On July 3, 2014, only a week before trial was scheduled to begin, a former Noble Corp. (Noble) CEO Mark Jackson and the former Nigeria country manager, James Ruehlen, agreed to settle the US Securities and Exchange Commission’s (SEC) pending enforcement action for violations of various provisions of the US Foreign Corrupt Practices Act (FCPA). These settlements represent some of the last pending enforcement actions arising from the US government’s enforcement efforts against Panalpina World Transport (Holding) Ltd. (Panalpina) and certain of its customers relating to payments made through customs brokers to government officials in Nigeria and other countries to secure temporary importation permits and extensions necessary to allow their drilling rigs and other equipment to operate in Nigeria.
Judging from the settlements’ terms – which did not require any admissions of wrongdoing, or include any monetary sanctions – the settlements represent significant victories for the individuals, who are required only to agree to injunctions against involvement in any future conduct by others that may violate the accounting provisions of the FCPA. Whether these resolutions will affect how the SEC approaches FCPA enforcement against individuals going forward, in particular where litigation is likely, is unclear. What is clear, however, is that these settlements leave unaddressed a number of key legal questions under the FCPA – the scope and meaning of the “facilitating payments” exception and the intent requirement for individual defendants in particular – which were poised to be litigated at trial for the first time.
Noble, an offshore drilling contractor headquartered in London, England with substantial operations in Houston, Texas, was one of several companies implicated in the SEC’s and US Department of Justice’s (DOJ) multi-year investigation into Panalpina and certain of its customers. On November 4, 2010, those agencies announced that they had reached settlements with Panalpina and six of its customers – including Noble – to resolve a host of customs-related (and other), FCPA violations spanning several years and occurring in multiple countries. In total, the seven companies agreed to pay over $236 million in criminal and civil monetary sanctions to resolve the matters.
For its part, Noble (the only company to receive a non-prosecution agreement in the November 2010 round of settlements), agreed to pay approximately $8.2 million in total monetary sanctions to the SEC and DOJ to resolve allegations that it had paid bribes through customs brokers to Nigerian Customs Service (NCS) officials in order to circumvent certain Nigerian laws and regulations requiring “temporary import permits” (TIP) (or extensions of such permits), in lieu of paying customs duties upon importation of the drilling rigs necessary for conducting Noble’s business. In addition to making payments to NCS officials, Noble allegedly falsified documents provided to the NCS whose purpose was to demonstrate compliance with other regulatory requirements. Noble also allegedly recorded the payments to NCS officials in its books and records as “facilitating payments,” even though, according to the SEC and DOJ, some of the payments in question did not meet the requirements of that exception to the FCPA’s anti-bribery provisions.
Fifteen months after the Noble SEC and DOJ settlements, on February 24, 2012, the SEC charged Messrs. Jackson (the former CEO) and Ruehlen (the Division Manager of Noble-Nigeria at the time of the conduct and the current Vice President and General Manager of the company’s Mexico division), for their alleged individual roles in the payments to NCS officials that had been the subject of the Noble settlements. The SEC also filed a settled complaint on that day against former Noble corporate controller Thomas O’Rourke. Without admitting or denying wrongdoing, Mr. O’Rourke agreed to the payment of a civil penalty of $35,000 and an injunction against future violations.
The SEC alleged in its initial complaint against Messrs. Jackson and Ruehlen that the defendants had violated the FCPA and applicable SEC regulations by authorizing bribes to Nigerian Customs Service officials, falsifying records, and aiding and abetting the company’s violation of the FCPA’s books and records and internal control provisions. The complaint also alleged that Mr. Jackson had made false statements to the SEC in connection with required certifications, and that Mr. Jackson was liable as a “control person” for Noble’s and others’ FCPA violations within the meaning of the Securities and Exchange Act of 1934 (Exchange Act).
The defendants initially sought extensive discovery from the SEC’s files relating to other Panalpina defendants. After several of the Panalpina defendants intervened to object, however, the Noble executives withdrew their requests.
The defendants’ misconduct was alleged to have occurred as early as 2003 – nearly ten years before charges were filed. However, in January 2013 the presiding judge dismissed several of the SEC’s claims on the grounds that they had been brought beyond the federal five-year statute of limitations. Additionally, in March 2013 the SEC withdrew allegations that the defendants had violated the internal control provisions of the FCPA, although it continued to allege that they had violated the FCPA’s books and records provisions. On May 30, 2014, the judge denied the individuals’ motions for summary judgment on the SEC’s remaining claims and the SEC’s motion to preclude the defendants from arguing that the payments in question were “facilitating payments” under the FCPA, thereby opening the door to trial on a number of important legal questions. Those issues included the scope of the FCPA’s facilitating payments exception, and the scienter requirement for individuals associated with FCPA violations in particular, both of which had not yet been litigated in the statute’s 37-year history.
The settlements were announced only a week before the trials were scheduled to begin. In contrast to the expansive claims the SEC initially brought against the defendants, Mr. Jackson agreed to a permanent injunction against violating the FCPA’s books and records provisions as a “control person” pursuant to Section 20(a) of the Exchange Act. Mr. Ruehlen agreed to an injunction against aiding and abetting future books and records violations of others. No monetary sanctions were imposed on either defendant, and both settlements were entered into on a “no admit, no deny” basis.
These settlements have been perceived publicly as victories for the defendants. Given the uncertainties surrounding the SEC’s claims when it brought them in February 2012, it is unclear why the SEC invested significant resources in this matter only to ultimately agree to relatively lenient settlements on the eve of trial. The loss of much of the chargeable conduct on statute of limitations grounds is one potential explanation. Another is that the SEC simply concluded that the potential for precedent adverse to its interests on legal issues where the lack of legal clarity is useful to the enforcement agencies when bringing enforcement actions – in particular in light of the judge’s recent seemingly defendant-friendly rulings – was too substantial to risk in this case.
Regardless of the SEC’s motivations for entering into these settlements, however, this matter demonstrates that the SEC continues to be willing to pursue individuals in connection with settlements it reaches with corporate defendants. It also underscores the level of legal uncertainty that continues to be associated with the FCPA, and represents something of a missed opportunity for the user community at large. As virtually all corporate and a significant number of individual enforcement actions never reach the litigation stage, it may be a number of years before even the prospect of litigation over the central issues in the Jackson and Ruehlen matters – the facilitating payments and individual scienter requirement – comes around again.