Tag: DOJ

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Everything Compliance

Everything Compliance – The Albemarle Edition

Welcome to the only roundtable podcast in compliance as we celebrate our second century of shows. In this episode, we have the quartet of Jay Rosen, Jonathan Armstrong, Matt Kelly, and special guests Karen Moore and Kristy Grant-Hart, with Tom Fox hosting. Our topic today (with the exception of Mr. Armstrong) is the recently announced Albemarle FCPA enforcement action with both the DOJ and SEC. We conclude with our always popular and fan-favor Shout Outs and Rants.

1. Matt Kelly provides an overview of the enforcement action. He rants about former House Speaker Kevin McCarthy and the GOP’s desire for chaos rather than governing.

2. Guest Karen Moore takes a deep dive into the SEC FCPA enforcement action involving Albemarle. She rants about lawyer fees over $2000+ per hour.

3. Tom Fox shouts out to the MLB playoffs and pays tribute to Dick Butkus.

4. Guest Kristy Grant-Hart takes a deep dive into the holdback provision noted in the DOJ enforcement action.

5. Jonathan Armstrong reviews CEOs misbehaving and the corporate response. He shouts out Kortney Nordrum for her presentation on what it is like to go through a data breach.

The members of the Everything Compliance are:

•       Jay Rosen– Jay is Vice President of Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.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 with Cordery in London. Armstrong can be reached at jonathan.armstrong@corderycompliance.com

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

•       Special Guest Kristy Grant-Hart is the founder of Spark Consulting.

•       Special Guest Karen Moore is an Adjunct Professor at Fordham University School of Law

The host and 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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Compliance Into the Weeds

Compliance into the Weeds: New M&A Safe Harbor

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 more fully. Are you looking for some hard-hitting insights on sanctions compliance? Look no further than Compliance into the Weeds! In this episode, Tom and Matt consider the recent speech by DAG Lisa Monaco, creating a Safe Harbor for M&A under the FCPA and beyond.

The Justice Department has recently unveiled a new policy aimed at fostering cooperation and compliance within the corporate sector, especially during acquisitions. This policy, which offers companies the chance to avoid charges for compliance violations discovered during the acquisition process, has sparked a lively discussion among compliance experts. Matt views this policy with a mix of curiosity and uncertainty. He acknowledges its potential benefits but also raises concerns about its practical execution, particularly in relation to antitrust enforcement and the treatment of companies new to acquisitions.

The application of the policy across various DOJ divisions and its interactions with other enforcement organizations intrigue Tom. He also questions whether acquiring companies will still receive a “free pass” if the acquired company engages in antitrust behavior. To delve deeper into these perspectives and explore the potential implications of this new policy, join Tom Fox and Matt Kelly in the latest episode of the Compliance into the Weeds podcast.

Key Highlights:

  • Cooperation and Compliance Incentives for M&A
  • Exemption of Acquisition Target’s Aggravating Factors
  • DOJ’s Emphasis on Pre-Acquisition Compliance Involvement
  • Enforcement Policy’s Impact and Curiosity

 Resources:

Matt in Radical Compliance

Tom 

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program Through Innovation: Day 8 – The Compliance Function into the 2030s and Beyond

Today, we look at the Compliance Function. The pandemic accelerated changes in compliance that have been percolating for the last few years. Indeed, I believe that in as short a time as 5 years, 2020 will be seen as an inflection point in compliance, IE., the Year When Everything Changed. There are four major changes I would like to highlight and what these changes portend for compliance down the road.

Compliance Convergence. In 2019, there were three significant releases of information by the federal government, which directly impacted compliance professionals.

Public/private partnership in the anti-corruption fight. Over the past few years, the DOJ has gone far toward laying out real incentives for corporations to help in the fight against the international scourge of bribery and corruption.

Data, Data, Data. The DOJ has made it clear that it expects companies to be more robust in their use of data analytics in compliance programs.

Compliance as the Ethical Edge. We have known for many years that companies with more robust compliance programs were most generally better-run companies.

This academic research and other case studies demonstrate that effective compliance programs equate to more efficient business processes and lead to greater profitability. As senior business leaders come to understand this message, they will (properly) see compliance as a business process that can be analyzed and improved through continuous improvement to make companies run more efficiently and, at the end of the day, more profitably. These companies do not make money because they have a better heart. They are more profitable because they are better run. Finally, all of this ties back to a requirement from the DOJ for continuous improvement of your compliance program.

Three key takeaways:

  1. It’s all about compliance now.
  2. Compliance connectedness.
  3. It’s all about the data.

For more information, check out The Compliance Handbook, 4th edition, here.

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Blog

Albemarle FCPA Enforcement Action: Part 5 – Lessons Learned

Over the past several blog posts, I have been exploring the Albemarle FCPA enforcement action.  We have explored in some detail the DOJ Non-Prosecution Agreement (NPA) and the SEC Administrative Order(Order). In this final blog post on the series, I want to suss out some lessons for the compliance professional.

Consequence Management

When Kenneth Polite announced the Pilot Program in conjunction with the 2023 Evaluation of Corporate Compliance Programs (ECCP), the focus was largely on clawbacks. However, the relevant section in the ECCP was entitled “Consequence Management,” indicating a broader focus on both incentives to do business ethically and in compliance as well as disincentives. The ECCP asked a series of questions:

  • Has the company considered the impact of its financial rewards and other incentives on compliance?
  • Has the company evaluated whether commercial targets are achievable if the business operates in a compliant and ethical manner?
  • What role does the compliance function have in designing and awarding financial incentives at senior levels of the organization?
  • How does the company incentivize compliance and ethical behavior? What percentage of executive compensation is structured to encourage enduring ethical business objectives?
  • Are the terms of bonus and deferred compensation subject to cancellation or recoupment, to the extent available under applicable law, in the event that non-compliant or unethical behavior is exposed before or after the award was issued?
  • Does the company have a policy for recouping compensation that has been paid where there has been misconduct?
  • Have there been specific examples of actions taken (e.g., promotions or awards denied, compensation recouped, or deferred compensation canceled) as a result of compliance and ethics considerations?

The NPA noted that Albemarle engaged in holdbacks, as they did not pay bonuses to certain employees involved in the conduct or those who had oversight. The NPA stated, “The Company withheld bonuses totaling $763,453 during its internal investigation from employees who engaged in suspected wrongdoing.” The illegal conduct involved those who “(a) had supervisory authority over the employee(s) or business area engaged in the misconduct; and (b) knew of, or were willfully blind to, the misconduct.” The significance of this effort was vital as it qualified Albemarle for an additional fine reduction of a dollar-for-dollar credit of the amount of the withheld bonuses under the Criminal Division’s March 2023 Compensation Incentives and Clawbacks Pilot Program.

Indeed, Deputy Attorney General Lisa Monaco, in a recent speech, said, “The pilot program also rewards companies that claw back or withhold incentive compensation from executives responsible for misconduct – or attempt to do so in good faith. For every dollar that a company claws back or withholds from an employee who engaged in misconduct – or a supervisor that knew of or turned a blind eye to it – the Department will deduct a dollar from the otherwise applicable penalty that the resolving company would pay.”

She specifically cited the Albemarle FCPA resolution, where “the company received a clawback credit for withholding bonuses of employees who engaged in misconduct. Not only did Albemarle keep the bonuses that would have gone to wrongdoers, but the company also received an offset against its penalty for the same amount. That’s money saved for Albemarle and its shareholders – and a concrete demonstration of the value of clawback programs.”

 Remediation During Investigation

The NPA cited several remedial actions by the company that helped Albemarle obtain the superior result in terms of the discounted fine and penalty. These steps were taken during the pendency of the DOJ investigation so that when the parties were ready to resolve the matter, Albemarle had built out an effective compliance program and had tested it. The NPA provided that Albemarle:

  • Strengthening its anti-corruption compliance program by investing in compliance resources, expanding its compliance function with experienced and qualified personnel, and taking steps to embed compliance and ethical values at all levels of its business organization;
  • Transformed its business model and risk management process to reduce corruption risk in its operation and to embed compliance in the business, including implementing a go-to-market strategy that resulted in eliminating the use of sales agents throughout the Company, terminating hundreds of other third-party sales representatives, such as distributors and resellers, and shifting to a direct sales business model;
  • Provided extensive training to its sales team and restructured compensation and incentives so that compensation is no longer tied to sales amounts;
  • Used data analytics to monitor and measure the compliance program’s effectiveness and
  • We are engaged in continuous testing, monitoring, and improvement of all aspects of its compliance program, beginning almost immediately following the identification of misconduct.

Two of the factors are relatively new and certainly are noteworthy for the compliance professional. The first is the change in the company’s approach to sales and their sales teams. Obviously, it was corrupt third-party agents that brought the company to such FCPA grief. Many of the quotes in the NPA and Order make it clear that Albemarle executives had an aversion to paying bribes but had greater moral flexibility when a third-party agent was involved. This led to the company moving away from third-party agents 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. Every time 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. By having a direct sales business model, your organization will have a direct relationship with your customer and, therefor, the ability to develop it further.

The NPA also specifically called out the Company’s use of data analytics in two ways. The first was to monitor the Company’s compliance program, and the second was to measure the compliance program’s effectiveness. While this language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance functions’ access to all company data, this is the first time it has been called out in a settlement agreement in this manner. Moreover, although not specifically tied to the lack of a required corporate Monitor, it would appear that by using data analytics, Albemarle was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation.

Internal Controls Over Commission Increases

According to the SEC Order, the Company failed to devise and maintain a sufficient system of internal accounting controls with respect to commission rates and deviations from contracted rates. In other words, even though there were internal controls in place for the setting of third-party agents’ commissions, they could be overridden at will. The Order concluded by noting, “As a result, sales personnel were able to increase agents’ commission rates in multiple countries – including Vietnam, India, China, and UAE – despite certain Albemarle personnel having knowledge of red flags indicating the agents would use a portion of the commission to make bribe payments to obtain contracts, influence tender specifications, or obtain nonpublic information concerning competitors’ bids.”

Every compliance professional should review their company’s controls over agents’ commission rates to make sure the business unit personnel alone cannot raise commission rates. While business units can always make the business case, this enforcement action drives home the message that the compliance function is not ‘one and done’ when an agent is approved but must be monitored throughout the third-party relationship lifecycle. Any requested change to a commission rate must go through the same analysis and approval process as the original approval.

Timely Self-Disclosure

There was a significant discussion in the NPA around Albemarle’s voluntary self-disclosure to the DOJ. However, NPA noted that “the disclosure was not “reasonably prompt” as defined in the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the U.S. Sentencing Guidelines.” The NPA reported that Albemarle learned of allegations regarding possible misconduct in Vietnam approximately 16 months before disclosing it to the DOJ. Interestingly, the SEC Order only stated, “Albemarle made an initial self-disclosure to the Commission of potential FCPA violations in Vietnam following its completion of an internal investigation of such conduct and, at the same time, self-reported potential violations it was investigating in India, Indonesia, and China. Albemarle later self-disclosed to the Commission potential violations in other jurisdictions as part of an expanded internal investigation.”

This meant the self-disclosure “was not within a reasonably prompt time after becoming aware of the misconduct in Vietnam,” and it means that Albemarle did not meet the standard for voluntary self-disclosure under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy. While the DOJ “gave significant weight” to the Company’s voluntary, even if untimely, disclosure of the misconduct, it is undoubtedly cautionary.

What the DOJ wants is self-disclosure as soon as possible. One only needs to recall the case of Cognizant Technologies, where the company received a complete Declination where there were allegations of C-Suite involvement in the bribery schemes. This Declination was provided in large part because the company made its self-disclosure only two weeks after the information filtered up to the Board of Directors. While Cognizant Technologies may be the gold standard, it shows that if a company timely self-discloses, it can be considered for a full Declination.

The Albemarle FCPA resolution documents are chocked full of solid information that every compliance professional can use in the future. They are well worth a deep dive—finally, a kudos to Albemarle for obtaining this superior result.

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Daily Compliance News

Daily Compliance News: October 6, 2023 – The Backdoor Man 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 in 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.

Stories we are following in today’s edition:

  • DOJ offers self-disclosure incentives in M&A. (WSJ)
  • SBF-Backdoor Man? (NYT)
  • A car wreck, death, and corruption? (Vanity Fair)
  • Alibaba accused of ‘possible espionage’. (FT)

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Blog

Albemarle FCPA Enforcement Action: Part 3 – The Comeback

Last week, Albemarle Corporation (Albemarle) agreed to pay more than $218 million to resolve investigations by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) into violations of the Foreign Corrupt Practices Act (FCPA) stemming from Albemarle’s participation in corrupt schemes to pay bribes to government officials in multiple foreign countries.

According to a Non-Prosecution Agreement (NPA) with the DOJ, between 2009 and 2017, Albemarle, through its third-party sales agents and subsidiary employees, conspired to pay bribes to government officials to obtain and retain chemical catalyst business with state-owned oil refineries in Vietnam, Indonesia, and India. According to the SEC Administrative Order (Order), the bribery schemes extended into China and the UAE. Today, we consider the company’s conduct, which allowed it to receive such an outstanding reduction, leading to the significantly lower final penalty under the new Corporate Enforcement Policy.

Untimely Self-Disclosure

One of the interesting factors in this matter is that Albemarle voluntarily disclosed to the DOJ the illegal conduct at issue. However, NPA noted that “the disclosure was not “reasonably prompt” as defined in the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the U.S. Sentencing Guidelines.” As further laid out in the NPA, Albemarle learned of allegations regarding possible misconduct in Vietnam approximately 16 months before disclosing it to the DOJ. After that, “an internal investigation, the Company gathered evidence demonstrating the potential misconduct at least approximately nine months prior to the disclosure. The Company took remedial action and continued to investigate other potential issues. In January 2018, the Company disclosed to the Fraud Section misconduct relating to four separate geographies, including Vietnam.”

This meant the self-disclosure “was not within a reasonably prompt time after becoming aware of the misconduct in Vietnam,” and it means that Albemarle did not meet the standard for voluntary self-disclosure under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy. Nevertheless, the DOJ “gave significant weight, in evaluating the appropriate disposition of this matter—including the appropriate form of the resolution and the reduction for cooperation and remediation—to the Company’s voluntary, even if untimely, disclosure of the misconduct.” The NPA stated that the company received credit for its “voluntarily disclosing the conduct that forms the basis for this Agreement before it came to the attention of the Offices.” 

Significant Cooperation 

The company was credited with significant cooperation with the DOJ during the pendency of its investigation, and the Company received credit for its cooperation with the DOJ investigation. It cooperated with their investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct. The NPA went on to note that “the Company also received credit for its substantial cooperation and extensive and timely remediation. The company

  1. Promptly providing information obtained through its internal investigation, which allowed the government to preserve and obtain evidence as part of its extensive independent investigation;
  2. made regular and detailed presentations to the Offices;
  3. proactively identifying information previously unknown to the Offices;
  4. met DOJ requests promptly;
  5. voluntarily making foreign-based employees available for interviews in the United States;
  6. collected and produced voluminous relevant documents and translations to the Offices, including documents located outside the United States and
  7. It produced documents to the DOJ from foreign countries in ways that did not implicate foreign data privacy laws.

Extensive Remediation

Albemarle also received credit “because it engaged in extensive and timely remedial measures.” These remedial measures include:

  • The Company started its remediation program based on its internal investigation of the misconduct prior to the DOJ investigation (
  • Albemarle disciplined employees involved in the misconduct, including terminating eleven employees and withholding bonuses from sixteen employees;
  • Albemarle is strengthening its anti-corruption compliance program by investing in compliance resources, expanding its compliance function with experienced and qualified personnel, and taking steps to embed compliance and ethical values at all levels of its business organization;
  • The Company “transformed its business model and risk management process to reduce corruption risk in its operation and to embed compliance in the business, including implementing a go-to-market strategy that resulted in eliminating the use of sales agents throughout the Company, terminating hundreds of other third-party sales representatives, such as distributors and resellers, and shifting to a direct sales business model;
  • The company provides extensive training to its sales team and restructuring compensation and incentives so that compensation is no longer tied to sales amounts;
  • The company used data analytics to monitor and measure its compliance program’s effectiveness and
  • Albemarle engages in continuous testing, monitoring, and improvement of all aspects of its compliance program, beginning almost immediately following the identification of misconduct.

Holdbacks (not Clawbacks)

While the DOJ has made much noise about clawbacks from recalcitrant executives, Albemarle engaged in holdbacks, where they did not pay bonuses to certain employees involved in the conduct or those who had oversight. The NPA stated, “The Company withheld bonuses totaling $763,453 during the course of its internal investigation from employees who engaged in suspected wrongdoing.” The illegal conduct involved those who “(a) had supervisory authority over the employee(s) or business area engaged in the misconduct; and (b) knew of, or were willfully blind to, the misconduct.” The significance of this effort was important as it qualified Albemarle for an additional fine reduction of a dollar-for-dollar credit of the amount of the withheld bonuses under the Criminal Division’s March 2023 Compensation Incentives and Clawbacks Pilot Program.

Culture, Culture, Culture

Albemarle received additional credit or at least did not sustain any enhancement from the DOJ culture analysis. The NPA stated, “The Company has some limited history of prior civil and regulatory actions, including environmental and workplace safety matters, but no prior criminal history.” From this language and other enforcement actions taken since the October 2021 announcement of culture as an item the DOJ would assess, it now appears that civil and regulatory matters, particularly those in the ethics and compliance arena, would not be held against companies.

The Result

All of the above factors led to a significant discount for Albemarle under the Corporate Enforcement Policy. The NPA stated, “Accordingly, after considering (a) through (k) in paragraph 2 above, the Offices have determined that the appropriate resolution of this case is a non-prosecution agreement with the Company; payment by the Company in the amount of a $98,236,547 criminal monetary penalty, which reflects a discount of 45 percent off the bottom of the otherwise-applicable U.S. Sentencing Guidelines fine range and an additional discount of $763,453 under the Pilot Program, and $98,511,669 in forfeiture, which, as described below in paragraph 10, will be credited, in large part, against disgorgement of ill-gotten profits that the Company pays to the SEC in a concurrent resolution.” [emphasis supplied]

In other words, the actions of Albemarle saved it around $90 million in additional fines under the Policy, and this needs to take into account the discounts under the U.S. Sentencing Guidelines as their calculation was not reported in the NPA.

Join us tomorrow to review some of the key lessons learned.

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Blog

Albemarle FCPA Enforcement Action: Part 2 – How to Hire Corrupt Agents

Last week, Albemarle Corporation (Albemarle), agreed to pay more than $218 million to resolve investigations by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) into violations of the Foreign Corrupt Practices Act (FCPA) stemming from Albemarle’s participation in corrupt schemes to pay bribes to government officials in multiple foreign countries.

According to a Non-Prosecution Agreement (NPA) with the DOJ, between 2009 and 2017, Albemarle, through its third-party sales agents and subsidiary employees, conspired to pay bribes to government officials to obtain and retain chemical catalyst business with state-owned oil refineries in Vietnam, Indonesia, and India. According to the SEC Administrative Order (Order), the bribery schemes extended into China and the UAE.

 Vietnam-His Friends

The company sales model in Vietnam included using third-party agents. The initial commission rate for the corrupt agent in question was 4.25%. However, according to the NPA, quite quickly, the corrupt agent said he needed an increase in the commission rate from 4.25 percent to “4.25% + 4% extra,” which would be used to “settle down” PetroVietnam officials and to “contribute to his friends.” Internally, the company’s Vietnam sales team “sent this information – including Vietnam Intermediary’s warning that “if ALB could not provide such extra 4% commission,” Albemarle’s competitor that had the business before Albemarle “will be kept in BSR still” – to four Albemarle sales employees who were pursuing the Company’s first business in Vietnam.”

The corrupt sales agent kept pushing for an increase in the commission rate. He next emailed “Albemarle Vietnam Sales Representative, stating, “I have received a strong message from our friend that the total commission must be fixed [sic] at 7%” and that it did not matter how the commission was allocated; only the total amount, adding, “Please find the way to add to somewhere.” The corrupt agent then tried to move the commission rate up to 10%. Finally, the Albemarle Regional Sales Director emailed the corporate VP in Europe with the following, “it is clear that ash problem is more a way to keep great attention from Albemarle and [Albemarle’s competitor].” In his response, the Albemarle vice president wrote, “If [an Albemarle global business director] agrees to pay that amount of money (which I would never do), then I will not object,” but cautioned that “if just commission increases and job for us remains the same then you have an issue…” The NPA stated, “Albemarle ultimately agreed to increase Vietnam Intermediary Company’s commission from 4.25 percent to 6.5 percent.” 

Indonesia-The Big Boss

In Indonesia, another third-party agent was used. According to the NPA, “In or around 2012, following a change in leadership at Pertamina, Albemarle engaged Indonesia Intermediary Company to act as its local agent in return for four percent commission on sales to Pertamina. According to an Albemarle memorandum, Albemarle decided to replace its third-party agent in Indonesia at the “strong[] request[]” of Pertamina Official, the “big boss” of Pertamina, because the president of the new third-party agent was a close friend of Pertamina Official, despite the fact that the third-party agent was a small company and posed a “medium” risk.”

In or around November or December 2012, the corrupt Indonesian agent “paid bribes to Pertamina officials to obtain samples of a competitor’s product, which Albemarle used to craft its bids and improve its product.” The company’s Senior Sales Manager learned about these bribes “but did not report this to Albemarle’s compliance function and did not consider terminating Albemarle’s relationship with Indonesia Intermediary Company.”

Then, in February 2013, the corrupt agent asked Albemarle to increase its commission from 4% to 10% so the agent “could pay bribes to Pertamina officials. The request was made during a meeting at Albemarle’s Singapore office and was attended by, among others, a close relative of Pertamina Official, who purportedly was a director of Indonesia Intermediary Company.

In response to the request at the meeting, Albemarle personnel told Indonesia Intermediary Company that they refused to increase the commission and that no bribes should be paid per Albemarle policy, but maintained its relationship with Indonesia Intermediary Company and never reported the conversation to Albemarle legal, compliance, or supervisory personnel. Albemarle Senior Sales Manager was aware that Indonesia Intermediary Company paid “tips” to Pertamina officials, but directed that such category not be listed in expenses.” Most ominously, the NPA concluded, “Albemarle continued to receive inside information on the bidding process from Indonesia Intermediary Company.

India-On the Holiday List

In India, the company used another corrupt agent to illegally “retain catalyst business with India’s state-owned oil company, IOCL, by avoiding Albemarle being blacklisted. This agent “which had no prior relationship or contact with Albemarle, sent a “most urgent” email to Albemarle Regional Sales Manager stating that it was aware that Albemarle had been sent a letter from IOCL asking why Albemarle should not be “sent on Holiday list. You may be required to supply six months of catalyst-free of cost.” India Intermediary further stated in the email that “[w]e can definitely help you to come out of this situation and get the orders for you in the refineries.”

The Regional Sales Manager then sent an email to the company VP, “copying four others at Albemarle, regarding “IOCL developments” and multiple consultants who had contacted Albemarle to offer “assistance to influence and get in contact with higher level to discuss on a non-official basis.” The corrupt agent knew “much detail” and as “more aggressive” and noted that India Intermediary Company “do[es] confirm, no bribing and we can put that in the agreement.”

The Regional Sales Manager stated that the company held discussions with IOCL but at each stage was “blocked by top” and that this may have been because IOCL “want us to use [sic] consultant.” He further stated that to date, IOCL had not accepted Albemarle’s “‘reasonable’ arguments” and that “indications are mostly that they will put us on the holiday list. As I see it, the time has come to consider using a consultant seriously, and if so, it must be done very fast.”

This section of the NPA dryly concluded, “Notwithstanding multiple red flags, Albemarle entered into a consulting contract with India Intermediary Company, effective July 15, 2009, signed by Albemarle Vice President. Following the engagement of India Intermediary Company, Albemarle was not put on the “holiday list” by IOCL.”

China-a Thorny Uncle

In China, the company hired yet another corrupt agent based on the recommendation of an official from China State-Owned Customer. According to the SEC Order, “Emails among Albemarle Subsidiary personnel described a senior official at China State-Owned Customer as the “uncle” of China Agent’s principal, a situation they recognized was “thorny.” Neither China Agent nor Albemarle Subsidiary personnel identified China Agent’s Principal or reported the possible familial connection to China Official in the due diligence questionnaire or other documents submitted to Albemarle compliance personnel conducting due diligence on China Agent. However, Albemarle compliance department’s due diligence revealed that China Agent had no website and was authorized to do business only a few weeks before China Agent’s Principal first met with Albemarle personnel.”

UAE-Close Friends of the (Royal) Family

In the UAE, in violation of company policy, due diligence was conducted on UAE agents only after entering sales agency agreements with the agent, including an addendum increasing its commission. The UAE Agent had close and well-publicized ties to the UAE government and royal family, contrary to the UAE Agent’s representations in its due diligence questionnaire. Although certain company personnel in the Middle East and the Netherlands knew of the UAE Agent’s involvement, they did not inform Albemarle Legal or Compliance personnel of the relationship, and no due diligence was conducted on the UAE Agent. He provided no discernable services other than conveying confidential tender evaluations and competitors’ bids obtained from the refinery and the EPC firm.

In addition to commissions that Albemarle paid to the UAE Agent, the company paid the UAE Agent an “undefined “administrative charge” equal to ten percent of its invoices for customs clearance and other non-sales services. These undocumented charges fell outside the scope of Albemarle’s agreement with the UAE Agent. Albemarle’s system of internal accounting controls provided inadequate assurances that payments to UAE agents were used for legitimate services. Moreover, Albemarle Netherlands and Albemarle Middle East, whose books and records were consolidated into Albemarle’s financial statements, lacked support for payments to UAE Agent that were recorded as legitimate commissions and business expenses.”

I have gone through all these miss-steps, prevarications, neglected red flags, and outright leadership and compliance failures to follow the most basic internal company compliance policies to show how and why these actions occurred. They present the compliance professional with numerous data points to pressure test your compliance regime.

Join us tomorrow, where we take a deep dive into actions taken by Albemarle to remediate, cooperate, and obtain the fines and penalties.

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Blog

Albemarle FCPA Enforcement Action: Part 1 – Background

Last week, Albemarle Corporation (Albemarle), a publicly traded specialty chemicals manufacturing company headquartered in North Carolina, agreed to pay more than $218 million to resolve investigations by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) into violations of the Foreign Corrupt Practices Act (FCPA) stemming from Albemarle’s participation in corrupt schemes to pay bribes to government officials in multiple foreign countries.

According to the DOJ Press Release, between 2009 and 2017, Albemarle, through its third-party sales agents and subsidiary employees, conspired to pay bribes to government officials to obtain and retain chemical catalyst business with state-owned oil refineries in Vietnam, Indonesia, and India. Albemarle illegally obtained profits of approximately $98.5 million as a result of the scheme.

What They Said

Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division said, “Albemarle earned nearly $100 million by participating in schemes to pay bribes to government officials in multiple countries. As today’s announcement makes clear, the Justice Department will work tirelessly with our partners in the ongoing fight against international corruption. Today’s resolution also demonstrates the real benefits that companies can receive if they self-disclose misconduct, substantially cooperate, and extensively remediate.”

U.S. Attorney Dena J. King for the Western District of North Carolina said, “Corruption has no borders, but neither does justice. Companies are expected to adhere to the same ethical and legal standards whether they are doing business on U.S. soil or overseas. Albemarle’s eventual voluntary disclosure of fraud and subsequent efforts to remedy its business practices abroad is a step in the right direction for the company. Above all, today’s announcement underscores our commitment to fight corruption affecting the United States no matter where it occurs.”

IRS-CI Chief Jim Lee said, “The $218 million resolution announced today reflects IRS Criminal Investigation (IRS-CI) special agents’ commitment to working with our law enforcement partners to expose and disrupt organizations engaged in unscrupulous business practices aggressively. Thanks to our domestic and international law enforcement partners, we’ve ensured Albemarle will be held accountable for their misdeeds.”

Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit, said in an SEC Press Release, “Despite repeated and glaring bribery-related red flags, Albemarle failed for many years to implement sufficient internal accounting controls relevant to the use of agents by its global refining solutions business to make sales to state-owned customers around the world. This failure set the stage for wide-ranging misconduct.”

The Bribery Schemes

The bribery schemes were in multiple countries and varied in execution. The DOJ said, “In Vietnam, Albemarle corruptly obtained contracts at two state-owned oil refineries through an intermediary sales agent who requested increased commissions to pay bribes to Vietnam officials and to structure tender requirements to favor Albemarle. In Indonesia, Albemarle used a third-party intermediary to corruptly obtain catalyst business with Indonesia’s state-owned oil company, even after that third-party intermediary had informed Albemarle that it was necessary to pay bribes to Indonesian officials to obtain business. In India, Albemarle used a third-party intermediary to corruptly retain catalyst business with India’s state-owned oil company by avoiding Albemarle being blacklisted.”

The SEC said, “According to the SEC’s Order, despite significant red flags, Albemarle used agents from at least 2009 through 2017 that paid bribes to obtain sales of refinery catalysts to public-sector oil refineries in Vietnam, India, and Indonesia and private-sector oil refineries in India.” The SEC went on to note that “Albemarle violated the FCPA’s recordkeeping requirements and failed to devise and maintain a sufficient system of internal accounting controls to provide reasonable assurances that payments made to agents in Vietnam, Indonesia, India, China, and the United Arab Emirates were for legitimate services.”

The Penalties

According to the FCPA Blog, Albemarle agreed to pay the “DOJ and SEC $218 million in penalties and disgorgement to resolve FCPA offenses related to bribing government officials at state-owned oil refineries around the world.” With regard to the DOJ, Albemarle entered into a three-year non-prosecution agreement (NPA) to pay a penalty of approximately $98.2 million and administrative forfeiture of approximately $98.5 million.

This DOJ penalty included a reduction of $763,453 under Part II of the Criminal Division’s March 2023 Compensation Incentives and Clawbacks Pilot Program for bonuses that the company withheld from qualifying employees. Additionally, Albemarle agreed to pay approximately $103.6 million in disgorgement and prejudgment interest as part of the resolution of the SEC’s parallel investigation. The DOJ credited approximately $81.9 million of the forfeiture to be paid to the Department against disgorgement Albemarle has agreed to pay to the SEC.

According to the SEC, “Albemarle consented to the SEC’s Order finding that it violated the anti-bribery, recordkeeping, and internal accounting controls provisions of the Securities Exchange Act of 1934. Albemarle has agreed to cease and desist from committing or causing any future violations of these provisions and to pay disgorgement of more than $81.8 million plus prejudgment interest of more than $21.7 million, totaling more than $103.6 million.”

Join us tomorrow, where we take a deep dive into the bribery schemes.

Additional Resources

DOJ- Non-Prosecution Agreement

SEC Order

Categories
Daily Compliance News

Daily Compliance News: October 2, 2023 – The Welcome to October 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 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.

Stories we are following in today’s edition:

  • Albemarle settles FCPA action.  (FCPA Blog)
  • Shinhan Bank to pay $25MM for ‘compliance problems’. (WSJ)
  • Yet another pre-taliation case, this time DE Shaw pays $10MM. (WSJ)
  • Clear Channel settles FCPA enforcement action. (FCPA Blog)
Categories
31 Days to More Effective Compliance Programs

One Month to More Effective Written Standards: Day 18 – Policies on Extortion Payments

The next area for policies is extortion payments, which not are made illegal under the FCPA. Extortion payments are made for any action which threatens or demands payment for life, liberty, or health. These should be exempted out from your facilitation payments and your compliance program through specific language. You need to do this for a variety of reasons. First and foremost, your employees must understand that the company will support them if they are in any way threatened with harm, with arrest or physical detention, their health/safety is threatened. As a compliance professional, you need to make sure they understand they need to do whatever they have to do to get themselves out of such a situation.
 Some of the situations your employees might face are along the lines of the following:

  • Employees are stopped by police, military or paramilitary personnel, or militia (uniformed or not) at designated or other checkpoints or other places and a payment is demanded as a condition of passage of persons or property;
  • Employees are stopped at the airport by customs or passport control personnel or military personnel and a payment is demanded for entry or exit of persons or property; or
  • Employees are asked by persons claiming to be security personnel, immigration control, or health inspectors to pay for an allegedly required inoculation or other similar procedure.

The key though is that it be properly documented. But more than simply the documentation is that you must specifically list extortion payments in your books and records, so you will not be suspected with hiding them by describing them as something else. The key is to train your employees specifically on the actions to take. In your policy, state that if there is a threat to health, safety or liberty, it is not a facilitation payment but an extortion payment. Make sure that they understand what their rights are and what their obligations are to report it when they come back to the corporate office or their office. Always remember, an extortion payment is not a FCPA violation.

Three key takeaways:

  1. Extortion payments are not illegal under the FCPA.
  2. Was the action an extortion or some other type of situation?
  3. “Document, Document, and Document” your extortion payments, both the financial component and a description of the underlying events.

For more information, check out The Compliance Handbook, 4th edition, here.