Chapter 10. SEC Enforcement Actions and DOJ Prosecutions

• Author: Robert W. Tarun
• Pages: 1-154

CHAPTER 10

SEC Enforcement Actions and

DOJ Prosecutions

Foreign Corrupt Practices Act investigations, prosecutions, and enforcement

actions have increased dramatically over the past decade. The increase is likely

attributable to the Sarbanes-Oxley of 2002,1 corporate governance reforms,

increased international cooperation among law enforcement agencies, new for-

eign anti-corruption legislation, pressure from the Organisation for Economic

Co-operation and Development (OECD) to legislate and fight corruption, and a

highly committed Fraud Section at the Department of Justice (DOJ) and FCPA

Unit at the Securities and Exchange Commission (SEC) that are responsible for

and oversee FCPA enforcement nationwide. The Dodd-Frank whistleblower laws

and rules of 20102 are no doubt contributing to more FCPA enforcement inves-

tigations and actions (see Chapter 1). This chapter discusses several of the major

trends that have emerged from FCPA U.S. DOJ prosecutions and SEC enforcement

actions, reviews the factors DOJ and SEC attorneys weigh in prosecutorial and

enforcement decisions, lists the stated or implied terms of FCPA resolutions, sum-

marizes well over 125 significant FCPA cases, and then offers practical guidance on

how to interpret reported FCPA prosecution and SEC enforcement actions.

I. FCPA PROSECUTION AND ENFORCEMENT ACTION

TRENDS AND RELATED DEVELOPMENTS

A. Continuing Large DOJ and SEC Corporate Penalties and Fines

The December 2008 Siemens $1.6 billion anti-bribery settlement best demon-

strates how massive and serious criminal and civil anti-corruption penalties can

be. Shortly after that landmark resolution with the German and U.S. govern-

ments, the DOJ obtained in February 2009 a plea agreement from and the SEC

a consent decree with Kellogg, Brown & Root LLC (KBR) that included penalties

and disgorgement totaling $579 million. In calendar year 2010, the DOJ and SEC

obtained record fines, penalties, and disgorgement of profits of approximately $1.8

billion, including six of the 10 largest FCPA monetary sanctions ever. In March

2010, BAE Systems plc pled guilty to FCPA-related violations and agreed to pay a

DOJ fine of $400 million and a U.K. fine of $50 million.3 In April 2010, Daimler

AG and three subsidiaries agreed to pay combined fines of $185 million; Technip

S.A. and Snamprogetti B.V., joint venture partners of KBR, agreed in June and July,

1

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2 CHAPTER 10

respectively, to pay U.S. corruption-related fines of $365 million and $338 million,

respectively; and, in November 2010, Panalpina, a global freight forwarder, agreed

to pay corruption-related fines of $70.5 million to the DOJ and $11.3 million in

disgorgement of profits to the SEC, while its oil and drilling customers—Global-

SantaFe Corporation, Noble Corporation, Pride International Inc., Royal Dutch

Shell plc, Tidewater Marine International Inc., and Transocean Inc.—agreed to pay

related fines and disgorgement amounts of over $155 million. In April 2011, JGC

Corporation of Japan, the remaining joint venture partner of KBR not to have set-

tled with the DOJ for the Bonny Island consortium bribes, and Johnson & Johnson

agreed to pay FCPA fines of $218 million and $70 million, respectively. In 2012,

Pfizer, a U.S.-based global pharmaceutical company, and Marubeni, a Japanese

trading company, entered into $60 million and $54.6 million FCPA settlements,

respectively.

The following chart depicts the 12 largest FCPA penalties by amount and year,

demonstrating that FCPA enforcement remains active.

LARGEST FCPA PENALTIES

COMPANY YEAR AMOUNT (MILLIONS) COUNTRY

1. Siemens 2008 $800.0 Germany

2. KBR 2009 $579.0 United States

3. BAE 2010 $400.0 United Kingdom

4. Snamprogetti 2010 $365.0 Holland/Italy

5. Technip 2010 $338.0 France

6. JGC 2011 $218.8 Japan

7. Daimler 2010 $185.0 Germany

8. Alcatel-Lucent 2010 $137.0 France

9. Magyar/Telekon 2011 $95.0 Hungary/Germany

10. Panalpina 2010 $81.8 Switzerland

11. Pfizer 2012 $60.0 United States

12. Marubeni 2012 $54.6 Japan

Six of the 12 largest FCPA penalties ever were obtained in 2010, two in 2011,

and two in 2012. Ten of the top 12 have involved non-U.S. companies. In light of

the above well-publicized megafines and the related investigative and defense costs,

many boards of directors, general counsel, and FCPA counsel4 question whether

the benefits of voluntary disclosure and cooperation outweigh many of the nego-

tiated criminal penalties that in many instances remain within the United States

Sentencing Guidelines (USSG) range or at least close to the USSG minimum fine.

The DOJ has begun to explain more about its USSG fine calculus in its FCPA reso-

lution court filings and in 2012 along with the SEC published the Resource Guide

to the U.S. Foreign Corrupt Practices Act.5 The DOJ and SEC have a wide variety of

resolutions available, including plea agreements, deferred prosecution agreements

(DPAs), non-prosecution agreements (NPAs), declinations, civil injunctive actions

and remedies, and civil administrative actions and remedies.

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SEC Enforcement Actions and DOJ Prosecutions 3

The Resource Guide provided six anonymous examples of past declinations by the

DOJ and SEC. Most of the declinations involved small bribe amounts or attempted

bribes. Based on this recent guidance, it is unlikely that any public company dis-

covering multi-country bribery conduct or a substantial bribery payment in one

foreign country will obtain a declination.

B. SEC Aggression in Obtaining Disgorgement of Profits

For public companies, the SEC, especially through disgorgement of profits, can

quickly eviscerate the credit the DOJ has extended to companies for cooperation in

FCPA investigations. Since 2004, the SEC has increasingly used disgorgement as a

remedy. The top 10 SEC FCPA disgorgement matters are

1. Siemens $350.0 million (2008)

2. KBR $177.0 million (2009)

3. Snamprogetti $125.0 million (2010)

4. Technip $98.0 million (2010)

5. Daimler $91.4 million (2010)

6. Johnson & Johnson $48.6 million (2011)

7. Pfizer $45.2 million (2010)

8. Alcatel-Lucent $45.0 million (2012)

9. Magyar Telekom Plc $31.2 million (2011)

10. Chevron $25.0 million (2007)

FCPA enforcement remains a major DOJ and SEC priority, and mega-settlements

of $100 million or more will continue.

C. Continued Prosecution of Foreign Corporations and Subsidiaries

The Fraud Section of the DOJ has aggressively pursued foreign corporations and

their subsidiaries. Major FCPA resolutions with foreign entities include Aibel

Group Ltd. (United Kingdom); Alcatel-Lucent S.A. (France); BAE Systems plc

(United Kingdom); Daimler AG (Germany); Fiat S.p.A. (Italy); JGC Corporation

(Japan); Magyar Telekom plc (Hungary/Germany); Marubeni Corporation (Japan);

Panalpina (Switzerland); Siemens AG (Germany); Snamprogetti Netherlands B.V.;

and Technip S.A. (France). Ten of the top 12 FCPA penalty cases have involved

companies headquartered outside the United States.

The jurisdictional bases for the foreign corporation and subsidiary prosecu-

tions and enforcement actions vary. Approximately 1,500 foreign issuers, whose

American depositary receipts (ADRs) are traded on U.S. securities exchanges, are

issuers for purposes of the FCPA.6 For example, the parent of Snamprogetti ENI

had ADRs traded on the New York Stock Exchange. Similarly, Technip’s ADRs

were traded on the NYSE, thereby establishing “issuer” jurisdiction under the

FCPA. In other cases, the conduct of foreign corporations or their employees or

agents has extended into the territory of the United States, establishing FCPA ter-

ritorial jurisdiction. Other jurisdictional theories, such as aiding and abetting U.S.

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