SEC enforcement actions and DOJ prosecutions

AuthorRobert W. Tarun
Pages247-425
CHAPTER 10
SEC Enforcement Actions and
DOJ Prosecutions
Foreign Corrupt Practices Act investigations, prosecutions, and enforcement
actions have increased dramatically in the past five years. The increase is likely
attributable to Sarbanes-Oxley officer certifications, corporate governance reforms,
increased international cooperation among law enforcement agencies, new foreign
anti-corruption legislation, pressure from the Organization for Economic Coop-
eration and Development (OECD) to legislate and fight corruption, and a very
committed Fraud Section at the Department of Justice (DOJ) and FCPA Unit at
the Securities and Exchange Commission (SEC) that are responsible for and over-
see FCPA enforcement nationwide. The Dodd-Frank whistleblower laws and rules
are now likely to be an additional factor (see Chapter 1). This chapter discusses
several of the major trends that have emerged from FCPA U.S. Department of Jus-
tice prosecutions and Securities and Exchange Commission enforcement actions,
reviews the factors DOJ and SEC attorneys weigh in prosecutorial and enforcement
decisions, lists the stated or implied terms of FCPA resolutions, summarizes over
100 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. Record DOJ and SEC Corporate Penalties, Fines, and Disgorgements of
Profits
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.1 In April 2010,
Daimler AG and three subsidiaries agreed to pay combined fines of $185 million;
247
248 CHAPTER 10
Technip S.A. and Snamprogetti BV, joint venture partners of KBR, agreed in June
and July, 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 drill-
ing customers—GlobalSantaFe Corporation, Noble Corp., 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 settled with the DOJ for the Bonny Island consortium bribes,
and Johnson & Johnson agreed to pay FCPA fines of $218 million and $70 mil-
lion, respectively.
The following chart depicts the 10 largest FCPA penalties by amount and year,
demonstrating that FCPA enforcement remains active.
LARGEST FCPA PENALTIES
COMPANY YEAR Amount (IN MILLIONS)
Siemens 2008 $800.0
KBR 2009 $579.0
BAE 2010 $400.0
Snamprogetti 2010 $365.0
Technip 2010 $338.0
JPC 2011 $218.8
Daimler 2010 $185.0
Alcatel Lucent 2010 $137.0
Panalpina 2010 $81.8
Johnson & Johnson 2011 $70.0
Six of the 10 largest FCPA penalties ever were obtained in 2010 and two in 2011.
In light of the above well-publicized megafines and the related investigative and
defense costs, many boards of directors, general counsel, and FCPA counsel2 ques-
tion whether the benefits of voluntary disclosure and cooperation outweigh many
of the negotiated criminal penalties that in many instances remain within the
United States Sentencing Guidelines (USSG) range or at least close to the USSG
minimum fine. Perhaps, as a result, the DOJ has recently begun to explain more its
USSG fine calculus in its FCPA resolution court filings. Still, 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.
Given the number of FCPA enforcement actions in the first half of 2011 (eight
DOJ and nine SEC), it is unlikely the government in FY 2011 will match the 2010
number of cases or total penalties. Still, there can be no doubt that FCPA enforce-
ment remains a major DOJ and SEC priority and that megasettlements of $100
million or more will continue.
SEC Enforcement Actions and DOJ Prosecutions 249
B. More FCPA Prosecutions of Individuals
The Department of Justice has substantially ramped up its efforts to prosecute
individuals with FCPA violations. In 2009, the DOJ prosecuted 42 individuals,
nearly quintupling the 2008 figure of nine. In 2010 the DOJ charged 17 individu-
als. In recent years the DOJ has criminally charged a U.S. congressman in connec-
tion with bribes in Nigeria;3 a director of sales who conspired to bribe the U.K.
Ministry of Defence to secure contracts with the U.K. Royal Air Force;4 telecom-
munications sales executives who bribed state-owned telecommunications carrier
officials;5 a Korean national who paid employees of government-owned customers
in China to induce them to purchase scrap metal;6 a U.S. general manager who
paid Nigerian officials to obtain pipeline contracts with joint ventures partially
owned by the Nigerian government;7 and a U.S. investor for his participation in a
bribery scheme to privatize an Azeri state-owned oil company.8 In January 2010,
the FBI arrested 22 executives and employees of companies in the military and law
enforcement supplies industry in an FBI sting operation in the “Shot Show Case”
involving an alleged scheme to pay bribes to the purported minister of defense for a
country in Africa. The 16 related “Shot Show” indictments returned in the District
of Columbia represent the largest single investigation and prosecution of individu-
als in DOJ’s FCPA enforcement history.9
The trend toward more individual prosecutions remains unmistakable. As Mark
F. Mendelsohn, then Deputy Chief of the DOJ Fraud Section responsible for FCPA
enforcement, stated in 2008, “The number of individual prosecutions has risen, and
that is not an accident. It is our view that to have a credible deterrent effect, people
have to go to jail.”10 Still, there is a concern that lengthy and complex trials of indi-
vidual defendants may take valuable Fraud Section resources away from focusing
on, investigating, and prosecuting larger corporate corruption matters. The sub-
stantial increase in the number of individuals charged will very likely lead to more
FCPA trials, challenges to DOJ legal theories, and FCPA case law. The United States
is of course willing to extradite foreign nationals for FCPA violations as evidenced
by the successful extradition of Jeffrey Tesler from the United Kingdom.
C. Joint DOJ-SEC Investigations and Global Resolutions
In FCPA investigations of public companies, the DOJ and SEC typically conduct
parallel or joint investigations of public companies and file where appropriate
simultaneous criminal charges, civil complaints, deferred prosecution agreements,
and/or consent decrees. The pleadings are commonly detailed and accompanied by
lengthy press releases and occasionally press conferences. A simultaneous global
resolution with both the DOJ and the SEC is usually in a public corporation’s inter-
est. The filing of a criminal information, in contrast to the return of an indictment
by a grand jury, is usually a clear signal that the charged company or individual
is cooperating with the U.S. government. Moreover, the Siemens and Alcatel-Lucent
prosecutions confirm that U.S. law enforcement authorities are willing to coor-
dinate investigations and return criminal charges with foreign authorities. The
Fraud Section of the Department of Justice, which has exclusive jurisdiction over

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT