There are some statements that corporate leaders never expect to hear from their employees, particularly from those entrusted with managing their company's legal and compliance risks.
"I should have refused to draft the contract that we used for paying bribes." – Former Keppel Offshore & Marine Ltd. In-House Counsel Jeffery Chow
"I was making these bribe payments," "I knew better than to get involved in such illegal conduct," and "I lost my moral compass." – Former PetroTiger Ltd. General Counsel Gregory Weisman
These are two jarring examples, pulled from court hearing transcripts of two recent Foreign Corrupt Practices Act (FCPA) enforcement actions. The prosecutions of veteran lawyers at two different multinational corporations – Keppel Offshore & Marine Ltd. and PetroTiger Ltd. – offer a sobering truth: those responsible for protecting their companies from corruption-related risks can be held criminally accountable for their lapses in judgment. In both cases, federal authorities targeted in-house counsel for their participation in bribery schemes, securing both guilty pleas and cooperation agreements
Recently unsealed court documents shed light on the moments when these attorneys lost their moral compasses. In the paragraphs that follow, we examine the conduct that led to their prosecutions and identify potential pitfalls for both legal and compliance professionals, especially those responsible for managing bribery risks
Keppel enforcement action and the fall of a veteran in-house counsel
On December 22, 2017, Singapore-based Keppel Offshore & Marine Ltd. (Keppel Singapore) and its wholly-owned US subsidiary, Keppel Offshore & Marine USA Inc. (Keppel USA), agreed to pay more than $422 million to American, Brazilian, and Singaporean authorities to resolve charges stemming from a decade-long scheme to pay millions of dollars in bribes to government officials in Brazil. The resolution was the second-largest anti-corruption enforcement penalty in 2017 and the DOJ's first coordinated anti-bribery action with its Singaporean counterpart. Keppel USA pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA while Keppel Singapore entered into a deferred prosecution agreement with a similar charge. The DOJ accused Keppel Singapore of conspiring to violate the FCPA by "paying approximately $55 million in bribes [between 2001 and 2014] to officials at the Brazilian state-owned oil company Petrobras and to the then-governing political party in Brazil" through a consultant "in order to win 13 contracts with Petrobras and another Brazilian entity."
The same day, a federal judge issued an unsealing order revealing the identity of a "John Doe" cooperator in the Keppel enforcement action: former senior in-house counsel Jeffery Chow. According to court records, Chow spent over 25 years working for Keppel, including stints as "Administrative Manager, General Manager and Director," and was responsible for drafting and preparing contracts for the company's agents, including at least one contract that was used to pay bribes to government officials. In its Information, which was filed under seal on August 29, 2017, the DOJ alleged that Chow, among others, "created and executed false agreements on behalf of [Keppel] with consulting companies controlled in whole or in part by [Keppel's agent]" which "falsely represented that payments were being made to [Keppel's agent] for his assistance and support in discussions and negotiations with prospective customers when, in fact, portions of these payments were being paid as bribes." The DOJ further alleged that some of the contracts "falsely represented that [the agent] was abiding by anti-bribery laws and was not making improper payments," and accused Chow of "knowing that a portion of those payments would be used to pay bribes to officials at Petrobras and to the Political Party." Chow allegedly engaged in the following "overt acts" in furtherance of a conspiracy to violate the FCPA: executing questionable consulting agreements, coordinating the execution of such agreements, and corresponding with an executive about the structure of commission payments to an agent accused of bribing foreign officials.
During his August 2017 plea hearing, Chow acknowledged ignoring glaring red flags, including "millions of dollars" in overpayments to an agent in Brazil, and to being aware that company funds were being funneled to foreign officials:
By no later than 2008, I realized that Keppel was overpaying the agent, sometimes by millions of dollars, so that the agent could pay bribes to individuals who could help Keppel Offshore Marine doing business with Petrobras... Although no one ever named the bribe recipients for me, I knew that they were government officials and [the] ruling political party. I should have refused to draft the contract that we used for paying bribes and I should have resigned from Keppel. Instead, I discussed the economic terms of the contracts with my seniors at Keppel and acting in agreement with my seniors, and others at Keppel, I drafted the contracts and made sure that they were executed.
Both the court documents and Chow's own admissions made during the plea hearing suggest that he was aware of the bribery scheme and helped facilitate it by drafting, preparing, and executing questionable contracts. While he denied negotiating the contracts or making the decision to pay the bribes, he acknowledged that the contracts – including one that was executed in Houston, Texas – "were an important part of the bribery scheme" because they helped provide a semblance of legality.
PetroTiger investigation and the fall of its general counsel
The PetroTiger, Ltd. investigation targeted three former executives of the British Virgin Islands oil and gas company: former co-CEO Joseph Sigelman, former co-CEO Knut Hammarskjold, and former General Counsel Gregory Weisman. While the DOJ ultimately declined to prosecute PetroTiger, citing its voluntary disclosure, full cooperation, and remedial efforts, the three executives experienced a different fate. The former co-CEOs and General Counsel were accused of paying $333,500 in bribes to an employee of Colombian national oil company Ecopetrol S.A. in order to help secure a multimillion-dollar oil services contract, and all three executives – including Weisman – ultimately pled guilty to conspiring to violate the FCPA.
The DOJ filed an Information under seal in November 2013 accusing Weisman and others of paying bribes to a foreign official in order to influence Ecopetrol's contract approval process. According to the DOJ, Weisman initially attempted to conceal the bribe payments by funneling them through the foreign official's wife and claimed in company documents that the payments were for consulting services that she ultimately did not perform. Those payments were ultimately wired directly to the foreign official's bank account and allegedly helped obtain Ecopetrol's approval and secure an oil services contract valued at approximately $39.6 million. The DOJ accused Weisman of engaging in several "overt acts" in furtherance of a conspiracy to violate the FCPA, including wire transfers to the foreign official and communications about the bribe payments.
While Weisman and Hammarskjold pled guilty early in the investigation, Sigelman waited until mid-trial to enter a guilty plea. Prosecutors called Weisman at trial to testify about the PetroTiger bribery scheme, including "disguised" invoices for consulting payments that listed the name of the foreign official's wife. Although Weisman stated that he initially declined Sigelman's request that he wire funds in July 2010 because he did not want to have his "fingerprints all over . . . this large bribe payment," he ultimately submitted to Sigelman's pressure and made the payment:
I think it was around October of 2010, I received a phone call from Joseph Sigelman, him telling me that I needed to go and make payment to [the foreign official's wife]. I told him I was not going to do so, just like I had said before, and he went into, I had no choice, I had to make the payment. The company was – I can't think of – completely screwed, are the only words I can think of, if I didn't make the payment. Again, no choice, you have to make the payment, and eventually I relented and said I would make the payment.
Weisman testified that he "had a clear understanding [as early as May 2010] that PetroTiger was paying bribes to win business," and that the payments he ultimately wired were "bribe payment[s] for the benefit of the [foreign official] for PetroTiger to win business that was being doled out by Ecopetrol." Weisman also testified to making additional payments – totaling approximately $270,000 – to the foreign official.
Other criminal prosecutions involving in-house counsel
The Weisman and Chow prosecutions might seem like isolated incidents, but there are several other criminal cases in recent years in which the DOJ has targeted in-house counsel. In one case, a former software company general counsel pled guilty to securities fraud conspiracy and obstruction of justice charges for his role in an accounting fraud scheme and was sentenced to two years in prison. In another case, the DOJ charged an attorney at a major construction company with aiding in filing a false tax return on behalf of his employer. While prosecutors claimed that the in-house attorney knowingly sought improper research and development tax credits for his employer, a jury acquitted him of the charges. More recently, prosecutors charged an in-house lawyer at a major pharmaceutical company with obstruction of justice and making a false statement in connection with submissions to the Food and Drug Administration. The in-house attorney was ultimately acquitted at trial.
Avoiding potential pitfalls and addressing compliance risks
There are several lessons to be drawn from these FPCA enforcement actions about identifying and responding to corruption risks. First, neither Chow nor Weisman were able to escape prosecution by pointing the finger at more senior leaders. Chow testified that he "act[ed] in agreement with [his] seniors" while Weisman claimed that he "relented" to the pressure of a former co-CEO. If individuals act "corruptly" (ie, with an improper motive of accomplishing either an unlawful result, or a lawful result by unlawful means) and "willfully" (ie, voluntarily and with a bad purpose) then they can be held criminally liable under the FCPA, whether they masterminded the bribery scheme or not.
Second, while legal and compliance personnel are expected to identify and address red flags, they often face the same business pressures as commercial personnel, and the prosecutions discussed above show they can engage in criminal conduct as a result of this pressure. Additionally, a failure to respond effectively – or to respond at all – can be used against them by prosecutors. The FCPA requires prosecutors to prove that the accused acted with knowledge, which extends to circumstances in which the person "is aware of a high probability of the existence" of the prohibited activity. Willful blindness and conscious avoidance of the true facts and circumstances indicating a high probability of misconduct – such as the failure to adequately respond to red flags – can be used to satisfy this requirement. While both Chow and Weisman ultimately admitted that they knowingly participated in the bribery schemes, prosecutors might have used the red flags to build their cases and put pressure on the lawyers to enter guilty pleas.
Third, federal regulators have consistently emphasized the importance of promoting and sustaining a culture of compliance – a culture that, at a minimum, must be embedded in the psyche of its legal and compliance professionals. The DOJ and SEC warn in their FCPA Resource Guide that "[a] well-designed compliance program that is not enforced in good faith, such as when corporate management explicitly or implicitly encourages employees [including company lawyers] to engage in misconduct to achieve business objectives, will be ineffective." In addition, the DOJ's "Evaluation of Corporate Compliance Programs"guidance advises prosecutors to consider whether legal or compliance personnel were involved in the decisions relevant to the misconduct or raised any concerns about it. Lawyers and compliance professionals are held to a higher standard due to their ethical obligations and oversight responsibilities, and their actions and inactions may be subject to greater scrutiny.
Finally, companies should ensure that they have adequate resources for their employees – including in-house counsel – to confidentially and anonymously report potential misconduct and protect them from retaliation. While a reporting hotline may not have prevented the corrupt payments in the PetroTiger matter due to the seniority of the offenders, it may have allowed Chow to sidestep his complicit "seniors" and escalate his concerns to more responsive personnel. Keppel's deferred prosecution agreement requires the company to modify its compliance program to address "deficiencies in its internal controls, compliance code, policies and procedures regarding compliance with the [FCPA]," including issues with "Internal Reporting and Investigation." Specifically, Keppel is required to maintain or establish (1) "an effective system for internal and, where possible, confidential reporting by, and protection of, directors, officers, employees . . . concerning violations of the anti-corruption laws or [Keppel's] anti-corruption compliance code, policies, and procedures"; and (2) "an effective and reliable process with sufficient resources for responding to, investigating, and documenting allegations of [similar] violations."
The prosecutions of Weisman and Chow offer a clear warning: in-house counsel and compliance professionals can get caught in the crosshairs of FCPA enforcement actions. As a result, such personnel must ensure not only that their companies are complying with the law but also that their individual conduct is irreproachable.
Learn more by contacting either of the authors.
An earlier version of this article appeared on Law360.com on January 23, 2018.