RECENT TRENDS IN FCPA ENFORCEMENT - FIRST HALF OF 2014
By Charles Duross and Hanna Abrams
Although the overall number of corporate cases brought by the government under the U.S. Foreign Corrupt Practices Act (FCPA) has been lower in the first half of 2014 than in previous years, the amount of money the government has collected in penalties has increased significantly. Each of the cases has also been the product of significant cooperation between the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) and their foreign law enforcement counterparts.
This update provides an overview of three key FCPA cases that emerged in the first half of 2014-Alcoa, Marubeni, and Hewlett- Packard. Each of the cases resulted in corporate settlements that involved a significant monetary component: Alcoa ($384 million in total), Marubeni ($88 million in total), and Hewlett-Packard ($108 million in total).
Alcoa World Alumina LLC
On January 9, 2014, Alcoa World Alumina LLC entered a guilty plea to one count of violating the anti-bribery provisions of the FCPA with a 2004 corrupt transaction.1 Alcoa World Alumina LLC, a majority-owned subsidiary, agreed to pay a criminal fine of $209 million and forfeit $14 million to settle the DOJ's charges.2 The company also agreed to maintain and implement an enhanced anti-corruption program.3 Alcoa Inc., the corporate parent, also agreed to resolve civil charges brought by the SEC by disgorging $161 million.4 The settlement, totaling $384 million is one of the largest FCPA-related cases in history.5
The plea agreement acknowledges that millions of dollars in bribes were paid through a third-party agent to officials of the Kingdom of Bahrain by (1) entering into sham sales agreements with the agent and paying commissions intended to conceal bribe payments, and (2) selling aluminum through offshore shell companies owned by the agent, thereby allowing the agent to increase the prices as a purported distributor and use the money to pay government officials.6
In reaching the settlement, the DOJ acknowledged the extensive cooperation it received from international law enforcement agencies, including the Office of the Attorney General of Switzerland, the Guernsey Financial Intelligence Service and Guernsey Police, the Australia Federal Police, and the UK's Serious Fraud Office (SFO).7
On March 19, 2014, the DOJ announced that Japanese trading company Marubeni Corporation had pleaded guilty to one count of conspiring to violate the anti-bribery provisions of the FCPA and seven counts of violating the FCPA.8 As part of the plea agreement, Marubeni agreed to pay a criminal fine of $88 million.9 The DOJ cited, among other things, the company's "decision not to cooperate with the department's investigation when given the opportunity to do so, [and] its lack of an effective compliance and ethics program at the time of the offense."10 This was the second time that Marubeni had been charged with FCPA violations in the past few years.11
The plea agreement resulted from a seven-year scheme to pay and conceal bribes to high-ranking government officials in Indonesia in order to obtain a power project.12 The company attempted to conceal the bribes by using third-party consultants to make the payments to Indonesian government officials.13
In reaching this settlement, the DOJ acknowledged the significant cooperation it received from the Indonesian Komisi Pemberantasan Korupsi, the Office of the Attorney General in Switzerland, and the SFO.14
On April 9, 2014, Hewlett-Packard and its various subsidiaries resolved a series of criminal and civil FCPA violations, agreeing to pay more than $108 million in criminal and civil fines.15 HP's Russian subsidiary pleaded guilty, its Polish subsidiary entered into a deferred prosecution agreement, and its Mexican subsidiary entered a non-prosecution agreement.16 The three subsidiaries agreed to pay over $76 million in criminal penalties and fines to settle the FCPA violations, and $31.5 million in civil penalties to settle charges brought by the SEC.17
The guilty plea noted that employees of the Russian subsidiary had created an off-the-books slush fund containing millions of dollars by selling products to a channel partner of Hewlett-Packard, which in turn sold the products to an intermediary at a markup. The Russian subsidiary then repurchased the products from the intermediary at a markup and paid the intermediary for its purported services. The intermediary transferred most of the payments through shell companies, the bulk of which went to Russian government officials.18
In the deferred prosecution agreement with HP Poland, the alleged corrupt conduct was in connection with payments for various contracts with the Polish National Police agency.19 In the non-prosecution agreement with HP Mexico, HP Mexico acknowledged that it secured contracts to provide hardware, software, and license packages to Mexico's state-owned petroleum company after retaining a third-party consultant who was closely aligned with the petroleum company's senior executives. HP Mexico paid a "commission" to the consultant through a long-standing channel partner who funneled money to a senior official at the petroleum company.20 The plea agreement acknowledged HP's extensive cooperation with the DOJ's investigation.21
In reaching the settlement, the DOJ acknowledged the significant assistance it received from international law enforcement agencies including the Polish Anti- Corruption Bureau, the Polish Appellate Prosecutor's Office, and the Public Prosecutor's Office in Dresden, Germany.22
While the number of overall corporate cases is smaller so far this year, the cases themselves have been among the biggest in history, and there does not appear to be any reason to believe that will slow down, as there are a series of highly publicized ongoing investigations, a number of which are reportedly nearing resolution. Moreover, while commentators have long felt the need to analyze "trends" in quarterly or semi-annually assessments, the truth is that these cases are massive, complex, and take many years to conclude; therefore, one should be circumspect before placing too much weight on any one snapshot in time. Aside from the corporate cases, there are a number of FCPA-related cases against individuals moving toward trial in Connecticut, Maryland, New Jersey, and New York, and those contested cases may generate decisions that will impact the legal landscape of FCPA enforcement, possibly in very important ways.
1 Plea Agreement, United States v. Alcoa World Alumina LLC, No. 14-cr-00007 (W.D. Pa. Jan. 9, 2014), available at http://www.justice.gov/criminal/fraud/fcpa/cases/alcoa-world-alumina/01-09-2014plea-agreement.pdf.
2 Plea Agreement, supra note 1, ¶ 7; see also Judgment at 11, 7, United States v. Alcoa World Alumina LLC, No. 14-cr-00007 (W.D. Pa. Jan. 9, 2014), http://www.justice.gov/criminal/fraud/fcpa/cases/alcoa-world-alumina/01-09-2014judgment.pdf.
3 Plea Agreement, supra note 1, ¶ 9(g).
4 Cease-and-Desist Order at 11, Alcoa Inc., Exchange Act Release No. 71261 (Jan. 9, 2014), available at http://www.sec.gov/litigation/admin/2014/34-71261.pdf (ordering Alcoa to disgorge $175 million, but noting that $14 million of the amount was satisfied by the forfeiture payment in the related criminal matter).
5 See Dep't of Justice Press Release, "Alcoa World Alumina Agrees to Plead Guilty to Foreign Bribery and Pay $223 Million in Fines and Forfeiture" (Jan. 9, 2014), available at http://www.justice.gov/opa/pr/2014/January/14-crm-019.html.
6 Plea Agreement...