French oil and gas giant Total SA has entered into a three-year deferred prosecution agreement ("DPA") with the U.S. Department of Justice ("DOJ") to settle charges that it violated various provisions of the Foreign Corrupt Practices Act ("FCPA"). Under the agreement, Total will pay a $245.2 million penalty, while the government will defer prosecution of charges that Total conspired to violate the FCPA’s anti-bribery provisions, and violated the internal controls and books and records provisions. Total also agreed to retain a corporate compliance monitor for the three-year period.
According to the DPA, between 1995 and 2004, Total paid approximately $60 million in bribes to obtain and retain oil and gas contracts with the state-owned National Iranian Oil Company. Total allegedly paid these bribes through an intermediary, at the direction of an Iranian government official who indicated these payments would allow Total to secure the contracts. On its financial statements, Total mischaracterized these payments as "business development expenses."
In addition to the DOJ resolution, Total, which is listed on the New York Stock Exchange, agreed to pay $153 million in disgorgement and prejudgment interest to the U.S. Securities and Exchange Commission ("SEC") for the same actions. These total payments of $398 million are consistent with Total’s third quarter earnings release discussed in last month’s Digest; in the release, Total stated it had set aside $398 million to pay U.S. regulators over alleged bribes.
French prosecutors have also recommended that Total’s Chief Executive Officer, Christophe de Margerie, be put on trial in Paris to face corruption charges related to the Iranian contracts. Mr. de Margerie has reportedly denied any wrongdoing, stating, "What we did wasn’t illegal according to French law … we didn’t pay bribes, we didn’t pay Iranian authorities. Our contracts weren’t illegal." An investigating magistrate will decide whether a trial will be held.
Tyco International Ltd
Tyco has reportedly concluded a $13 million settlement of charges with the SEC that it bribed foreign government officials to secure contracts and hid the payments in its accounts.
The SEC alleged that violations occurred in China, Turkey, India, Thailand, Saudi Arabia, Libya, Syria, Mauritania, the Congo, Niger, Madagascar, Poland, Malaysia, Egypt, Croatia, Serbia and the UAE. The SEC alleged that one payment was bribery and the others had elements of bribery that contravened the Securities Exchange Act of 1934.
Tyco self-reported, and its counsel highlighted its subsequent compliance efforts and the actions it had taken. Tyco will provide reports on its compliance efforts over the next two years.
Direct Access Partners
Ernesto Lujan, the former head of the Miami, Florida office of brokerage firm Direct Access Partners ("DAP") is the fifth individual associated with DAP to be charged by U.S. officials for allegedly paying bribes to secure the bond trading business of Banco de Desarrollo Economico y Social de Venezuela ("BANDES"), a Venezuelan state-owned bank, and then executing fraudulent trades to generate more than $66 million in revenue. As reported in last month’s Digest, DAP traders, intermediaries, and a Venezuelan banking official have already been charged with violations of the FCPA, Travel Act, and with money laundering.
According to the SEC complaint, Lujan allegedly arranged for the illicit payments to the Venezuelan banking official and routed some of the payments to intermediary corporations or offshore accounts in Switzerland. New York-based DAP, in business since 2002, closed its doors late last month.
The former chief executive of Axius, Inc. is reported to have been sentenced to 16 months in prison for his role in a matter to bribe stock brokers and artificially increase the share price of the company.
Roland Kaufman, along with Jean-Pierre Neuhaus, allegedly engaged the assistance of an individual who they believed had access to a group of corrupt stock brokers, but who was actually an undercover law enforcement agent. Mr. Kaufman and Mr. Neuhaus are alleged to have instructed the undercover agent to direct brokers to purchase the Axius shares in return for bribes of approximately 26-28 percent of the share price. The undercover agent was also allegedly instructed as to the price the brokers should pay for the shares along with other terms of the sale, for example the brokers were to refrain from selling the shares on behalf of their clients for a one-year period.
Mr. Kaufman, who was ordered to pay a fine of $450,000 alongside his prison sentence, had pleaded guilty to the charges, and as part of his plea agreement is reported to have forfeited nearly $300,000 in hope of a non-custodial sentence. Mr. Neuhaus is also reported to have pleaded guilty and has been sentenced.
U.S. retailer Wal-Mart, which is under an on-going investigation in the United States amid allegations that its Mexican subsidiaries used bribes to secure permits to build new stores, has been ordered to release further internal documents detailing its directors’ knowledge of the allegations. The company’s shareholders are seeking the files over claims that Wal-Mart directors didn’t properly oversee the company’s operations.
Attorneys for the retailer were alleged to have taken a "persnickety and narrow" approach to handing over documents requested by attorneys for large pension funds trying to find out what company directors knew of the payments. It has since been ruled that Wal-Mart, which is under investigation for bribes dating back to 2004, must provide documents about how officials conducted the investigation of the allegations and also some files that the company had claimed were covered by the attorney-client privilege. Delaware Chancery Court Judge Leo Strine stated that Wal-Mart "can’t sanitize its response" to shareholders’ requests for documents about the board’s handling of the bribery claims.
The company’s shareholders are reported to have alleged that Wal-Mart officials breached their fiduciary duties by allowing and covering up the alleged payments, which spurred federal bribery investigations in both the United States and Mexico.
Petroleos Mexicanos ("Pemex"), the Mexican state oil company, has filed a lawsuit in a U.S. federal court against Siemens and SK Engineering and Construction Co. The claim dates back to 1996, to a public contract to modernize a Pemex refinery in Cadereyta, Mexico. It is alleged that Siemens and SK Engineering, which reportedly submitted "an offer in economic terms well below market [value]" to win the public contract, used bribes to influence the bidding in favor of their Mexican consortium, Conproca, and then allegedly paid bribes to several officials at Pemex in exchange for processing fraudulent "cost overrun" invoices.
The lawsuit, to recover about $160 million in damages, reportedly claims that "Conproca repeatedly exceeded its budget" and alleges that employees hired by SK Engineering and Construction Co., on behalf of Conproca joint-venture, "paid additional bribes to officials at Pemex" to escape scrutiny or contractual penalties over the default of escalation clause.
"Pemex takes allegations of corruption seriously and has zero tolerance for bribery or fraud as a method of doing business," a partner of the law firm representing them is reported to have said. "Pemex intends to gather additional testimony and information related to this important global corruption case" he went on to say. However, Conproca is reported to have stated that Pemex has changed their version of events several times and "in no case has presented substantial evidence to support their allegations."
For the report on the investigation into Ericsson, see the Romania section of the Digest.
THE UNITED KINGDOM
Relaxation of U.K. bribery law
It has been reported that a review of the Bribery Act 2010 (the "Act"), which could be announced as early as next month, is likely to take place amid concerns of the cost of compliance for small- and medium-sized businesses ("SMEs").
The stimulus of the review is said to be linked to an effort to reduce "red tape" and also follows pressure from SMEs, although the opposition Labour Party has criticized the suggestion that a review of the Act should be linked to the review of red tape regulation. It has been reported that a number of U.K. businesses have claimed that they are facing "overly prescriptive advice" while the regulatory burden of the Act has resulted in many small businesses, without large compliance departments, deciding not to conduct business abroad. Jim Bligh, head of public services at CBI, is reported to have said that a few companies had given up multimillion pound deals "because of their fear of the Act."
The review of the Act will reportedly focus on facilitation payments, which are characterized as small bribes made to expedite or secure a routine governmental action. Should the stance on such payments, which are permitted by corresponding U.S. legislation, change, this would present a stark contrast to the position of David Green QC, Director of the Serious Fraud Office (the "SFO"), as reported in last month’s Digest. In his speech, Mr. Green stated, "The position is now common sense: such [facilitation] payments are and always have been illegal." The SFO has not commented on any potential review of the Act.
Commentators have displayed mixed sentiment to any such review. Some claim that "a relaxation is likely to send out the wrong message albeit for the right reason," while others have declared that "the Government should focus on improving understanding of the rules and providing support for businesses faced with demands to pay bribes."
Bond consent payments
In the recent case of Azevedo v. Imcopa Importacao and others the Court of Appeal (the "CA") upheld the legality of consent payments in bond restructurings. The CA confirmed that consent payments offered to noteholders voting in favor of a resolution will not be unlawful, where the payment is available to all members of that class and the basis of the payment is made clear in the resolution, the meeting and the vote.
The condensed facts of the case are as follows:
In 2006, the Imcopa Group (the "Issuer") issued $100 million in 10.375 percent guaranteed notes, due 2009 (the "Notes"). In order to service its existing debt obligations and develop its business, the Issuer implemented a restructuring plan, which entailed three resolutions amending the terms and conditions of the Notes. The Issuer offered each of the noteholders a monetary inducement, or consent payment, should they vote in favour of the proposed resolutions, and the resolutions were subsequently passed. The claimants did not vote in favor of the third resolution, which was passed, and so did not receive the respective consent payment.
The claimants alleged that the consent payments were unlawful, as they were in essence a bribe and a fraud on the noteholders who did not vote in favor of the resolutions. The CA, per Lord Justice Lloyd, held that it was "inappropriate to speak of bribery in this context" on the basis that the consent payments were openly offered to all noteholders and were payable on an equal basis. Each could elect which way to vote, and so no noteholder was excluded from receiving the consent payment other than through their own choice.
House of Lords
Two members of the House of Lords have been suspended and a third has resigned, pending an investigation, after allegedly agreeing to carry out parliamentary work in return for monetary payments. House of Lords rules state that peers are not allowed to "accept any financial inducements as an incentive or reward for exercising parliamentary influence" and should act in the "public interest" at all times.
Undercover journalists, posing as officials from a fictitious South Korean solar energy company, covertly filmed Labour's Lord Mackenzie and Lord Cunningham allegedly agreeing to host events at Parliament and provide personal lobbying in exchange for money. Lord Cunningham is reported to have offered to ask parliamentary questions in order to add momentum to the solar energy company’s agenda in return for £12,000 a month, allegedly stating "I think we could do a deal on that." Lord Cunningham and Lord Mackenzie have denied breaking the House of Lords code of conduct; both withdrew their offers of service and no money is understood to have changed hands. Lord Cunningham allegedly said his reference to "a fanciful £12,000 a month payment" was made to test his suspicions that he had in fact been talking to journalists.
In a separate investigation, Ulster Unionist Lord Laird is alleged to have offered to arrange for parliamentary questions to be asked, in return for a fee of £2,000 a month, on behalf of reporters posing as lobbyists, and who claimed to represent anonymous business interests wishing to see Fiji readmitted to the Commonwealth. Lord Laird reportedly indicated that he could "bribe" his colleagues to ask parliamentary questions about Fiji with the suggestion of a trip there. A statement issued by Lord Laird said, "Please be advised that I have never contravened the House of Lords Code of Conduct as you have suggested."
The specific allegations against each individual will be investigated.
C-MAR Holdings Group
Allegations reported in the October 2012 edition of the Digest that C-MAR and five businessmen conspired to bribe a senior BP employee in order to secure deep-sea diving contracts have now been resolved.
C-MAR and its joint founders, Mr. Christopher Hawdon and Mr. Ronald Murray, were acquitted in June 2013 at Southwark Crown Court. Mr. Gary Webster was found guilty. Mr. Kenneth Thomas and Mr. Jeffrey Mountain had previously pleaded guilty.
THE REST OF THE WORLD
A former vice president of the formerly state-controlled Agricultural Bank of China, Yang Kun, has been accused of "[exploiting] his position to provide private gain for others and [taking] massive bribes." The Agricultural Bank of China, the country’s third largest lender and one of the world’s biggest banks, with approximately $2.1 trillion in assets, has not made any comment regarding the matter, other than to state that "the bank’s business, operations and financial status have not been affected."
Mr. Yang, who has been under investigation by the Central Commission for Discipline Inspection since last year, has been expelled from the Communist Party. The Ministry of Supervision stated that an investigation has found Mr. Yang to have used his position to benefit unnamed third parties in return for "huge" bribes and went on to describe his behavior as "a serious discipline violation." While specific charges are yet to be reported, Mr. Yang has allegedly been accused of a number of offences, including issuing improper bank loans totaling $475 million, to help pay off a property developers gambling debts.
With a party discipline commission complete and Mr. Yang’s case handed over to judicial authorities, it is reported that a criminal trial is likely to follow.
Two British citizens are awaiting a verdict after a two day trial, held behind closed doors in Havana. Prior to their arrests in 2011 and 2012 respectively, Amado Fakhre and Stephen Purvis were executives at the British investment and trading firm, Coral Capital Group Limited.
During his tenure as chief executive of Coral Capital Group Limited, which partnered with government entities on hotel management and represented automobile companies in Cuba, Mr. Fakhre is reported to have been involved with various acts of bribery, related mainly to the fund's import business. Mr. Purvis faces lesser charges. Verdicts are imminent.
The foreign trade sector in Cuba is reported to be particularly vulnerable to corruption; there is no open bidding, and state purchasers who control multimillion dollar contracts earn meagre salaries. A local state administration specialist reportedly said, "You have people who do not make enough money to care for their families handling huge contracts. What do you expect?"
Canadian businessman Sarkis Yacoubian, president of the import firm, Tri-Star Caribbean, also went on trial days earlier in the same courthouse on reported charges of bribery, tax evasion and "activities damaging to the economy." Such arrests are unprecedented for Cuba, where foreign businessmen usually face deportation if suspected of corruption. Since his arrest two years ago, Mr. Yacoubian is reported to have cooperated with prosecuting authorities, admitting to bribery while also implicating others. Mr. Yacoubian allegedly told Cuban investigators, "names, people, how they do it, why, when, where, what." A verdict is yet to be issued in Mr. Yacoubian’s trial, but one is expected shortly.
Another Canadian national, Cy Tokmakjian of the Tokmakjian Group, along with "dozens" of native Cubans, are also expected to go on trial soon.
For the report on the investigation into Total SA, see The USA section of the Digest.
Andrzej J. (whose last name has been withheld in accordance with Polish privacy laws), the former president of a mining machinery producer, has reportedly been arrested in his home in Vienna. Since his arrest, Mr. J. has allegedly revealed that, while working for Voest-Alpine Technika Górnicza i Tunelowa, which is owned by Swedish engineering group Sandvik, he paid up to zł.10 million ($3 million) in bribes. These were reportedly paid to a number of executives of mining companies, so that they would ensure their firms purchased equipment from his company.
Mr. J. is reported to have come to an agreement with Polish prosecutors, whereby in exchange for detailed information on the bribes, for example their amount and to whom they were paid, he was granted immunity from his charges. On the basis of information elicited, it is alleged that four individuals have been taken into custody and the names of a further 40 have been revealed to the authorities.
Prosecuting authorities have indicated that several leads are being investigated, while some older cases have also been reopened. One such case is reported to involve a deal between
Polish miner Kompania Węglowa and Voest-Alpine Technika Górnicza i Tunelowa for the servicing of mining machinery. Under the deal, which was investigated some four years ago without result, a zł.10 million ($3 million) contract was allegedly granted without any tender taking place.
The investigation is ongoing.
The SEC is investigating Ericsson’s business practices in Romania. The investigation is related to allegations made by a former high-ranking manager of Ericsson, that the company used an offshore fund to bribe Romanian officials to win a major telecommunications contract 10 years ago.
The allegations of bribery are reported to have surfaced during a $7 million dispute between Ericsson and Thomas Lundin, its former general manager in Romania. While Ericsson insists that Mr. Lundin misappropriated the money from the company, Mr. Lundin is reported to have alleged that the sum was part of a fund, used to systematically bribe key officials to win contracts in Romania. Mr. Lundin’s lawyers further claimed that the Ericsson board was aware that the funds were being used to bribe Romanian politicians.
Ericsson has responded to the allegations and has been reported as stating that the offshore fund was used to pay "agents" tasked with obtaining new contracts on behalf of the company, and not for bribes. This compensation arrangement is reportedly "no longer in use" by Ericsson.
A spokesperson for Ericsson confirmed that Ericsson received a request from the SEC to provide information related to company policies "regarding anti-corruption and related issues." He added that "Ericsson fully cooperates with the SEC and will thus provide the SEC with the information requested."
The chief executive of Rosbank, Vladimir Golubkov has reportedly been arrested on suspicion of receiving bribes. According to reports, officials of the Russian Interior Ministry claim Mr. Golubkov, who was arrested in the bank’s Moscow offices, may have received 5 million roubles ($155,000) in bribes from an unnamed businessman. This payment was allegedly part of a bigger 48 million roubles ($1.5 million) bribe, which was in exchange for a prolonged credit agreement and the extension of new loans on more advantageous terms.
Rosbank, the Russian subsidiary of Societe Generale, France’s second biggest bank, has reported that its board has dismissed Mr. Golubkov with immediate effect, despite Mr. Golubkov pleading innocent to the charges. The chief financial officer of Rosbank, Jean-Philippe Aractingi, stated that, "what happened is unprecedented," and was keen to note that the criminal charges are against "individual people, and not the bank itself."
The bank is reported to be "fully cooperating with the investigators," as demonstrated by it engaging auditors from Deloitte to conduct an independent investigation, review the risk management procedures of the bank and also suggest appropriate measures to minimize the possibility of criminal activities carrying on undetected in the future.
Richard Hainsworth, president of Rusrating, a Moscow-based rating agency for Russian finance, said: "The interior ministry is not known for being a source of kosher information." However, the allegations, if true, could carry up to a seven-year sentence for Mr. Golubkov.