Total SA

Total SA, the French oil and gas giant, announced in its third quarter earnings release that it has set aside 308 million Euros ($398 million) to pay an expected settlement with U.S. regulators over alleged bribes made to Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA). A settlement of that size would rank among the largest ever FCPA settlements.  

Despite initial indications that it would reject any out of court settlement with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), Total now says that it is fully cooperating with federal authorities, and that the DOJ and SEC have drafted proposed settlement agreements to resolve their investigations.  

In the same earnings release, Total announced that the company and its former Middle East CEO are under investigation in France for the same allegations.  

IBM  

International Business Machines Corp. (IBM) stated in an April 30 SEC filing that the DOJ has opened an FCPA investigation into transactions in Poland, Argentina, Bangladesh and Ukraine. According to the filing, “the DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business.”  

This investigation is a broadening of the U.S. government’s inquiries into IBM’s international business practices. Two years ago, IBM reached a $10 million settlement with the SEC regarding alleged violations of the FCPA accounting provisions related to cash payments to officials in China and Korea. However, as previously reported in the Digest, that settlement has not yet been approved by United States District Court Judge for the District of Columbia, Richard Leon. As reasons for his refusal to approve the settlement, Judge Leon has cited IBM’s alleged history of books and records violations, and suggested that IBM be subject to annual reporting regarding its FCPA compliance.  

Archer Daniels Midland’s FCPA Reserve  

On May 1, Archer Daniels Midland Co. (ADM) announced that it has reserved $25 million for a potential FCPA settlement related to grain and feed exports. ADM opened an internal investigation into the issue in 2008, and announced in November 2012 that it had entered into related negotiations with U.S. authorities.  

More Executives Under FCPA Scrutiny  

In last month’s Digest, we reported on four BizJet executives who have been charged with FCPA violations, and Frederic Cilins, a French citizen who was working on behalf of Beny Steinmentz Group Resources (BSGR) in Guinea, who has been charged with obstruction of justice in an FCPA probe. The trend towards investigating and prosecuting individuals for alleged violations of the FCPA continues.  

Kazuo Okada (Universal Entertainment Corp.)  

A state court judge in Las Vegas, Nevada, has granted the DOJ’s motion to temporarily stay Wynn Resorts Ltd.’s lawsuit against former Wynn Resorts board member Kazuo Okada. The DOJ received a six-month stay to allow it to investigate Mr. Okada for possible violations of the FCPA, arising from alleged bribes to

Philippine gaming regulators on behalf of Okada’s company, Universal Entertainment Corp., allegations which are also at issue in the civil case.

Mr. Okada, Japan’s billionaire "pachinko king" and chairman of Universal Entertainment, had been a friend of Steve Wynn’s, a Wynn Resorts board member, and a 20% shareholder. Mr. Okada’s and Mr. Wynn’s relationship began to sour when Mr. Okada and Universal began to pursue a $2 billion casino resort in the Philippines, which would pose serious competition to Wynn Resorts’ profitable gambling resort operations in Macau.

Mr. Wynn ultimately sued Mr. Okada in Nevada for allegedly violating his duties as a trustee of Wynn Resorts (and alleged that Mr. Okada made improper payments to Philippine gaming regulators to win the right to develop the project in Manila), removed Mr. Okada from its board, and forcibly redeemed Mr. Okada’s 20% stake in the company. In response, Universal sued Wynn Resorts; among the allegations were that Wynn Resorts had made a suspicious and allegedly corrupt donation to the University of Macau, allegations which U.S. authorities are investigating.

Universal Entertainment has indicated that it has authorized a third-party committee to investigate the propriety of approximately $40 million in payments made through its U.S. unit, Aruze USA, Inc. in the Philippines.

Traders at Direct Access Partners

Traders with New York-based broker-dealer Direct Access Partners LLC (DAP), various intermediaries, and an official of Venezuela’s economic development bank have been charged with taking part in a multimillion-dollar kickback scheme in violation of the FCPA. Under the alleged matter, DAP traders bribed a top Venezuelan banking official, Maria de los Angeles Gonzalez de Hernandez, in order to secure the bond trading business of a state-owned bank and then carry out fraudulent markups and markdowns on riskless trades, resulting in over $66 million in revenue for DAP.

The SEC cited an example of its allegations: "in January 2010, the traders and Ms. Gonzalez arranged for two fraudulent roundtrip trades with [the bank] as both buyer and seller. These trades – which lacked any legitimate business purpose – caused [the bank] to pay DAP more than $10 million in fees, a portion of which was diverted to Ms. Gonzalez for authorizing the blatantly fraudulent trades."

It appears that this is the first FCPA case to arise from the SEC’s periodic examination of a registered company’s books. The SEC has charged four people, including DAP employees and the intermediaries who allegedly funneled payments from DAP to Ms. Gonzalez through offshore shell companies and bank accounts. In a parallel action, DOJ has charged two DAP employees and Ms. Gonzalez.

Uriel Sharef (Siemens AG)

Former Siemens AG board member and German citizen, Uriel Sharef, has been ordered by the U.S. District Court for the Southern District of New York to pay a $275,000 civil penalty to the SEC. This is the second highest civil penalty to date imposed on an individual under the FCPA. Mr. Sharef was one of six Siemens AG executives sued by the SEC for allegedly participating in a scheme to bribe Argentine officials, including two presidents and multiple cabinet members, to secure a $1 billion government contract to produce identity cards.

One of the other executives, Bernd Regendantz, settled with the SEC for a $40,000 penalty. The remaining executives have challenged the SEC’s claims, including German citizen Herbert Steffen, whom the Digest has previously noted successfully sought to have the claims against him dismissed for failure to establish personal jurisdiction over him in the United States.

THE UNITED KINGDOM

Refocusing of the SFO

The Serious Fraud Office (SFO) is the United Kingdom’s investigator and prosecutor of serious fraud, bribery and corruption. Its role was said to have become "blurred" which resulted in the perception that "it did not have the stomach for prosecution and preferred risk-free civil settlements." In a recent speech given by David Green QC, Director of the SFO, this issue was addressed: along with a new senior management team and restructuring the SFO, new guidance has been issued with regards to self-reporting. Reference was also made to the existing caseload of the SFO.

Previous guidance on self-reporting was said to imply that, "if a corporate self-reported … the SFO would strain every sinew to resolve the matter by civil settlement and not prosecution." Concerns had also been raised by the Organization for Economic Co-operation and Development (OECD), that the definition of self-reporting had been "severely strained in order to achieve the highest number of civil settlements." New guidance, which applies the full Code Test for Crown Prosecutors, addresses these concerns. Simply put, "assuming there is sufficient evidence, we [the SFO] would prosecute." It was, however, made clear that in the case of a genuine self-report, non-prosecution would "weigh heavily in the public interest."

The SFO is currently carrying out a number of investigations, including what is its largest and most complex one to date, into the alleged manipulation of LIBOR. In a move to end speculation about its workload, Mr. Green stated that the SFO has 65 cases on its books and named a number of the more high profile investigations, all of which involve allegations of corruption.

Ernst & Young: 2013 EMEIA Fraud Survey

Ernst & Young’s 2013 Europe, Middle East, India and Africa Fraud Survey of 3,000 senior figures from businesses in 36 countries suggests that downturn-induced pay freezes or cuts, along with intense demands for results, may be putting more pressure on UK employees to commit fraud.

The report states that 59% of workers surveyed have experienced some form of pay freezes, cuts, reduction or removal of bonuses, or salary rises below the rate of inflation. Yet these employees are also under pressure to deliver financial results, with three-quarters of UK directors and managers facing increased demands to hit targets in spite of the economic downturn. It is suggested that this environment has contributed to unethical conduct occurring in businesses in an effort to meet short-term financial targets. This is highlighted in the financial services sector where, despite high levels of regulation, 9% of executives admit cases of revenues being recorded before they should have been, 7% were aware of under-reporting of costs and 9% knew of customers being sold unnecessary products to meet short-term sales targets.

The survey also noted that, despite the introduction of the Bribery Act two years ago, 37% of companies in mature markets say bribery and corruption is widespread in the UK, while "a significant and influential group" felt it was justified to make cash payments to win or retain business. John Smart, UK head of Ernst & Young’s Fraud Investigation team, said of the findings, "Many incorrectly assume that the mere existence of an anti-bribery program is sufficient to mitigate their risk. Companies must ensure the program is communicated effectively, employees are trained adequately and it is continuously monitored and updated."

Introduction of Deferred Prosecution Agreements

The Crime and Courts Act 2013 (the Act) has received Royal Assent and its regime is expected to come into force in early 2014. The Act will make significant changes to the way corporate crimes involving fraud, bribery or money laundering are dealt with in the UK - the most important development being the introduction of deferred prosecution agreements (DPAs).

A typical DPA will involve prosecuting bodies (currently just the CPS and SFO and not the newly formed FCA) agreeing not to proceed with criminal charges against a corporate in exchange for it paying substantial fines, enhancing its compliance regime and cooperating with the investigation.

The US has endorsed the use of DPAs for some time and last year the DOJ reportedly entered into 35 such agreements. The US system of DPAs has been criticized for a lack of transparency: the agreements being "reached behind closed doors" with little oversight or input from the courts. Despite the hearing for the declaration being held privately, the UK system will be far more open with greater judicial oversight throughout the process. For example, the Act requires that the terms of any DPA be confirmed in open court (Schedule 17, Paragraph 8(6) of the Act).

The introduction of DPAs may lead to UK prosecutors broadening the scope of their investigations and initiating more cases under the Bribery Act 2010. The next step in the UK is for the prosecuting bodies to publish joint guidance, which is likely to give greater insight into the general principles as to the appropriateness of DPAs in specified cases.

THE REST OF THE WORLD

Croatia

17 individuals, including 10 customs officers, have been arrested on suspicion of participating in alleged corruption between the autumn of 2012 and February of this year. The USKOK, Croatia’s Bureau for Combating Corruption and Organized Crime, is reported to have stated that the arrests were on suspicion of "abuse of power, giving and receiving bribes and forging official documents", in a matter allegedly worth at least €1million.

Along with the customs officials, those arrested are said to include heads of shipping companies and local import firms. The grounds for their arrest include suspicion of reducing customs duties on goods imported from China and Italy, along with forging documents with false quantities and prices. The USKOK did not state the nature of the goods involved, but reports from Croatian national television suggest that the items included clothes, shoes and technical equipment.

India

Railways Minister Pawan Bansal is expected to be questioned soon by the Central Bureau of Investigation (CBI), which has arrested his nephew for allegedly accepting bribes. This comes after a two-month investigation that reportedly involved screening over 1,000 telephone conversations.

The CBI arrested Mr. Bansal's nephew, Vijay Singla, and Mahesh Kumar - who was allegedly on his way to bribe Mr. Singla with Rs. 90 lakhs ($165,000). The CBI has alleged that the Rs. 90 lakhs seized from Mr. Kumar was part of a larger Rs. 10-crore ($1.8 million) payoff, which was to secure him a posting as a member (electrical) on the Railway Board, a position with the power to transfer staff and award sizeable signal and telecom contracts.

A CBI source is reported to have said, "We have incontrovertible evidence that the bribe amount was meant for the minister." However, Mr. Bansal said, in a statement issued on 4 May, "though a close relative, he (Mr. Singla) or any other relative of mine does not and cannot meddle in my official function or influence my decision." The minister went on to state that he was looking forward to "an expeditious investigation" by the CBI.

Kazakhstan

An internal investigation at Eurasian Natural Resources Corporation (ENRC) is reported to have discovered evidence of corruption at the mining company, which operates mainly out of Kazakhstan, including "payments to African presidents", $35million of "misappropriated" cash and "document destruction" by staff trying to disrupt the inquiry.

The claims, which are denied by the company, were made by a whistleblower after being removed from its role as lead counsel on the internal inquiry. In a presentation given to the Serious Fraud Office (SFO), it is alleged that the whistleblower claimed that its efforts to conduct the internal investigation were hampered by instances of staff forging documents and supplying the "wrong computer to the investigations team", while even setting up a "false office".

David Green QC, Director of the SFO, confirmed that the SFO has since launched a criminal investigation into the activities of ENRC. In a short statement, the SFO said, "The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa."

ENRC has since confirmed that it has received notice of the formal investigation, stating that "it is assisting and cooperating fully with the SFO" and that the company is "committed to a full and transparent investigation of its procedures and conduct."

The Netherlands

It is reported that claims lodged in the Dutch courts indicate that International Mineral Resources (IMR) has been accused of "blatant fraud, exacerbated by bribery" by EuroChem, a Russian fertilizer group.

Reports state that the case relates to claims that an IMR executive bribed an employee of EuroChem with hundreds of thousands of Russian Rubles to cover up the alleged ineffectiveness of work carried out by its 48% owned subsidiary, Shaft Sinkers. It is further reported that there is another limb to the claim, relating to IMR facilitating the concealment of a report questioning whether Shaft Sinkers’ technology could be effective on a $2 billion potash project.

A spokesperson for IMR is reported to have stated that, "The suggestion IMR was somehow involved in the legitimate arrangement [a consultancy agreement] between Shaft Sinkers and a EuroChem employee is a fabrication." A spokesperson for Shaft Sinkers added that they understand that "IMR has instructed lawyers and intends to vigorously defend such proceedings."

The owners of IMR also own a 44% stake in Eurasian Natural Resources Corporation, which faces a separate inquiry into allegations of corruption, as reported under the entry for Kazakhstan in this edition of The Digest.

Spain

The former mayor of La Muela is facing corruption charges. It is reported that Spanish investigators have calculated Maria Victoria Pinilla, along with other members of her family, to have accumulated in the region of $24 million in corrupt funds.

Throughout the inquiry into her conduct, which began in 2009, Ms Pinilla has maintained her innocence. However, the investigating judge recently concluded that she should face trial over misappropriation of public funds, tax evasion and money laundering.

There are many more reported cases, similar to that of Ms. Pinilla, where local officials are alleged to have enriched themselves – judges across Spain are investigating about 1,000 officials. Experts claim that the Spanish political structure, where there is a concentration of power in the hands of regional and municipal officials, created an ideal environment for corruption in the years of mass construction projects. Officials could grant procurement contracts or re-zone land with very little, or even no, consultation.

With the healthcare system undergoing privatization, Manuel Villoria, a professor in Madrid writing a report on Spanish corruption for the European Union, states that unless change is made, there is scope for much further corruption. Potential changes include increasing custodial sentences for corruption and strengthening an underfinanced judicial system which currently allows many corruption cases to go unresolved for years, as highlighted by that of Ms. Pinilla.

Sweden

Oystein Loseth, CEO of Vattenfall, a Swedish energy company, is the subject of an independent inquiry over claims he received a bribe during a takeover deal. The investigation will examine whether Mr. Loseth received "extra remuneration" when Vattenfall acquired the Dutch company, Nuon, in 2009.

In response to the investigation, Mr. Loseth is quoted to have said, "I welcome an investigation that can put an end to this rumor." With regards to the claims made against him, he is reported as stating:

"I want to clarify that I have not received any extraordinary benefits. I received regular compensation in the form of salary, bonus and pension. The payments are reported in Vattenfall’s and Nuon’s annual reports."

The board of directors of Vattenfall recently announced that Christer Danielsson will lead the investigation, with Lars Nordstrom, president of the board, adding that, "we want everybody to feel confident that the matter is thoroughly investigated."