Foreign Corrupt Practices Act (FCPA)

On November 29th, the Department of Justice unveiled a revised Foreign Corrupt Practices Act (FCPA) Enforcement policy that provides significant incentives for corporations to voluntarily self-disclose potential FCPA violations.

The new policy makes permanent many aspects of a pilot program started under the Obama Administration with one significant enhancement: a presumption of a corporate declination of criminal charges if a company voluntarily self-discloses misconduct and cooperates early and fully.

For more information, please see Crowell’s Client Alert.

For more information, contact: Kelly Currie, Stephen Byers, Paul Rosen, Alan W.H. Gourley, Cari Stinebower, Jared Engelking

Department of Justice

  • On October 4, a retired U.S. Army colonel was charged with one count of conspiracy to violate the Foreign Corrupt Practices act (FCPA) and the Travel Act and one count of conspiracy to commit money laundering in an indictment filed in the District of Massachusetts. The indictment is connected to his alleged role in a scheme involving a planned $84 million port development project in Haiti.

Office of Foreign Assets Control (OFAC)

  • On October 5, OFAC announced BD White Birch Investment LLC (White Birch USA) of Greenwich, Connecticut, agreed to pay $372,465 to settle its potential civil liability for three alleged violations of the Sudanese Sanctions Regulations. The company facilitated the sale and shipment of Canadian-origin paper from Canada to Sudan in 2013.
    • Aggravating factors included:
      • “(1) White Birch USA exhibited reckless disregard for U.S. sanctions requirements by failing to exercise a minimal degree of caution or care with regard to the apparent violations;
      • (2) White Birch Canada personnel appear to have attempted to conceal the ultimate destination of the goods from its bank (a U.S. financial institution serving as the confirming bank on a letter of credit) with respect to two of the apparent violations;
      • (3) multiple White Birch USA personnel, including individuals in supervisory or managerial positions, had actual knowledge of and were actively involved in, or had reason to know of, the conduct that led to the apparent violations;
      • (4) White Birch USA is a large and commercially sophisticated company;
      • (5) White Birch USA’s compliance program was either non-existent or inadequate at the time of the apparent violations; and
      • (6) White Birch USA did not initially cooperate with OFAC’s investigation into the apparent violations, particularly when it submitted materially inaccurate, incomplete, and/or misleading information to OFAC.”
    • Mitigating factors included:
      • “(1) White Birch USA has no prior OFAC sanctions history, and has not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations; and
      • (2) White Birch USA has reported to OFAC that it has taken remedial steps in response to the apparent violations, including by updating the company’s employee manual to include additional information concerning economic sanctions, implementing new compliance policies, and administering company-wide OFAC compliance training.”

For more information, contact: Jeff Snyder, Edward Goetz

Bureau of Industry and Security

  • On August 31, BIS announced a Settlement Agreement with Narender Sharma and his company Hydel Engineering Products (Hydel/Sharma), both of Rumpur Bushahr, India. Hydel/Sharma was charged with one count of Conspiracy to Export Items from the U.S. to an Iranian Government Entity without Authorization. The purpose of the conspiracy was to sell and export U.S.-origin waterway barrier debris systems and related components to Iran via third countries. The company was assessed a penalty of $100,000 and agreed to a five-year denial of export privileges, suspended for a five-year probationary period.
  • On September 25, BIS announced a Settlement Agreement with Millitech, Inc., of Northampton, Massachusetts to settle 18 alleged violations of the Export Administration Regulations (EAR). Millitech is alleged to have engaged in prohibited conduct when it exported multiplier chains, controlled under Export Control Classification Number (ECCN) 3A001.b.4, to China and Russia without a license. The company was assessed a civil penalty of $230,000.

Department of Justice and Securities and Exchange Commission

  • Telia Company AB, a Stockholm-based international telecommunications company, entered into a deferred prosecution agreement in connection with a criminal information filed on September 21 in the Southern District of New York charging the company with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Its Uzbek subsidiary, Coscom LLC, pled guilty to the same charge. Telia agreed to pay a total criminal penalty of $274,603,972 to the U.S., including a $500,000 criminal fine and $40 million forfeiture on behalf of Coscom. Separate settlements were made with the Securities and Exchange Commission and the Public Prosecution Service of the Netherlands in related proceedings. The total amount of criminal and regulatory penalties paid to U.S., Dutch, and Swedish authorities will be $965,773,949.
    • In its press release, the DOJ stated, “According to the companies’ admissions, Telia and Coscom, through various managers and employees within Telia, Coscom and affiliated entities, paid approximately $331 million in bribes to an Uzbek government official, who was a close relative of a high-ranking government official and had influence over the Uzbek governmental body that regulated the telecom industry. The companies structured and concealed the bribes through various payments including to a shell company that certain Telia and Coscom management knew was beneficially owned by the foreign official. The bribes were paid on multiple occasions between approximately 2007 and 2010, so that Telia could enter the Uzbek market and Coscom could gain valuable telecom assets and continue operating in Uzbekistan. Certain Telia and Coscom management also contemplated structuring an additional bribe payment in late 2012, after Swedish media began reporting about Telia’s corrupt payments in Uzbekistan, Swedish authorities began a criminal investigation and Telia opened an internal investigation.”

Directorate of Defense Trade Controls

  • On September 11, DDTC announced Bright Lights USA, Inc. settled 11 allegations that it violated the International Traffic in Arms Regulations (ITAR) with unauthorized exports of defense articles, including the export of technical data to a proscribed destination. Bright Lights voluntarily disclosed the alleged violations and agreed to pay a civil penalty of $400,000. DDTC did not seek disbarment because the company cooperated with the Department’s review, expressed regret, and took steps to improve its compliance program.
    • Among other things, between 2010 and 2012, the company exported ITAR-controlled technical data under Categories II, IV, and VII without authorization. Four of these were to China. The company also misclassified items under the Export Administration Regulations and exported them without a license to non-prohibited destinations.

Office of Foreign Assets Control

  • On September 26, OFAC announced Richemont North America, Inc., doing business as Cartier, agreed to pay $334,800 to settle its potential civil liability for four alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR). Between 2010 and 2011, Cartier exported four shipments of jewelry to an entity on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).

For more information, contact: Jeff Snyder, Edward Goetz

Bureau of Industry and Security (BIS)

  • On June 8, BIS entered into a Settlement Agreement with Axis Communications, Inc. of Massachusetts to settle charges of 15 alleged violations of the Export Administration Regulations (EAR). The company was assessed a $700,000 civil penalty and directed to conduct an external audit of its export compliance program by an unaffiliated third-party consultant.
    • Between 2011 and 2013, the company exported thermal imaging cameras to Mexico without a license on 13 occasions. The cameras were valued at nearly $400,000. BIS also alleged Axis failed to comply with recordkeeping requirements in connection with the shipments.
  • On June 9, BIS entered into a Settlement Agreement with Cryomech, Inc. of New York for one alleged violation of the EAR. The company was assessed a $28,000 civil penalty and directed to conduct an external audit of its export compliance program by an unaffiliated third-party consultant.
    • In 2012, Cryomech made an unlicensed export of an LNP-20 Liquid Nitrogen Plant to a party in Russia on the Entity List.
  • On June 27, BIS entered into a Settlement Agreement with Hassan Zafari of Brentwood, California, to settle one alleged violation of the EAR. Mr. Zafari was assessed a $52,500 civil penalty (with all but $7,500 suspended, pending a two-year probationary period) and is subject to a two-year denial order; he may not participate in the export of any item from the U.S. during this time.
    • He caused, aided, or abetted the export from the U.S. to Iran of a used industrial laser system without the required license. According to the Charging Letter, among other things, Zafari admitted to BIS special agents during an interview that he knew that U.S. law prohibited exports to Iran, directly or indirectly, but he “[n]onetheless . . . took several actions that facilitated the transaction, including identifying and hiring a freight forwarding company to ship the laser system from the United States to a general trading company in Dubai, UAE, and instructing the forwarder to list the UAE general trading company as the consignee while aware. . . that the item actually was intended for supply, transshipment, or re-export to Iran.”

Office of Foreign Assets Control (OFAC)

  • On June 8, OFAC announced American Honda Finance Corporation (AHFC) agreed to remit $87,255 to settle its potential civil liability for 13 alleged violations of the Cuban Assets Control Regulations (CACR).
    • Between 2011 and 2014, Honda Canada Finance, Inc. a majority-owned subsidiary of AHFC located in Canada, approved and financed 13 lease agreements between an unaffiliated Honda dealership in Ottawa, Canada and the Embassy of Cuba in connection with the Cuban Embassy’s leasing of vehicles.
  • On June 26, OFAC announced American International Group agreed to remit $148,698 to settle its potential civil liability for 555 alleged violations of sanctions regulations covering Iran, Sudan, Cuba, and the Weapons of Mass Destruction program.
    • From 2007 to 2012, AIG engaged in transactions totaling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba, and/or that involved a blocked person.
    • Although AIG had in many cases included OFAC’s recommended exclusion clauses (see OFAC FAQs 102 and 103), some failed to include them, and other policies “were too narrow in their scope and application” for the clauses to be effective.

Department of Justice

On June 16, the Department of Justice publicly disclosed another declination under its Foreign Corrupt Practices Act pilot program. This is the sixth public declination by the Department since launching the program in April 2016. It also represents the first public declination since the Department announced the temporary extension of the pilot program on March 10, 2017, and the first under the Trump administration.

For details on the new declination, please see Crowell & Moring’s Client Alert.

For more information, contact: Jeff Snyder, Edward Goetz

Jun.21.2017

Last Friday, the Department of Justice publicly disclosed another declination under its FCPA pilot program. This is the sixth public declination by the Department since first launching the program in April 2016 (as previously discussed in a Crowell & Moring alert). It also represents the first public declination since the Department announced the temporary extension of the pilot program on March 10, 2017, and the first under the new administration.

The Facts

In its June 16th letter to counsel for Linde North America Inc. and Linde Gas North America LLC, the Department outlined a series of factual findings related to Linde’s FCPA violations. It attributes the offending conduct to Spectra Gases, Inc., a New Jersey company acquired by Linde in October 2006, and states that between approximately November 2006 through December 2009, Linde—through Spectra—”made corrupt payments to high-level officials at the National High Technology Center (NHTC) of the Republic of Georgia, a 100 percent state-owned and -controlled entity, in connection with its purchase of certain income-producing assets from the NHTC.” The alleged scheme involved three high-level Spectra executives agreeing to a profit-sharing arrangement with high-level NHTC officials. Namely, in exchange for the officials’ assistance in ensuring that Spectra was selected as the purchaser of key NHTC assets, the Spectra executives agreed to share profits resulting from future sales with those officials. Ultimately, the NHTC officials “received approximately 75 percent of the profits generated by” Spectra’s arrangement with NHTC. Prior to discovering the misconduct, Linde dissolved Spectra, became its successor-in-interest, and continued to benefit “as a result of the corrupt conduct.”

Cooperation, Cooperation, Cooperation:

Consistent with prior declinations, the Department credited a number of examples of Linde’s cooperation that factored into the declination, including: “Linde’s voluntary self-disclosure of the matter;” “the thorough, comprehensive and proactive investigation undertaken by Linde;” “Linde’s full cooperation in the matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals;” “the steps Linde has taken and continues to take to enhance its compliance program and its internal accounting controls” and “Linde’s full remediation” described as “including terminating and/or taking disciplinary action against the employees involved in the misconduct, including the Spectra Executives and lower-level employees involved in the misconduct),” withholding certain payments from the executives, and terminating a management agreement with and withholding payments from “companies owned or controlled by the NHTC Officials.”

About the Money

Although Linde successfully avoided criminal prosecution, it also agreed to disgorge $7.8 million (representing profits and benefits received by Spectra and, subsequently, Linde) and to forfeit an additional $3.4 million (representing “corrupt proceeds owed to companies owned or controlled by the NHTC Officials”). Linde’s agreement to continue cooperating means that the financial costs may yet increase, and the Department is at least telegraphing that it intends to continue investigating the individuals involved.

Cautionary Tale

Linde got to the right result in this matter, but the cost of getting there was not cheap. Like other matters, this FCPA declination is a stark reminder of the importance of pre-acquisition due diligence.