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On September 11, the DOJ announced that ZAO Hewlett-Packard A.O., a Russian subsidiary of Hewlett-Packard Company, pleaded guilty to conspiracy and felony violations of the anti-bribery and accounting provisions of the FCPA for making improper payments to Russian officials to secure a technology contract with the federal prosecutor's office. Following the guilty plea, a federal judge in the U.S. District Court for the Northern District of California sentenced HP to pay a $58.7 million fine. The guilty plea and fine are part of a larger agreement announced in April between HP, the DOJ, and the SEC, whereby HP and its international subsidiaries agreed to pay $108 million in criminal and civil penalties for bribing officials in Russia, Poland, and Mexico. The DOJ's Information accused the Russian subsidiary of the California technology company of improperly paying Russian officials millions of dollars in bribes to secure a $45 million information technology contract with the Office of the Prosecutor General of the Russian Federation. According to the DOJ, for several years company executives bribed Russian government officials using a multimillion dollar slush fund that was financed through an elaborate buyback scheme and concealed through the use of two sets of books and other off-the-books agreements. In its press release, the DOJ praised HP's "extensive cooperation" during the investigation, including conducting a "robust" internal investigation and engaging in "extensive" anti-corruption remedial efforts such as instituting disciplinary actions and enhancing its internal accounting, reporting and compliance functions. In April, HP said the misconduct was limited to a small number of people who are no longer with the company. While HP was required to implement a corporate compliance program and report annually for three years to the DOJ regarding the implementation thereof, HP was not required to engage a corporate monitor in its settlement of the DOJ's allegations.
On August 14, two former Terra Telecommunications Corp. executives convicted of FCPA and related offenses petitioned the U.S. Supreme Court for certiorari review of the U.S. Court of Appeals for the Eleventh Circuit's definition of "instrumentality" under the FCPA. In May, the Eleventh Circuit upheld the former executives' conviction under the FCPA and defined "instrumentality" as "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own." As a consequence of this definition, the Eleventh Circuit deemed an employee of a partially state-owned Haitian telephone company to be a "foreign official" for purposes of the FCPA. In asking for certiorari review and in citing reasons to grant the petition, the former executives focused on the absence of a definition of "instrumentality" of a foreign government within the FCPA, which, according to petitioners, has resulted in persistent questions about the correct interpretation of the term. The petitioners faulted the Eleventh Circuit for applying "an unacceptably broad interpretation of the term 'instrumentality' that expands the reach of" the FCPA. In so doing, the former executives described the Eleventh Circuit's reasoning as "illogic[al]" and under "its statutory construction, a janitor working for U.S. Government-subsidized General Motors could qualify as a 'foreign official' if General Motors were located overseas." According to published reports, this is believed to be the first substantive FCPA cert petition in the history of the FCPA. In addition, the Supreme Court has never substantively addressed any FCPA issue.
On August 4, 2014, the United Kingdoms Serious Fraud Office announced that four former executives of Innospec Inc. (formerly known as Associated Octel Corp.) were sentenced following a long-running investigation related to conduct in in Indonesia and Iraq. Three of the four were sentenced to prison terms, with a former chief executive receiving four years in prison after being convicted at a jury trial earlier this year. A former regional sales director received an 18 month sentence following a conviction at trial, and another former CEO was sentenced to two years following a guilty plea. The fourth individual, a former business unit director, received a suspended 16-month sentence following a guilty plea. The sentencing of these former executives comes after Innospec pled guilty in 2010 to FCPA and anti-bribery criminal charges brought by DOJ and the UKs Serious Fraud Office, and after Innospec settled civil charges brought by the SEC. The charges alleged that Innospec, a global specialty chemicals company, had bribed Indonesian and Iraqi government officials to win sales of a gasoline additive after environmental legislation in the US and abroad led to a decline in sales of that additive. As part of the settlement, Innospec paid U.S. authorities $27.5 million, and paid UK authorities $12.7 million. Two of the four individuals sentenced in the UK had also previously settled with the SEC over civil FCPA charges.
Delaware Supreme Court Upholds Ruling Ordering Wal-Mart to Disclose Documents Relating to Mexican Bribery Allegations
On July 23, the Delaware Supreme Court unanimously upheld a ruling by the Court of Chancery granting Wal-Mart Stores, Inc. shareholders access to various documents relevant to highly publicized allegations that Wal-Mart engaged in a long-running bribery scheme in Mexico. At the same time, the Court also affirmed the Court of Chancery's ruling that the shareholders could not use confidential documents allegedly provided by an anonymous whistleblower. The shareholders initiated an action pursuant to Delaware General Corporation Law § 220, which authorizes shareholders to access corporate books and records for "any proper purpose." Wal-Mart voluntarily provided some documents, but the Court of Chancery ordered a more wide-ranging production. All of Wal-Mart's challenges to that ruling were rejected by the Supreme Court. The most notable aspect of the Supreme Court's ruling was its determination that Wal-Mart would have to produce documents held by corporate officers, as opposed to documents held by members of the board of directors. Wal-Mart argued that the only proper purpose for which the shareholders needed the documents was to determine whether a demand on Wal-Mart's Board (a predicate to filing a derivative lawsuit) would be futile. Instead, the Court held that the shareholders had also established a proper purpose of investigating "the underlying bribery and how the ensuing [internal] investigation was handled." Moreover, the Supreme Court held that documents possessed by corporate officers were relevant to the demand futility issue to the extent the officers may have reported their knowledge to members of the board. The Supreme Court also upheld the Court of Chancery's rulings that Wal-Mart would have to produce documents beyond a date cut-off that Wal-Mart sought, that Wal-Mart would have to search disaster recovery tapes for certain custodians (Wal-Mart had previously agreed to some searches of disaster recovery tapes), and that Wal-Mart would have to produce otherwise privileged documents under the Garner doctrine, an exception to the privilege for documents relating to alleged breaches of fiduciary duties by those in control of the corporation. On the other hand, the Supreme Court sided with Wal-Mart with regard to certain confidential documents apparently provided to the shareholders' counsel by an anonymous whistleblower. Wal-Mart demanded the return of those documents, claiming that they were stolen by a former employee in its IT Department. The Supreme Court agreed, at least as to documents that had not otherwise been publicized by the media or members of Congress. However, the Court noted that the shareholders would still be able to obtain the documents if they were within the scope of the shareholders' valid § 220 demands.
On January 9, the SEC and the DOJ announced the resolution of parallel FCPA enforcement actions against a major U.S. extractive industries firm and one of its subsidiaries. The actions related to improper payments to officials of a foreign government, and to a "middle man" serving as an intermediary to secure contracts to supply a government controlled aluminum plant. The SEC's cease and desist order asserts the parent firm lacked sufficient internal controls to prevent and detect bribes made through foreign subsidiaries, and that the bribes were improperly recorded in the parent company's books and records as legitimate commissions or sales. The order directs the parent firm to disgorge $175 million, $14 million of which will be satisfied by forfeiture required in the parallel DOJ action. In connection with the DOJ action, the parent company pleaded guilty to one count of violating the FCPA's anti-bribery provisions and consented to entry of a judgment that requires the company to pay a $209 million criminal fine and forfeit $14 million. The plea agreement also requires the parent firm to maintain and implement an enhanced global anti-corruption compliance program, and both the parent and subsidiary companies must cooperate with the DOJ in its continuing investigation of individuals and institutions that were involved in the subject activities.
On December 20, the DOJ and the SEC announced separate enforcement actions against a major U.S. agribusiness firm and one of its foreign subsidiaries. In the DOJ action filed in the U.S. District Court for the Central District of Illinois, a foreign subsidiary of the U.S. corporate parent pleaded guilty to a single count of conspiracy to violate the anti-bribery provisions of the FCPA, and agreed to pay $17.8 million in criminal fines. The plea resolved the government's allegations that the subsidiary paid bribes through intermediary firms to Ukrainian government officials in exchange for over $100 million in value-added tax (VAT) refunds. The plea agreement with the DOJ was accompanied by a non-prosecution agreement with the U.S. parent to resolve claims that the company failed to implement internal controls sufficient to prevent and detect FCPA violations. Under that agreement, the company must periodically report on its compliance efforts, and continue implementing enhanced compliance programs and internal controls. The SECs parallel civil enforcement action resolved charges that the parent firms lack of sufficient anti-bribery compliance controls, which contributed to FCPA violations by foreign subsidiaries that generated over $33 million in illegal profits. The U.S. parent corporation consented to entry of a judgment that requires the company to disgorge the illegal profits plus $3 million in interest. The judgment also permanently enjoins the parent company from violating the relevant parts of the Exchange Act and requires compliance reporting for a three-year period.
On November 26, the DOJ announced that Weatherford Internationala multinational oil services companyand certain of its subsidiaries agreed to pay approximately $250 million to resolve FCPA, sanctions, and export control violations. The DOJ alleged in a criminal information that the company knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The alleged compliance failures allowed employees of certain of the companys subsidiaries in Africa and the Middle East to engage in prohibited conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations Oil for Food Program. The company entered into a deferred prosecution agreement, pursuant to which it must pay an approximately $87 million penalty, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced FCPA compliance program and internal controls. The subsidiaries pleaded guilty to related specific acts of corruption, including those alleged in a separate criminal information. The DOJ alleged, among other things, that employees of certain subsidiaries engaged in at least three schemes to pay bribes to foreign officials in exchange for government contracts. In addition the parent company agreed to pay over $65 million and submit to compliance and monitoring requirements to resolve parallel SEC civil allegations that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. Separately, the parent company entered into an agreement with the Treasury Departments Office of Foreign Assets Control (OFAC) and a deferred prosecution agreement with the DOJ, as well as an agreement with the Department of Commerce, to resolve alleged sanctions and export controls violations. Collectively, those agreements require the company to, among other things, pay $100 million in penalties and finesinclusive of a $91 million settlement with OFACand undergo external audits of its efforts to comply with the relevant U.S. sanctions law for calendar years 2012, 2013, and 2014. Those payments resolve allegations, described in part in another DOJ criminal information, that the company and certain subsidiaries exported or re-exported oil and gas drilling equipment to, and conducted business operations in, sanctioned countriesincluding Cuba, Iran, Sudan, and Syriawithout the required U.S. Government authorization.
On October 22, the DOJ and the SEC announced parallel actions against a U.S. company that makes ATMs and bank security systems for allegedly violating the FCPA. The federal authorities allege that from 2005 to 2010 the company provided a total of approximately $1.8 million in payments, gifts, and non-business travel to employees of state-owned banks in China and Indonesia, and attempted to disguise the benefits, including by making payments through third parties designated by the banks and by inaccurately recording leisure trips for bank employees as "training." The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing in order to facilitate approximately $1.2 million in bribes to employees of privately-owned banks in Russia in order to obtain and retain ATM-related contracts with those customers. The company entered into a deferred prosecution agreement with the DOJ and consented to a final judgment in the SEC matter. Pursuant to those agreements, the company must pay a $25.2 million penalty and disgorge approximately $22.97 million, inclusive of prejudgment interest. The company also must implement numerous specific changes to its internal controls and compliance systems, and retain a compliance monitor for at least 18 months. The government acknowledged the company's voluntary disclosure and extensive internal investigation and cooperation.
On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologiesa U.S.-based energy storage and power-delivery companyfor alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.