Nearly six years ago, Matt Ellis writing in CCI, detailed some of the Foreign Corrupt Practices (FCPA) enforcement actions involving Pemex. He detailed the software company Paradigm BV which had a FCPA enforcement action based in part on consultant payments, gifts and travel expenses for a Pemex official related to a subcontract it performed on a Pemex project. Hewlett-Packard Company (HP) had a FPCA enforcement action, partly involving payments the company made to a technology consultant in connection with the sale of HP software packages and licenses to Pemex. Back in 2008, Siemens AG had the first billion dollar plus FCPA enforcement action including, among other things, the payment of approximately $2.6 million in bribes to a well-connected business consultant in Mexico, some portion of which allegedly was routed to a senior Pemex official to help the company resolve cost overrun issues related to three refinery modernization projects.
Since that time, it seems doing business with Pemex only became riskier under the FCPA due to apparent endemic corruption at Pemex. Key Energy Services, Inc. has a FCPA enforcement action caused by bribes from its Mexican subsidiary paid to a Pemex employee. However, this endemic corruption is not a new feature of doing business with Pemex as far back as 1982, Crawford Enterprises, Inc., Ruston Gas Turbines, Inc., C.E. Miller Corporation and International Harvester Company, had a FCPA violation for paying bribes to sell turbine compression systems to Pemex. Book-ending this early FCPA enforcement action, as late as 2020, Vitol Inc. was involved in paying bribes in violation of the FCPA. In short, doing business with Pemex has always been high risk.
Now a new FCPA risk may have arisen for US companies doing business in the US as Pemex purchased a massive Royal Dutch Shell refinery in Deer Park Texas (Shell Deer Park up to the sale, Pemex Deer Park, after the transfer.) According to Reuters, turnover of the refinery occurred in January as the deal finally passed Committee on Foreign Investment in the United States (CFIUS) review. (How this deal could pass CFIUS review is the subject for another blog post.) Now we have the anomalous situation of Pemex owing one of the largest refineries on the Gulf Coast. What could go wrong?
One only need to look at the Corpus Christi based Citgo Petroleum Corporation which is owned by Venezuela’s state-owned and state-controlled energy company Petróleos de Venezuela S.A. (PDVSA). According to a 2021 Department of Justice (DOJ) Press Release, Jose Luis De Jongh Atencio (De Jongh) while an official at Citgo Petroleum Corporation, laundered millions of dollars in bribes and corruptly provided business advantages to multiple individuals who obtained contracts with Citgo and PDVSA. He accepted more than $7 million in bribe payments from businessmen in exchange for assisting the businessmen and related companies in procuring contracts with Citgo and providing them with other business advantages.
Another case involving Citgo was Jose Manuel Gonzalez Testino (Gonzalez), who pled guilty in federal court in Houston to one count of conspiracy to violate FCPA, one count of violating the FCPA, and one count of failing to report foreign bank accounts. Yet one of the most interesting items was the reference to Citgo Petroleum Corporation and its involvement in the bribery scheme. As noted in the DOJ Press Release it stated, “Gonzalez also admitted to making bribe payments to several PDVSA officials who were based in Houston and employed by Citgo.” Citgo procured goods and services on behalf of PDVSA and “Gonzalez admitted he and his co-conspirators paid at least four Citgo officials in the Special Projects group and provided gifts and other things of value to a senior Citgo executive.” These Citgo/PDVSA enforcement actions have led nearly 20 different guilty pleas or indictments of other former Citgo/PDVSA employees.
Clearly, there is precedent for a FCPA enforcement action in the United States for a US domiciled business if that business has foreign government ownership. The President of Mexico, Andrés Manuel López Obrador, has taken a decided interest in this acquisition and George Baker, writing in the Houston Chronicle, notes this brings on what he calls the AMLO risk to this facility due to Obrador’s tendency to micromanage Pemex. His position on bribery and corruption is certainly well shown in his administration. In addition to his cutting of Pemex’s budget for repair and plant maintenance, what to you think Pemex and the AMLO administration think of compliance? Not much it appears.
What American companies now need to understand is that every transaction, every meal bought for Pemex Deer Park employees or gifts sent over will have to be screened through a FCPA lens. What happens when Pemex officials from Mexico start arriving to oversee their investment? What happens when Pemex officials in Mexico start to oversee and micromanage contracts and procurement? Given the number of FCPA enforcement actions involving Pemex in the past, would it be too surprising to see a repeat of Pemex employees’ actions at Pemex Deer Park?
What type of due diligence is your American company going to engage in for doing business with Pemex Deer Park? Leaving aside the question of what the financial health of the plant will be under the AMLO regime, what about anti-corruption due diligence? Could Pemex pass such scrutiny or would too many read flags arise? What happens if your company is approached to enter into some type of joint or other business relationship with Pemex Deer Park?
What about training? If you are a US company which has only done due diligence with US owned petro-chemical and chemical plants on the Texas Gulf Coast, you have probably never received FCPA anti-corruption training. Now you will need to do so. You will also need to track all your gifts, travel and entertainment expenses with Pemex, with a separate line item entry in your books and records.
All of these issues and questions will be answered as we move forward into the almost brave new world.
Tag: FCPA
The college football season has ended with UGA finally defeating UA. Tom and Jay turn their full attention to the NFL playoffs now and also look at some of the week’s top compliance and ethics stories this week in the Georgia Finally Beats Alabama edition.
Stories
1. Carnival and Princess Cruise Lines violated DPA yet again. Matt Kelly in Radical Compliance. DOJ Press Release.
2. Prioritizing items from the Strategy on Countering Corruption. Worth McMurray in the FCPA Blog.
3. DOJ to look at short sellers. Jaclyn Jaeger in Compliance Week (sub req’d).
4. Proposed framework for CCO liability analysis. Mengqi Sun in WSJ Risk & Compliance Journal.
5. Manipulation on timing of FCPA enforcement action? Matthew Stephenson debunks a new article in GAB.
6. ComTech comes to financial institution compliance. Christian Wunderly in the FCPA Blog.
7. Phil Tetlock and Superforecasting come to risk management. Jim DeLoach in CCI.
8. Ethics and FCPA predictions for 2022. Mike Volkov with a double dose of Carnac the Magnificent. Ethics here. FCPA here.
9. Banks develop climate risk consortium. Aaron Nicodemus in Compliance Week. (sub req’d)
10. Liability of local representatives under GDPR. Kelly Hagedorn and Matthew Worby in Compliance and Enforcement.
Podcasts
11. Tom and Matt Kelly conclude a 2-part podcast series on issues they are following in 2022. On Compliance into the Weeds, Part 1 and Part 2.
12. In January on The Compliance Life, I visit with Valerie Charles, partner at StoneTurn. Val has one of the most interesting journeys in compliance. In Part 1, she discussed her academic background and early professional career. In Part 2, she discusses her move to ComTech.
13. The Compliance Podcast Network welcomes Professor Karen Woody and her new podcast, Classroom Insider. In this most unique pod, Karen interviews some of her student to tell the history of insider trading. In Episode 4, Colin Manchester discusses the evolution of the disclose or abstain rule.
14. Mikhail Reider-Gordon returns in Lies, Spies & Corporate Crimes: The Wirecard Saga, with Season 2, Episode 3 Shell Games.
15. Check out 31 Days to a More Effective Compliance Program returns, which runs for the month of January, from January 1 to January 31. Available on the Compliance Podcast Network, Megaphone, iTunes, and all other top podcast platforms.
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.
In this episode of the FCPA Compliance Report, I am joined by Mike Volkov to take a look back at FCPA enforcement and compliance from 2021 and prognosticate to where it may be going in 2022. Highlights of this podcast include:
- Three FCPA enforcement actions.
- DAG Lisa Monaco’s October Speech to the ABA White Collar Defense Conference.
- The Biden Administration’s Strategy on Countering Corruption.
- Where will FCPA enforcement head in 2022.
- Where will ABC compliance go in 2022?
Resources
Tom in the FCPA Compliance and Ethics Blog
In today’s edition of Daily Compliance News:
- Crypto crime hit $14bn in 2021. (WSJ)
- Portuguese corruption erodes trust in government. (FT)
- MACC under fire for corruption. (This Week in Asia)
- Roger Ng trial set for February. (Reuters)
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 begin a special two-part podcast series of several topics they will be following in 2022. Today in Part 1, we consider
- The Biden Administration’s Strategy on Countering Corruption, specifically around FinCEN and AML enforcement and how it may impact FCPA enforcement.
- The PCAOB was long dysfunctional before the Trump Administration eviscerated it. How will it change under the Biden Administration?
- The SEC plans for the regulation of and reporting on ESG.
- FCPA enforcement for recidivist corporations after DAG Lisa Monaco’s speech in October 2021.
Resources
Matt in Radical Compliance
Welcome to a special podcast series on the Compliance Podcast Network, 31 Days to a More Effective Compliance Program. Over these 31 days series in January 2021, I will post a key part a best practices compliance program each day. By the end of January, you will have enough information to create, design or enhancement a compliance program. Each podcast will be short, at 6-8 minutes with three key takeaways that you can implement at little or no cost to help update your compliance program. I hope you will plan to join each day in January for this exploration of best practices in compliance.
2021 was a very significant year for every compliance practitioner and compliance program. While there was a paucity of corporate FCPA enforcement actions, the three enforcement actions were significant with multiple lessons for the compliance professional. In Deutsche Bank, we learned about the costs of a corrupt culture and recidivism, in Amec Foster Wheeler, we saw happens to a company which pays bribes and then tries back out; the criminals they are dealing with have them in an untenable position that they must continue to pay the bribes and how catastrophic failure in pre- and post-acquisition due diligence can lead to massive FCPA violations. Finally, in WPP, we saw how accepted business incentives can become perverse, what happens when you ignore whistleblowers. However, there were two major policy announcements from the Biden Administration which every compliance professional needs to not simply be aware of but study and implement solutions based upon these announcements.
In late October, Deputy Attorney General Lisa O. Monaco gave a Keynote Address at ABA’s 36th National Institute on White Collar Crime (Monaco Speech). The key changes announced in the Monaco Speech were as follows: (1) “today I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.” This portends a return to the strictures of the Yates Memo. (2) “The second change I am announcing today deals with the issue of a company’s prior misconduct and how that affects our decisions about the appropriate corporate resolution. (3) The final change I am announcing today deals with the use of corporate monitors.” This final change is a rejection of the strictures laid out in the Benczkowski Memo regarding the DOJ use of corporate monitorships.
In November, the Biden Administration released the United States Strategy on Countering Corruption (the “Strategy”); subtitled “Pursuant To The National Security Study Memorandum On Establishing The Fight Against Corruption as a Core United States National Security Interest”; in response to President Biden’s prior declaration of corruption as a national security issue of the United States. While obviously focused on the US government’s role in leading the fight against corruption, the entire document portends a major sea change in the approach of fighting bribery and corruption, literally on a worldwide basis. For this reason alone, it should be studied by all compliance professionals. Obviously, this more holistic approach is most welcomed. Corruption does more than simply steal money from the world economy.
Three key takeaways:
- The Biden Administration released its Strategy on Countering Corruption.
- Deputy Attorney General Lisa Monaco gave a speech refocusing the DOJ’s efforts on FCPA and other white-collar crime.
- Even with a paucity of FCPA enforcement actions, there were multiple lessons for the compliance professional.
With Jay on a holiday assignment, Tom is joined by Mike Volkov to look at some of the week’s top compliance and ethics stories this week in the Tribute to Madden and Harry edition.
Stories
1. We lost two greats this week, one in sports and gaming and one from politics. John Madden and Harry Reid. Tom and Mike reflect.
2. No poaching in the Defense Industry. Jay DeVecchio and Lisa Phelan in a MoFo Client Alert.
3. What is a ‘Bump Up’ provision in an E&O policy. Barry Buchman and Michael Scanlon in D&O Diary.
4. Reflections on 2021 in Compliance. Lisa Schor Babin in CCI.
5. Should lawyers file SARs? Jason Morris in Compliance Week (sub req’d).
6. Fraud in the taxi business? (This is my shocked face.) Matt Kelly in Radical Compliance.
7. Making ESG 2nd nature in asset allocation. Sara Rosner and Jess Gaspar in Harvard Law School Forum on Corporate Governance.
8. An app for ESG investment. Lawrence Heim in PracticalESG.
9. Thoughts for the Board from 2021. Marty Lipton in Harvard Law School Forum on Corporate Governance.
10. Tom and Mike look back at 2021 in compliance. Tom in FCPA Compliance and Ethics Blog.
Podcasts
11. Want some fun? Join Tom and One Stone Creative co-founder Megan Dougherty for an exploration of the full MCU. In their most recent posting, check out Episode 3, Iron Man.
12. In December on The Compliance Life, I visit with Matt Silverman, Director of Trade Compliance at VIAVI. Matt is the first Trade Compliance Director I have hosted on TCL. In Part 1, Matt details his academic career and early professional life. In Part 2, Matt moves into trade compliance. In Part 3, Matt moves into the Director’s chair. In Episode 4, Matt looks down the road for trade compliance.
13. The Compliance Podcast Network welcomes Professor Karen Woody and her new podcast, Classroom Insider. In this most unique pod, Karen interviews some of her student to tell the history of insider trading. Check out Episode 1 where they discuss the history of insider trading. In Episode 2, the disclosure or abstain rule. On Episode 3, they will take up narrowing the scope of the disclose or abstain rule.
14. On EMBARGOED!, Brian and Tim run through a Lightning Round-style discussion of the top economic sanctions and export controls stories of 2021.
15. Looking to enhance your compliance program? Check out 31 Days to a More Effective Compliance Program returns, which runs for the month of January, from January 1 to January 31. Available on the Compliance Podcast Network, Megaphone, iTunes, and all other top podcast platforms.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Mike Volkov is the founder of the Volkov Law Group and can be reached at mvolkov@volkovlaw.com.
I have always striven to provide my readers and listeners with the most up-to-date information on what goes into a best practices compliance program. To that end, beginning January 1, and for the next 31 days, I will be exploring the best way to more fully operationalize a compliance program using these resources. The podcast series will provide the compliance practitioner with a thorough grounding in the key aspects of a best practices compliance program based on the latest information from the regulators. Each day I will highlight a new topic based upon the information we learned on compliance programs in 2021. If you are starting out to design, create and implement a best practices compliance program, this series will give you the basics. If you are looking for the most current thinking on how to enhance your compliance program, this series will also benefit you as well.
I hope you will join me as we engage in 31 days to a more effective compliance program. It will be available on the FCPA Compliance Report, iTunes, YouTube and JDSupra.
Categories
2021 – The Year in FCPA Enforcement
There was a paucity of Foreign Corrupt Practices Act (FCPA) enforcement actions in 2021. However, the few enforcement actions announced did provide significant lessons for every compliance professional.
Deutsche Bank
The year started off with a bang when, according to a Department of Justice (DOJ) Press Release, Deutsche Bank Aktiengesellschaft, “agreed to pay more than $130 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme. “The resolution includes criminal penalties of $85,186,206, criminal disgorgement of $681,480, victim compensation payments of $1,223,738 and $43,329,622 to be paid to the US Securities & Exchange Commission in a coordinated resolution.” Settlement documents include a Deferred Prosecution Agreement (DPA) and Information from the Department of Justice (DOJ) and a Cease and Desist Order (Order) entered to with the Securities and Exchange Commission (SEC). This settlement comes on the heels of another FCPA settlement in August 2019, where the Bank paid $16.2 million to settle a ‘Princeling’ charge that it corruptly hired sons and daughters of foreign officials and of employees of state-owned enterprises.
One can only wonder at the culture at the Bank which basically boiled down to win at all costs: lie, cheat, steal, engage in bribery and corruption, manipulate the markets, we don’t care. Just Win Baby. The Bank was also comfortable in dealing with some very dodgy characters beyond even Donald Trump and his family. The Bank has now said it will no longer do business with Trump and his personal banker left the Bank at the end of 2020.
Does this mean the Bank will turn state’s evidence against Trump? It is hard to say at this point, but the Bank is committed in the DPA to “cooperate fully with the Offices in any and all matters relating to the conduct described in the Statement of Facts and other conduct under investigation by the Offices at any time during the Term, subject to applicable laws and regulations, until the later of the date upon which all investigations and prosecutions arising out of such conduct are concluded, or the end of the Term.” [emphasis supplied] While this is boilerplate language found in every DPA it certainly takes on greater significance now.
Amec Foster Wheeler
The next matter was the Amec Foster Wheeler FCPA enforcement action, which is currently owned by John Wood Group PLC (Wood), the successor-in-interest to Amec Foster Wheeler Plc. It involved a long-standing corruption investigation which involved multiple investigative and enforcement agencies in multiple jurisdictions regarding the use of the disgraced agent Unaoil to pay bribes to secure business. In a Press Release, the Company said that it had reached agreements with the UK Serious Fraud Office (SFO), the DOJ and SEC) in the US, and the Ministério Público Federal (MPF), the Comptroller General’s Office (CGU) and the Solicitor General (AGU) in Brazil, to resolve their respective bribery and corruption investigations into the past use of third parties in the legacy Foster Wheeler business. Under the terms of these various agreements, the Company will pay compensation, disgorgement and prejudgment interest, fines and penalties totaling $177m. The payment will “be phased over the next three years with approximately $62m payable in H2 2021, and the balance to be paid in instalments in 2022, 2023 and 2024.”
There were some key lessons learned from the matter. In the area of internal controls, hopefully in 2021, if a General Counsel is asked to draft an agreement, even an interim agreement which violates a company’s internal controls for the vetting and contracting with third-party agents, that GC would stop the process. But if not, there should trips wires which would alert those at the highest level of a corporation that a key control was been over-ridden or worked around. This of course means the Board of Directors should have visibility into the highest risks an organization faces and in the world of international commerce, a third-part sales agent is that level of risk.
This case also involved multiple failures in the area of Mergers and Acquisitions (M&A). There were at least two acquisitions involved here where the acquiring entity; first Amec acquired Foster Wheeler (forming Amec Foster Wheeler) and then the second, the John Wood Group PLC (acquiring Amec Foster Wheeler) failed to perform either sufficient pre-acquisition due diligence or even post-acquisition audit of the acquired company’s high-risk ventures. Once again, this involved Petrobras which was well-known for corruption issues by 2014. There was no mention of the failures of Amec and Wood in the M&A areas on this matter but clearly something went through unnoticed.
Since at least the 2012 FCPA Resource Guide, the DOJ and SEC have specified the steps for compliance in M&A. It is pre-acquisition due diligence which should form the basis of post-acquisition integration. After acquisition, there should be a full forensic FCPA audit and investigation, most notably in high-risk markets and with high-risk ventures. There must be full compliance training and integration of the acquired entity into the acquirer’s compliance regime.
WPP
Finally, was the SEC Cease and Desist Order entered into with WPP plc, the world’s largest advertising group, for paying bribes to Indian government officials and participating in other “illicit schemes” in China, Brazil and Peru. WPP agreed to pay $11 million+ in disgorgement and interest and penalty of $8 million for a total amount of just over $19 million. Some of the key lessons from compliance including the following.
Culture Matters – It seems about the most basic thing to say in the compliance realm, but the most important thing is your corporate culture. If your culture puts no value on doing business ethically and in compliance, your organization will surely have problems. Investigations – From the ignoring of internal whistleblower reports, to selecting poor investigative counsel, to allowing the persons involved in the corruption to help shape the original internal investigation, this matter is an excellent teaching tool for how NOT to perform an investigation. M&A – There was no preacquisition compliance due diligence into any of the entities acquired. This was bookended with no forensic compliance audit of the acquired entities after acquisition as well. Incentives – When do sales or remuneration incentives become perverse incentives? WPP crossed that threshold when they made the earnouts for the founders of the organizations they acquired, who were kept on to run subsidiaries such as WPP-India, contingent on hitting sales numbers they could not reach without engaging in bribery and corruption.
While there was a smaller number of FCPA enforcement actions in 2021 than in prior years, the cases that were resolved were significant. They provide many lessons for every Chief Compliance Officer (CCO) and compliance professional.
Categories
What 2021 Brought to Compliance
2021 was a very significant year for every compliance practitioner and compliance program. While there was a paucity of corporate FCPA enforcement actions, the three enforcement actions were significant with multiple lessons for the compliance professional. In Deutsche Bank, we learned about the costs of a corrupt culture and recidivism, in Amec Foster Wheeler, we saw happens to a company which pays bribes and then tries back out; the criminals they are dealing with have them in an untenable position that they must continue to pay the bribes and how catastrophic failure in pre- and post-acquisition due diligence can lead to massive FCPA violations. Finally, in WPP, we saw how accepted business incentives can become perverse, what happens when you ignore whistleblowers. However, there were two major policy announcements from the Biden Administration which every compliance professional needs to not simply be aware of but study and implement solutions based upon these announcements.
In late October, Deputy Attorney General Lisa O. Monaco gave a Keynote Address at ABA’s 36th National Institute on White Collar Crime (Monaco Speech). Her remarks were noted by many commentators. Her remarks should be studied by every compliance professional as they portend a very large change in the way the DOJ and potentially other agencies enforce the FCPA. This has significant implications for every Chief Compliance Officer (CCO), compliance professional and corporate compliance programs.
The key changes announced in the Monaco Speech were as follows: (1) “today I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.” This portends a return to the strictures of the Yates Memo. (2) “The second change I am announcing today deals with the issue of a company’s prior misconduct and how that affects our decisions about the appropriate corporate resolution. (3) The final change I am announcing today deals with the use of corporate monitors.” This final change is a rejection of the strictures laid out in the Benczkowski Memo regarding the DOJ use of corporate monitorships.
In November, the Biden Administration released the United States Strategy on Countering Corruption (the “Strategy”); subtitled “Pursuant To The National Security Study Memorandum On Establishing The Fight Against Corruption as a Core United States National Security Interest”; in response to President Biden’s prior declaration of corruption as a national security issue of the United States. While obviously focused on the US government’s role in leading the fight against corruption, the entire document portends a major sea change in the approach of fighting bribery and corruption, literally on a worldwide basis. For this reason alone, it should be studied by all compliance professionals.
The Strategy has five pillars. Pillar 1 is Modernizing, Coordinating, and Resourcing U.S. Government Efforts to Fight Corruption, with five strategic objectives (1) to enhance corruption related research, data collection, and analysis; (2) improve information sharing within the U.S. Government, with non-U.S.-Governmental entities, and internationally; (3) increase focus on the transnational dimensions of corruption; (4) organize and resource the fight against corruption, at home and abroad; and (5) integrate an anti-corruption focus into regional, thematic, and sectoral priorities.
Obviously, this more holistic approach is most welcomed. Corruption does more than simply steal money from the world economy. According to the Strategy, “Corruption robs citizens of equal access to vital services, denying the right to quality healthcare, public safety, and education. It degrades the business environment, subverts economic opportunity, and exacerbates inequality. It often contributes to human rights violations and abuses and can drive migration. As a fundamental threat to the rule of law, corruption hollows out institutions, corrodes public trust, and fuels popular cynicism toward effective, accountable governance.” I would add several others such damaging the fight against climate change, destroying ethic business practices and, of course, leading to transnational crime and terrorism.
I cannot wait to see what 2022 will bring the compliance community.
