SEC enforcement actions and DOJ prosecutions

• Author: Robert W. Tarun
• Pages: 247-425

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;

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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