Why it matters: The first week of June 2016 saw the first two instances of the DOJ declining, in unrelated cases, to prosecute companies for Foreign Corrupt Practices Act (FCPA) violations since the announcement of the DOJ’s newFCPA Pilot Program on April 5, 2016. The DOJ’s declination letters to the corporations emphasized their voluntary self-disclosure and extensive cooperation “consistent with the FCPA Pilot Program” as the major factor in the declinations. Further, in parallel investigations of the two companies, the SEC announced non-prosecution agreements with them, similarly citing to those corporations’ voluntary self-disclosure and cooperation as the reason why the SEC would not be charging them with FCPA violations. Later that same month, the DOJ and SEC announced settlements in parallel investigations of another company’s foreign subsidiary for FCPA violations in Russia, in which the DOJ cited to the subsidiary’s cooperation with the investigation as a primary factor leading the DOJ to give it a non-prosecution agreement. The message the government wants us to glean from these cases comes through loud and clear: Voluntary self-disclosure and cooperation are key and (hopefully) will be rewarded.
Detailed discussion: Three FCPA resolutions in June 2016 illustrate the government’s renewed emphasis on rewarding self-disclosure and cooperation in FCPA investigations.
DOJ and SEC resolutions with Akamai Technologies, Inc. (Akamai) and Nortek, Inc. (Nortek): These were separate, unrelated FCPA investigations that both happened to involve bribes paid to Chinese officials by foreign subsidiaries, but they will forever be linked in the public’s mind because they represent the first time since the announcement of the DOJ’s new FCPA voluntary disclosure pilot program (“FCPA Pilot Program”—see our coverage of this new program in our April 6, 2016 newsletter alert) that the DOJ declined to prosecute for FCPA violations. The DOJ’s declination letters to Akamai and Nortek were made public following the SEC’s announcement on June 7, 2016 that, in parallel investigations, both companies had been given non-prosecution agreements (NPAs). Both agencies cited to prompt, voluntary self-disclosure and cooperation with the investigations on the part of both companies as the reasons for the NPAs and declinations, respectively.
SEC announcement re NPAs: On June 7, 2016, the SEC announced, “NPAs with two unrelated companies that will forfeit ill-gotten gains connected to bribes paid to Chinese officials by foreign subsidiaries.”
Under the SEC’s NPA with Akamai, a Massachusetts-based internet services provider, the company agreed to pay $652,452 in disgorgement plus $19,433 in interest. According to the SEC’s findings in Akamai’s NPA, the company’s Chinese subsidiary arranged $40,000 in payments in order to induce government-owned entities to purchase more services than they actually needed. The SEC found that employees at the Chinese subsidiary violated Akamai’s written policies by providing improper gift cards, meals, and entertainment to officials at these government-owned entities to build business relationships. Under the SEC’s NPA with Nortek, a Rhode Island-based residential and commercial building products manufacturer, Nortek agreed to pay $291,403 in disgorgement plus $30,655 in interest. According to the SEC’s findings in the NPA, Nortek’s Chinese subsidiary made approximately $290,000 in improper payments and gifts (including cash payments, gift cards, meals, travel, accommodations, and entertainment) to Chinese officials in order to receive preferential treatment, relaxed regulatory oversight, and reduced customs duties, taxes, and fees.
The SEC said that both Akamai and Nortek earned their NPAs by promptly self-disclosing the improper conduct upon becoming aware of it and “extensively” cooperating with the SEC investigations, including, as outlined in their respective NPAs:
(1) reporting the situation to the SEC “on their own initiative” in the early stages of their internal investigations;
(2) sharing detailed findings of their internal investigations and providing timely updates to SEC enforcement staff when new information was uncovered;
(3) providing summaries of witness interviews and voluntarily making witnesses available for interviews, including witnesses located in China;
(4) voluntarily translating documents from Chinese into English;
(5) terminating employees responsible for the misconduct; and
(6) strengthening their anti-corruption policies and conducting extensive mandatory training with employees around the world with a focus on bolstering internal audit procedures and testing protocols.
DOJ declination letters: In its nearly identical declination letters to Nortek and Akamai (which were released by the companies following the SEC’s announcement on June 7), the DOJ cited self-disclosure and cooperation by the companies—“[c]onsistent with the FCPA Pilot Program”—as the reason for declining to prosecute.
Specifically, Akamai’s June 6, 2016 declination letter provided that:
Based upon the information known to the Department at this time, we have closed our inquiry into this matter. Consistent with the FCPA Pilot Program, we have reached this conclusion despite the bribery by an employee of the Company’s subsidiary in China and one of that subsidiary’s channel partners, based on a number of factors, including but not limited to Akamai’s prompt voluntary self-disclosure of the misconduct, the thorough investigation and fulsome cooperation by the Company (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation (including promptly suspending at the start of the investigation the individual involved in the China misconduct who then resigned shortly thereafter, terminating the relationship with the channel partner involved in the misconduct, and disciplining five other employees who should have prevented other violations of the Company’s policies), and the fact that Akamai will be disgorging to the SEC the full amount of disgorgement as determined by the SEC.
The wording of Nortek’s June 3, 2016 declination letter differed only in the recitation of the specific facts leading to the DOJ’s declination:
Based upon the information known to the Department at this time, we have closed our inquiry into this matter. Consistent with the FCPA Pilot Program, we have reached this conclusion despite the bribery by employees of the Company’s subsidiary in China, based on a number of factors, including but not limited to the fact that Nortek’s internal audit function identified the misconduct, Nortek’s prompt voluntary self-disclosure, the thorough investigation undertaken by the Company, its fulsome cooperation in this matter (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation (including terminating the employment of all five individuals involved in the China misconduct, which included two high-level executives of the China subsidiary), and the fact that Nortek will be disgorging to the SEC the full amount of disgorgement as determined by the SEC.
DOJ and SEC resolutions with Analogic Corporation (Analogic) and its subsidiary BK Medical ApS (BK Medical): The DOJ announced on June 21, 2016 that Analogic’s foreign subsidiary BK Medical, a manufacturer of ultrasound equipment headquartered in Denmark, had entered into an NPA and agreed to pay a $3.4 million criminal penalty to resolve alleged FCPA violations in Russia and other foreign countries. According to the resolution documents, BK Medical admitted to engaging in a scheme with its distributor and others in Russia and at least five other countries to make improper payments to third parties using fictitious invoices and falsely book those third-party payments, thereby causing its parent Analogic, a Massachusetts-based medical device manufacturer, to falsify its books and records as a result of incorporating BK Medical’s financial statements into its own. In addition to paying the criminal penalty, BK Medical’s NPA requires that it continue to cooperate with U.S. and foreign authorities in ongoing investigations and prosecutions, “including of individuals,” and to periodically report to the DOJ on the implementation of an enhanced compliance program.
The DOJ said that it based its decision to give BK Medical an NPA based on a number of factors, including credit for its self-disclosure and remediation (e.g., terminating the officers and employees responsible for the corrupt payments). However, BK Medical only received partial credit for cooperation because “it did not initially disclose certain relevant facts that it learned in the course of its internal investigation.” The DOJ noted that, by the conclusion of the investigation, BK Medical had disclosed all relevant facts known to it, “including information about individuals involved in the FCPA misconduct.”
The SEC also announced on June 21, 2016 that, in its parallel civil investigation, Analogic agreed to pay $7.67 million in civil disgorgement and $3.8 million in prejudgment interest to settle the SEC’s charges that it had violated the FCPA by failing to both keep accurate books and records and maintain adequate internal accounting controls. The SEC said that, in determining the settlement, it had considered Analogic’s self-reporting, remedial acts, and general cooperation with the SEC’s investigation.
FCPA roundup: The following are brief recaps of some of the other recent FCPA matters that caught our eye:
- On June 16, 2016, the DOJ announced that a second businessman pleaded guilty to FCPA charges in connection with the bribery scheme involving Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA). The DOJ said that Roberto Rincon (Rincon) pleaded guilty to, among other things, one count each of violating and conspiracy to violate the FCPA. Sentencing is scheduled for September 30, 2016. As we reported in ourJanuary 2016 newsletter, Rincon was arrested in December 2015 after a grand jury in the Southern District of Texas returned an 18-count indictment against him and Abraham Jose Shiera (Shiera). Shiera pleaded guilty in March 2016 and is set to be sentenced in July 2016.
- On June 10, 2016, the Louis Berger Group (Berger) and its parent filed a breach of fiduciary lawsuit in New Jersey superior court against a former executive who admitted to FCPA violations in India, Indonesia, Kuwait and Vietnam. In 2015, Berger paid $17.1 million to the DOJ to settle the charges, and has now filed the lawsuit against the former executive because his criminal activity “has cost the business more than $17 million and hurt its reputation.”
- On June 6, 2016, the DOJ filed a status report in USA v. Biomet Inc. in the District of Columbia alleging that Biomet had breached the DPA it entered into with the DOJ in 2012 in connection with FCPA violations in South America. The status report said that Biomet had breached the DPA “based on the conduct in Mexico and Brazil and based on Biomet’s failure to implement and maintain a compliance program as required by the DPA.” The DOJ said that Biomet is continuing to cooperate and that the DOJ and Biomet have been in ongoing discussions to resolve the breach, which discussions, if successful, will obviate the need for a trial. The DOJ said in the filing that for the time being it is not seeking hearings or other relief.
- On May 6, 2016, the IRS said that FCPA disgorgement payments are not tax-deductible. The Office of the Chief Counsel of the IRS released an Advice Memorandum that said a disgorgement payment to the SEC in a corporate FCPA enforcement action wasn’t tax-deductible, citing to Section 162(f) of the Tax Code (deductions aren’t allowed “for any fine or similar penalty paid to a government for the violation of any law”).
See here to read the SEC’s 6/7/2016 press release entitled “SEC Announces Two Non-Prosecution Agreements in FCPA Cases.”
See here to read the DOJ’s 6/6/2016 declination letter re Akamai Technologies, Inc.
See here to read the DOJ’s 6/3/2016 declination letter re Nortek, Inc.
See here to read the DOJ’s 6/21/16 press release entitled “Analogic Subsidiary Agrees to Pay More than $14 Million to Resolve Foreign Bribery Charges.”
See here to read the SEC’s 6/21/16 press release entitled “SEC Charges Medical Device Manufacturer With FCPA Violations.”