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On November 30, a U.S.-based agriculture company, CHS Inc., disclosed in an SEC filing that it is cooperating with an investigation being conducted by the SEC and DOJ involving payments made to Mexican customs officials. The payments were made in connection with grain shipments crossing the U.S.-Mexican border by train. CHS Inc. is a Fortune 100 company that is owned primarily by farmer and rancher cooperatives and has extensive operations in the energy sector in addition to agriculture.
The SEC filing states that the company voluntarily self-disclosed the potential violations and stressed the company’s full cooperation with the investigation, which includes “investigating other areas of potential interest to the government.” The DOJ has placed great emphasis on the importance of voluntary self-disclosure and cooperation in recent policy statements. See previous Scorecard coverage here. This investigation is noteworthy because while investigations in the energy sector are common, investigations in the agricultural sector are less so. The eventual resolution of this investigation may provide useful guidance for other agribusiness companies.
On November 19, the SEC announced a settlement with Vantage Drilling International (“Vantage”) based on the improper activities of Vantage’s predecessor, Vantage Drilling Company, in connection with the Petrobras bribery scheme. The Administrative Order found that Vantage Drilling Company had “failed to devise a system of internal accounting controls with regard to [its] transactions with [its] former outside director, largest shareholder, and only supplier of drilling assets . . . and failed to properly implement internal accounting controls related to its use of third-party marketing agents,” noting the company’s “ineffective anticorruption compliance program.” According to the Order, these failures permitted payments that “created a risk that [it] was providing or reimbursing funds that [a director] intended to use to make improper payments to [Petrobras],” a Brazilian company at the center of a massive FCPA scheme.
The settlement with the SEC concludes Vantage’s involvement in the Petrobras investigations. According to Vantage, the company received a cooperation letter from the DOJ last year confirming Vantage’s full cooperation in the Petrobras investigation, and that the DOJ would not move forward with any actions against Vantage.
Further coverage of the Petrobras matter is available here.
On November 15, the SEC released its 2018 Annual Report to Congress on its Whistleblower Program, as required under § 924(d) of the Dodd-Frank Act and § 21(F)(g)(5) of the Securities Exchange Act of 1934. The Report, which covers October 1, 2017 through September 30, 2018, indicates that the SEC received 202 FCPA-related whistleblower tips during the reporting year. Those 202 FCPA tips account for only 3.82% of the tips received in that period. While the overall number of whistleblower tips has steadily risen over the past 4 years, the number of FCPA tips has remained fairly steady. In 2015, there were 186 (4.74% of the tips received); in 2016 there were 238 (5.64% of the tips received); and in 2017 there were 210 (4.68% of the tips received). This relative consistency contrasts with the number of offering fraud tips, which jumped from 758 in 2017 to 1,054 in 2018.
In addition to providing statistics and background on the whistleblower program, the Report discusses rule amendments proposed earlier this year. In particular, the Report reviews proposed amendments to SEC Rule 21F-2 (Whistleblower Status and Retaliation Protection) that are intended to bring the rules in line with the Digital Realty Trust v. Somers decision. The proposed amendments would include instituting a uniform definition of whistleblower that requires the individual to have submitted the information “in writing” to the SEC.
On November 14, 2018, a three judge panel for the United States Court of Appeals for the Ninth Circuit heard oral arguments in Sanford Wadler v. Bio-Rad Laboratories, Inc., et al. Bio-Rad, a life science research and diagnostics company, is hoping to overturn a February 2017 jury verdict ordering the company to pay its former General Counsel and Secretary, Sanford Wadler, $11 million in punitive and compensatory damages. Wadler’s complaint alleged that the company had fired him for being an FCPA whistleblower. As detailed in a previous FCPA Scorecard post, Bio-Rad paid $55 million in November 2014 to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. Wadler’s report to the Audit Committee had involved separate allegations that the company violated the FCPA in China, allegations that did not result in additional penalties against Bio-Rad.
Bio-Rad appealed the Wadler award on the grounds that the jury was erroneously instructed that the SEC’s rules or regulations forbid bribery of a foreign official; that the company’s alleged FCPA violations were the result of Wadler’s lack of due diligence; that the trial court wrongly excluded certain impeachment testimony and evidence related to the timing of Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler did not qualify as a “whistleblower” under Dodd-Frank in light of his reporting only internally and not to the SEC (pursuant to the U.S. Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers, No. 10-1276, 583 U.S. ___ (2018)). During the argument, one member of the circuit panel reportedly expressed doubt concerning Bio-Rad’s jury instruction argument, and another told counsel for Bio-Rad, “I don’t see how this can be reversed on the theory you’re offering.”
On October 3, 2018, Steven Peiken, Co-Director of the SEC’s Division of Enforcement, offered remarks at a white collar crime conference in New York City, discussing a range of issues related to FCPA compliance and enforcement. For example, likely responding to increasing criticism about the relatively few enforcement cases that have been brought by the SEC in recent years, Peiken addressed questions regarding the Enforcement Division’s effectiveness and efficiency metrics, noting that the Division is moving away from quantitative measurements of success to more qualitative metrics, such as whether retail investors are adequately protected and whether the agency is “keeping pace with technological change.”
In addition, Peiken addressed the impact of the Supreme Court’s decision in Kokesh v. SEC, which held that disgorgement awards are punitive in nature and subject to a five year statute of limitations under 28 U.S.C. § 2462. Peiken stated: “The impact of Kokesh has been felt across our enforcement program. A few months ago, we calculated that Kokesh led us to forego seeking approximately $800 million in potential disgorgement in filed and settled cases. That number continues to rise.”
Peikin concluded his remarks by noting that the Enforcement Division cannot continue to rely upon quantitative metrics to determine success, such as the size of awards and penalties. Instead, the Division must adopt “a nuanced and qualitative evaluation of our overall impact on achieving our investor and market integrity protection mission.” These remarks suggest that the rate of new actions and investigations filed by SEC’s Enforcement Division may not keep pace with recent years, and that the Division may instead be relying on impact cases or those that satisfy the more qualitative metrics Peikin described, when measuring success going forward.
On September 28, the SEC announced a settlement with a Michigan-based medical device company, Stryker Corp., to resolve the SEC’s charges of books and records and internal controls violations. According to the order, the company agreed to pay a $7.8 million penalty and accepted the imposition of an independent compliance consultant to resolve allegations that Stryker’s Indian subsidiary failed to maintain accurate books and records, and that Stryker’s internal controls were inadequate to identify possible improper payments related to the sale of its products in India, China, and Kuwait.
This is the second enforcement action the SEC has brought against Stryker in recent years. In a prior action in October 2013, Stryker paid over $13.2 million in penalties, disgorgement, and interest to settle charges of FCPA violations for bribing doctors, health care professionals, and other government-employed officials in Argentina, Greece, Mexico, Poland, and Romania.
On September 27, 2018, the DOJ announced that Petrobras, the Brazilian state-owned oil company, had entered into a Non-Prosecution Agreement with the DOJ, as well as settlement agreements with the SEC and Brazilian authorities, and agreed to pay a total $853.2 million in penalties to all jurisdictions. Under the terms of the settlement, DOJ and SEC will each receive 10 percent of the penalty amount, with Brazilian authorities receiving the remaining 80 percent.
As part of the settlement, Petrobras admitted that its Executive Board members “were involved in facilitating and directing millions of dollars in corrupt payments to politicians and political parties in Brazil,” while directors were “involved in facilitating bribes that a major Petrobras contractor was paying to Brazilian politicians.” The conduct included bribes related to several refineries, as well as shipyard and drillship contracts, as well as payments to “stop a parliamentary inquiry into Petrobras contracts.”
Petrobras’ penalty reflects a 25 percent discount off the low end of the applicable U.S. Sentencing Guidelines due to its cooperation and remediation. While the company did not voluntary disclose its conduct, it cooperated with authorities by disclosing the findings of its internal investigation, providing document discovery, and facilitating the interview of foreign witnesses. It also took remedial measures by replacing its Board of Directors and Executive Board, as well as implementing reforms in its policies and procedures.
In addition to the criminal penalty, the SEC announced that Petrobras agreed to an administrative order requiring it to pay almost $1 billion in disgorgement and prejudgment interest. However, Petrobras received full credit for payments it already made to resolve a class action for $2.95 billion earlier this year. The net result is that Petrobras will not have to pay any additional funds to the SEC in the separate disgorgement action.
Prior ScoreCard coverage of the Petrobras and related investigations can be found here.
On September 25, 2018, the SEC announced a settlement of FCPA charges against the former CEO of Chilean-based chemical and mining company Sociedad Química y Minera de Chile, S.A. (SQM) for $125,000. According to the SEC, over the course of seven years, SQM’s then-CEO Patricio Contesse González “caused SQM to make nearly $15 million in improper payments to Chilean political figures and others connected to them.” Contesse agreed to the settlement without admitting the findings in the SEC’s order. According to the SEC’s order, Contesse signed false certifications related to financial reporting in the United States.
Last year, SQM agreed to pay $30 million to settle parallel DOJ and SEC charges against the company. That settlement demonstrated the jurisdictional reach of U.S. government enforcement of the FCPA – while SQM is a Chilean company with no U.S. operations, it is registered with the SEC as a foreign private issuer.
On September 14, a New York federal district court granted class certification to a group of shareholder investors suing an American hedge fund management firm and two of its senior executives on the grounds that the investors were misled about a government investigation into the company’s activities in Africa. In finding that the proposed class met all the requirements for certification, the court certified a class of investors that held some of the more than 100 million outstanding shares between February 2012 and August 2014, the time period in which the firm allegedly violated the Securities Exchange Act. Plaintiffs claim that the firm told investors it was not under any pending judicial or administrative proceeding that might have a material impact on the firm, when in fact it was under DOJ and SEC investigation over allegations that its employees were bribing government officials in Africa. The allegations against the firm were made public in 2014 media reports detailing government scrutiny into its dealings in Africa.
Click here for prior FCPA Scorecard’s coverage of this matter.
On September 12, the SEC announced that United Technologies Corporation (UTC) agreed to pay $13.9 million to settle FCPA charges related to payments made through a subsidiary in connection with the sales of elevator and airline equipment in Azerbaijan and China. According the SEC’s Order, from 2012 through 2014, the Connecticut-based company, through its wholly owned subsidiary Otis Elevator Company, made illicit payments to Azerbaijani officials to facilitate the sales of elevator equipment.
The Order also included other conduct that both the DOJ and SEC have focused on in recent years, including the use of agents and gifts and entertainment. For example, the Order detailed conduct by UTC and a joint venture partner from 2009 to 2013 in which an agent in China received improper commissions totaling $55 million in connection with the company’s attempt to win airline business in China. The Order also found that the company, from 2009 through 2015, improperly “provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia” in order to obtain business. UTC consented to the SEC’s order without admitting or denying the findings that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.