials at the un-named national oil company directed Weatherford to sell goods to the company through a particular distributor. Prior to entering into the contract with the distributor, Weatherford did not conduct any due diligence on the distributor, despite: (a) the fact that the distributor would be furnishing Weatherford goods directly to an instrumentality of a foreign government; (b) the fact that a foreign official had specifically directed the company to contract with that particular distributor; and (c) the fact that Weatherford executives knew that a member of the country’s royal family had an ownership interest in the distributor. In late 2001, the company entered into a representation agreement with the distributor to sell its Completion and Production Systems products to the NOC.

Thereafter, the distributor created a slush fund by providing the distributor with unauthorized volume and pricing discounts, in addition to the agent’s 5% commission. Company employees intended that the slush fund would be used to pay officials at the un-named NOC. The “volume discounts” to the distributor were typically between 5-l0% of the contact price. The discounts allowed the distributor to accumulate funds which were used to pay bribes to the NOC officials.

Algeria

Weatherford also provided improper travel and entertainment to officials of the Algerian NOC, Sonatrach, which did not have any legitimate business purpose. The SEC Complaint detailed the following improper travel and entertainment provided to Sonatrach officials:

  • June 2006 trip by two Sonatrach officials to the FIFA World Cup soccer tournament in Hanover, Germany;
  • July 2006 honeymoon trip of the daughter of a Sonatrach official; and
  • October 2005 trip by a Sonatrach employee and his family to Jeddah, Saudi Arabia, for religious reasons that were improperly booked as a donation.

In addition, on at least two other occasions, Weatherford provided Sonatrach officials with cash sums while they were visiting Houston. For example, in May 2007, Weatherford paid for four Sonatrach officials, including a tender committee official, to attend a conference in Houston. Further, the company provided an approximate $24,000 cash advance for the trip where there was no evidence of any legitimate business purpose or promotional expenses.

Albania

In Albania, Weatherford had a tax evaluation problem. To deal with this issue the general manager and financial manager of the company’s Italian subsidiary misappropriated over $200,000 of company funds, to fund a bribery scheme involving Albanian tax auditors. The general manager, financial manager and the Albania country manager made $41,000 in payments to Albanian tax auditors who questioned details of the company’s accounts and demanded payment to close out the audit or speed up the certification process in 2001, 2002 and 2004.

The general manager and financial manager misappropriated the funds by taking advantage of Weatherford’s inadequate system of internal accounting controls. They misreported cash advances, diverted payments on previously paid invoices, misappropriated government rebate checks and received reimbursement of expenses that did not relate to business activities. A memo drafted by the general manager and financial manager in the months after their co-worker confronted them discussed the misappropriated funds and indicated that funds were paid to tax auditors in Albania and others for the benefit of Weatherford. This was the bribery scheme which was reported to the company and the internal whistle-blower employee was terminated.

II.                Program Deficiencies Lack of Cooperation

The DPA laid out in equally stark terms the complete and utter disregard, non-existence of and/or complete failure of any systemic compliance program, prior to 2008. These deficiencies included:

  • Failure to establish internal accounting controls to prevent bribery and corruption;
  • Failure to perform due diligence on any prospective third parties, including who they were, ultimate beneficial ownership and business justifications;
  • Failure to perform due diligence or in any meaningful manage joint venture partners;
  • Failure to have any meaningful internal controls for gifts, travel and entertainment;
  • No effective internal reporting system for FCPA violations or issues; and
  • (Most amazingly) No Chief Compliance Officer or even compliance professionals in a multi-billion dollar, multi-national company in the energy industry.

In addition to all of the above, Weatherford engaged in active conduct to impede the investigations of both the SEC and DOJ. In one instance, the company told investigators that a key witness was dead when he was not only still alive and well but working for Weatherford. In other instances, the company, emails were deleted by employees prior to the imaging of their computers. It was also noted that Weatherford failed to secure important computers and documents and allowed potentially complicit employees to collect documents subpoenaed by the staff.

Tomorrow, the Weatherford compliance comeback.

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, 2013

Over the past week there has been a plethora of Foreign Corrupt Practices Act (FCPA) enforcement actions released. One group was the four enforcement actions involving individuals concerning BizJet. While I cannot say that the enforcement actions against the individuals were stunning, perhaps what was surprising were the penalties that two of the individual received. The lineup of those three BizJet executives and one employee involved in these enforcement actions is as follows:

  1. Bernd Kowalewski – President and Chief Executive Officer (CEO);
  2. Peter DuBois – Vice President of Sales and Marketing;
  3. Neal Uhl – Vice President of Finance; and
  4. Jald Jensen – Regional Sales Manager

Defendants DuBois and Uhl pled guilty in January, 2012 and had their pleas unsealed on April 5, 2013. Defendants Kowalewski and Jensen were charged by Criminal Indictment, also in January, 2012 but are still at large today. The Department of Justice (DOJ) Press Release states that “The two remaining defendants are believed to remain abroad.”

BizJet Bribery Box Score

From the previously released Bizjet Deferred Prosecution Agreement (DPA) and the recently released documents, I have updated the “BizJet Bribery Box Score”.

BizJet Executive or Employee Named Payment Made To Amount of Payment Others Involved
Jald Jensen Official 6 Cell Phone and $10K Peter DuBois and Neal Uhl
Jald Jensen Official 3 $2K Peter DuBois
Peter DuBois, Neal Uhl and Jald Jensen Official 2 $20K
Neal Uhl Official 2 $30K Jald Jensen
Peter DuBois Mexican Federal Police Chief $10K Neal Uhl and Jald Jensen
Neal Uhl Official 5 $18K Jald Jensen
Jald Jensen Official 4 $50K
Jald Jensen Mexican Federal Police $176 Neal Uhl
Jald Jensen Official 4 $40K
Jald Jensen Mexican Federal Police $210K Neal Uhl
Jald Jensen Official 5 $6K Neal Uhl
Neal Uhl Official 5 $22K

The above bribes were characterized as “commission payments” and “referral fees” on the company’s books and records. Payments were made from both international and company bank accounts here in the United States. In other words, this was as clear a case of a pattern and practice of bribery, authorized by the highest levels of the company, paid through US banks and attempts to hide all of the above by mis-characterizing them in the company’s books and records.

Penalty Box Score

As bad as the conduct of the BizJet executives and sales manager was – and it was very bad – the thing that stood out in the enforcement actions announced last week was the sentences. So without further ado here is the “Penalty Box Score” for defendants DuBois and Uhl.

Individual Fine or Disgorgement Potential Incarceration Actual Incarceration
Peter DuBois $159,950 108 to 120 months in jail 8 months home incarceration, 60 month’s probation
Neal Uhl $10,000 60 months in jail 60 month’s probation

The clear import of the BizJet DPA was that a company can make a comeback in the face of very bad facts. In the BizJet DPA, the calculation of the fine, based upon the factors set out in the US Sentencing Guidelines, ranged between a low of $17.1MM to a high of $34.2MM. The final agreed upon monetary penalty was $11.8MM. This was a significant reduction from the suggested low or high end, or as was noted by the FCPA Blog “BizJet’s reduction was 30% off the bottom of the fine range, and a whopping 65% off the top of the fine range.” Finally, BizJet was able to avoid having an external monitor put in place.

Cooperation is the Key

What led to these sentence reductions? Quite simply the answer is full cooperation with the DOJ. The FCPA Professor stated, in a post entitled “Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information”, that “As part of his plea agreement, DuBois worked in an undercover capacity for the government. The motion specifically states as follows. “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.” Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”

In addition to his work as an undercover operative, the Professor quoted from the DOJ Sentencing Memorandum that “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation. DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked. DuBois told the truth to the government from the outset and continued to do so up until this very day. DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”

With regarding to UHL, the Professor quoted from the DOJ Motion for a Downward Departure as follows, “Uhl “agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct. Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses. Uhl offered to assist in any way that he could.”

In another post, entitled “Where Was the BizJet Board?”, the FCPA Professor noted that the conduct engaged in by BizJet was “egregious” and I would certainly second that, perhaps adding that it was about as bad as it could get in the FCPA world. He goes on to state that “Yet, BizJet was allowed to resolve the enforcement action via a deferred prosecution agreement, meaning that should it abide by the terms and conditions of the agreement, BizJet will never be required to plead guilty to anything.” He went on to pose the question, “If that is the DOJ position, then it must be asked – does corporate criminal liability actually mean anything if a company like BizJet – given the DOJ’s allegations – is not actually criminally prosecuted or required to plead guilty?” He ended his post with the following, “In short, the resolution vehicles the DOJ has created and championed has again lead to a “facade of enforcement” – albeit an instance on the opposite end of the spectrum that I normally highlight.”

I think that there is another way to look at the BizJet enforcement action and the individual enforcement actions against DuBois and Uhl. BizJet self-disclosed to the DOJ, engaged in what the DOJ termed “extraordinary cooperation” and remediated the people and conduct in question. Further, DuBois and Uhl not only offered themselves up but actively worked with and assisted the DOJ in its investigation going forward. If one of the goals of the DOJ is to achieve greater compliance with the FCPA, I think that the BizJet cases is a clear demonstration that if a company has FCPA violations they can self-disclose and be given credit for working very diligently in conjunction with the DOJ to remedy the conduct at issue and move the investigation forward.

I believe the same is true for individuals who have engaged in FCPA violations. If a person provides the same level of cooperation as DuBois and Uhl and the DOJ then prosecutes them to the full extent of the US Sentencing Guidelines, how much cooperation do you think the DOJ will engender going forward once the word gets out in the white collar defense bar?

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, 2013