Tag: FCPA

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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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2 Gurus Talk Compliance – Episode 25 – The Never Go Away Edition

What happens when two top compliance commentators get together? They talk about compliance, of course. Join Tom Fox and Kristy Grant-Hart in 2 Gurus Talk Compliance as they discuss the latest compliance issues in this week’s episode! In this episode, Tom and Kristy tackle various compliance-related topics.

Tesla’s corporate governance is under the spotlight, focusing on the company’s board independence and potential conflicts of interest. Fox has pointed out Elon Musk’s profound control over Tesla, suggesting that the lack of board independence and oversight may necessitate regulatory scrutiny, especially from the Securities and Exchange Commission (SEC). His perspective is rooted in his belief in the importance of corporate governance in protecting shareholder interests, and he raises questions about whether Musk’s leadership is aligned with the expectations of a public company CEO. Similarly, Kristy cites problems with board independence and potential conflicts of interest. She emphasizes the lack of governance within Tesla, particularly noting the court-nullified pay package granted to Musk, and suggests that the SEC may need to intervene even further. She, like Fox, implies that it may be time for Musk to step down and allow for better governance under the scrutiny of regulatory authorities.

Highlights Include

  1. Warren wants the SEC to look into Tesla Board independence. (WSJ)
  2. Goldman files a suit against Malaysia over 1MDB. (Bloomberg)
  3. Mike Lynch finally goes on trial. (FT)
  4. SEC settles first AI washing enforcement. (WSJ)
  5. Adani Green says there is no DOJ investigation notice. (Bloomberg)
  6. TikTok’s Fate Now Hinges on the Senate (WSJ)
  7. The EU Corporate Sustainability Due Diligence Directive—March 2024 Update (JDSUPRA)
  8. Survey: CCO Resources, Pressures Both Rising (Radical Compliance)
  9. Data sharing causing concerns for drivers (WGRZ)
  10. ‘Not my fault the truck don’t surf’: Florida man arrested after driving car into the ocean (WFLA)

Resources

Kristy Grant-Hart on LinkedIn

Spark Consulting

Tom

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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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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.

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The Gunvor FCPA Enforcement Action: Part 4 – Forward – Leaning Steps

As noted in this series, Gunvor received a 25% discount despite substantial violations of the FCPA that extended into the corporate offices. The company made multiple changes, which compliance professionals should study. We conclude with key lessons learned from the Gunvor enforcement action for compliance professionals.

Remediation

The company did an excellent job in its remedial efforts. It took major steps to create an effective, operationalized compliance program that met the requirements of the Hallmarks of an Effective Compliance Program as laid out in the 2020 FCPA Resource Guide, 2nd edition, and the 2023 Evaluation of Corporate Compliance Programs (23 ECCP).

The remedial actions by Gunvor can be grouped as follows:

  1. Implemented a control framework for internal business developers, as well as additional levels of review and approval for counter-party payments;
  2. Enhanced the independent compliance committee with responsibility for reviewing high-risk transactions;
  3. Updated its incentives to more fully align with the 23 ECCP;
  4. Tested and enhanced its compliance program, including compliance culture reviews, testing new third-party due diligence process and payment controls, and evaluating controls around business development activities; and
  5. It has implemented a business communications policy that addresses using ephemeral and encrypted messaging applications.

Change in Business Model

Gunvor eliminated the use of third-party business origination agents. Matt Kelly noted in Radical Compliance, “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.”

As I have 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, 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. 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 customer access.

The fact that the 2020 FCPA Resource Guide, 2nd edition, or the 23 ECCP does not lay out this strategy is another intriguing aspect of how Albemarle, SAP, and Gunvor use it. The companies developed all of these strategies based on their own analysis and risk models. It may have been 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.

(Lack of) Self-Disclosure

Even though this factor was not present in the Gunvor enforcement action, the DOJ’s message could not be any more explicit regarding the DOJ’s expectation of self-disclosure and the undeniable and palpable benefits. Under the Corporate Enforcement Policy, Gunvor’s failure to self-disclose cost it an opportunity of at least 50% and up to a 75% reduction off the low end of the U.S. Sentencing Guidelines: fine range. Its actions as a criminal recidivist resulted in it not receiving a reduction of at least 50% and up to 75% from the low end of the U.S.S.G. fine range but rather at 40% from above the low end. Gunvor’s failure to self-disclose cost it an estimated $40 million under the Sentencing Guidelines. Its inability to self-disclose and recidivism cost it a potential $150 million in discounts under the Corporate Enforcement Policy. The DOJ’s message could not be any clearer.

Cooperation

While most of the cooperation listed in the Plea Agreement was standard action previously seen, there are two that I believe were worth noting. The first was that the company expedited the production of documents for the DOJ from multiple foreign countries while navigating foreign data privacy and criminal laws. This language indicated that there were data privacy issues to overcome and that the company did so. This means that the DOJ expects any company to do so going forward.

The second was imaging the phones of relevant custodians at the beginning of Gunvor’s internal investigation, thus preserving business communications sent on mobile messaging applications. As with the SAP enforcement action, this is clear instruction around messaging apps in FCPA enforcement actions.

 Forward-Leaning Steps

Acting Assistant Attorney General Nicole M. Argentieri said in her speech, “As part of their resolutions with the Criminal Division, 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.”

This may be the most significant lesson garnered from the Gunvor enforcement action. By taking these “forward-leaning” steps, a company that finds itself in this situation can return even when home office officials look the other way or are directly involved in bribery and corruption.

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The Gunvor FCPA Enforcement Action: Part 3 – The Discounted Fine

We continue our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm Gunvor S.A. The enforcement action came in with a $661 million penalty against the company, which has pleaded guilty to bribing Ecuadorian government officials through the 2010s in exchange for intelligence about upcoming business contracts with the state-owned oil company of Ecuador. 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, and the lack of self-disclosure, one might charitably wonder how Gunvor was able to garner a fine that was so low. According to the Plea Agreement,  Gunvor paid over $97 million to corrupt third-party agents, who then made bribes to Ecuadorian officials. Gunvor earned over $384 million in profits from the business obtained through the corrupt scheme. Yet Gunvor received a 25% discount off the 30th percentile of the applicable US Sentencing Guidelines fine range. How did Gunvor achieve this discount?

Extensive Cooperation

The starting point for this analysis is the Plea Agreement. It noted several factors, including, among others, the nature and seriousness of the offense. Gunvor received credit for its cooperation with the department’s investigation, which included: (i) producing documents to the department from multiple foreign countries expeditiously while navigating foreign data privacy and criminal laws; (ii) providing information obtained through its own internal investigation to the department, which allowed the department to preserve and obtain evidence as part of the department’s investigation; (iii) making detailed, factual presentations to the department; (iv) arranging for the interview of an employee based outside the United States; (v) promptly collecting, analyzing, and organizing voluminous information, including complex financial information, at the request of the department, and producing an analysis of trading activity conducted by multiple outside forensic accounting firms retained by Gunvor; (vi) translating foreign language documents to facilitate and expedite review by the department; and (vii) imaging the phones of relevant custodians at the beginning of Gunvor’s internal investigation, thus preserving business communications sent on mobile messaging applications.

The Remediation

The Plea Agreement also included information on the remediation that Gunvor carried out. Gunvor also engaged in timely and appropriate remedial measures, including: (i) eliminating the use of third-party business origination agents; (ii) enhancing its third party due-diligence process; (iii) developing and implementing a control framework for internal business developers and additional layers of review and approval for counterparty payments; (iv) enhancing the independent compliance committee with responsibility for reviewing high-risk transactions; (v) engaging resources to review its compliance program and test the effectiveness of its overall reporting process, its reporting hotline and the effectiveness of the investigation of reports made through the hotline; (vi) evaluating and updating its compensation policy to better incentivize compliance with the law and corporate policies; (vii) hiring additional compliance personnel; (viii) testing and enhancing its compliance program, including by conducting compliance culture reviews, testing new third party due diligence process and payment controls, and evaluating controls around business development activities; and (ix) developing and implementing a risk-based business communications policy that addresses the use of ephemeral and encrypted messaging applications.

Prior Misconduct

The department also considered Gunvor’s history of misconduct. In October 2019, Gunvor resolved with the Office of the Attorney General of Switzerland concerning a corrupt scheme to bribe officials in Congo-Brazzaville and Côte d’Ivoire to secure oil contracts obtained between 2009 and 2012. As part of the 2019 Swiss resolution, Gunvor admitted that it lacked sufficient controls to prevent the underlying misconduct and failed to take “all the reasonable organizational measures” required to prevent Gunvor’s employees and agents from engaging in bribery.

Fine Calculation

The explanation from the DOJ answered an open question in the minds of many compliance professionals about recent FCPA enforcement. That question was about how culture and prior misconduct were factored into the fine determination. This case follows the recent SAP enforcement action, where there was a similar analysis. The DOJ is not discounting fines off the low end of a fine range but instead on some point above that low end. In Gunvor’s case, the high end of the fine range (after the full calculation under the Sentencing Guidelines) was $768,328,352, and the low end of the fine range was $384,164,176. With the uplift to the 30th percentile, the final fine was $374,560,071, with an additional forfeiture of $287,138,444. In the SAP enforcement action, the company received a 40% discount off the 10th percentile of the Sentencing Guidelines fine range.

Failure to Self-Disclose

We need to emphasize, once again, that under the Corporate Enforcement Policy, Gunvor’s failure to self-disclose cost it an opportunity of at least 50% and up to a 75% reduction off the low end of the U.S. Sentencing Guidelines: fine range. Moreover, its actions resulted in the company not receiving a reduction of at least 50% and up to 75% from the low end of the U.S.S.G. fine range but rather at the 30th percentile noted above. Gunvor’s failure to self-disclose cost it an estimated $50 million under the Sentencing Guidelines. Its inability to self-disclose and recidivism cost it a potential $150 million in total discounts available under the Corporate Enforcement Policy.

 Once again, the significance is that the DOJ is sending the message that self-disclosure is the single most important thing a company can do in any FCPA investigation or enforcement action. Kenneth Polite said that when announcing the updated Corporate Enforcement Policy in January 2023, the new Monitor Selection Policy was the number one reason for a company not having a monitor required. The DOJ’s message could not be more explicit: self-disclose, self-disclose, self-disclose, self-disclose.

Join us tomorrow as we consider the lessons learned from the Gunvor FCPA enforcement action.

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The Gunvor 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 Gunvor S.A. The enforcement action came in with a $661 million penalty against the company, which has pleaded guilty to bribing Ecuadorian government officials through the 2010s in exchange for intelligence about upcoming business contracts with the state-owned oil company of Ecuador. The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

The Gunvor bribery schemes ran for nearly 8 years. Between 2012 and 2020, Gunvor paid more than $97 million to intermediaries, knowing that some money was used to bribe Ecuadorean officials. Those officials included Nilsen Arias Sandoval, a then-high-ranking official at Petroecuador. To show the blatantness of the bribery scheme, Gunvor managers and agents attended meetings in the United States and elsewhere, and bribe payments were routed through banks in the United States using shell companies in Panama and the British Virgin Islands controlled by Gunvor’s co-conspirators. According to the DOJ, a Gunvor employee also directed one of the intermediaries to use the money to purchase an 18-karat gold Patek Philippe watch.

According to the Plea Agreement, the Brothers Ycaza, Antonio Pere, and  Enrique Pere were agents for Gunvor who exercised control over companies and bank accounts in the United States and elsewhere. These accounts were used to facilitate the payment of bribes to Ecuadorian government officials to, among other things, obtain and retain business for Gunvor.

Gunvor paid over $97 million to the Brothers Ycaza via their companies, EIC and OIC. Several Gunvor employees, including Kohut, Gunvor Manager #1, and Gunvor Manager #2, knew and intended that some payments would be used to bribe Ecuadorian officials. After that, the Brothers Ycaza made millions of dollars in bribe payments on Gunvor’s behalf, directly and indirectly, to Ecuadorian officials identified by number in the Plea Agreement.

To do so, the Brothers Ycaza set up shell companies to launder Gunvor’s corrupt payments, entered into several service agreements to facilitate the payment of bribes, created fake invoices for purported consulting services, and used email accounts with pseudonyms to transfer funds to offshore shell companies involved in the conspiracy. The illegal payments were made through multiple bank accounts in the United States and abroad to conceal the bribes.

Gunvor Singapore made the corruption payments through a services agreement with the Brothers Ycaza and their company through EIC, which enabled the payment of bribes to Ecuadorian officials on Gunvor’s behalf. The agreement provided for certain prepayments and success fees, but the bulk of the compensation was through per-barrel “volume fee” payments to EIC that depended on the amount of oil purchased in connection with the oil-backed loan contract. Gunvor and EIC amended the services agreement several times to change, among other things, the amount of the volume fees due to be paid to EIC. The Brothers Ycaza used portions of the volume fees to pay bribes to Ecuadorian officials on Gunvor’s behalf. The volume fee compensation model for the Brothers Ycaza was increased multiple times to increase both their compensation and the amount of bribes being paid on behalf of Gunvor over the length of the bribery scheme.

In exchange for the bribes, Ecuadorian officials provided improper advantages to Gunvor, including (a) helping to direct Petroecuador to award contracts to State-Owned Entities for the ultimate benefit of Gunvor and (b) providing Gunvor, through certain of its employees and agents, information about Petroecuador that assisted Gunvor in corruptly obtaining and retaining business for Gunvor in connection with Petroecuador. This structure allowed Gunvor and its co-conspirators to avoid a competitive bidding process and obtain contractual terms they could not have otherwise. Gunvor also received confidential Petroecuador information in exchange for the bribes. Gunvor earned more than $384 million in profits from the contracts it obtained corruptly from Petroecuador.

In 2017, when the corrupt Petroecuador official Arias left the company, the Brothers Ycaza engaged other corrupt Petroecuador officials through cash bribe payments. This new scheme included effecting bribe payments on Gunvor’s behalf in exchange for confidential Petroecuador information about shipping windows. To facilitate this scheme phase, Gunvor continued to pay fees to the Brothers Ycaza through another company, OIC, on each barrel of oil products purchased in connection with their oil-backed loan contracts with Petroecuador. As in the prior phase of the scheme, Gunvor employee Kohut continued to coordinate the processing and payment of the invoices by Gunvor. Upon receiving funds from Gunvor, the Brothers Ycaza wired money to intermediaries based in Ecuador, who then arranged for the bribes to be delivered in cash to Ecuadorian officials within Petroecuador, who provided confidential Petroecuador information to Gunvor.

Gunvor employees and officers participating in the bribery scheme worked to conceal their illegal actions. One Gunvor Manager instructed Kohut to communicate using personal email accounts. The Brothers Ycaza also used personal or pseudonymous email accounts to speak about the scheme. Alias were often used rather than their actual names.

Interestingly, and perhaps equally troublingly, Gunvor executives and compliance personnel knew that Gunvor had paid the Brothers Ycaza tens of millions of dollars. This was without receiving other supporting documentation for EIC’s or OIC’s business activities on Gunvor’s behalf. Between May 2018 and May 2020, Gunvor executives and compliance personnel requested the Brothers Ycaza (i) for supporting documentation to justify the commission payments and (ii) to meet with executives and compliance personnel. The Brothers Ycaza repeatedly failed to respond entirely to Gunvor’s documentary requests and would not travel to Gunvor’s headquarters for the requested meeting. Finally, the Plea Agreement dryly noted, “Notwithstanding these repeated failures, Gunvor continued to make corrupt payments to entities owned and controlled by Antonio Pere and Enrique Pere until approximately January 2020, at which time Gunvor suspended payments to OIC.”

It is unclear from any resolution documents or the DOJ Press Release how the bribery scheme was uncovered or even ended. It may have been through a DOJ investigation into one of the other corrupt companies that came to grief working in Ecuador or with Petroecuador. It is clear that Gunvor did not self-disclose.

Join us tomorrow, and we will consider Gunvor’s steps after the DOJ knocks.

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The Gunvor FCPA Enforcement Action: Part 1 – Introduction

In March 2024, the Department of Justice (DOJ) announced the resolution of an FCPA enforcement action involving the Swiss trading firm Gunvor S.A. The enforcement action comes in with a $661 million penalty against the company, which has pleaded guilty to bribing Ecuadorian government officials through the 2010s in exchange for intelligence about upcoming business contracts with the state-owned oil company of Ecuador. The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

  1. Introduction

According to the DOJ Press Release, “Gunvor entered into a plea agreement with the government and pleaded guilty to an information charge charging the company with conspiracy to violate the anti-bribery provisions of the FCPA. Following the plea, the court sentenced Gunvor to pay a criminal monetary penalty of $374,560,071 and to forfeit $287,138,444 in ill-gotten gains. The sentence includes credits of up to one-quarter of the criminal fine for amounts Gunvor pays to resolve investigations by Swiss and Ecuadorean authorities into the same misconduct.”

In a DOJ Press Release, Acting Senior Counselor Brent S. Wible of the Justice Department’s Criminal Division said, “Over nearly a decade, Gunvor representatives bribed high-level government officials at Ecuador’s state-owned oil company to enter into business transactions with other state-owned entities that ultimately benefited Gunvor. As a result of this complex bribery scheme, Gunvor obtained hundreds of millions of dollars in illicit profits. Gunvor’s guilty plea demonstrates that the Criminal Division remains resolute in our efforts to root out bribery and official corruption. We will continue to hold both corporations and individuals who bribe foreign officials to account in coordination with our international partners.”

U.S. Attorney Breon Peace for the Eastern District of New York noted, “Today’s guilty plea and sentencing mark yet another example of this office’s efforts to combat widespread corruption.” He added, “Corruption erodes the public’s trust in their government, prevents government officials from acting in the best interests of the people they represent, and harms businesses that play by the rules, driving up consumer prices. The Justice Department, including my office, will not tolerate bribes paid by American companies or foreign companies misusing the U.S. financial system.”

Finally, Special Agent in Charge Jeffrey B. Veltri of the FBI Miami Field Office added, “Gunvor’s years-long bribery scheme involving high-level Ecuadoran officials was detrimental to the business environment and eroded the public’s trust and confidence in their government. This guilty plea and significant fine would not have been possible without significant cooperation from our international partners in the Cayman Islands, Colombia, Curacao, Ecuador, Panama, Portugal, Singapore, and Switzerland. This truly was an international effort.”

II.Information

The Information found that between 2012 and 2020, Gunvor and its co-conspirators paid more than $97 million to intermediaries, knowing that some of the money would be used to bribe Ecuadorean officials, including a high-ranking official at the country’s national energy concern, Petroecuador. Gunvor managers and agents attended meetings in the United States and elsewhere as part of the scheme. The bribe payments were routed through banks in the United States using shell companies in Panama and the British Virgin Islands controlled by Gunvor’s co-conspirators.

In exchange for these bribe payments, high-level Ecuadorian officials front companies for Gunvor to win the rights to a series of oil-backed loan contracts with Petroecuador. This structure allowed Gunvor and its co-conspirators to avoid a competitive bidding process and obtain contractual terms that they could not have otherwise. Gunvor also received confidential Petroecuador information in exchange for the bribes. Gunvor earned more than $384 million in profits from the contracts it obtained corruptly from Petroecuador.

The Press Release also noted the guilty pleas from multiple participants in the bribery scheme and recipients of the illegal payments. The DOJ obtained guilty pleas from the following individuals:

  • Antonio Pere Ycaza, a former consultant for Gunvor, pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering.
  • Enrique Pere Ycaza pleaded guilty to one count of conspiracy to commit money laundering and to violate the FCPA.
  • Raymond Kohut pleaded guilty to one count of conspiracy to commit money laundering.
  • Nilsen Arias Sandoval, a former senior Petroecuador official, pleaded guilty to one count of conspiracy to commit money laundering.

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

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Compliance Week Conference Podcast

Compliance Week 2024 Speaker Preview Podcasts – Michael Koenig on Lessons Learned from JBS

In this episode of the Compliance Week 2024 Speaker Preview Podcasts series, Michael Koenig discusses his presentation at Compliance Week 2024, “Rebuilding The Compliance Department Post-DOJ and SEC Settlements – Lessons Learned from JBS.” Some of the issues he will discuss in this podcast and his presentation are:

  • What happens in the first 6 weeks?
  • Dealing with the DOJ and SEC after post-resolution
  • Learning about new best practices and seeing acquaintances at Compliance Week 2024

I hope you can join me at Compliance Week 2024. This year’s event will be held April 2-4 at the Westin Washington, DC, Downtown. The line-up is first-rate, with some top ethics and compliance practitioners around.

Gain insights and make connections at the industry’s premier cross-industry national compliance event, offering knowledge-packed, accredited sessions and take-home advice from the most influential leaders in the compliance community. Back for its 19th year, join 500+ compliance, ethics, legal, and audit professionals who gather to benchmark best practices and gain the latest tactics and strategies to enhance their compliance programs. Compliance, ethics, legal, and audit professionals will gather safely face-to-face to benchmark best practices and gain the latest tactics and strategies to enhance their compliance programs, among many others, to:

  • Network with your peers, including C-suite executives, legal professionals, HR leaders, and ethics and compliance visionaries.
  • Hear from 80+ respected cross-industry practitioners, including CEOs, CCOs, regulators, federal officials, and practitioners, to help inform and shape the strategic direction of your enterprise risk management program.
  • Hear directly from panels on leadership, fraud detection, confronting regulatory change, abiding by cross-border rules and regulations, and the always-favorite fireside chats.
  • Bring actionable takeaways from various session types, including cyber, AI, Compliance, Board obligations, data-driven compliance, and many others, to your program for you to listen, learn, and share.
  • Compliance Week aims to arm you with information, strategy, and tactics to transform your organization and career by connecting ethics to business performance through process augmentation and data visualization.

I hope you can join me at the event. For information on the event, click here. As an extra benefit to listeners of this podcast, Compliance Week is offering a $200 discount on the registration price. Enter the discount code TFOX2024 for $200 off.

The Compliance Podcast Network produces the Compliance Week 2024 Preview Podcast series. Compliance Week sponsors this series.

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Blog

Ten Top Lessons from Recent FCPA Settlements – Lesson No. 10, Getting to Self-Disclosure: Speak Up, Triage and Internal Investigation

Over this series, I have reviewed the messages communicated by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) from three key Foreign Corrupt Practices Act (FCPA) enforcement actions regarding their priorities in investigations, what they want to see in remediations, and what they consider best practices compliance programs. These enforcement actions warrant a close study of the lessons learned. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities. One thing is abundantly clear: It all begins with self-disclosure.

The three FCPA enforcement actions we have reviewed are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. I added a fourth, the Gunvor S.A. enforcement action, as a discussion point, as it was released while I was writing this series. I have also cited several speeches by DOJ officials, including those from Deputy Attorney General Lisa Monaco and Assistant Attorney General Kenneth Polite. They pointed out a clear path for the company, which finds itself in an investigation, using extensive remediation to avoid monitoring. They provided insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Late last week, there were two speeches at the ABA White Collar Conference: one by DAG Lisa Monaco and a second by Acting Assistant Attorney General Nicole M. Argentieri, which re-emphasized the points I have articulated. Today, I want to use their speeches to add another factor to my Top Ten Lessons List: a Speak Up Culture, effective triage, and quick, efficient, and accurate internal investigation when information is brought forward.

DAG Monaco could not have been clearer when she said, “When a business discovers that its employees broke the law, the company is far better off reporting the violation than waiting for DOJ to discover it. Now, when the DOJ does discover the violation, the company can still reduce its exposure by proactively cooperating in our investigation. But I want to be clear: no matter how good a company’s cooperation, a resolution will always be more favourable with voluntary self-disclosure.” [emphasis supplied]

DAG Monaco noted that the DOJ has structured its “Voluntary Self Disclosure (VSD) programs to encourage companies to take responsibility for misconduct within their organizations. And we’ve conditioned benefits on the company’s willingness to step up and own up — requiring it to disgorge profits, upgrade compliance systems, and cooperate in investigations of culpable employees…We want to empower them to make the business case for investing in compliance. And when they do, they can point to our policies. Early reports on this work are promising. We directed all components and U.S. Attorneys to implement self-disclosure programs.”

The benefits of the VSD come from this self-disclosure. The DOJ’s announcement that it was launching a whistleblower program for payments to people who come forward with information about criminal activity emphasised this idea even more. While the SEC, CFTC, IRS, and other agencies have whistleblower reward programs, this is a powerful message from the DOJ that if your company has an issue, it is far better to self-disclose than investigate, remediate, and hope the DOJ (or any other agency) never finds out about the matter. Put another way, Argentieri spoke about “the benefits that await those that voluntarily disclose misconduct.”

All of this means you must be able to intake, evaluate, and investigate the information.

Culture of Speak Up

Your organization must have an effective and efficient means of allowing employees to raise their hands and speak up. That speak-up can be through an anonymous hotline, by going into their supervisor’s office to report something, or by coming to the compliance function. Or it could be another avenue of reporting. The point is that every company must be ready, willing, and able to hear and act on internal reports of wrongdoing.

Triage

Given the number of ways that information about violations or potential violations can be communicated to government regulators, having a robust triage system is a critical way to separate the wheat from the chaff and bring the correct number of resources to bear on a compliance problem. One important area is determining whether to bring in outside counsel to head up an investigation and the resources you may want or need to commit to a problem. You need to “kick the tyres” of any allegations or information so that you know the circumstances in front of you before you make decisions. You can achieve this through a robust triage process.

Internal Investigations

You can decide whether or not to investigate by consulting with other groups, such as the Compliance Committee of the Board of Directors or the Legal Department. The head of the business unit in which the claim arose may also be notified that an allegation has been made and that the Compliance Department will be handling the matter on a go-forward basis. Using a detailed written procedure, you can ensure complete transparency on all parties’ rights and obligations once an allegation is made. This gives compliance the flexibility and responsibility to deal with such matters, from which it can best assess and decide how to manage them.

We concluded this series where we began with the need for or benefits of self-disclosure. The benefits laid out by the DOJ are clear, tangible, and direct. If you self-disclose, provide extraordinary cooperation, extensively remediate, and disgorge any ill-gotten gains through profit disgorgement, there will be a presumption of declination. Even if you do not meet the self-disclosure threshold, you can still garner significant discounts under the DOJ’s Corporate Enforcement Policy through extraordinary cooperation and extensive remediation.