After an almost 10-year investigation, on May 29, 2013, Total, S.A., the French petroleum company, entered into a deferred prosecution agreement (DPA) with the US Department of Justice (DoJ) and agreed to pay a monetary penalty of $245.2 million to settle charges that it violated the US Foreign Corrupt Practices Act (FCPA) in connection with approximately $60 million in payments made through intermediaries to an Iranian government official to improperly obtain rights to petroleum concessions in Iran. On the same day, the US Securities and Exchange Commission (SEC) filed a cease-and-desist order against Total pursuant to which Total agreed to pay an additional $153 million in disgorgement of profits and prejudgment interest relating to the same conduct. Both the DOJ and SEC relied on Total S.A.’s status as an “issuer,” based on ADRs traded on the New York Stock Exchange, to assert FCPA jurisdiction over the French company. In addition to the monetary penalties, totaling $398.2 million, Total agreed to retain an independent corporate compliance monitor for three years and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect any violations of the FCPA.
On the same day, in France the Paris prosecutor announced his recommendation that Total and its Chairman and Chief Executive Officer be referred to the criminal courts in France for alleged violations of French law, including France’s anti-bribery laws, and for alleged misuse of company funds. The simultaneous US and French announcements in the Total matter resulted from the first coordinated action by French and US law enforcement authorities on a major foreign bribery case.
In the DoJ case, the US government charged Total with one count of conspiracy to violate the anti-bribery provisions of the FCPA; one count of violating the internal accounting control provisions of the FCPA; and one count of violating the books and records provisions of the FCPA. These charges arose from the manner in which Total acquired petroleum concessions in Iran relating to the Sirri A and E oil and gas fields and the South Pars gas field, which is one of the world’s largest gas fields, as well as Total’s alleged mischaracterization of the bribe payments to the intermediaries as business development expenses and its failure to implement effective internal accounting controls, including anti-bribery compliance policies and procedures.
In respect of the Sirri A and E fields, Total was charged with making improper payments of approximately $16 million to an intermediary in Switzerland fronting for a senior Iranian government official under a purported consulting agreement in order to induce the official to use his influence to secure the petroleum concession rights from the National Iranian Oil Company. With respect to the South Pars gas field, Total was charged with making unlawful payments totaling approximately $44 million to the same Iranian official through another intermediary in the British Virgin Islands pursuant to a second purported consulting agreement. In 1997, Total was successful in obtaining a 40 percent interest in developing phases two and three of the South Pars gas field. Total’s interest in the South Pars field was the subject of the controversial Section 9-(c) “national interest” waiver by the Clinton administration of sanctions under the Iran Libya Sanctions Act in May of 1998.
Thus, according to the Information filed by the DoJ, for a period of about 9 years between 1995 and 2004, Total made payments to intermediaries at the direction of the Iranian official totaling about $60 million for the purpose of improperly inducing the Iranian government official to use his influence in connection with Total’s acquisition of petroleum rights in the Sirri A and E and the South Pars fields. DoJ’s use of a conspiracy theory allowed it to reach conduct extending back to 1995, far beyond the FCPA’s five-year statute of limitations, and was likely coupled with a tolling agreement during the investigation period, since the last overt act allegedly occurred in November 2004.
This is not the first time a European-based petroleum company has been charged with violating the FCPA as a result of alleged bribery of an Iranian government official in connection with acquiring petroleum rights in the South Pars gas field in Iran. In 2006, the DoJ and SEC announced FCPA enforcement settlements with Statoil who, according to the stipulated facts, made payments in 2002 and 2003 totaling $5.2 million to an offshore intermediary with ties to an Iranian official who was the head of the Iranian Fuel Consumption Optimizing Organization and an advisor to the Iranian Minister of Oil in order to induce the official to help Statoil obtain an interest in the South Pars field. The DoJ charged Statoil with violations of the anti-bribery and books and records provisions of the FCPA, and the SEC alleged that Statoil violated the anti-bribery provisions and the accounting provisions of the FCPA.
The Total case is the first in a few years with penalties exceeding $100 million. It also illustrates that the US DoJ and SEC are continuing to pursue enforcement actions against foreign issuers of securities in the United States; that the use of business development consultants and other agents and intermediaries continues to be a high-risk area for companies operating internationally; that employees of state-owned or -controlled oil companies are deemed foreign officials covered by the FCPA; that DoJ and SEC require implementation of a state-of-the-art anti-bribery compliance program; and that regulatory agencies of foreign countries are increasingly cooperating with the DoJ and SEC to investigate and prosecute violations of the FCPA and foreign anti-bribery laws.
From an anti-bribery corporate compliance program perspective, some interesting, if not surprising, lessons can be derived from the Information and DPA entered into by Total. When read in conjunction with the “Hallmarks of Effective Compliance Programs” section of the DoJ/SEC Resource Guide to the FCPA, these documents shed light on the components of an FCPA compliance program that US authorities expect major companies in the extractive sector (and perhaps even a broader universe of companies) to have in place.
Count 3 of the Information, “FCPA – Internal Controls” alleges that Total failed to implement a system of internal accounting controls sufficient to provide reasonable assurances that transactions and dispositions of Total’s assets complied with the FCPA and other laws. Count 3 goes on to list specific examples of the alleged failures. While the amalgamation of compliance standards with internal accounting controls is not new, the alleged “failures” listed in Count 3 take certain known elements to new levels of specificity. They are:
- failure to implement adequate anti-bribery compliance policies and procedures;
- failure to maintain an adequate system for the selection and approval of consultants;
- failure to conduct adequate audits of payments to consultants;
- failure to establish a sufficiently empowered and competent corporate compliance office;
- failure to take reasonable steps to ensure the company’s compliance and ethics program was followed;
- failure to evaluate regularly the effectiveness of the company’s compliance and ethics program;
- failure to provide appropriate incentives to perform in accordance with the compliance and ethics program;
- concealment of the consulting agreements' true nature and participants;
- failure to perform due diligence concerning the parties to the consulting agreements; and
- lack of controls sufficient to provide reasonable assurances that the consulting agreements complied with applicable laws.
Attachment C to the DPA contains a list of what the DoJ considers to be the minimum elements of an FCPA corporate compliance program.
While Attachment C is similar to the lists contained in prior DPAs, the list in Count 3 takes the expectations to a new level. Indeed, by identifying the above listed elements of an internal controls program as items that Total should have had in place, the DOJ in effect says they are required. It is not clear at this point whether DoJ will apply these standards in all cases, but it is notable that Total appears to have been held to compliance standards that, in some instances, have been formulated after the conduct in question.
The settlement’s corporate monitorship provisions are also noteworthy in continuing a trend toward increasing deference by US authorities to foreign monitors, laws, and enforcement authorities. As in the Technip and Alcatel-Lucent settlements, for example, Total is permitted to retain a French national as the monitor, to be selected by DoJ from a pool of candidates put forward by the company. Further, the agreement also contemplates involvement by French authorities where conflicts arise between the monitorship’s disclosure and reporting requirements, on the one hand, and various provisions of French law, including the Blocking Statute and various labor and data privacy laws, on the other.