Categories
Daily Compliance News

December 16, 2022 – The Boyfriend Confesses Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you four compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee and listen to the Daily Compliance News. All from the Compliance Podcast Network.

Stories we are following in today’s edition of Daily Compliance News:

  • Eva Kaili’s boyfriend confesses. (Reuters)
  • A new round of Russian sanctions. (NYT)
  • Corporate ownership viewing rights. (WSJ)
  • Racism lawsuit against Tesla gaining ground. (Bloomberg)
Categories
Daily Compliance News

December 13, 2022 – The SBF Arrested Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you four compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee and listen to the Daily Compliance News. All from the Compliance Podcast Network.

Stories we are following in today’s edition of Daily Compliance News:

  • Guangzhou R&F Properties wanted for bribery in the US. (YahooNews)
  • Charges brought in Qatar bribes of EU legislators. (NYT)
  • Braun wants the Wirecard trial suspended. (FT)
  • DOJ split over charging Binance for money laundering. (Reuters)
Categories
Blog

ABB FCPA Resolution: Part 3 – The Bribery Schemes

We continue our exploration of the latest resolution of a Foreign Corruption Practices Act (FCPA) violation involving the Swiss construction giant, ABB Ltd. The most obvious significance is from the fact that ABB is now the first three-time convicted violator of the FCPA, having prior FCPA resolutions in 2004 and 2010. The moniker of a three-time FCPA violator is certainly not one that any corporation wants to claim, yet here we are. The total fine and penalty for the violation was $315 million, with credited amounts going to South Africa, Switzerland, and Germany for ABB’s violations of those country’s anti-corruption laws. There was also a $75 million fine credited to the Securities and Exchange Commission (SEC). In addition to the SEC Order, the DOJ Press Release and Plea Agreement are also available. Conspicuously missing at this point are resolution documents from South Africa, Switzerland, and Germany.

We are exploring this FCPA enforcement action to see what lessons might be garnered from it. While we are doing so, please keep three key questions in mind: (1) How did ABB obtain such a superior resolution? (2) As a three-time FCPA violator, how did the company avoid a monitor? (3) Why was there no requirement for Chief Compliance Officer (CCO) certification? Today, we consider the bribery schemes used by ABB to fund the bribes.

Bribery Pre-Payment

One of the things we rarely see is the pre-payment of a bribe for a contract to be awarded corruptly in the future as usually there is a quid pro quo or payment made after a contract is corruptly awarded. Perhaps the corrupt Eskom official who awarded the contract to ABB saw their actions in passing on internal and confidential information, which ABB used to secure the contract, as worthy of payment, perhaps the Eskom official wanted a show of ‘good-faith’. Whatever the reason, the corrupt Eskom official wanted an upfront, pre-payment for the corruption award of the contract to ABB.

As I detailed previously the corrupt Subcontractor 1 who was the lead bribe facilitator was awarded a contract worth $7.2 million and then paid, according to the Plea Agreement, $798,000 as an ‘advanced payment’ ($720,000 according to the SEC Order) and that money was to be paid to the corrupt Eskom official. However corrupt Subcontractor 1 balked at making the payment and kept the money for themselves. ABB’s answer was to bring in a corrupt Subcontractor 2 to facilitate this pre-payment to the corrupt Eskom official.

Funding Through Variation Orders

Because of the original contract with the corrupt Subcontractor 1, ABB had to come up with another mechanism to fund the bribe payments to the corrupt Eskom official. The solution was elegantly simple, the ‘Variation Order’. Under this, “The scheme was effectuated through the abuse of “variation orders” provided for in the contract between ABB-South Africa and Eskom. These provisions allowed Eskom to make changes to the contract and resulted in ABB-South Africa claiming additional costs from Eskom. Eskom Official and Capture Team Lead agreed upon a target price, which ABB-South Africa would then quote based on proposals that included inflated, unnecessary, or unjustified costs and Eskom would officially approve. An official at Service Provider B then ensured that money was transmitted to Eskom Official and his family members from the payments.”

The Variation Orders were not based on the value of additional work but were costed out by the corrupt Eskom official and ABB jointly. They would figure out how much the bribe needed to be and then would hit on a “target price” for the Variation Order. In less than two years, from 2016-2017, ABB corruptly paid some $37 million in bribes to the corrupt Eskom official. As the SEC Order somewhat dryly noted, “The various payments to Service Provider B, much of which was intended as bribes for Eskom Official, were inaccurately reflected in ABB-South Africa’s books and records as legitimate engineering services and involved the use of false purchase orders and contracts. ABB-South Africa’s books and records were consolidated into ABB’s for purposes of Commission filings.”

While these bribery schemes were not all that sophisticated, they do point out a key issue for compliance professionals. In high-risk jurisdictions, there must be continual monitoring of billings from and payments to government and state-owned entity customers. As previously detailed the mechanisms by which corrupt Subcontractors 1 and 2 were onboarded clearly presented red flags which were not followed up on by ABB compliance. These funding mechanisms also demonstrated significant red flags which should have been more scrupulously reviewed as well. Compliance does not stop when the contract is signed, it must be an ongoing prevention, detection, and remediation program.

In short, there is much to unpack in this matter. Join us tomorrow where we look at the ABB self-disclosure, investigative and remedial responses which led to its superior result.

Categories
Daily Compliance News

November 23, 2022 the Return the Money Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance brings to you four compliance related stories to start your day. Sit back, enjoy a cup of morning coffee and listen in to the Daily Compliance News. All, from the Compliance Podcast Network.

Stories we are following in today’s edition of Daily Compliance News:

  • Senator Menendez and wife under investigation for corruption. (Washington Free Beacon)
  • DOT targets Russian corruption in Guatemala. (DOT Press Release)
  • German police raid UBS over allegations of AML violations. (FT)
  • Do you have to return ‘sting’ money? (Channel 5)

Categories
Daily Compliance News

November 22, 2022 the Bribery Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance brings to you four compliance related stories to start your day. Sit back, enjoy a cup of morning coffee and listen in to the Daily Compliance News. All, from the Compliance Podcast Network.

Stories we are following in today’s edition of Daily Compliance News:

  • Bribery allegations made against Qatar World Cup. (EuroWeek)
  • Former tribal gets 3 years for bribery and corruption. (ABCNews)
  • Three NYC cops plead guilty to taking bribes. (News12)
  • Bribery in parking fines in Houston. (Khou11)
Categories
The Corruption Files

Episode 12: The Ralph Lauren Bribery Case with Tom Fox and Michael DeBernardis

If you’re aggressive with your response, you’ll be rewarded.

Tom Fox and Michael DeBernardis break down the facts and lessons learned in the Ralph Lauren bribery case in Argentina. Discover why anti-corruption programs and worker training matter, how speedy cooperation improves resolution leniency, and why organizations shouldn’t be complacent when it comes to risk.

▶️ The Ralph Lauren Bribery Case with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

✔️ Tom Fox gives an overview of the Ralph Lauren case. Michael DeBernardis highlights how this case shows that risk exists in any industry outside the U.S.

✔️ Providing an anti-corruption program and employee training got Ralph Lauren ahead of its resolutions and lowered their penalties. It was unclear what monetary value their bribe payments had.

✔️ Ensure your employees deeply understand your policies by translating them into different languages. Ralph Lauren took this step and greatly benefited in the case outcomes.

✔️ Ralph Lauren’s speedy response and decision for a policy rollout were rewarded with a lenient resolution. This sends a powerful message to regulators that you’re taking the issue seriously.

✔️ A tailored risk assessment is helpful. Set up a plan to spot audits and do compliance checks in foreign locations in a certain period. Ralph Lauren’s case is an early model for the corporate enforcement program.

✔️ The Ralph Lauren case jumpstarted the corporate enforcement policy. Their proactivity is the biggest takeaway for organizations to apply.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
Compliance Into the Weeds

Lafarge and the Cost of Moral Bankruptcy

The award-winning, Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject. In this episode, we consider the recent guilty plea by Lafarge, the French cement giant now owned by Holcim, for paying bribes and protection money to ISIS and doing business in Syria with ISIS. Highlights include:

  • What are the background facts?
  • What were the bribery and payment schemes?
  • What are the compliance lessons learned?
  • How will the victim status play out?
  • Who will guarantee compliance of Lafarge with the Plea Agreement?

 Resources

Tom in the FCPA Compliance and Ethics Blog

Categories
Blog

Lafarge: Part 1 – Corruption at the Top

On April 24, 2017, Holcim Group issued a press release announcing the conclusion of the investigation into the payment of its subsidiary LaFarge to designated terrorist organizations. The Press Release stated in part, “The Board has now concluded the independent investigation and confirmed that a number of measures taken to continue safe operations at the Syrian plant were unacceptable, and significant errors of judgement were made that contravened the applicable code of conduct. The findings also confirm that, although these measures were instigated by local and regional management, selected members of Group management were aware of circumstances indicating that violations of Lafarge’s established standards of business conduct had taken place. . . .”

This statement is but one step in a lengthy and sordid process where LaFarge SA (before it merged with Holcim) made millions of dollars in payments to the terrorist group ISIS so that it could keep its Syrian cement plant open and get all the business it could do so during the Syrian Civil War. The Press Release concluded, “In hindsight any misdeeds may seem clear. However the combination of the war zone chaos and the “can-do” approach to maintain operations in these circumstances may have caused those involved to seriously misjudge the situation and to neglect to focus sufficiently on the legal and reputational implications of their conduct.” Indeed. [Emphasis supplied]

As reported by Law360, “France-based Lafarge and its defunct Damascus, Syria unit Lafarge Cement Syria, or LCS, each pled guilty to a count of conspiring to provide material support to foreign terrorist organizations and will pay a total of $777.78 million.” According to the Plea Agreement, this total amount consisted of a total criminal fine of approximately $91 million and forfeiture of $687 million. Please note this is not a Foreign Corrupt Practices Act (FCPA) enforcement action but an enforcement action based on USC 2339B for one count of conspiracy to provide material support to one or more foreign terrorist organizations. While this is not a FCPA enforcement action, it is a matter about corporate culture, tone at the top, senior executive involvement in corruption; in short it is all about compliance and ethics. This complete failure of compliance and ethics makes it a forceful study of the failings of corporate culture in the starkest way possible.

As laid out in the Statement of Facts, Lafarge finished construction of the Jalabiyeh Cement Plant in northern Syria at a cost of approximately $680 million and began operations in 2010. However, almost immediately “it faced strong competition from cheaper cement imported into northern Syria from Turkey, and in December 2010, Executive 3 sought the assistance of Intermediary 1 to intervene with the Syrian government to control the importation of competing Turkish cement.” In early 2011, the Syrian Civil War broke out and LCS wanted to be the biggest supplier in the soon to be war ravaged country. However, in 2012, ISIS began to gain strength and take over territory near the plant. ISIS also threatened LCS employees through intimidation and kidnapping.

Thereafter, five Lafarge executives from the corporate home office became involved in two-year campaign to pay off ISIS to allow the plant to keep in operation and to not threaten its employees. Beginning in the spring of 2013, Lafarge began paying protection money to ISIS through intermediaries and other third-party suppliers. The reason articulated was laid out in the Statement of Facts, (1) keep the investment in the physical assets (i.e., the plant); (2) keep the investment made in employees; (3) stay in the market to keep out Turkish competitors; and (4) make some profits. The payoffs to ISIS were made through a variety of schemes.

There was the old-fashioned way – cash, in the form of fixed monthly payments. There were payments made through intermediaries. You could not call them sales agents, but they were third parties charged with getting the protection for the bribes paid by LCS. There was a ‘tax’ paid on each truck that went in or out of the plant on roads controlled by ISIS. Eventually, in late 2013, these mechanisms morphed into a new business relationship between LCS and ISIS so that both sides were paid out of the profits from the sale of cement in Syria. For LCS it was simply a cost of doing business. At one point, Intermediary 1 was quoted for the following, “We currently sell for $8 to $10 million per month, with a $2 million profit, and pay less than 1⁄4 for protection. Other factories are paying for protection just to exist, without making the profits we are.”

But it did not simply stop with sales and ROI on paying bribes. LCS also purchased raw materials from ISIS, thereby contributing to international terrorism. The Statement of Facts noted, “Also in or about late 2013, LCS began to use Intermediary 2 to engage directly with ISIS-connected suppliers for the purchase of raw materials and supplies. LAFARGE and LCS retained the services of Intermediary 2 after he had personally met with the then-LAFARGE Group Honorary Chairman and a member of the LAFARGE Board of Directors who was a former LAFARGE Chief Executive Officer on September 16, 2013.”

Over the next few blog posts, I will be looking at the Lafarge enforcement action for lessons for the anti-corruption compliance professional. However, there are two additional points buried in all this corruption which bear noting. The first was reported by Pete Brush, in the Law360 article cited above, who wrote that during the court hearing where US District Judge William F. Kuntz II accepted the company’s guilty plea, he stated “This case impacts the victims of terrorist acts.” This would seem to indicate that any person who may have been the victim of ISIS terrorism could now bring suit against Lafarge (open question as to its successor).

The second item was buried in the Plea Agreement which said, “Lafarge’s commitment, in Attachment B, to guarantee the Defendants’ compliance with the terms of this Agreement.” [Emphasis supplied] Note the language used is not ‘certification’ as articulated in the Monaco Memo but ‘guarantee’ compliance with the terms of the Plea Agreement. How would you like to be the one who made that representation?

Tomorrow, we look at the bribery/payment schemes.

Categories
FCPA Compliance Report

Oracle FCPA Enforcement Action

In this episode, I take on a solo pod to discuss and consider the Oracle FCPA enforcement action brought by the Securities and Exchange Commission.

Key areas we discuss on this podcast are:

  • Background facts.
  • Same facts in same country?
  • Failure of a paper program.
  • The need for data analytics.
  • Where is the DOJ?
  • What are the lesson learned going forward?

 Resources

For a White Paper on the Oracle FCPE enforcement action, email tfox@tfoxlaw.com

Categories
Compliance Into the Weeds

The Oracle FCPA Enforcement Action

Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to more fully explore a subject. In this episode, we look at the recently announced SEC Foreign Corrupt Practices Act enforcement action involving Oracle. Highlights include:

  1. Recidivist behavior in some countries with similar schemes.
  2. Policy, procedure, and internal controls failures.
  3. Why no monitor.
  4. Compliance programs lessons learned.
  5. What about the DOJ?

 Resources

Matt in Radical Compliance

Tom in the FCPA Compliance and Ethics Blog

  1. Background
  2. The Schemes in Action
  3. Parking in India
  4. The Comeback and DOJ
  5. What it all means