GOODYEAR ENTERS INTO FCPA SETTLEMENT WITH SEC
On February 24, 2015, the Securities and Exchange Commission (the "SEC") announced a settlement with Goodyear Tire & Rubber Company ("Goodyear") in respect of violations of the Foreign Corrupt Practices Act (the "FCPA") resulting from bribes paid by Goodyear's subsidiaries in Kenya and Angola (together the "Goodyear Subsidiaries"). The SEC's order found that the Goodyear Subsidiaries paid over $3.2 million in illicit payments in Kenya and Angola between 2007 and 2011. Payments were made to employees of both private customers and government-owned entities, as well as to local authorities such as police and building inspectors. The payments were reportedly falsely recorded as legitimate business expenses in the books and records of the Goodyear Subsidiaries and these were then consolidated into Goodyear's own books and records.
The SEC found that Goodyear failed to prevent or detect the payment of bribes by its subsidiaries, due to inadequate FCPA controls. In the case of the Kenyan company, the SEC also found that Goodyear failed to conduct adequate due diligence when it acquired its stake in the company (at which time, the order states that the same practice of illicit payments appeared to have been in place). However, the order does not refer to Goodyear itself having any knowledge of, or involvement in, the Goodyear Subsidiaries' conduct. The SEC's willingness to pursue parent companies in these circumstances emphasizes the importance of ensuring that sufficient FCPA controls are implemented in foreign subsidiaries.
Goodyear has agreed to pay disgorgement of $14,122,525 and prejudgment interest of $2,105,540 and has also agreed to report to the SEC on the status of its remediation work and implementation of compliance measures. It has also divested its ownership of its Kenyan subsidiary and is taking steps to do the same in Angola. The SEC's order indicates that it is not imposing a civil penalty on Goodyear due to the company's cooperation with the SEC's investigation and the remediation efforts it has undertaken.
APPEALS COURT UPHOLDS MONEY LAUNDERING CONVICTION OF FOREIGN PUBLIC OFFICIAL BASED ON UNDERLYING FCPA BRIBERY SCHEME
The Eleventh Circuit recently upheld the conviction and nine year sentence of Jean Rene Duperval, the former Assistant Director General and Director of International Affairs of a state-owned telecommunications company in Haiti, Telecommunications D'Haiti, S.A.M ("Teleco") (see United States v. Duperval No. 12-13009 (11th Cir.)).
Mr Duperval was the first foreign official to be convicted at trial for money laundering based on an underlying FCPA bribery scheme. The case against Mr Duperval centered on bribery schemes involving two US telecommunications companies: Terra Telecommunications Corporation and Cinergy Telecommunications Inc. In both cases, Mr Duperval received payments of approximately $500,000 from representatives of the companies in exchange for "favors" from Teleco. Payments were made to Mr Duperval via two companies owned or controlled by members of his family.
Two representatives of Terra Telecommunications Corporation were charged with conspiracy to violate the FCPA and commit wire fraud, conspiracy to launder money and substantive counts of FCPA violations, wire fraud and money laundering in connection with the same scheme and were convicted in 2011. Their argument that Teleco was not an "instrumentality" of the Haitian government and that Mr Duperval (and another official associated with the scheme) should not be regarded as "foreign public officials" for FCPA purposes was rejected on appeal (see United States v. Esquenazi 752 F3d 912 (11thCir. 2014)). Mr Duperval raised the same argument on his appeal and it was likewise rejected. The US Supreme Court, in October 2014, declined to review the Eleventh Circuit's decision in Esquenazi which means that the Eleventh Circuit's test for what constitutes a "foreign instrumentality" under the FCPA remains valid.
Mr Duperval also argued, among other things, that the trial court erred in denying his request to instruct the jury on the "routine governmental action" or "facilitation/grease payment" exemption to the FCPA. He had introduced evidence that he was paid only for administering the relevant companies' contracts with Teleco and that the conduct should therefore fall within this exemption. This argument was rejected, with the court finding that Mr Duperval was not a low-ranking employee providing a routine service; rather, he was administering international contracts and, as such, did not fall within the limited scope of this exemption.
Although foreign public officials cannot be prosecuted under the FCPA, this case demonstrates the authorities' willingness to pursue them for related money laundering charges.
JUDGE REJECTS DEFERRED PROSECUTION AGREEMENT BETWEEN DOJ AND FOKKER SERVICES B.V.
In June 2014, Dutch aerospace firm Fokker Services B.V. ("Fokker") was charged with conspiracy to unlawfully export US-origin goods and services to Iran, Sudan and Burma (Myanmar). The conspiracy is alleged to have involved the shipment of parts and components used in aircraft aviation and navigations systems and other aircraft systems subject to export control between 2005 and 2010. On February 5, 2015, Judge Richard J. Leon of the US District Court for the District of Columbia rejected a deferred prosecution agreement ("DPA") between Fokker and the Department of Justice (the "DOJ") in respect of the charges. Under the DPA, Fokker had agreed to pay $10.5 million and to take other remedial steps such as the implementation of a new compliance program. This was part of a wider settlement including an additional $10.5 million payment by Fokker to settle with the Office of Foreign Assets Control ("OFAC") and the Bureau of Industry and Security.
In his memorandum opinion rejecting the DPA, Judge Leon noted a number of issues with the agreement's terms when compared with Fokker's conduct.
- Fokker's violations were knowing and willful with involvement at the highest levels of the company.
- The conduct was described as "egregious" and occurring over a sustained period.
- The DPA did not require Fokker to pay as its fine "a penny more than the $21 million in revenue it collected from its illegal transactions".
- No individuals are being prosecuted in connection with the conduct and certain employees involved in the transactions have been allowed to remain with the company.
- The DPA does not require Fokker to appoint an independent monitor or otherwise report on the progress of its remediation efforts.
- The 18 month DPA period was described as "very brief".
Overall, Judge Leon concluded that the DPA was "grossly disproportionate to the gravity of [Fokker's] conduct in a post-9/11 world" and that "it would undermine the public's confidence in the administration of justice and promote disrespect for the law for it to see a defendant prosecuted so anemically for engaging in such egregious conduct for such a sustained period of time and for the benefit of one of our country's worst enemies". Fokker has appealed the decision.