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The Trafigura FCPA Enforcement Action – Part 4 – Lessons Learned

We conclude our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras). The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

Despite substantial violations of the FCPA and its extension into the corporate offices, Trafigura received the 10% discount noted above. The message from this enforcement action is the cost of failing to self-disclose, creating liability under the FCPA and creating jurisdiction for the DOJ to bring an enforcement action, denial that you have done anything wrong, failure to cooperate (at least initially), and not sanctioning any of the culpable company actors. In other words, there is a bit of reverse logic and analysis in this case. However, as noted several times, the DOJ rewarded Trafigura with some credit and gave them a discount. Most importantly, and perhaps inexorably, Trafigura was not required to retain a monitor.

Remediation 

While most of the remediation is reported as standard, the one item that every compliance professional should consider is that the company proactively discontinued using third-party agents for business origination. This point is perhaps the most significant, as we have now seen the DOJ call out Albemarle and SAP for discontinuing their use of third-party agents.

As Matt Kelly noted in Radical Compliance, in his discussion of Guvnor FCPA enforcement action, “This is the latest in a string of FCPA enforcement cases where we’ve seen a big, structural change to the sale function. Albemarle eliminated its use of third-party sales agents as part of its FCPA settlement last year; SAP eliminated its third-party sales commission model globally as part of its own FCPA settlement announced in January. Now we have a third global enterprise going that same route, reducing its FCPA risk in a deep, permanent way by restructuring its sales operations.” With Trafigura, we now have a fourth.”

As I noted in my review of the Albemarle and SAP enforcement actions, SAP eliminated its third-party sales commission model globally, prohibited all sales commissions for public sector contracts in high-risk markets, and enhanced compliance monitoring and audit programs, including the creation of a well-resourced team devoted to audits of third-party partners and suppliers. Albemarle changed its approach to sales and its sales teams. Guvnor also moved from being a third-party agent to a direct sales force.

Moving to a direct sales force does have its risks, which must be managed, but those risks can certainly be managed with an appropriate risk management strategy, monitoring of the strategy, and improvement; those risks can be managed. Yet there is another reason, and more importantly, a significant business reason, to move towards a direct sales business model. Whenever you have a third-party agent or anyone else between you and your customer, you risk losing that customer because your organization does not have a direct relationship with the customer. A direct sales business model will give your organization more direct access to your customers.

Another exciting aspect of this approach used by Albemarle, SAP, and Trafigura is that it is not an approach laid out in either the 2020 FCPA Resource Guide, 2nd edition, or the 2023 Evaluation of Corporate Compliance Programs. The companies developed all of these strategies based on their own analysis and risk models. It may have come from a realization that the risk involved with 3rd party sales models was too great, that the companies wanted more control over their sales, or another reason. Whatever the reason for the change, the DOJ clearly noted each organization and viewed it affirmatively.

Bribery Schemes

This area is essential for all compliance professionals to take note of. The bribes were initially funded with a $ 0.20 surcharge or uplift for every barrel of oil traded. With the price of oil fluctuating wildly at the time in question, between $60 to $100 per barrel, I am not sure such a small amount would even seem anomalous. It would not rise to a rounding error but generate $19 million in bribes. While I am not sure that the bribery scheme was designed to be so hard to detect, the reality is that no compliance professional could look at the trades and determine if a bribe was baked into the pricing.

Yet there was even a deeper part of the bribery scheme. Executives at Trafigura and corrupt traders at Petrobras prearranged the oil trading prices rather than letting the market determine them. The information noted, “The Trafigura Executive 2 and Brazilian Official 1 agreed to prices for trades of oil products and bribe amounts for each trade. After determining the price, Trafigura Executive 2 instructed Trafigura traders to negotiate with Petrobras, which Trafigura Executive 2 knew to be a sham, to arrive at the pre-agreed price.” [emphasis supplied]

Finally, another set of bribes was funded through an unrelated business unit. This occurred when one of the two corrupt Trafigura executives involved in the bribery scheme was transferred to run the company’s Singapore business unit. From there, this corrupt executive had a corrupt third party in Hong Kong bill the Singapore business unit for non-existent consulting services related to the Chinese market for $500,000. This money funded additional bribes to corrupt Petrobras employees. This extra step would require someone in compliance to connect the dots between a corrupt third-party bribery scheme in Singapore and China and the corruption at Petrobras in Brazil.

Lack of a Monitor

The following DOJ Memo governs the decision of whether a company needs a monitor: Revised Memorandum on Selection of Monitors in Criminal Division Matters, released in March 2023. The memo has 10 factors a prosecutor must consider.

  1. Did the corporation voluntarily self-disclose?
  2. At the time of the resolution and after a thorough risk assessment, has the company implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future?
  3. At the time of the resolution, the company had adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct.
  4. Whether the underlying criminal conduct was long-lasting or pervasive across the business organization or was approved, facilitated, or ignored by senior management, executives, or directors (including through a corporate culture that tolerated risky behavior or misconduct or did not encourage open discussion and reporting of possible risks and concerns),.
  5. Whether the underlying criminal conduct involved exploiting an inadequate compliance program or system of internal controls.
  6. Did the conduct involve the active participation of compliance personnel?
  7. Did the company take adequate investigative or remedial measures to address the underlying criminal conduct, including terminating business relationships and practices that contributed to it?
  1. At the time of the resolution, the company’s risk profile had substantially changed.
  2. Whether the corporation faces any unique risks or compliance challenges.
  3. Is the company subject to other oversight?

A review of the Information and Plea Agreement reveals no self-disclosure. Equally significantly, there is no information about whether the company has implemented an effective compliance program or sufficient controls, let alone tested them. According to the data, the conduct was long-lasting across multiple business units. If there were internal controls in place, they were undoubtedly inadequate. There does not appear to be involvement in the compliance function. The only positive factor from the resolution documents is that Trafigura did terminate its use of third parties to initiate and foster business development, but that appears to be the only factor they have met.

Writing again in Radical Compliance, Matt Kelly said, “Either way, these cases send mixed messages to the compliance community. It looks like you can get away with not self-disclosing misconduct and perhaps even slow-rolling your cooperation if you’re prepared to invest lots in a newly invigorated compliance program and tolerate the Fraud Section as your new BFFs for the next three years of a settlement agreement.”

If the DOJ has discontinued its monitoring program or changed the requirements, it is undoubtedly its prerogative to do so. It would be helpful if they communicated that change to the compliance community.

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The Trafigura FCPA Enforcement Action – Part 3 – The Penalty

We continue our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. Petrobras (Petrobras). The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

Given the multi-year nature of the bribery scheme, how high it went up in the organization, the lack of self-disclosure, and the admittedly lack of stellar cooperation, one might wonder how Trafigura could obtain any discount from their overall penalty.  There was no total figure to show the amounts of bribes paid by Trafigura in the Plea Agreement.  However, it was noted that Trafigura earned over $61 million in profits from the business obtained through the corrupt scheme. Yet Trafigura received a 10% discount off the 50th percentile of the applicable US Sentencing Guidelines acceptable range. How did Trafigura achieve this discount?

Cooperation

The starting point for this analysis is the Plea Agreement. However, we should note that Trafigura failed to preserve and produce certain documents and evidence on time and, at times, took positions inconsistent with full cooperation, “particularly during the early phase of the department’s investigation.” Additionally, Trafigura was slow to exercise disciplinary and remedial measures for certain employees whose conduct violated company policy. Finally, Trafigura “ultimately accepted responsibility for its criminal conduct. Its previous position in resolution negotiations also caused significant delays and required the offices to expend substantial efforts and resources to develop additional admissible evidence before the defendant constructively reengaged with the offices in agreeing to a negotiated resolution.”

This cooperation included (i) providing timely updates on facts learned during its internal investigation, (ii) making factual presentations to the DOJ, (iii) facilitating the interviews of employees and agents, including an employee located outside the United States, and arranging for counsel for employees where appropriate; (iv) producing relevant non-privileged documents and data to the department, including documents located outside the United States in ways that navigated foreign data privacy laws, accompanied by translations of certain documents; and (v) providing all relevant facts known to it, including information about individuals involved in the conduct. The compliance professional should note that Trafigura provided documents to the DOJ outside the United States in ways that navigated foreign data privacy laws.

The Remediation 

The Plea Agreement also included information on the remediation Trafigura carried out. Trafigura also took steps to fix the problems. These included (i) creating and implementing better, risk-based policies and procedures for things like fighting corruption, using middlemen and consultants, making payments to third parties, and assessing the risk of joint ventures and equity investments; (ii) improving the processes and controls around high-risk transactions; (iii) spending more money on training employees and testing their compliance; and (iv) making sure that the problems were fixed regularly. The final point is perhaps the most significant, as we have now seen the DOJ call out Albemarle and SAP for discontinuing their use of third-party agents.

Prior Misconduct

Trafigura also had prior misconduct, which the DOJ called out. While noting it was “not recent,” Trafigura had sustained a 2006 guilty plea for entering goods through false statements and a 2010 conviction for violating Dutch export and environmental laws concerning the discharge of petroleum waste in Côte d’Ivoire.

Fine Calculation

The explanation from the DOJ raised an open question in the minds of many compliance professionals regarding recent FCPA enforcement. That question was about how culture and prior misconduct were factored into the acceptable determination. This case follows the recent SAP enforcement action, in which a similar analysis was conducted. The DOJ does not discount fines off the low end of an acceptable range but instead in the middle between the high and low range. In the case of Trafigura, the high end of the acceptable range (after the complete calculation under the Sentencing Guidelines) was $170,345,061, and the low range was $85,172,530. As a result of the defendant’s cooperation and efforts to make things right, as well as the fact that some Trafigura Group companies had been guilty of similar crimes in the past, the DOJ took 10% off the middle of the two ranges, which put them in the 50th percentile. This led to a “total criminal fine” of $80,488,040, 10% less than the fifth percentile above the lowest possible fine under the Sentencing Guidelines.

Join us tomorrow, and we will conclude with lessons learned from the Trafigura enforcement action.

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The Trafigura FCPA Enforcement Action – Part 2 – The Bribery Schemes

We continue our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. Petrobras (Petrobras). The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

According to the Information, between approximately 2003 and 2014, Trafigura and its co-conspirators paid bribes to Petrobras officials in order to obtain and retain business with Petrobras. Beginning in 2009, Trafigura and its co-conspirators, who met in Miami to discuss the bribery scheme, agreed to make bribe payments of up to 20 cents per barrel of oil products bought from or sold to Petrobras by Trafigura and to conceal the bribe payments through the use of shell companies, and by funneling payments through intermediaries who used offshore bank accounts to deliver cash to officials in Brazil. The meeting in Miami created US jurisdiction for the FCPA violations.

While at first blush, the bribery schemes appear to be similar to FCPA violations from time immemorial, there are some interesting aspects that will inform how a compliance professional can learn new lessons from this enforcement action. These factors include corrupt actors, internal funding of the bribes from locations literally across the globe, and the potential conflicts of interest in hiring employees of customers prone to bribery and corruption.

Funding the Bribery Schemes

Unlike fraud, which is the theft of money, property, or goods from a company, bribery is the theft of money from a company to pay someone else. Hence, there must be a way for those involved in corruption to create a pot of money to pay bribes. It can be simply cheating on your expense accounts, hiding costs in marketing, or making fraudulent charitable donations. But in Latin America and specifically in Brazil, one of the most favored ways to do so is to bake the bribe directly into the contract sales price. Unfortunately, this makes bribe funding one of the most difficult to detect. That is what was done in the Trafigura case.

According to the Information, “Beginning in 2009, TRAFIGURA BEHEER B.V. and its co-conspirators agreed to make bribe payments of up to 20 cents per barrel of oil products bought from or sold to Petrobras by TRAFIGURA BEHEER B.V. and its subsidiaries and affiliated entities, and to conceal the bribe payments through the use of shell companies.” [emphasis supplied] What is the price of a barrel of oil on any trading market, spot or long term? It can vary quite widely, and during the time of the bribes paid in this matter, it vacillated between $55 to $90 per barrel. It would be more than difficult for any compliance officer to look at a trading contract and pick up this amount as an anomaly.

Additionally, executives at Trafigura and corruption traders at Petrobras pre-arranged the oil trading prices rather than letting the market determine them. The Information noted, “The Trafigura Executive 2 and Brazilian Official 1 agreed to prices for trades of oil products and bribe amounts for each trade. After the price had been determined,  Trafigura Executive 2 instructed Trafigura traders to engage in negotiations with Petrobras, which Trafigura Executive 2 knew to be a sham, in order to arrive at the pre-agreed price.” [emphasis supplied]

The next step was to internally fund the bribe payments through other Trafigura business units, where no one could connect the dots. It came about when one of the two corrupt Trafigura executives involved in the bribery scheme was transferred to run the company’s Singapore business unit. From there, this executive had a corrupt third party in Hong Kong bill the Singapore business unit for non-existent consulting services related to the Chinese market to the tune of $500,000. This money funded additional bribes to corrupt Petrobras employees. This same mechanism was used multiple times to add to the 20 cents per barrel surcharge being paid directly by Petrobras.

Corrupt Employees

There are a couple of other points of note about these bribery schemes. As noted above, there were two corrupt Trafigura executives called out in the Information. (Monikered as Trafigura Executives 1 & 2) Yet, according to the Information, there were other Trafigura executives who either knew about or approved the bribe payments, but they were not further identified in the Information. Trafigura Executive 2 initially worked under Trafigura Executive 1 but later became the head of the Singapore business unit. Clearly, he took corruption with him when he moved from Brazil to Switzerland (the home office) and then to Singapore. This is yet another data point that compliance officers need to assess.

One other point from this matter. Trafigura hired the first corrupt Petrobras employee after he left that company. Once again, compliance needs to figure out a way to become aware of such hires. It was clearly done to pay off this employee and to further the ongoing bribery scheme.

Join us tomorrow for a discussion of Trafigura’s response.

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Compliance Into the Weeds

Compliance into The Weeds: Trafigura FCPA Enforcement Action

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 more fully explore a subject.

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Look no further than Compliance into the Weeds!

In this episode, Tom and Matt take a deep dive into the recent SEC enforcement actions involving the Swiss trading company Trafigura.

The topic at hand is the Trafigura FCPA enforcement action, a pivotal case that shines a light on the methods of the Justice Department in dealing with corporate misconduct. This case involves a Swiss company, Trafigura, that was culpable of bribery allegations in Brazil and faced scrutiny for its failure to disclose such schemes.

Matt zeroes in on the absence of a compliance monitor in Trafigura’s case, highlighting the company’s extensive misconduct and questioning whether enhanced compliance reporting could adequately replace such a monitor. He advocates for reforming corporate culture through monitoring and expresses confusion over the DOJ’s inconsistent enforcement strategy.

Fox notes Trafigura’s failure to self-disclose and cooperate and its history of recidivist behavior. He too questions the effectiveness of enhanced compliance reporting as a substitute for a compliance monitor and expresses concern over the Justice Department’s prioritization of fines over reform.

Key Highlights:

  • FCPA Enforcement Action: Importance of Compliance
  • Enhancing Fraud Detection Through Forensic Collaboration
  • Evolution in DOJ Compliance Enforcement Strategies
  • Enforcement Discrepancies in Recidivist Oversight
  • What does it all mean for the compliance professional?

Resources:

Matt on Radical Compliance

Tom on the FCPA Compliance and Ethics Blog

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The Trafigura FCPA Enforcement Action – Part 1 – Introduction

In March 2024, the Department of Justice (DOJ) announced the resolution of a Foreign Corrupt Practices Act (FCPA) enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. Petrobras (Petrobras).

According to the DOJ Press Release, “Trafigura pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA. Under the plea agreement, Trafigura will pay a criminal fine of $80,488,040 and forfeiture of $46,510,257. The department will credit up to $26,829,346 of the criminal fine against amounts Trafigura pays to resolve an investigation by law enforcement authorities in Brazil for related conduct.”

In the DOJ Press Release, Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division, said, “For more than a decade, Trafigura bribed Brazilian officials to illegally obtain business and reap over $61 million in profits. Today’s guilty plea underscores that companies will face significant penalties when they pay bribes and undermine the rule of law. The department remains determined to combat foreign bribery and hold accountable those who violate the law.”

U.S. Attorney Markenzy Lapointe for the Southern District of Florida said, “Our office will continue to target anyone who uses the Southern District of Florida to further foreign corrupt practices and bribery schemes. We will continue working with our Criminal Division colleagues to identify and prosecute those responsible, including individuals and corporations.” Finally, Assistant Director Michael Nordwall of the FBI’s Criminal Investigative Division noted, “Trafigura’s corrupt practices violated the FCPA, and today’s resolution demonstrates that there are steep penalties for any company that tries to bribe government officials.

The information noted that between approximately 2003 and 2014, Trafigura and its co-conspirators paid bribes to Petrobras officials to obtain and retain business with Petrobras. Beginning in 2009, Trafigura and its co-conspirators, who met in Miami to discuss the bribery scheme, agreed to make bribe payments of up to 20 cents per barrel of oil products bought from or sold to Petrobras by Trafigura and to conceal the bribe payments through the use of shell companies, and by funneling payments through intermediaries who used offshore bank accounts to deliver cash to officials in Brazil. Trafigura profited approximately $61 million from the corrupt scheme.

Trafigura’s conduct during most of the investigation was undoubtedly less than sterling. The company did not self-disclose to the DOJ and had the Plea Agreement dryly noted, “However, the defendant, in particular during the early phase of the government’s investigation, failed to preserve and produce certain documents and evidence promptly and, at times, took positions that were inconsistent with full cooperation.” Additionally, Trafigura was slow to exercise disciplinary and remedial measures for certain employees whose conduct violated company policy. In other words, it was not a company that engendered itself with the DOJ during the investigation phase.

Perhaps because of its conduct during the investigation and an apparent lack of a culture of compliance at the firm, the company only received 10% off the middle range under the sentencing guidelines. Trafigura was a recidivist, with (1) a 2006 guilty plea for entry of goods using false statements, (2) Trafigura’s 2010 conviction of violating Netherlands exports, and (3) a violation of Côte d’Ivoire environmental laws in connection with the discharge of petroleum waste. Ultimately, Trafigura admitted that it had done something illegal during the investigation. However, the company’s initial stance in resolution talks caused a lot of delays, and the government had to spend a lot of time and money gathering more evidence that could be used in court before Trafigura could agree to a peaceful resolution. This led to a guilty plea and a criminal fine, reflecting a 10% reduction off the fifth percentile of the applicable guidelines acceptable range.

In this blog series, we will consider bribery schemes, resolutions, and lessons learned for compliance professionals.

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10 For 10

10 For 10: Top Compliance Stories For the Week Ending March 30, 2024

Welcome to 10 For 10, the podcast that brings you the week’s Top 10 compliance stories in one podcast each week. Tom Fox, the Voice of Compliance, brings you the compliance professional and the compliance stories you need to know to end your busy week. Sit back, and in 10 minutes, hear about the stories every compliance professional should know from the prior week. Every Saturday, Tom Fox, the Voice of Compliance, curates 10 For 10 to highlight the most significant news, insights, and analysis for compliance professionals. Get your weekly fix of compliance stories with 10 for 10, a podcast from the Compliance Podcast Network.

  • Shohei Ohtani denies any knowledge of his translator’s gambling. (WSJ)
  • Luxury apartments targeted by DOJ. (WSJ)
  • Crypto-Exchange KuCoin faced money-laundering charges.  (WSJ)
  • More Chinese companies are to be added to the banned list. (WSJ)
  • Corruption drives trafficking in SE Asia. (Al Jazeera)
  • South African Speaker of Parliament charged with corruption. (WaPo)
  • The former head of the China Football Association was jailed for life for corruption.  (ESPN)
  • EY promotes neurodiverse talent. (BBC)
  • More neurodiverse claims are made in the workplace. (FT)
  • An MoD report on UK corruption vis-à-vis Saudi Arabia was found in a public archive. (The Guardian)

Click here for more information on the Ethico ROI Calculator and a free White Paper on the ROI of Compliance.

You can check out the Daily Compliance News, which features four curated compliance and ethics stories each day, here.

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Daily Compliance News

Daily Compliance News: March 22, 2024 – The Big Mistake Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you 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.

Each day, we consider four stories from the business world: compliance, ethics, risk management, leadership, or general interest for the compliance professional.

In today’s edition of Daily Compliance News:

  • Goldman files a suit against Malaysia over 1MDB. (Bloomberg)
  • The DOJ sues Apple.  (Reuters)
  • The Vietnamese President resigns over corruption issues. (NPR)
  • Warren wants the SEC to look into Tesla’s independence. (WSJ)

For more information on the Ethico ROI Calculator and a free White Paper on the ROI of Compliance, click here.

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Argentieri at ABA White Collar Conference: Compliance Programs, Part 2

There were recently two significant speeches by Department of Justice (DOJ) officials at the American Bar Association National Institute on White Collar Crime. The first was by Deputy Attorney General Lisa Monaco. The second was by Acting Assistant Attorney General Nicole Argentieri. They both had important remarks for the compliance professional. I have taken a deep dive into both speeches and what indicates compliance programs, compliance professionals, DOJ expectations, and Foreign Corrupt Practices Act (FCPA) enforcement going forward. We have previously considered the Monaco speech and began exploring the speech by Nicole Argentieri. Today, we conclude with remarks by Argentieri regarding how the DOJ will put these policies into practice and what they mean for compliance professionals and programs going forward.

Robust Compliance

The DOJ has either concluded or is in the middle of an FCPA industry sweep through oil and energy trading companies. In addition to Gunvor, there have been enforcement actions involving Vitol Trading, Glencore, and Freepoint. Argentieri noted that as a part of their resolutions with the DOJ, “each of these trading companies was required to make critical enhancements to their compliance programs to prevent future violations of the FCPA. Companies that take forward-leaning steps on compliance will be better positioned to certify that they have met their compliance obligations at the end of the term of their agreements, as is now required in corporate resolutions with the Criminal Division. These prosecutions also help set the tone for the energy trading industry as a whole — they show that a robust compliance function is critical.”

Corporate Culture

It all begins with corporate culture. The DOJ will assess the corporate culture and a company’s prior misconduct in determining the appropriate form of resolution and the financial penalty. This is where culture becomes critical, particularly for the recidivist, because, as Argentieri noted, “we will not hesitate to require substantial penalties — including, where appropriate, guilty pleas — for companies that show themselves to be repeat offenders.”

Coupling that statement with the superior resolution obtained by ABB and Albemarle shows that the DOJ is serious about corporate culture. The bottom line is that a company can move to a culture of compliance if senior management is committed to the effort. One need only consider the superior result obtained by the first three-time recidivist ABB. Culture is critical, and you must demonstrate that you have assessed and worked to improve your corporate culture.

Clawbacks and Holdbacks

One of the key initiatives brought forward under DAG Monaco’s tenure has been around incentives and consequences. However, under DAG Monaco’s tenure, incentives and consequence management were further refined in the 2023 Evaluation of Corporate Compliance Programs (2023 ECCP). It was also enshrined in the DOJ Compensation Incentives and Clawbacks Pilot Program (Pilot Program), which has two components: (1) incentivization of compliance and (2) disincentives through clawbacks and holdbacks.

Argentieri pointed to the SAP resolution as a key example of how clawbacks and holdbacks can benefit a company. She noted, “Even before its criminal resolution, SAP had adjusted its compensation incentives to align with compliance objectives and reduce corruption risk.” She said, “SAP also took advantage of the second part of the Pilot Program, which allows companies to reduce their fines when they withhold compensation from culpable employees.” The DOJ “reduced SAP’s criminal penalty by over $100,000 for compensation that the company withheld from certain employees.”

However, the pilot program requires a real effort from the company regarding clawbacks and holdbacks. SAP “went to great lengths to defend this corporate decision, including through litigation.’ Argentieri believes that “These actions sent a clear message to other SAP employees—and employees of companies everywhere—that misconduct will have individual financial consequences. This is another example of the company’s remediation that supported our decision to award a 40% fine reduction.”

Before SAP, Albemarle was “the first company to receive a fine reduction under the Pilot Program in an FCPA resolution last year.” While Gunvor did not engage in clawbacks or holdbacks, Argentieri applauded their efforts in incentivizing compensation, relating that “Gunvor had already updated and evaluated its compensation policy better to incentivize compliance with the law and corporate policies.”

Argentieri concluded this section by stating, “All of these policies should send a simple, but strong, message: being a good corporate citizen is not just the right thing to do. It is good business. Those who step up will be able to unlock the benefits afforded by our policies. And those who do not will face stiff punishments. And for companies making the tough decision of whether to disclose, take note — we now have more ways than ever to discover misconduct.”

The Bottom Line

DAG Monaco’s speeches and Nicole Argentieri’s provided significant information for the compliance professional. Both are the DOJ expectations for a best practices compliance program and what a company needs to do if they find themselves under an FCPA investigation. DAG Monaco made four key points: (1) the DOJ will invest the most significant resources in the most serious cases, hold individuals accountable, and pursue tough penalties for repeat offenders absent a significant culture shift and remediation. (2) The Voluntary Self-Disclosure Program is a key component of enforcement and incentives. (3) The DOJ whistleblower bounty program should lead to new referrals to the DOJ. (4) Compliance professionals should be ready to address new, disruptive technologies, such as the rise of AI, through their corporate enforcement programs.

Argentieri emphasized details in compliance programs. It all starts with corporate culture, but companies must strive towards robust compliance programs, including effective internal controls, incentives for employees to work ethically and in compliance, and significant consequences for failure to do so: vigorous internal reporting, triage, and investigative protocols. Compliance professionals and compliance programs have never been more important for companies.

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Everything Compliance

Everything Compliance – Episode 131, The Whistleblower Edition

Welcome to the only roundtable podcast in compliance as we celebrate our second century of shows. In this episode, we have a quintet of commentators; Jonathan Marks, Matt Kelly, Jonathan Armstrong, Jay Rosen, and Special Guest Mary Inman; all hosted by Tom Fox.

1. Matt Kelly bemoans the lack of monitoring in recent FCPA enforcement actions. He shouts out to Ken Buck for his resignation from Congress.

2. Host Tom Fox shouts out to the Ides of March and the Mooring Theater Company’s Production of Shakespeare’s play Julius Caesar,  starring Corin and Vanessa Redgrave.

3. Jonathan Armstrong reviews NIS2 and the changing climate around cybersecurity regulation. He rants about the disaster management failures of the British Crown around Kate Middleton.

4. Jay Rosen looks at the enforcement action involving Gunvor S.A. and the potential Vice-Presidential candidacy of Aaron Rogers and says, “You ain’t no Bill Bradley.”.

5. Special Guest Mary Inman takes a deep dive into the DOJ whistleblower bounty program.  She shouts out to whistleblower John Barnett and rants about the need for mental health resources to be made available to whistleblowers.

6. Jonathan Marks looks at the DOJ’s renewed call for self-disclosure. shouts out a fast-thinking and fast-acting McDonald’s employee who used CPR to save a customer who had a heart attack.

The members of the Everything Compliance are:

• Jay Rosen– Jay can be reached at Jay.r.rosen@gmail.com

• Karen Woody – One of the top academic experts on the SEC. Woody can be reached at kwoody@wlu.edu

• Matt Kelly – Founder and CEO of Radical Compliance. Kelly can be reached at mkelly@radicalcompliance.com

• Jonathan Armstrong –is our UK colleague, who is an experienced data privacy/data protection lawyer in London.

• Jonathan Marks can be reached at jtmarks@gmail.com.

The host, producer, ranter (and sometimes panelist) of Everything Compliance is Tom Fox, the Voice of Compliance. He can be reached at tfox@tfoxlaw.com. Everything Compliance is a part of the Compliance Podcast Network.

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Argentieri at ABA White Collar Conference: Corporate Enforcement, Part 1

There were recently two significant speeches by Department of Justice (DOJ) officials at the American Bar Association National Institute on White Collar Crime. The first was by Deputy Attorney General Lisa Monaco. The second was by Acting Assistant Attorney General Nicole Argentieri. They both had important remarks for the compliance professional. Over the next several blog posts, I will review both speeches and what they might indicate for compliance and Foreign Corrupt Practices Act enforcement going forward. Yesterday, I considered the Monaco speech. Today is the speech by Nicole Argentieri.

After reviewing some of the more significant individual prosecutions, Argentieri turned to corporate enforcement, noting, “Corporate accountability is the other side of our white-collar work because companies are the first line of defense against misconduct.” She emphasized the need for “a strong compliance program that is key to preventing corporate crime before it occurs and addressing misconduct when it does occur.” The DOJ’s Corporate Enforcement Policy also encourages “companies to invest in strong compliance functions and to step up and own up when misconduct occurs.” She cited one company that did not have a robust compliance program (or a culture of compliance), Binance, which explicitly communicated its “priorities, telling employees that, when it came to compliance, it was “better to ask for forgiveness than permission.”

In the Foreign Corrupt Practices Act enforcement arena, Argentieri pointed to four cases the DOJ prosecuted over the past 18 months. The companies all entered into corporate resolutions for FCPA violations. This group included Vitol, Glencore, Freepoint, and, most recently, Gunvor. Additionally, the DOJ prosecuted multiple individuals in connection with these cases. She even detailed the multiple bribery schemes involved: “Bribe payments funneled into the pockets of foreign officials through corrupt third-party agents using sham contracts and fake invoices.”

In each organization, there was a decided lack of a culture of compliance. Additionally,  employees exploited gaps in their companies’ internal controls and compliance programs. Personal cell phones and personal email accounts were used, which the organizations seemingly had no access to during the corruption and after the internal investigations. To make payments, internal controls were overridden or ignored to make off-the-books systems not subject to the organization’s standard checks and controls.

Because of the internal control and compliance failures that led to or contributed to the FCPA violations, each of these entities was required to make critical enhancements to their compliance programs to prevent future violations of the FCPA. Argentieri said, “Companies that take forward-leaning steps on compliance will be better-positioned to certify that they have met their compliance obligations at the end of the term of their agreements, as is now required in corporate resolutions with the Criminal Division.”

However, the DOJ’s work done after a settlement with a company is equally important. She clarified that the DOJ will monitor companies after resolution as they make, monitor, and attest to their compliance program and internal controls enhancements. She reported that “twenty-four companies have a market capitalization of more than $1 billion, and 22 are public companies. Over the past decade, hundreds of other companies across a wide range of industries have similarly been subject to compliance obligations in cases brought by the Criminal Division.” This ongoing oversight is not an independent monitorship but to ensure compliance with the resolution documents and to “have a real impact on corporate culture and compliance.”

The DOJ wants good corporate citizens and incentivizes companies to do so in various ways. Beyond enforcement actions are the Evaluation of Corporate Compliance Program (ECCP), the Corporate Enforcement Policy (CEP), the Voluntary Self-Disclosure Program (VSP), and the Compensation Incentives and Clawbacks Pilot Program. Argentieri reported that self-disclosures have increased over the past three years: “In 2023, we received nearly twice as many disclosures as in 2021. We expect this trend to continue as more companies take advantage of the benefits of voluntary self-disclosure and the CEP more generally.”

Argentieri believes that the DOJ has articulated policies that apply transparent criteria for both prosecutors to use and as “guideposts for companies and their counsel to consider when deciding what to do when faced with the prospect of a government investigation. It is a goal of the DOJ “to demonstrate the benefits that await those who voluntarily disclose misconduct.” She concluded this section by stating, “It’s one thing to issue and update policies. It’s another way to change corporate behavior. That is why we track the number of disclosures from companies. I’m proud to announce that early indications are that our policies are bearing fruit.”

Join us tomorrow as we examine how the ECCP, VSD, CEP, and Clawbacks Program have been reflected in recent enforcement actions.