On June 16, 2017, the Department of Justice (DOJ) issued a Declination to Linde North American Inc. and Linde Gas North America LLC (collectively “Linde”). This is the first Declination issued by the DOJ in the era of the Trump Administration. For that reason alone, it was instructive and should be studied by the compliance profession. However, the case presented several interesting factors which merit consideration, so we are discussing in depth to present lessons to be learned for the Chief Compliance Officer (CCO) or compliance practitioner.
Lessons Learned
This was yet another Foreign Corrupt Practices Act (FCPA) action where a company performed insufficient due diligence in the acquisition phase. The timing of the Linde purchase of Spectra Gases and Spectra Gases’ purchase of the income-producing assets is too close in time to be a coincidence. It would certainly appear that Linde purchased Spectra Gases to facilitate its acquisition of the boron column and other assets. If your company is going to make such a multi-step acquisition, you must perform due diligence on all the actors and the assets involved.
The Byzantine corporate structure created for the ownership of the boron column, its operation, and its management contract are clear red flags that any CCO should sniff out immediately. While I am sure the internal corporate excuse for this clear ruse was the ubiquitous ‘tax considerations,’ every such transaction should also be reviewed by compliance. Anytime there is more than one entity to accomplish one task, there is the possibility of fraud. Further, it is unclear how Linde could not have been aware of the company’s ownership interests that it ultimately controlled. It would seem that the company did not even make any inquiries.
Even in 2006, the Republic of Georgia’s reputation for bribery and corruption was quite high. The 2006 Transparency International-Corrupt Perceptions Index (TI-CPI) listed Georgia at 99 out of 176 countries, which warranted red flag scrutiny. Extra care is warranted if you are purchasing an entity in a country with such a well-known affinity for corruption. Perhaps in 2006, Linde did not view the FCPA as something it would deal with in such a situation.
Yet even with all the apparent miss-steps and non-steps of compliance, the company was able to secure a declination from the DOJ. While there may be some additional penalties or sanctions by the Securities and Exchange Commission (SEC) for the failures of internal controls, the result obtained by Linde was certainly superior. The company has met the four pillars under the FCPA Pilot Program through (a) self-disclosure, (b) extraordinary cooperation, (3) full remediation, and (d) profit disgorgement. Interestingly, in this case, the profit disgorgement would have been beyond the five-year limitations for profit disgorgement under the recent Supreme Court decision in Kokesh. If the SEC brings an FCPA enforcement action, additional facts may be recited in any resolution documents.
Nevertheless, kudos are due to Linde and its counsel for obtaining this declination. Every CCO should study it for both the superior result received and underlying facts to see if you face anything similar in the Republic of Georgia or elsewhere.
For a full copy of the Linde Declination, click here.
