In February of this year, KellogG Brown & Root LLC entered into a plea agreement with the United States Department of Justice (DoJ), and KBR, Inc. and Halliburton Co. entered into settlements with the United States Securities and Exchange Commission (SEC), pursuant to which those companies together paid US$579 million in combined criminal and civil penalties.
The plea agreement and settlements relate to alleged bribes paid to Nigerian officials to secure EPC contracts to build LNG trains on Bonny Island, Nigeria.
In relation to the same allegations, on 5 March 2009 UK citizen Jeffrey Tesler was arrested in the UK on ten charges of breaching the United States Foreign Corrupt Practices Act of 1977 (FCPA) and further charge of conspiracy to breach the FCPA.
The arrest was made by the London Metropolitan Police acting on a mutual legal assistance request issued by the DoJ. An arrest warrant is outstanding for another UK citizen, Wojciech Chodan, in respect of the same charges.
If convicted on all charges, under US law the two UK citizens face a maximum prison sentence of 55 years, and the DoJ is also seeking forfeiture by them of more than US$130 million.
Agency as a Basis for Jurisdiction
US companies and prosecutors view other countries' limited success in prosecuting bribery of foreign public officials as a means of unfair competition in international trade. To level the playing field the DoJ and SEC actively pursue the extra-territorial jurisdiction granted to them by the FCPA.
The FCPA anti-bribery provisions apply to (a) US issuers and US domestic concerns wherever they may be, (b) other persons who are within the territory of the United States, and (c) in each previous case their respective officers, directors, employees or agents, or stockholders acting on their behalf.
Although Chodan's indictment states that he is both a UK citizen and UK resident, and at the relevant times was employed by a UK company (or later hired as a consultant by a UK company and then by an international joint venture), the DoJ asserts that he acted as an agent of a US domestic concern.
Similarly, Tesler, a UK citizen and UK resident alleged to have acted through a Gibraltar corporation, is charged as an agent of a US issuer, an agent of US domestic concern and an agent of a person within the territory of the United States.
In other cases, it has been asserted that a UK company was a person acting within the territory of the United States through the actions of its agent, in circumstances where commercial people may not realize that an agency relationship existed.
For example, the 2007 information filed by the DoJ against a Scottish company Vetco Gray UK Ltd (Vetco UK) and others asserted that Vetco UK was in the territory of the United States, "by frequently using … affiliated U.S. entities and their personnel to perform acts" for its benefit. In that matter, Vetco UK agreed to pay a US$12 million fine, having previously agreed to pay a US$5.25 million fine in 2004 arising out of separate FCPA charges.
Prosecution of Individuals
US prosecutors have recently noted the deterrent value gained by prosecuting individuals, and we expect the charges against Chodan and Tesler to be part of a growing trend of US prosecutions of individuals (which may include non-US nationals) for FCPA violations. We also detect a growing severity in the punishment of individuals.
Very broadly, the Vetco cases referred to above were based on allegations of winning contracts in Nigeria through bribery of public officials, and to that extent bear similarity to the facts of the KBR/Halliburton matter in which Chodan and Tesler allegedly played a part.
In connection with the underlying facts of the 2004 Vetco case, three UK nationals (two of whom were resident in the UK, the third in Malaysia) and one US national reached settlements with the SEC in respect of alleged books and records offences. One individual agreed to pay a penalty of US$50,000 plus $64,675 disgorgement of profits and interest, and the other three agreed to pay US$40,000 each.
Although the alleged bribery and contract values involved in the Vetco matters were far smaller than in the KBR/Halliburton matter, and Chodan and Tesler might not expect the maximum possible penalties, the personal prosecutions arising from the 2004 Vetco case appear light by comparison to the treatment of Chodan and Tesler thus far.
When dealing with US entities in international business transactions, it is prudent for non-US entities and nationals to assume that the FCPA will apply to them. The threshold for being treated as an agent of a US issuer or US domestic concern, or vicariously in the US via the acts of an agent, appears to be relatively low. Certainly a formal agency agreement would not be required. Of course, Canadian companies will also be subject to the Corruption of Foreign Public Officials Act (CFPOA).
Similarly, when dealing in US dollars, payments between two non-US countries will typically flow through New York, satisfying almost all the requisite elements for US jurisdiction. Again, it is prudent to implement policies and procedures to ensure compliance with both the CFPOA and FCPA when conducting international business in US dollars.
Finally, one of the FCPA violations alleged against Mr. Chodan (for which he faces a maximum penalty of five years in prison) is that he emailed a memo to executives in Houston containing false statements to be released to French authorities investigating potential crimes in connection with the Bonny Island project. While it is obviously far preferable to ensure that bribes are not paid in the first place, if a company is (or suspects that it is) under investigation, rapid and effective implementation of both a communication policy and a document retention policy will be required.