Goodyear Tire Resolves SEC FCPA Charges for $16 Million
On February 25, 2015, The Goodyear Tire & Rubber Company reached a settlement with the SEC to resolve foreign corruption charges related to tire sales in Kenya and Angola.
The SEC’s settlement order details the charges against the Ohio-based tire conglomerate, alleging that, between 2007 and 2011, the company’s subsidiaries in sub-Saharan Africa paid more than USD $3.2 million in bribes to public officials, state-owned entities and employees of private companies. According to the SEC, Kenya-based Treadsetters Tyres Ltd. and Angola-based Trentyre Angola Lda. made routine bribe payments to land tire sales and covered up the bribes as legitimate expenses in Goodyear’s books and records. In particular, the SEC alleged that Treadsetters distributed in excess of USD $1.5 million in bribe payments to public officials at a variety of government agencies and employees of private entities, including the Kenya Ports Authority, Kenyan Air Force, Nzoia Sugar Co. and Telkom Kenya Ltd. Trentyre allegedly paid bribes totaling more than USD $1.6 million to employees of state-owned and private entities, including UNICARGAS, Engevia Construction and Public Works and the Catoca Diamond Mine.
The SEC charged Goodyear, as the parent company, with failing to prevent or detect the bribes levied by the subsidiaries due to a system of inadequate FCPA controls.
Under the terms of the settlement, without admitting or denying the charges, Goodyear agreed to disgorge USD $14,122,525 in profits earned from the corrupt payments, along with prejudgment interest of USD $2,105,540. In addition to the disgorgement payment, Goodyear agreed to report its FCPA remediation efforts to the SEC for a period of three years.
The SEC has acknowledged that the imposed penalties reflect the “significant cooperation” that Goodyear provided throughout the agency’s investigation. Goodyear self-reported the bribery scheme to the SEC and the U.S. Department of Justice (DOJ) after uncovering the corrupt payments following a tip in 2011 on the company’s ethics hotline.
After conducting a related inquiry, the DOJ informed Goodyear in January 2015 that it did not intend to pursue criminal charges.
UK Court Sentences Father and Son Directors of a Printing Company for Africa Bribes
On February 12, 2015, two directors of the Eastbourne, U.K.-based printing company Smith & Ouzman were sentenced following a corruption trial.
As we reported in our December Red Notice, Chairman Christopher Smith and his son, Sales and Marketing Director Nicholas Smith, were both convicted in December 2014 by a jury in London’s Southwark Crown Court. The father and son were found guilty of two and three counts, respectively, of corruptly agreeing to make payments in violation of the U.K.’s Bribery Act for paying bribes totaling nearly £400,000 to public officials in Kenya and Mauritania to secure contracts for the printing firm.
This month, both men were sentenced for their roles in the bribery scheme. Christopher Smith received an 18-month suspended sentence, including a term of 250 hours of unpaid work and a three-month curfew. Nicholas Smith was sentenced to three years’ imprisonment. In addition, both father and son were disqualified from serving as company directors for a period of six years. In accordance with this penalty, they have both resigned from their positions at Smith & Ouzman.
While conveying the sentences, Judge David Higgins offered sharp criticism of the defendants’ conduct, referring to their actions as a “premeditated, pre-planned, sophisticated and very serious crime,” and commenting that their “behaviour was cynical, deplorable and deeply anti-social and suggests, at least in this context, moral turpitude.”
The investigation was led by the United Kingdom’s Serious Fraud Office (SFO) and served as the SFO’s first successful conviction after trial of corporate officers for bribing foreign public officials.
Canada Charges SNC-Lavalin for Libya Bribes
On February 19, 2015, Canadian prosecutors levied foreign corruption charges against the Montreal-based engineering firm SNC-Lavalin Group Inc. and two of its subsidiaries. The charges follow on the heels of a string of corruption charges against the company’s former top officials.
The charges against SNC-Lavalin—one count of bribery under Canada’s Corruption of Foreign Public Officials Act and one count of fraud—relate to the company’s business dealings with the former regime of dictator Muammar Gaddafi over the course of a 10-year period. The Royal Canadian Mounted Police (RCMP) claim that the company paid Libyan officials a total of CAD $47.7 million in bribes in connection with work performed by the company in Libya between 2001 and 2011. In addition, the RCMP alleges that the company defrauded the Libyan government of nearly CAD $130 million.
As we discussed in the October issue, several of the company’s former top officials were previously charged for their roles in the Libyan bribery scheme.
SNC-Lavalin claims that the charges “are without merit” and has attempted to shift the prosecutorial focus onto the individual employees involved, contending that “if charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company.” As long as the charges persist, the company has announced its intention to “vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.”
US Oil Company Avoids SEC Enforcement Action
On January 28, 2015, Cobalt International Energy, Inc. announced the conclusion of an investigation by the SEC into possible violations of the FCPA involving the company’s operations in Angola.
The SEC’s investigation began after allegations emerged of a connection between Cobalt’s offshore Angolan oil blocks and senior Angolan government officials. In 2011, an investigative journalist publicized claims that Nazaki Oil & Gas, an Angolan company that shared an interest in Angolan oil blocks with Cobalt, was secretly owned by Angolan government officials. The journalist’s allegations were confirmed in 2012, when three Angolan officials, including the current Vice President Manuel Vicente, publicly confirmed to Financial Times that they owned shares in Nazaki held in the name of a now-dissolved corporate entity.
Cobalt first learned of the SEC’s investigation in November 2011 after receiving a formal order of investigation. The investigation culminated on August 4, 2014 with a Wells Notice to Cobalt from the SEC, reporting the agency’s preliminary determination to recommend an enforcement action against the U.S. oil company for violation of federal securities laws. After receiving the Wells Notice, Cobalt announced its intention to dispute any resulting enforcement action, contending that the company had no knowledge of a connection between Angolan officials and Nazaki.
In an apparent reversal of the SEC's position that it would take enforcement action against Cobalt announced in the August 2014 Wells Notice, the SEC issued a termination letter to Cobalt in January, making clear that the SEC will not pursue any enforcement action against the company. Notwithstanding its SEC victory, Cobalt continues to face scrutiny in connection with its Angolan operations. In a recent press release celebrating the SEC’s termination letter, the company disclosed its continued cooperation with a parallel investigation by the DOJ.
To learn more, see news coverage at Forbes.
Eli Lilly Emerges from Decade-Long International Bribery Investigation
Earlier this month, pharmaceutical giant Eli Lilly & Company disclosed the recent conclusion of an investigation by the DOJ related to allegations of bribes paid to government officials in Russia, Brazil, China and Poland.
The news marks the conclusion of more than a decade of investigations by U.S. regulatory authorities. The SEC began its investigation of Eli Lilly in mid-2003, focusing on sales practices by the company’s Polish subsidiary, before ultimately expanding the investigation to the company’s operations in other countries. In 2012, the SEC brought civil charges against the company, alleging that employees of the company’s subsidiaries made improper payments to government officials, including Russian officials. They further alleged that the company used offshore “marketing agreements” to funnel millions of dollars to third parties designated by government officials. Without admitting or denying the SEC’s allegations, Eli Lilly ultimately resolved the civil suit with a USD $29.4 million settlement. As part of the settlement, the company agreed to submit to a 60-day review of its internal controls and compliance program by an independent consultant.
Following the settlement with the SEC, Eli Lilly continued to grapple with a parallel investigation by the DOJ. In a Form 10-K annual report filed with the SEC on February 19, 2015, the company disclosed that the DOJ closed its bribery investigation of the company in January 2015 after declining to pursue charges.
Two US Army Sergeants Plead Guilty to Bribery Scheme During Afghanistan Deployment
On February 11, 2015, two U.S. Army sergeants pleaded guilty to bribery charges for accepting bribes while deployed in Afghanistan.
In connection with their guilty pleas, Sgts. James Edward Norris and Seneca Darnell Hampton admitted that, between January 2013 and April 2013, while deployed in Afghanistan, they accepted approximately USD $2,000 in bribes per day from Afghan truck drivers in exchange for providing thousands of gallons of fuel to the truck drivers for resale on the black market. To evade detection, Sgt. Hampton admitted that he falsely reported the fuel exchanged with the truck drivers as being dispersed for refueling generators and equipment, claiming that colder winter temperatures prompted increased fuel usage. Further, Norris and Hampton admitted that they conspired with other soldiers to solicit and accept the bribe payments. Norris and Hampton pocketed a total of approximately USD $150,000 over the course of the scheme, and they later shipped the ill-gotten gains back to the United States in boxes for use after their deployment. Both Norris and Hampton ultimately used the funds to purchase luxury SUVs.
This month, Norris and Hampton each pleaded guilty in the U.S. District Court in the Middle District of Georgia to one count of conspiracy to commit bribery of a public official and one count of money laundering. As part of their plea agreements, Norris and Hampton agreed to forfeit all proceeds from the bribery scheme, including the vehicles purchased with the unlawful payments. In addition, they agreed to pay full restitution. Both sergeants are scheduled to be sentenced on May 21, 2015.