HIGHLIGHTS:

  • The U.S. Department of Justice (DOJ) has announced its first declination of 2017, closing its investigation of Linde North America Inc. and Linde Gas North America LLC (collectively, Linde) concerning violations of the Foreign Corrupt Practices Act (FCPA).
  • Linde, an industrial and specialty gas supplier that manufactures and supplies gases for the oil and gas sector as well as other industries, voluntarily self-disclosed the potential violations under the FCPA Pilot Program.
  • Though Linde received a declination from the DOJ, it agreed to a disgorgement and forfeiture of $11.2 million in corrupt proceeds.

The U.S. Department of Justice (DOJ) on June 16, 2017, announced its first declination of 2017 and the closing of its investigation of Linde North America Inc. and Linde Gas North America LLC (collectively, Linde) concerning violations of the Foreign Corrupt Practices Act (FCPA). Though Linde received a declination from the DOJ, it agreed to a disgorgement and forfeiture of $11.2 million in corrupt proceeds.

Linde is an industrial and specialty gas supplier that manufactures and supplies gases for the oil and gas sector as well as other industries. The Linde companies that received the declination are American subsidiaries of Germany's Linde Group. Linde Group trades on the German stock exchanges, and the American subsidiaries do not have securities registered with the U.S. Securities and Exchange Commission (SEC). Accordingly, the SEC did not have jurisdiction over Linde Group or the American subsidiaries in this matter.

Background

In 2006, Linde acquired a New Jersey company called Spectra Gases Inc. (Spectra). From November 2006 to December 2009, Spectra made corrupt payments to high-level officials at the National High Technology Center (NHTC) of the Republic of Georgia, a 100 percent state-owned and state-controlled entity. Specifically, Spectra purchased a "boron column," which produced boron gas, and other assets and equipment from NHTC. Spectra executives agreed to share the profits earned from the equipment sale with NHTC officials in return for the officials' assistance in ensuring Spectra was selected as the purchaser. The Spectra executives formed two companies through which they made the equipment purchase and funneled bribes disguised as service fees to a management company owned by the NHTC officials. In all, the Spectra executives funneled 75 percent of the profits generated by the boron column to the NHTC officials. From its remaining 25 percent, Spectra earned $7.82 million. In January 2010, Linde dissolved Spectra and became its successor in interest. Thereafter, it discovered the corrupt scheme and launched an investigation.

Linde voluntarily self-disclosed the potential violations under the FCPA Pilot Program, which the DOJ's Criminal Division launched in April 2016. The Pilot Program's primary goal is to incentivize companies to voluntarily disclose FCPA-related misconduct by offering greater transparency into its calculation of cooperation credit. Specifically, companies that voluntarily disclose, cooperate and remediate are eligible for up to a 50 percent reduction off the bottom of the applicable Sentencing Guidelines range, whereas companies that only cooperate and remediate (but do not voluntarily disclose) are eligible for at most a 25 percent reduction.

Declination Details

Linde is the first company to receive a declination this year and the sixth company to receive one since the Pilot Program began. To obtain the declination, Linde provided a timely and voluntary disclosure to the DOJ, conducted a "thorough, comprehensive, and proactive" investigation, fully cooperated with the DOJ, enhanced its compliance program and internal accounting controls, and fully remediated the misconduct. Of note, while the investigation was pending, Linde withheld money due to the Spectra executives under an "earn out" arrangement as well as money owed to companies owned or controlled by the NHTC officials. Though Linde did not have to pay a criminal penalty, it agreed to disgorge the ill-gotten profits of $7.8 million and forfeit an additional $3.4 million in corrupt proceeds owed to the NHTC officials that it discovered during the investigation. This settlement option of a declination with disgorgement is also new under the Pilot Program.

The Linde declination is the second declination under the Pilot Program involving an energy company. In September 2016, HMT LLC, a company based in Texas that manufactures, supplies and services aboveground liquid storage tanks for the petroleum, oil, and gas industries received a declination and disgorgement of nearly $2.72 million for paying $500,000 in bribes to government officials in Venezuela and China to influence those officials' purchasing decisions.

Considerations for Companies

The Linde declination highlights the importance of post-acquisition due diligence and risk assessments as well as strong policies and procedures concerning payments to third parties. As the first declination under the Trump Administration, it may also signal the beginning of increased FCPA activity from the DOJ's Criminal Division, which has repeatedly vowed to remain committed to strong FCPA enforcement.