On June 4, the US Department of Justice (DOJ) announced two Foreign Corrupt Practices Act (FCPA) resolutions with financial institutions arising out of a multi-year bribery scheme involving bribes to Libyan officials. First, the Paris-based Société Générale entered into a deferred prosecution agreement with DOJ and simultaneously entered into a criminal settlement agreement with the French prosecutor, Parquet National Financier (PNF). Société Générale’s resolution with DOJ included a $585 million criminal penalty, which US authorities said would be offset by the $293 million fine the bank agreed to pay the PNF. Second, the investment management firm Legg-Mason entered into a non-prosecution agreement for related conduct, agreeing to pay a total of $64.2 million to resolve the matter.
The bribery charges are related to payments made by Société Générale to a Libyan “broker” between 2004 and 2009. These payments were used in part to corruptly induce Libyan officials to steer investments to Société Générale. Under the scheme, Société Générale paid the broker a commission of 1.5 to 3 percent of the nominal amount of the investments made by the state-owned financial institutions, and the broker passed on part of the commission to high-level Libyan officials to ensure that the investments would be made with Société Générale. In all, the bank paid the broker more than $90 million, leading Libyan financial institutions to place 13 investments and one restructuring worth approximately $3.66 billion in total through Société Générale, earning the bank profits of approximately $523 million. According to Legg Mason’s admissions, it participated in this same scheme through a subsidiary, Permal Group Ltd. (Permal),that managed certain of the funds invested by Libyan state institutions, earning the asset manager over $32 million in profit.
To resolve the charges—one count of conspiracy to violate the FCPA’s anti-bribery provisions and one count of transmitting false commodities reports—Société Générale entered into a deferred-prosecution agreement. Its subsidiary, SGA Société Générale Acceptance N.V., pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA. (The bank also resolved criminal and regulatory charges relating to allegations that it manipulated the London InterBank Offered Rate (LIBOR), agreeing to pay additional fines of $275 million to DOJ and $475 million to the Commodity Future Trading Commission.) Legg Mason entered into a non-prosecution agreement, under which it admitted facts, but did not agree to any specific charge, related to the same conduct.
Lessons Learned from Société Générale and Legg Mason Resolutions
There are a number of lessons learned:
- High Stakes Enforcement Continues. DOJ continues to seek and obtain large FCPA settlements, including through multilateral investigation. Indeed, prior to the offset for the amount paid to the French authorities, the $585 million settlement amount with Société Générale arising out of the bribery charges is among the largest FCPA settlements in DOJ’s history. The international cooperation leading to this significant settlement—cooperation with French, U.K. and Swiss authorities—continues a trend emphasized in recent years by DOJ officials, including Deputy Attorney General Rod Rosenstein, who recently emphasized that DOJ has received “exceptional assistance” from “law enforcement partners around the world” in investigating and prosecuting corruption matters.
- DOJ Highlights Severity and Scope of Conduct in Assessing Culpability and Appropriate Fine. While the United States’ resolution with Société Générale covered both LIBOR- and FCPA-related charges, DOJ specifically set out the factors that went into the FCPA resolution. The factors are similar to those that DOJ has applied in recent settlements. Specifically, DOJ noted that the resolution, including the monetary penalty, reflected mitigating factors such as Société Générale’s “substantial, though not full, cooperation” and significant remediation, which were balanced by the bank’s failure to voluntarily self-disclose and the seriousness of the conduct.
DOJ’s assessment of Legg Mason’s culpability included explicit comparison to Société Générale. Among other factors, DOJ highlighted that Legg Mason’s “misconduct involved mid-to-low level employees” of a subsidiary; that “Société Générale—and not Legg Mason or Permal—maintained the relationship with the Libyan broker and was responsible for originating and leading the scheme”; and that Legg Mason made less than one-tenth in profit off the scheme as Société Générale.
It is worth noting that notwithstanding the emphasis on the serious misconduct at Société Générale, neither resolution imposed a corporate monitor. For Société Générale, DOJ concluded that a monitor was not necessary, noting that among other factors “the company’s risk profile and ongoing monitoring by L’Agence Française Anticorruption,” a recently established French anti-corruption authority. Although it is tempting to identify the decision against a monitor as part of a recent trend in which corporate settlements have not included a monitorship, it is important not to read too much into this resolution in light of the unique situation of ongoing monitoring by the French authorities and the age of the misconduct, with the corrupt behavior ending over nine years ago.
- France Will Use New Enforcement Tools. In late 2017, France enacted a new anticorruption law known as “Sapin II,” which established the anti-corruption authority noted above, L’Agence Française Anticorruption, and authorized, for the first time, ability to seek a criminal settlement similar to a deferred prosecution agreement. The Société Générale resolution is the first such settlement. The settlement, which includes a $293 million penalty and a two-year period during which the new French anti-corruption authority will assess and monitor the bank’s anti-corruption measures, demonstrates the scope of France’s new anti-corruption enforcement tools.
- Financial Institutions Should Acknowledge Corruption Risk. The financial services industry has historically not been considered high risk for corruption. Together with two recent enforcement actions against a bank and a hedge fund, the Société Générale settlement demonstrates that banks can face anti-corruption scrutiny like any other company operating in high-risk corruption areas.