Companies Announce Reserves for FCPA Investigations and Resolutions
Wal-Mart announced that it in fiscal year 2014, it expects to spend over $300 million investigating possible violations of the U.S. Foreign Corrupt Practices Act ("FCPA") by its Mexican subsidiary ("Walmex") and enhancing its FCPA compliance program. Through the first two quarters of this fiscal year, Wal-Mart’s spend is over $150 million, more than $20 million higher than expected. This is on top of the $157 million incurred last fiscal year, when the investigation began.
If Wal-Mart’s estimates are correct, by the end of this fiscal year it will have spent a total of just under $500 million on the less than two year old investigation and remediation of its operations in Mexico. The investigation is focused on whether Walmex bribed local Mexican government officials to help expand its Mexican business by changing or failing to enforce various laws, including those related to zoning and environmental permitting.
Archer Daniels Midland
Agribusiness Archer Daniels Midland Co. ("ADM") announced in its most recent quarterly filing with the U.S. Securities and Exchange Commission ("SEC") that it has reserved $54 million to resolve various FCPA issues with the government. In its previous quarterly filing, the reserve was $25 million, less than half of the current estimate. ADM indicated the increase in the reserve was the result of its settlement discussions with the SEC and the U.S. Department of Justice ("DOJ").
In 2008, ADM began an internal investigation into transactions involving grain and feed exports that may have violated the FCPA. In 2009, ADM reported these potential violations to DOJ and SEC, and in 2012 entered into settlement discussions with the DOJ and SEC.
The SEC is reportedly investigating the hiring practices of JPMorgan Chase & Co. ("JPMorgan") in China; specifically, its hiring of at least two Chinese "princelings", children of Chinese officials.
According to the article in The New York Times, officials are investigating JPMorgan’s hiring of Tang Xiaoning, son of a former Chinese banking regulator and currently chairman of a state-controlled financial conglomerate. Following that hire, the financial conglomerate hired JPMorgan for several very important projects, including advising it on a stock offering.
The SEC is also investigating JPMorgan’s hiring of Zhang XiXi. Zhang is the daughter of a Chinese railway official whose company later engaged JPMorgan to advise it regarding its plans to make an initial public offering.
Both Tang and Zhang have left JPMorgan.
Avon Products, Inc. ("Avon") announced in its latest quarterly filing with the SEC that both the DOJ and SEC rejected its offer to settle outstanding FCPA issues for $12 million. According to the announcement, the agencies have not made any counteroffers.
The investigation reportedly relates to payment of improper promotional expenses; specifically, payments made by various Avon employees in China to Chinese officials. Avon’s investigation of the allegations and remediation of its compliance program has cost over $300 million to date.
International Business Machines Corp. ("IBM") has finally received approval from a federal judge in Washington, D.C. to pay the $10 million FCPA settlement it reached with the SEC two years ago. The allegations were that IBM bribed Chinese and South Korean officials to win at least $54 million in government contracts.
U.S. District Judge Richard Leon had refused to approve the settlement earlier, stating he would not "rubberstamp" a settlement reached by a company he understood to have a history of FCPA violations. To gain Judge Leon’s approval, IBM had to agree to submit to the court and the SEC annual reports regarding its FCPA compliance efforts, as well as any interim reports regarding possible FCPA violations.
Over the past few months, additional FCPA allegations have surfaced regarding IBM’s contracting practices in Argentina, Bangladesh, Poland, and Ukraine.
The DOJ has joined the SEC in investigating possible violations of the FCPA by the world’s largest brewer, Anheuser-Busch InBev ("AB InBev"). The investigations reportedly relate to whether the activities of agents and employees of AB InBev’s Indian joint venture, InBev India International Private Ltd., complied with the FCPA. AB InBev disclosed in March 2013 that the SEC was investigating its activities and relationships in India; the DOJ investigation was just announced by AB InBev this month.
THE UNITED KINGDOM
SFO Brings Bribery Act Charges
The Serious Fraud Office (the "SFO") has brought its first charges under the Bribery Act 2010 (the "Act"). It should be noted that these are not the very first charges of bribery offences brought against individuals under the Act; individuals have been charged since the Act came into effect in July 2011, but it has been other prosecuting agencies that have prepared the charges.
In a statement on its website, which can be found here, the SFO said that it has charged three individuals with the offence of "making and accepting a financial advantage contrary to section 1(1) and 2(1) [of the Act]." The charges relate to a broader investigation focusing on Sustainable AgroEnergy Plc ("Sustainable AgroEnergy") and an alleged £23 million ($36 million) fraud regarding the promotion and sale of biofuel investment products to investors in the UK.
The defendants, the former Chief Commercial Officer and former Financial Controller of Sustainable AgroEnergy along with an independent financial adviser associated with the company, are not subject to bail or remand and are yet to indicate any plea.
THE REST OF THE WORLD
The Brazilian Senate has approved, and President Rousseff has signed, a new anti-corruption law; Legislative Bill No. 6826/2010, referred to as the "clean company law". The scope of the new law is broad and is likely to come into force in early 2014.
The legislation is required by Brazil’s commitment to the United Nations Convention Against Corruption and will strengthen its position as a party to the Organization of Economic Cooperation and Development’s Anti-Bribery Convention.
Brazil’s "clean company law" aims to establish a culture of effective corporate compliance. It introduces civil liability for corporations whose employees, agents or authorized representatives engage in the bribery of Brazilian or foreign public officials. This liability extends to foreign companies operating in Brazil and is similar in scope to the UK’s Bribery Act 2010 and the US’ Foreign Corrupt Practices Act.
A corporation found to have breached the new anti-corruption law may be fined up to 20 per cent. of its gross revenue for the previous year and, wherever possible, should not be less than the economic advantage obtained by the offending company. Other possible sanctions include suspensions from operation, confiscation of assets and, in extreme cases, dissolution of the entity. Successor liability, in the case of merger or acquisition, is also imposed by the new law, however the liability of the acquiring entity will be limited to fines up to the value of the assets transferred. Despite there being no firm defense for having "adequate procedures" in place, there are provisions allowing sanctions to be reduced to the extent that a company has effective compliance programs in existence and for those corporations who self-disclose.
Carlos Ayres, co-chair of the anti-corruption compliance committee of the Brazilian Institute of Business Law said of the development, "This is very positive … it fills a gap in our legislation and complies with our international agreements."
The Canadian courts have made their first conviction of an individual under the amended Corruption of Foreign Public Officials Act (the "Act").
The amendments to the Act, which are now in effect, are aimed at fulfilling Canada’s international commitments to enhancing its enforcement efforts against corruption in global business transactions. Key changes include:
- The maximum penalty for a person convicted under the Act has increased from 5 years to 14 years imprisonment, in addition to unlimited fines;
- The jurisdictional reach of the Act has been extended so that Canadian authorities are permitted to prosecute persons of Canadian nationality for international bribery, regardless of where the alleged offence took place;
- A new "books and records" offence has been created, prohibiting off-the-books accounting practices; and
- The exception for facilitation payments will be phased out at a later date.
Nazir Karigar has been found guilty of conspiring to bribe a number of government officials in India, including a cabinet minister, under the amended Act.
Mr. Karigar is reported to have worked for CryptoMetrics, an Ottawa based security company, in its bid to secure a facial recognition contract with Air India. It is said that Mr. Karigar conspired for $450,000 in bribes to be distributed to the various officials in India, in an effort to win the contract.
Despite the prosecution being unable to prove that any bribes were actually paid to the officials, there was a sufficient paper trail, including "emails and a spreadsheet that was created to break down how bribe payments would be dispersed" for Justice Charles Hackland to come to the "inescapable conclusion" that Mr. Karigar was "an active and knowledgeable part of a conspiracy to offer bribes."
In an important clarification of the law, Justice Hackland noted that the Crown merely had to prove that there was a conspiracy to bribe a foreign public official, stating that "to require proof of the offer or the receipt of a bribe and the identity of a particular recipient would require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk, and would make the legislation difficult, if not impossible, to enforce."
Authorities in China are investigating claims put to them by a whistleblower that the French pharmaceutical company, Sanofi S.A. ("Sanofi") bribed medical staff in hospitals across China in 2007.
Reports claim that employees of Sanofi paid bribes of around $275,000 to 503 doctors in return for them prescribing Sanofi products. Sanofi are alleged to have disguised the payments as "research grants." The China investigation will reportedly focus on whether these "grants" actually have patient names and medical reports associated with them.
Sanofi are said to be taking the claims "very seriously" and also expressed "[its commitment] to cooperating with the authorities." The company did not elaborate further, reporting that "it would be premature to comment on events that may or may not have occurred in 2007".
The reports come at a time when the pharmaceutical industry is under increasing scrutiny in China, following investigations into the operations of GlaxoSmithKline, as reported in last month’s issue of the Digest.
For a report on this development, see the U.S. section of this Digest.
The co-owner and an executive of Micromax Informatics ("Micromax") have been arrested by the Central Bureau of Investigation (the "CBI") for suspected bribes paid to officials of the North Delhi Municipal Corporation (the "NDMC"). According to a CBI source, other arrests included "two municipal corporation [civic engineers], who took the bribe money [and] were accepting it on behalf of a superintending engineer and certain other senior officials." Micromax is among the top mobile phone handset manufacturers in India.
It is alleged that Rajesh Agarwal and Manish Tuli paid Rs. 30 lakh ($49,000) while seeking authorization for the construction of a banquet hall in the Wazirpur region. Reports indicate that the CBI received a "tip-off" that Mr. Agarwal and Mr. Tuli had "entered a deal with the engineers of the civic body to get clearance for [the] construction." Officials of the CBI allege that they caught the two "red-handed" as they were handing over the money to the NDMC officials.
Since making the arrests, the CBI is reported to have carried out searches at fifteen premises linked to the accused persons. A Micromax source has stated that "the company has got nothing to do with the alleged personal misconduct of the two arrested persons." The NDMC has suspended seven employees in connection with the matter.
The head of SKK Migas, Rudi Rubiandini, has reportedly been arrested on suspicion of corruption. SKK Migas is the upstream oil and gas regulator in Indonesia, overseeing the exploration and production of crude oil and natural gas in the country.
Reports indicate that Mr. Rubiandini was arrested while allegedly receiving a bribe from an executive of Kernel Oil, an oil trading company based in Singapore. A government spokesman is reported to have said that officials from Indonesia’s Corruption Eradication Agency (the "KPK") took "at least $400,000" in cash from the home of Mr. Rubiandini. Local reports, however, suggest that this figure has since risen to more than $800,000.
The deputy chairman of the KPK confirmed that Mr. Rubiandini "was arrested for alleged bribery … [and] was detained along with three other people. They are being intensively questioned."
Reports are also linking the Energy and Minerals Minister, Jero Wacik, to the ongoing investigation. The KPK are said to have taken $200,000 in cash along with various documents from the office of the ministry’s secretary general. Mr. Wacik refuted claims linking the money to the Democratic Party, stating: "There’s no party matter here. It’s not unusual that in the preliminary [investigation] these things are linked."
Reports indicate that further arrests are imminent.
A former senior military official, along with two employees of Ukraine’s state-owned arms exporter, Ukrspecexport, have been convicted by a Kazakh court of bribery offences.
Major General Almaz Asenov, who previously headed the armament department of Kazakhstan’s Defense Ministry, was allegedly paid $200,000 in bribes by Oleksandr Shkoliarenko and Oleksandr Khrulev. The payment was to secure the award of export and aircraft repair contracts to Ukrspecexport.
Major General Asenov has reportedly been sentenced to eleven years in prison along with having various items of his property confiscated, while Mr. Shkoliarenko and Mr. Khrulev received six year sentences. Reports indicate that Ukrspecexport is examining the legal framework to secure the return of its two employees to Ukraine.
The Directorate on Corruption and Economic Offences (the "DCEO") in Lesotho is reported to be investigating Nikuv International Projects Ltd. ("Nikuv") for bribery offences. The allegations relate to bribes of $3.4 million, reportedly paid to state officials belonging to the Democratic Congress, regarding a $30 million contract to supply electronic passports to the country.
Nikuv denies the claims, stating that the investigation is politically motivated. "There are allegations that involve our company, but the fact is that we are caught in the middle of the old and new regime, and we are not going to get into politics" said Stephen Bekker, Nikuv’s Lesotho project manager. Separate reports, however, indicate that Monyane Moleleki, deputy leader of the Democratic Congress, has admitted receiving the funds from Nikuv.
It is reported that no arrests have been made in connection with the matter and a spokesman for the DCEO stated that "a number of people have been questioned and investigations are still continuing."