As FCPA enforcement has increased in recent years, the Department of Justice (DOJ) at the same time has insisted that corporate defendants who voluntarily disclose and cooperate with the government will receive credit and a degree of leniency. In November 2009, Lanny Breuer, Assistant Attorney General for the DOJ’s Criminal Division, reiterated prior agency statements when he insisted that “the Department’s commitment to meaningfully reward voluntary disclosures and full and complete corporate cooperation will continue to be honored in both letter and spirit.”1 The Deputy Assistant Attorney General of the Criminal Division, Greg Andres, in a recent interview conducted by Andrew Weissmann at a compliance conference this fall, noted that DOJ would be making greater efforts at transparency. Such efforts have now been made and this practice advisory analyzes the results.

Heretofore, whether disclosure and cooperation in practice yield meaningful benefits has been difficult to discern. A review of past settlements suggests some link, but not a predictable one, between voluntary disclosure and a company’s chance of obtaining a deferred or non-prosecution agreement.2 As for monetary sanctions, neither the way settlements were explained nor the financial penalties imposed revealed a clear pattern of benefit.3 This history has made it extraordinarily difficult for companies reasonably to assess the potential benefit they might obtain from disclosure or cooperation, and has given the impression that any benefit is not likely to be significant. In a series of recent settlements, however, the DOJ by its own account seeks to demonstrate that companies will reap meaningful benefits from voluntary disclosure and exemplary cooperation. Most important is a set of November 2010 settlements involving freight forwarding and logistics firm Panalpina Group (“Panalpina”), four of Panalpina’s oil-and-gas customers – Shell Nigeria Exploration and Production (“SNEPCO”), Transocean Ltd., Tidewater, Inc., and GlobalSantaFe – and three other companies connected to the Panalpina operation – Pride International, Inc. (“Pride”), its wholly owned French subsidiary, Pride Forasol, and Noble Corporation (“Noble”). The DOJ announced that these “corporate resolutions … not only hold these companies accountable for the criminal conduct set forth in these charging instruments and agreements, but they also reflect the department giving appropriate and meaningful credit to these companies to the extent that they have voluntarily self-disclosed their conduct and commensurate with the quality and extent of their cooperation.” We analyze below these settlements plus the October 2010 settlement with ABB Ltd., another very recent matter in which the DOJ asserted that it gave credit commensurate with the company’s disclosure and cooperation.

  1. The Recent Settlements
  1. The Panalpina Matters

Panalpina World Transport (“PWT”), a Swissbased

company, and its subsidiaries (collectively “Panalpina”) were the center of bribery schemes in Nigeria, Angola, Kazakhstan, Turkmenistan, Azerbaijan, Brazil, and Russia. The schemes involved paying bribes on behalf of Panalpina’s oil and gas industry customers to foreign officials in order to circumvent a variety of import rules and regulations. The scale of Panalpina’s violations was extensive. Between 2002 and 2007, Panalpina paid bribes to officials in at least these seven countries, and continued to make isolated bribes in 2008 and 2009. In the end, Panalpina made thousands of improper payments totaling approximately $49 million. Of that, $27 million related to services for U.S. issuers or domestic concerns. Moreover, Panalpina papered over the bribes with false documentation and euphemisms in its invoices, such as referencing a bribe as a “local processing fee.” Panalpina also created a courier service designed to sidestep the Nigerian customs process entirely, but which Panalpina billed as providing “expedited” freight handling services for a premium price. One Panalpina customer (Transocean) described this courier service in internal documents as “100% non complian[t] with the law,” but continued to use the service.

The Government’s resolution with Panalpina suggests some benefit to cooperating once an investigation has begun. Interestingly, the Government praised Panalpina for its “exemplary” cooperation even though the company not only failed to disclose voluntarily but also failed to cooperate with the Government’s investigation for at least a year. Once Panalpina began cooperating, however, the company conducted a comprehensive internal investigation, including a review of its operations in the United States, Switzerland, Nigeria, Brazil, Angola, Russia, Kazakhstan, Turkmenistan, and Azerbaijan. Panalpina also investigated 102 additional issues in another 36 countries and “promptly and voluntarily” reported these findings to the Government. Panalpina then implemented broad remediation procedures, including replacing most of its top leadership, creating a compliance department, conducting systematic risk assessments in high-risk countries, and implementing enhanced due diligence policies that include checks on prospective third-party business partners.4 Finally, in an extraordinary move, Panalpina shut down altogether its operations in Nigeria, Equatorial Guinea, and Turkmenistan because the company concluded that it could not do business in those countries and comply with the FCPA. The DOJ cited these steps favorably in the settlement papers.

PWT’s U.S. subsidiary, Panalpina, Inc., agreed to plead guilty to conspiracy to violate the FCPA’s books and records provisions and aiding and abetting books and records violations. The Government imposed a $70.56 million criminal penalty.5 The Government gave only a small discount to Panalpina, Inc. inasmuch as the applicable Guidelines range was $72 million to $144 million. A cited reason for the size of the penalty is that Panalpina did not voluntarily disclose or even initially cooperate. PWT, the parent company, obtained a deferred prosecution agreement under which it was to pay a $70.56 million fine, offset by the fine its U.S. subsidiary, Panalpina, Inc., paid.6 This resolution is notable given the rocky start to the matter, and given that Panalpina was at the center of a bribery scheme involving multiple countries and multiple customers on whose behalf Panalpina was making the bribes.

Panalpina also settled with the SEC and paid $11.3 million in disgorgement, fines, and interest.7 The SEC cited Panalpina’s substantial assistance and the remedial measures described above.

  1. Pride, Noble, and Tidewater:

     

Voluntary Disclosure + Cooperation Pride, Noble, and Tidewater each made a voluntary disclosure to DOJ and cooperated with the Government’s investigation. Their settlements also appear to reflect some benefit for their disclosure and subsequent cooperation.

 

  1. Pride

Pride paid approximately $800,000 dollars in bribes to officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties, for a benefit of at least $13 million. Pride discovered this activity during an internal audit in 2006, quickly made a voluntary disclosure to the Government, and launched a global internal investigation into allegations of misconduct and a “comprehensive, worldwide anti-bribery compliance review” of its business in high-risk countries, including Angola, Brazil, Kazakhstan, Libya, the Republic of Congo, and Saudi Arabia. Pride’s voluntary disclosure was particularly significant because Panalpina’s illicit activities and the involvement of several other Panalpina customers in improper payment schemes came to the Government’s attention only as a result of that disclosure, which the Government recognized.

Pride obtained a deferred prosecution agreement, although its French subsidiary, Pride Forasol, was required to plead guilty to conspiring to violate the FCPA’s anti-bribery provisions, violating the anti-bribery provisions, and aiding and abetting the violation of the FCPA’s books and records provisions.8 Pride and Pride Forasol were each assessed a criminal penalty of $32.625 million, with Pride’s penalty offset entirely by Pride Forasol’s payment of its penalty. Pride also was required to disgorge $23.5 million in ill-gotten gains to the SEC.9 Although the criminal penalty was substantial, it was 55% percent below the low end of the applicable Sentencing Guidelines range.10 The parties had agreed that the applicable range was a fine of $72 million to $145 million based on the extent and amount of the bribes and the benefit obtained. Nevertheless, the Government recommended that the sentencing judge depart downward because of the company’s early, voluntary disclosure, extensive cooperation, substantial assistance with other investigations, and remedial measures.

 

  1. Noble

     

Noble paid $74,000 in bribes to avoid $2,973,000 in customs duties.11 Noble discovered the issue when its auditors learned that company employees were involved in creating false documents and making payments related to evading Nigeria’s customs regulations. After that initial investigation, the audit committee investigated further and directed that the practices stop, a directive that senior executives ignored. When the audit committee learned of this, the company almost immediately (within one month) voluntarily disclosed the matter to the DOJ and the SEC and launched an internal investigation.

Noble obtained a non-prosecution agreement and agreed to pay a $2.59 million criminal penalty and $5.5 million in disgorgement, fines, and interest to the SEC.12 In the agreement, the DOJ and the SEC noted Noble’s discovery of the violations through its internal investigation, its voluntary disclosure, cooperation, global investigation of its activities, and its remedial efforts. Breuer, in a recent speech, cited Noble as an example in which voluntary disclosure aided an FCPA defendant, and he asserted that Noble paid a penalty below the bottom of the Guidelines range as a result.13 In terms of the bribe amounts and benefit gained, Noble’s unlawful conduct was less extensive than the conduct at issue in many FCPA matters. However, the fact that the Government agreed to a non-prosecution agreement even though senior management defied the directive of the company’s audit committee, and the conduct was not initially reported, raises the possibility of a minor shift in the DOJ’s approach to affording credit to companies for voluntary disclosure.

  1.  Tidewater

Tidewater, another Panalpina customer, bribed tax officials in Azerbaijan, which permitted the company to avoid a potential $820,000 tax liability and, over a five-year period, paid approximately $1.6 million to Panalpina to avoid $5.8 million in costs, duties, and penalties. Most of the payments to Panalpina were made after Tidewater management personnel learned that Panalpina was paying bribes on Tidewater’s behalf.

Tidewater obtained a deferred prosecution agreement and agreed to pay a $7.35 million criminal penalty and an additional $8.3 million in disgorgement, fines, and interest.14 This penalty was 30% below the low end of the applicable Sentencing Guidelines range. One reason for this downward departure, according to the Government, was that Tidewater promptly launched an internal investigation upon learning of potential wrongdoing and voluntarily disclosed the results. Tidewater then voluntarily expanded the investigation to other high-risk countries, hired a chief compliance officer and established a compliance committee, issued an enhanced FCPA policy, and fully cooperated with the Government.

  1.  SNEPCO, Transocean, and GlobalSantaFe: Cooperation Only
  1.  SNEPCO

     

For a two and a half year period, SNEPCO, a subsidiary of Royal Dutch Shell plc (“RDS”), paid over $2 million to Panalpina to reimburse Panalpina for money paid illegally to Nigerian customs officials. SNEPCO benefited by over $7 million as a result.

SNEPCO entered into a deferred prosecution agreement and agreed to a $30 million criminal penalty.15 This penalty represented a small discount (about 12%) from the low end of the Sentencing Guidelines range. RDS agreed to pay $18.1 million in disgorgement, fines, and interest to the SEC.16 The settlement documents generally cite Shell’s internal investigation, cooperation, and implementation of anti-corruption policies, leaving the impression that the efforts made by the company were in line with what the DOJ has come to expect as typical, but were not extraordinary. Notably, neither SNEPCO nor RDS was required to plead guilty to any charge. Absent details, however, it is impossible to assess the nature of the cooperation or whether commensurate credit was afforded.

 

  1.  Transocean

     

Transocean, another of Panalpina’s customers, paid bribes through Panalpina in order to circumvent export regulations and duties. Transocean also continued to use the Panalpina-created courier service even after Transocean had found that it was “100% non complian[t] with the law.” In total, Transocean reaped benefits of over $5.7 million as a result of the improper payments.

The settlement papers recount that Transocean cooperated by promptly undertaking an internal investigation of its relationship to Panalpina in Nigeria, subsequently expanding that investigation beyond Nigeria, hiring a new compliance officer, establishing an audit team to focus on fraud, FCPA compliance, and anti-bribery issues, revising its compliance and FCPA policies, sharing all investigation findings with the Government, and making numerous witnesses available. The Government cited these efforts in its deferred prosecution agreement with Transocean, in which the company agreed to pay a $13.44 million criminal penalty as well as $7.2 million in disgorgement, fines, and interest to the SEC.17 The criminal penalty was 8% below the low end of the Sentencing Guidelines range.

  1. GlobalSantaFe

GlobalSantaFe, another customer of Panalpina’s, settled civil charges with the SEC and agreed to disgorge $5.85 million in profits.18 There is no DOJ action associated with GlobalSantaFe, which merged with a subsidiary of Transocean in 2007. The SEC did not mention any cooperation by GlobalSantaFe in its complaint.

  1.  The ABB Matter

ABB Ltd., a Swiss corporation, admitted to a bribery scheme lasting seven years in which Mexican utility officials were paid approximately $1.9 million in order to secure contracts to upgrade electric networks. The benefit in profits was $7.8 million. The bribes were paid via ABB Ltd.’s U.S. subsidiary, ABB Inc. In addition, ABB Ltd.-Jordan, a different unit of ABB Ltd., admitted to paying the Iraqi government more than $300,000 in kickbacks to secure $5.9 million in contracts with the Iraqi Electricity Commission as part of the United Nations oil-for-food program.

ABB Ltd. and ABB Inc. voluntarily disclosed the conduct, conducted thorough investigations, regularly reported their findings to the Government, and undertook substantial measures to remediate the bribery. The companies’ cooperation led to a guilty plea by one of the two agents of ABB Inc. most responsible for the bribery, and an indictment of the other. The Government described these efforts as “extraordinary.”

ABB Ltd. obtained a deferred prosecution agreement and agreed to penalties totaling $30.42 million, which was at the low end of the Sentencing Guidelines range.19 The penalty calculation took into account the fact that ABB Ltd. had already had an FCPA matter within the past five years,20 a fact that is supposed to lead to an enhancement under the Guidelines and that could have encouraged the DOJ to require a guilty plea. ABB Ltd. also agreed to pay $39.3 million in disgorgement, civil fines, and interest to the SEC.21 Although ABB Ltd. avoided a guilty plea, ABB Inc. was required to plead guilty.

Conclusions

In the past, we have perceived no clear link between voluntary disclosure or extraordinary cooperation, on the one hand, and significant benefit in a corporate FCPA settlement, on the other. The Panalpina matters reflect a greater effort by the DOJ to demonstrate that substance underlies its pronouncements that credit will be given to companies that make voluntary disclosures or exhibit extraordinary cooperation in FCPA matters.  

  • First, the Panalpina settlements are more transparent than has been the case typically in FCPA matters. These agreements contain more detailed descriptions of the corporate actions the DOJ viewed favorably, and they include Sentencing Guidelines calculations for those matters resolved by deferred prosecution agreements (in addition to those resolved by pleas), which enables a benchmarking of the monetary penalty against the Guidelines’ range.
  • Second, the evidence is not yet sufficient to discern conclusively whether the Department is now willing to offer a deferred or non-prosecution agreement in a greater range of cases than in the past, or to be more consistent in offering those resolutions as part of credit for disclosure or extraordinary cooperation. These settlements also reflect that where a U.S. subsidiary exists that can plead, such a plea will still be required, even where there has been cooperation.
  •  Third, turning to the question of monetary penalties, the Government apparently gave discounts from fines that would have resulted under application of the Sentencing Guidelines. Although it remains to be seen whether penalty discounts are commensurate with companies’ efforts at voluntary disclosure and cooperation, the Government’s effort at greater transparency is a step in the right direction.
  •  Finally, we note that the DOJ did not impose an independent compliance monitor in any of these settlements. This may have been in part as a result of the companies’ disclosures and/ or cooperation, or it may simply reflect that this remedy has become less common in the wake of severe criticisms given its expense and intrusiveness.