“The rule of law requires that there not be one rule for the powerful and another for the powerless; one rule for the rich and another for the poor. The Justice Department will continue to bring to bear its resources on these types of cases, no matter the company and no matter the individual.” That was Attorney General Merrick B. Garland, who announced the resolution of an enforcement action involving Glencore plc and related entities.
When Attorney General Merrick Garland has a Press Conference to announce a settlement you know it is significant. We were certainly treated to that last week when the AG and a host of other Department of Justice (DOJ) officials announced the settlement of a massive Foreign Corrupt Practices Act (FCPA) and market manipulation case against Glencore plc. (Glencore). Over the next several blog posts, I will be reviewing the matter and mining it for lessons learned for the compliance community. Today, in Part I, we review and announcement and basic facts of the matter.
The case involved massive bribery and corruption perpetrated by Glencore in multiple countries by multiple subsidiaries, involving multiple executives at the highest levels of the company. As stated in the DOJ Press Release, “Glencore, acting through its employees and agents, engaged in a conspiracy for over a decade to pay more than $100 million to third-party intermediaries, while intending that a significant portion of these payments would be used to pay bribes to officials in several countries, including Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).”
The resolution with the DOJ imposed $429 million in criminal penalties and forfeiture of $272 million. According to the FCPA Blog (who as usually broke the story for the compliance community), “as part of the U.S. resolution, a subsidiary of Glencore also agreed to plead guilty and pay $485.6 million to resolve market manipulation investigations by the DOJ and the Commodity Futures Trading Commission. After crediting about $166 million of that payment to amounts to be paid in the UK and possibly other countries, penalties assessed in the United States will be just over $1 billion.”
As was noted by U.S. Attorney Damian Williams, “The scope of this criminal bribery scheme is staggering. Glencore paid bribes to secure oil contracts. Glencore paid bribes to avoid government audits. Glencore bribed judges to make lawsuits disappear. At bottom, Glencore paid bribes to make money—hundreds of millions of dollars. And it did so with the approval, and even encouragement, of its top executives. The criminal charges filed against Glencore in the Southern District of New York are another step in making clear that no one – not even multinational corporations—is above the law.”
Assistant Attorney General Kenneth A. Polite, Jr. said that “Glencore’s guilty pleas demonstrate the Department’s commitment to holding accountable those who profit by manipulating our financial markets and engaging in corrupt schemes around the world. In the foreign bribery case, Glencore International A.G. and its subsidiaries bribed corrupt intermediaries and foreign officials in seven countries for over a decade. In the commodity price manipulation scheme, Glencore Ltd. undermined public confidence by creating the false appearance of supply and demand to manipulate oil prices.”
U.S. Attorney Vanessa Roberts Avery said: “Glencore’s market price manipulation threatened not just financial harm, but undermined participants’ faith in the commodities markets’ fair and efficient function that we all rely on. This guilty plea, and the substantial financial penalty incurred, is an appropriate consequence for Glencore’s criminal conduct, and we are pleased that Glencore has agreed to cooperate in any ongoing investigations and prosecutions relating to their misconduct, and to strengthen its compliance program company-wide. I thank both our partners at the U.S. Postal Inspection Service for their hard work and dedication in investigating this sophisticated set of facts and unraveling this scheme, and the Fraud Section, with whom we look forward to continuing our fruitful partnership of prosecuting complex financial and corporate criminal cases.
FBI Assistant Director Luis Quesada added, the “guilty pleas by Glencore entities show that there is no place for corruption and fraud in international markets. Glencore engaged in long-running bribery and price manipulation conspiracies, ultimately costing the company over a billion dollars in fines. The FBI and our law enforcement partners will continue to investigate criminal financial activities and work to restore the public’s trust in the marketplace.”
The matter also involved enforcement actions in multiple countries. In the UK, Glencore also had “charges brought against it by the U.K.’s Serious Fraud Office (SFO) and reached separate parallel resolutions with the Brazilian Ministério Público Federal (MPF) and the Commodity Futures Trading Commission (CFTC). Under the terms of the plea agreement, the department has agreed to credit the company over $256 million in payments that it makes to the CFTC, to the Court in the U.K. as well as to authorities in Switzerland, in the event that the company reaches a resolution with Swiss authorities within one year.”
SFO Director Lisa Osofsky, said in a Press Release, “This significant investigation, which the Serious Fraud Office has brought to court in less than three years, is the result of our expertise, our tenacity and the strength of our partnership with the US and other jurisdictions. “We won’t stop fighting serious fraud, bribery and corruption, and we look forward to the next steps in this major prosecution.”
Interestingly, the plea agreement requires Glencore to retain two compliance monitors for three years. This is a very significant development, which ties to the DAG Lisa Monaco speech from October 2021. We will consider the implications as well in greater detail.
Tomorrow we will consider the bribery schemes.
Tag: FCPA
In today’s edition of Daily Compliance News:
- Glencore settles for $15bn. (FCPABlog)
- Bosses in the UK want ‘butts in seats. (FT)
- BYN settles for lying about ESG. (Compliance Week)
- J&J’s lawyer wants to charge $2465 per hour in bankruptcy. (Reuters)
Welcome to the only roundtable podcast in compliance. In 2021, Everything Compliance was honored by W3 as a top talk show in podcasting. In this episode, we have the quartet of Jay Rosen, Jonathan Marks, Tom Fox and Matt Kelly. We conclude with our fan favorite Shout Outs and Rants.
1. Jay Rosen discusses the hunt for Russian oligarch goods and funds. Rosen shouts out to gaslighters Marjorie Taylor Green and Kevin McCarthy for denying they made comments when the audio was played to them.
2. Matt Kelly takes a deep dive into the Stericycle FCPA enforcement action. Kelly gives a shout out to the Brooklyn Public Library for offering a free library cards to those from towns where the GOP has banned books.
3. Jonathan Marks looks explores the FirstEnergy corruption case and its continued fallout in Ohio. Marks rants about Comcast which marketed a product which does not exist.
4. Tom Fox looks a provocative piece by Dick Cassin which posits the DOJ has changed enforcement priorities to remediation as the key goal. Fox shouts out to shareholders of Credit Suisse who revolted against the Board when it tried to shield itself from liability over its recent financial failures.
The members of the Everything Compliance are:
• Jay Rosen– Jay is Vice President, 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 is Partner, Firm Practice Leader – Global Forensic, Compliance & Integrity Services at Baker Tilly. Marks can be reached at jonathan.marks@bakertilly.com
The host and producer, ranter (and sometime 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.
Welcome to the Hughes Hubbard Anti-Corruption and Internal Investigations Practice Group’s Podcast, All Things Investigations. In this podcast, host Tom Fox and members of the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group will highlight some of the key legal issues involved in white-collar and other investigations, both domestically and internationally. In this episode, I visit with Mike DeBernardis, a partner at Hughes Hubbard, about some of the key developments in ethics compliance and FCPA from Q1 2022.
Michael A. DeBernardis is a partner in the firm’s Washington office and a member of the firm’s Anti-Corruption and Internal Investigations and White Collar & Regulatory Defense practice groups. Michael assists clients with internal investigations relating to high-stakes matters including bribery and corruption under the Foreign Corrupt Practices Act, procurement fraud, financial and accounting fraud, money laundering, and other ethics issues and violations of company policy. Michael has represented clients in connection with inquiries by the U.S. Department of Justice, U.S. Securities and Exchange Commission and U.S. Senate Permanent Subcommittee on Investigations, among others.
Key areas we discuss on this podcast are:
- Q1 brought resolutions that were excellent examples for training and increasing understanding about compliance issues.
- One of the more difficult aspects of compliance is scoping investigations.
- View input from your monitor as an opportunity to truly improve your processes, procedures and controls. Having a positive relationship with them is hugely valuable.
- Developing an investigation plan and protocols is an iterative process.
- Changes to the SEC Whistleblower program.
- Anti-corruption implications of the Russian invasion of Ukraine.
Resources
Hughes Hubbard & Reed website
Mike DeBernardis
Coburn and the Attorney/Client Privilege
In this episode of the FCPA Compliance Report I visit with Mike Volkov. Mike recently did a three-part blog post series reviewing the DOJ trial strategy, successes and failures and approach of the antitrust division. In this podcast we take a deep dive into FCPA trials, other white collar fraud trials and antitrust trials the DOJ has had over the past few years. We assess the key approaches, discuss some important wins and unfortunate stumbles.
Resources
Mike Volkov on Corruption Crime & Compliance
Part 1 – A Mixed Bag
Part 2 – Big Victories and Misguided Targets
Part 3 – Antitrust Division Stumbles
Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. This week, Matt and Tom take a deep dive into the recently released Stericycle FCPA enforcement action. Highlights include:
- What is a business strategy based upon corruption?
- Over-expansion and under due diligence in M&A.
- Document Document Document
- The Monaco Doctrine at work.
- Lessons learned going forward.
Resources
DPA
SEC Order
Matt in Radical Compliance
Tom in FCPA Compliance and Ethics Blog
Last week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement (DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. Today we consider the lessons learned.
Rapid Expansion
Similar to what we saw in the WPP enforcement action, Stericycle engaged in rapid expansion in a series of foreign jurisdiction. In this case it was Latin America. Stericycle does not seem to have made the same mistakes as WPP in holding back part of the overall acquisition payout to the owners in the locales where they purchased entities and thereby incentivizing corruption to meet sales goals. Under Stericycle, there was nothing about this same type of incentive plan used by WPP. However, Stericycle did appear to keep the former owners on as the executives in these new foreign subsidiaries without taking into account how those former owners may have done business or the risk model it entailed.
Which brings us to pre-acquisition due diligence, which is not simply looking at the financial issues involved but also considering the potential purchase from the compliance perspective. How did the companies which were purchased to form the foreign subsidiaries in Latin America do business before they were purchased? Did Stericycle review those companies from the compliance standpoint?
Moreover, and as Candice Tal, founder of Infortal, continually reminds us, due diligence is more than simply a site investigation or a couple of interviews. It should include “an in-depth background check of key executives or principal players. These are not routine employment-type background checks, which are simply designed to confirm existing information; but rather executive due diligence checks designed to investigate hidden, secret or undisclosed information about that individual.” Tal believes that such “Reputational information, involvement in other businesses, direct or indirect involvement in other lawsuits, history of litigious and other lifestyle behaviors which can adversely affect your business, and public perceptions of impropriety, should they be disclosed publicly.” Clearly, Stericycle did not engage in this level of due diligence in either the acquisitions of the entities which became Stericycle subsidiaries in Latin America, nor in their key personnel. Employees up and down the chain of an organization do not simply wake up one day and decide to engage in bribery and corruption and create a full set of records so the effectiveness of your bribery-based business process can be evaluated.
Impact of the FCPA Corporate Enforcement Policy
The Stericycle enforcement action once again demonstrates how the FCPA Corporate Enforcement Policy can benefit even the most corrupt organization and allow a significant reduction of the overall fine and penalty under the US Sentencing Guidelines. According to the DPA, Stericycle received a 25% discount off the bottom of the applicable Sentencing Guidelines fine range for its cooperation during the pendency of the investigation and the extensive remediation.
I have previously estimated Stericycle saved between $25 million to $30 million from their final criminal fine. That is certainly a significant amount and one every Chief Compliance Officer (CCO) needs to have ready to submit to your CEO to demonstrate the power of committing time and resources to both internal investigations and remediation during the pendency of the investigation.
Impact from the Lisa Monaco Doctrine
a. The Monitor
The is first FCPA enforcement action to show the full impact of the change in DOJ enforcement priorities after the Lisa Monaco speech of October 2021, in a variety of ways. The first is the imposition of a monitor. It was required under both the DPA and the Order. Interestingly, even though the company was long aware of its compliance and ethical failures and even though it had been investigating this matter since at least 2016; the company could not seem to get its collective act together enough to fully implement and test the new compliance regime set out in the DPA. The DPA stated, “despite its extensive remedial measures described above, the Company to date has not fully implemented or tested its enhanced compliance program, and thus the imposition of an independent compliance monitor for a term of two years, as described more fully below and in Attachment D, is necessary to prevent the recurrence of misconduct.” [Emphasis supplied] Clearly the DOJ (and SEC) did not trust that the company would follow through with its resolution documents obligations and was “necessary to prevent the recurrence of misconduct.”
b. Culture
One part of the Monaco speech which drew much criticism from the White-Collar defense bar and others were her remarks around culture and that the DOJ would start assessing corporate culture in the context of other fines, penalties and regulatory enforcement actions from outside the FCPA context. Many articulated fears that conduct completely unrelated to a FCPA enforcement action could form the basis of a FCPA enforcement action. Those fears were alleviated in the Stericycle DPA which stated, “the Company has some history of prior civil and regulatory settlements, but no prior criminal history”. At least at this point, no unrelated civil or regulatory actions were assessed in the context of a FCPA enforcement action.
There was and continues to be much to consider and learn from the Stericycle FCPA enforcement action. I am sure we will be revisiting it in the future.
Last week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement (DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. In today’s post we consider the fallout to the company, the comeback made during the pendency of the investigation and the monitor.
The Fallout
The fallout for Stericycle could not have been more dramatic or more disastrous. The company had to basically shut down a large part of its Latin American business. According to the DPA, Stericycle divested itself from its subsidiaries in Mexico and Argentina and taking steps to address its risks in Brazil. Consider that for a moment, the corruption is so endemic within your business unit, that you actually cannot remediate, you must divest yourself of it. According to Stericycle’s own estimates it would lose millions of dollars in business if it was required to leave these countries and the amounts of monies generated through bribery and corruption was equally high, according to the DPA.
The Comeback
The Stericycle enforcement action once again demonstrates how the FCPA Corporate Enforcement Policy can benefit even the most corrupt organization and allow a significant reduction of the overall fine and penalty under the US Sentencing Guidelines. According to the DPA, Stericycle received a 25% discount off the bottom of the applicable Sentencing Guidelines fine range for its cooperation during the pendency of the investigation and the extensive remediation. The former conduct was identified as “proactively disclosing certain evidence of which the United States was previously unaware; providing information obtained through its internal investigation, which allowed the government to preserve and obtain evidence as part of its own independent investigation; making detailed factual presentations to the Fraud Section; voluntarily facilitating interviews in the United States of foreign-based employees; and collecting and producing voluminous relevant documents to the Fraud Section, including documents located outside the United States, accompanied by translations of documents.”
The extensive remediation was even more revealing as the DPA stated that although the company had not self-disclosed, it began its internal investigation prior to being contacted by the DOJ. The company amped up its game regarding corporate governance by “appointing numerous new individuals to senior management and Board of Directors positions and establishing a Safety, Operations, and Environmental Committee to enhance Board oversight.” It enhanced its “compliance organization by hiring additional compliance personnel, including an experienced new Chief Ethics and Compliance Officer who reports directly to Stericycle’s Chief Executive Officer and Chair of the Audit Committee of the Board of Directors”. It updated the backbone of its compliance program; by updating its code of conduct, policies, procedures and internal controls.” It enhanced (or perhaps even created) its internal reporting, investigations and risk assessment processes and improved its compliance training and communications. Discipline was levied against certain employees, “including terminating certain employees including senior managers” and the aforementioned divestitures.
I have previously estimated Stericycle saved between $25 million to $30 million from their final criminal fine. That is certainly a significant amount and one every Chief Compliance Officer (CCO) needs to have ready to submit to your CEO to demonstrate the power of committing time and resources to both internal investigations and remediation during the pendency of the investigation.
The Monitor
The is first FCPA enforcement action to show the full impact of the change in DOJ enforcement priorities after the Lisa Monaco speech of October 2021; in a variety of ways. The first is the imposition of a monitor. It was required under both the DPA and the Order. Interestingly, even though the company was long aware of its compliance and ethical failures and even though it had been investigating this matter since at least 2016; the company could not seem to get its collective act together enough to fully implement and test the new compliance regime set out in the DPA. The DPA stated, “the Company has enhanced and has committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this Agreement (Corporate Compliance Program) but, despite its extensive remedial measures described above, the Company to date has not fully implemented or tested its enhanced compliance program, and thus the imposition of an independent compliance monitor for a term of two years, as described more fully below and in Attachment D, is necessary to prevent the recurrence of misconduct.” [Emphasis supplied] Clearly there was something missing from the company’s overall approach over these past six years.
According to the Order, the Monitor is mandated to review and evaluate the effectiveness of the Company’s policies, procedures, practices, internal accounting controls, recordkeeping, SOX controls, and financial reporting processes tying them to the FCPA and other applicable anti-corruption laws, and “make recommendations reasonably designed to improve the effectiveness of the Company’s Policies and Procedures and FCPA corporate compliance program (the “Mandate”). This Mandate shall include an assessment of the Board of Directors’ and Executive Leadership Team’s [ELT] commitment to, and effective implementation of, the Policies and Procedures and FCPA corporate compliance program.” Note this exacting requirement on the Board and ELT. Obviously, the SEC found their conduct wanting and needed to specifically call it out. It could also be a nod of the hat to the Delaware Supreme Court and its expansion of the Caremark Doctrine. Of additional interest was that the Monitor “should use a risk-based approach” and not necessarily “conduct a comprehensive review of all business lines, all business activities, and all markets.” Even with this anti-boil the ocean language, it is quite a bit of work for the company and the monitor.
Join us tomorrow where we look some lessons learned.
As the Celtics win Game One with a buzzer beater, Tom and Jay are back to look at some of the week’s top compliance and ethics stories in the NBA playoffs are here edition.
Stories
- Mike Volkov takes a deep dive into the recent DOJ trial record. In a 3-part series on Corruption Crime and Compliance.
- Sexual harassment case too implausible for Hollywood? Adam Manno in the Daily Mail.
- KT Corp FCPA enforcement action analysis. Lawyers from Debevoise in Compliance and Enforcement.
- Stericycle FCPA settlement. DOJ Press Release. Harry Cassin the FCPA Blog. Tom begins a 3-part series on the FCPA Compliance Report.
- Data analytics informs SEC enforcement action. Jaclyn Jaeger in Compliance Week.
- SEC Chair Gensler reflects on 1st year of Chairmanship? Ephrat Livny in NYT.
- Into the crystal ball on climate disclosures. Mai-Khoi Nguyen-Thanh and Taylor Wirthin CCI.
- Should Elon Musk have been stopped long ago? Francine McKenna in Time.
- What should be on your audit committee agenda for 2022? Maureen Bujno, Krista Parsons and Kimia Clemente in Harvard Law School Forum on Corporate Governance.
- Putting the ‘G’ first in ESG. Lawrence Heim in practicalESG
Podcasts and More
- Tom visits with Matt Galvin and Dan Kahn over a 2-part podcast series. In Part 1, they talk about dealing with the DOJ during a FCPA investigation and thereafter. In Part 2 we took a deep dive into the Lisa Monaco speech and what it means for compliance professionals.
- What is the only podcast dedicated to the intersection of Compliance and ESG? It’s the Compliance ESG Podcaston the CPN. Check out this week’s episode with Erika Peters of Exiger on the ESG Standards. For your added viewing pleasure check out the video pod on YouTube.
- This month on the Compliance Life, I visit with Susan Divers, Director of Thought Leadership at LRN. In Part 1, academic life and early professional career. In Part 2, she moves to the corporate world. In Part 3, Susan moves into the CCO chairs at AECOM.
- Are you a MCU fan? If so check out the latest 2 episodes of Popcorn and Compliance-the MCU Series as Tom and Megan Dougherty are going through the full MCU in chronological, not release date order. The latest two episodes are Black Widow and Black Panther.
- Why should you attend Compliance Week 2022? Find out on this episode of From the Editor’s Desk. Listeners get a $200 discount to CW 2022 with the discount code TFLAW $200 OFF. More here.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
Earlier this week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement(DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. In today’s post we will consider the bribery schemes.
The Problem
According to the Order, Stericycle got into FCPA hot water when it initially entered the Latin America market in 1997 and then rapidly expanded through the acquisition of many local businesses in Argentina, Brazil, and Mexico. Stericycle operated through wholly-owned subsidiaries in Brazil (“Stericycle Brazil”), Mexico (“Stericycle Mexico”), and Argentina (“Stericycle Argentina”). The prior local business owners continued to run the operations in each country. Each country had an executive team that reported to, among others, a former Stericycle executive responsible for all of Latin America (the “LatAm Executive”). The LatAm Executive reported directly to executives at Stericycle’s corporate headquarters. If all of this sounds familiar to readers of this blog, it was this similar fact pattern which brought the UK company WPP to FCPA grief as well.
Moreover, as the company grew in Latin America through acquisition, it failed to implement even the most basic internal controls for compliance. The Order noted, “the accounting processes and systems remained mostly decentralized with neither uniformity nor proper oversight, resulting in internal control deficiencies.” To top it all off, “Stericycle had no centralized compliance department and failed to implement its FCPA policies or procedures prior to 2016.” Clearly compliance was not something that was of the least interest to the company and it clearly contributed to an overall culture of corruption as a business practice. Finally, the corporate office, in the form of the LatAm Executive, “signed and transmitted numerous sub-certification letters in which they falsely stated that they were not aware of any actual or potential material event in their region, including any actual or alleged violation of any applicable law.”
The Bribery Schemes
The bribe payments were allegedly hidden through the use of code words for bribery. ‘Little pieces of chocolate in Brazil’, ‘IP’ or incentive payments in Argentina and ‘cookies’ in Mexico. In Brazil, the bribes paid were usually a percentage of the contract value, although occasionally it was a simple fixed fee. The DPA noted, “as part of the scheme, Stericycle Brazil employees agreed upon bribe payments in return for receiving payment priority on certain invoices owed under contracts with government agencies; the bribe payments were typically a percentage of the invoice amount owed or a fixed amount. The entire Brazilian business unit was apparently in on the scam as Stericycle Brazil sales employees, who used the cash to make bribe payments to government officials in different regions.” But it was not the BD folks who were running this bribery, as the “Stericycle Brazil finance employees prepared bank orders in the names of the Stericycle Brazil sales employees, who would retrieve the money from the bank and deliver the cash funds—often through an intermediary—to government officials associated with government customers.”
But it did not even stop there. According to the Order, in 2012, “Stericycle Brazil executives formed a sham third-party vendor that purportedly provided accounts receivable collection services to Stericycle Brazil, which were never provided. Rather, the sham third-party vendor issued false invoices that Stericycle Brazil used to support the bribe payments in its books and records. Each month, Stericycle Brazil finance employees estimated the amount of cash withdrawals attributable to the bribe payments. At the end of the month, Stericycle Brazil finance employees requested false invoices from the sham third-party vendor in the amount of the preceding month’s estimated cash withdrawals used for bribes. These invoices for purported debt collection services concealed the true purpose of the payments. The invoiced amounts were recorded in Stericycle’s general ledger, and the cash withdrawals appeared in company bank statements. In 2015, a Stericycle Brazil executive formed two other sham third-party vendors to continue the same scheme.”
To top it all off, all of the above was documented in company books and records. The finance employees “maintained spreadsheets which identified the government customers receiving bribes and the corresponding amount (either a set percentage of revenue or fixed amount), and the Stericycle Brazil employee responsible for retrieving the cash and delivering the bribe payments either directly or through a third-party intermediary. The spreadsheets contained entries, organized by month and region, of both the total amount of bribes paid and the amounts of the fake invoices used to provide cover for cash withdrawals. The Stericycle Brazil finance employees stored these spreadsheets on Stericycle’s servers, and the Stericycle Brazil executives and the LatAm Executive had knowledge of the payments by, among other things, receiving one or more copies of these spreadsheets.”
Just to reiterate, the finance team was preparing fraudulent money orders for employees to cash to create a pot of money to pay a bribe. Additionally, business unit executive themselves created a sham vendor to generate false invoices to also create pots of money to pay bribes, all of which was documented in the company’s books and records. This is not some pedestrian bribery scheme. This is a business unit which has systematized bribery as a business process.
In Mexico, this same basic format was used but with a twist. There was not a sham vendor or vendors. Here the corrupt LatAm Executive formed a joint venture (JV) which the company entered into to form Stericycle Mexico. It was all documented by spreadsheets which “identified invoices from approximately 45 third-party vendors which purported to provide otherwise undocumented consulting and market research services. The spreadsheets linked invoices to payments to government officials, including the name of the customer and calculation of the bribe as a fixed amount or percentage of the customer’s invoice value. Some spreadsheets also detailed the recipient of the bribe and method of delivery (cash versus wire transfer). These spreadsheets were sent to, among others, the LatAm Executive and a Stericycle Mexico executive on Stericycle’s servers.”
In Argentina, the specific method of how the cash was generated to pay the bribes was not report. The DPA noted, the “Argentina Country Management calculated and approved bribe payments, which were typically paid in cash by Stericycle Argentina sales employees. For example, on occasions when a bribe needed to be paid, a Stericycle Argentina sales employee emailed an estimate of the bribe payment, which was typically a percentage of the underlying contract payment. Upon approval of the payment, the Stericycle Argentina sales employee obtained cash from the Stericycle Argentina office in Buenos Aires and subsequently delivered the bribe payment to the foreign official.” These payments were called “alfa” and “alfajores”, a traditional cookie popular in Argentina.
Join us tomorrow where we look at the fallout and then the comeback.
