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DOJ Declines FCPA Action Against Cobalt International Energy
Houston-based Cobalt International Energy, Inc. announced in a February 9, 2017 press release that the DOJ had formally closed its FCPA investigation into Cobalt’s oil exploration operations in Angola and would not prosecute the Company. The press release noted that the DOJ’s investigation “was the last remaining FCPA investigation by any U.S. regulatory agency into Cobalt’s Angolan operations.” The DOJ’s declination letter came more than two years after the SEC closed its own FCPA investigation and declined to bring an enforcement action.
As detailed in a previous FCPA Scorecard post, the parallel investigations began in 2011, and were prompted by allegations concerning the connection between senior Angolan government officials and Nazaki Oil and Gáz, S.A., the local partner in a Cobalt-led deepwater oil venture. According to Cobalt’s 10-K filing for FY 2012, the Company had voluntarily contacted the DOJ when the SEC launched its initial inquiry and “offered to respond to any requests the DOJ may have.”
Fired Bio-Rad General Counsel Wins $10.9 Million in FCPA Whistleblower-Retaliation Case
On February 6, 2017, a federal jury in San Francisco awarded the former general counsel of Bio-Rad Laboratories, Inc. $10.9 million in a landmark FCPA whistleblower-retaliation case brought under the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California state law. After three hours of deliberation, the jury found that Sanford Wadler, Bio-Rad’s general counsel of nearly 25 years, was fired for reporting suspected FCPA violations to Bio-Rad’s audit committee in February 2013, a protected activity under SOX’s anti-retaliation provisions. Although Wadler did not report his concerns to the SEC, the court held in 2015 that internal whistleblowing under SOX was also protected by the Dodd-Frank Act’s anti-retaliation provisions, opening the door to Dodd-Frank’s double back-pay remedy. Bio-Rad’s last-minute motion to block purported attorney-client privileged information from trial –“virtually all of the evidence and testimony Plaintiff might rely upon to prove his case” – was denied by the court in December 2016.
The jury ultimately awarded Wadler $2.96 million in back-pay – to be doubled under Dodd-Frank – plus $5 million in punitive damages. 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.
Medical Device Company Reaches Second FCPA Settlement in the Span of Five Years
On January 18, Texas-based medical device company Orthofix International N.V. (Orthofix) admitted wrongdoing and agreed to pay approximately $6 million to the SEC to settle FCPA books and records and internal controls charges in connection with improper payments made by its Brazilian subsidiary to doctors through third parties. In related non-FCPA proceedings, Orthofix also agreed to pay a $8.25 million penalty to resolve various accounting violations, and former executives Jeff Hammel, Kenneth Mack, Bryan McMillan, and Brian McCollum each consented to accounting-related SEC orders without admitting or denying the findings.
According to the Administrative Order Instituting Cease-and-Desist Proceedings, Orthofix’s Brazilian subsidiary Orthofix do Brasil LTDA employed third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce them to use Orthofix’s products, thereby increasing sales. Orthofix also improperly recorded revenue, leading to the related accounting charges.
In settling with the SEC, Orthofix has now resolved two separate FCPA cases in the span of five years. In 2012, Orthofix resolved FCPA actions with both the SEC and DOJ in connection with bribes paid to Mexican officials by its Mexican subsidiary. Given the prior corruption and internal controls issues, the SEC found that Orthofix failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments. Orthofix agreed to hire a compliance consultant for one year.
Medical Device Company Reaches Second FCPA Settlement in the Span of Five Years
On January 18, Texas-based medical device company Orthofix International N.V. (Orthofix) admitted wrongdoing and agreed to pay approximately $6 million to the SEC to settle FCPA books and records and internal controls charges in connection with improper payments made by its Brazilian subsidiary to doctors through third parties. In related non-FCPA proceedings, Orthofix also agreed to pay a $8.25 million penalty to resolve various accounting violations, and former executives Jeff Hammel, Kenneth Mack, Bryan McMillan, and Brian McCollum each consented to accounting-related SEC orders without admitting or denying the findings.
According to the Administrative Order Instituting Cease-and-Desist Proceedings, Orthofix’s Brazilian subsidiary Orthofix do Brasil LTDA employed third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce them to use Orthofix’s products, thereby increasing sales. Orthofix also improperly recorded revenue, leading to the related accounting charges.
In settling with the SEC, Orthofix has now resolved two separate FCPA cases in the span of five years. In 2012, Orthofix resolved FCPA actions with both the SEC and DOJ in connection with bribes paid to Mexican officials by its Mexican subsidiary. Given the prior corruption and internal controls issues, the SEC found that Orthofix failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments. Orthofix agreed to hire a compliance consultant for one year.
Mondelez and Cadbury Settle FCPA Charges with SEC for $13 Million Related to India Chocolate Factory
On January 6, Cadbury Limited and its parent company Mondelez International, Inc. (formerly known as Kraft Foods Inc.), agreed to pay $13 million to settle the SEC’s allegations related to an agent’s interactions with Indian officials regarding a chocolate factory in India. The charges relate to payments made by Cadbury’s India unit in 2010 to a local agent who provided consultation services and dealt with Indian governmental officials to obtain clearances and licenses to increase production at Cadbury’s Baddi plant. The SEC alleged, and Cadbury and Mondelez neither admitted nor denied, that Cadbury violated the books and records and internal controls provisions of the FCPA.
According to the SEC, Cadbury failed to perform appropriate due diligence on the agent and to monitor the agent’s actions, creating a risk that payments could be used for improper purposes. While the agent submitted invoices claiming that he prepared various license applications, the SEC claimed that these license applications were actually prepared by other Cadbury employees. The SEC noted in its decision that Mondelez had completed its own internal investigation that led to Cadbury ending its relationship with the agent and that Mondelez both cooperated with the SEC’s investigation and undertook “extensive remedial actions with respect to Cadbury.”
Mondelez and Cadbury Settle FCPA Charges with SEC for $13 Million Related to India Chocolate Factory
On January 6, Cadbury Limited and its parent company Mondelez International, Inc. (formerly known as Kraft Foods Inc.), agreed to pay $13 million to settle the SEC’s allegations related to an agent’s interactions with Indian officials regarding a chocolate factory in India. The charges relate to payments made by Cadbury’s India unit in 2010 to a local agent who provided consultation services and dealt with Indian governmental officials to obtain clearances and licenses to increase production at Cadbury’s Baddi plant. The SEC alleged, and Cadbury and Mondelez neither admitted nor denied, that Cadbury violated the books and records and internal controls provisions of the FCPA.
According to the SEC, Cadbury failed to perform appropriate due diligence on the agent and to monitor the agent’s actions, creating a risk that payments could be used for improper purposes. While the agent submitted invoices claiming that he prepared various license applications, the SEC claimed that these license applications were actually prepared by other Cadbury employees. The SEC noted in its decision that Mondelez had completed its own internal investigation that led to Cadbury ending its relationship with the agent and that Mondelez both cooperated with the SEC’s investigation and undertook “extensive remedial actions with respect to Cadbury.”
Odebrecht and Braskem Reach $3.5 Billion Global FCPA Settlement
On December 21, Brazilian construction company Odebrecht S.A. and its petrochemical affiliate, Braskem S.A., reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations, in which both companies agreed to plead guilty in the U.S. to conspiracy to violate the FCPA. The DOJ alleged that the companies operated an extremely broad and profitable global bribery scheme, including creating an internal bribery department to systematically pay hundreds of millions of dollars to corrupt government officials around the world from 2001 to 2016. The companies attempted to conceal the bribes by disguising the source and disbursement of bribe payments by passing funds through a series of shell companies and by using off-shore bank accounts. While the scheme in large part involved bribes paid to Petrobras and Brazilian officials, it also included government officials in numerous other South and Central American countries, and in Africa.
Odebrecht agreed to an overall criminal fine of $4.5 billion, but based on its representation of its ability to pay, may end up paying only $2.6 billion. Ten percent of the criminal fine was earmarked for the U.S., with the remainder to Brazil (80%) and Switzerland (10%). The DOJ faulted Odebrecht for failing to voluntarily disclose the conduct, but granted full cooperation credit based on Odebrecht’s actions once it started to deal with the government. As part of its own related resolution, Braskem agreed to pay over $632 million in criminal fines, with the vast majority ($443 million) going to Brazil, and 15%, or $94.8 million, to each of the DOJ and Switzerland. Braskem also agreed to disgorge $325 million, with $65 million going to the SEC and the rest to Brazil. The DOJ noted Braskem’s failure to voluntarily disclose the conduct, and granted only partial cooperation credit due to Braskem’s failure to turn over any evidence from its internal investigation until seven months after it first talked to the DOJ. Both Odebrecht and Braskem agreed to engage independent compliance monitors for at least three years
The resolution is, by far, the largest FCPA resolution ever, with the bulk of the money going to Brazil in apparent recognition of the heavy lifting done by Brazilian prosecutors.
Prior Scorecard coverage of the ongoing Petrobras investigations can be found here.
Teva Pharmaceuticals Settles FCPA Violations With SEC and DOJ for $519 Million
On December 22, Teva Pharmaceutical Industries Ltd. announced an agreement with the SEC and DOJ to resolve FCPA violations stemming from conduct in Ukraine, Mexico, and Russia, with a $519 million settlement and a deferred prosecution agreement. Teva will pay more than $236 million in disgorgement and interest to the SEC, the second largest FCPA-related corporate disgorgement to date. As part of its agreement with the DOJ, Teva will pay a $283 million criminal fine and enter into a three-year deferred prosecution agreement under the supervision of an independent compliance monitor.
Gabonese National Pleads Guilty to Bribing Government Officials in Africa in Connection with Och-Ziff Mining Operations
On December 9, 2016, the son of a former Prime Minister of Gabon pleaded guilty to conspiring to make corrupt payments to government officials in Africa in violation of the FCPA. The Gabonese national worked as a consultant for a joint venture between mining company Och-Ziff Capital Management Group LLC (Och-Ziff) and an entity incorporated in the Turks and Caicos. The DOJ charged him with conspiring to pay approximately $3 million in bribes to high-level government officials in Niger, as well as providing them with luxury cars, in order to obtain uranium mining concessions. Similarly, the DOJ also charged him with bribing a high-ranking government official in Chad with luxury foreign travel for the official and his wife in order to obtain a uranium mining concession there. In addition, the DOJ charged him with bribing government officials in Guinea with cash, the use of private jets, and a luxury car in order to obtain confidential government information.
The guilty plea comes on the heels of Och-Ziff’s $412 million settlement with the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. The settlement represented the fourth largest FCPA financial penalty at the time. Och-Ziff’s CEO and former CFO have also previously settled related civil allegations. Prior Scorecard coverage of Och-Ziff’s settlement with the DOJ and SEC may be found here.
Teva Pharmaceuticals Sets Aside $520 Million for Potential FCPA Settlement
Teva Pharmaceutical Industries Ltd. (Teva), an Israeli company, stated in its Form 6-K filed with the SEC on November 15, 2016, that it has set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ. Teva explained that the reserve relates to conduct that occurred between 2007 and 2013 in Russia, Mexico, and the Ukraine, and that it was discovered in the course of the investigation that began in early 2012 with the issuance of an SEC subpoena to Teva, as well as a concurrent internal investigation of its worldwide business practices.
Should Teva enter into a settlement, it will top the growing list of pharmaceutical companies that have been subject to multimillion dollar penalties for conduct in violation of the FCPA, including the following:
- AstraZeneca ($5.5 million settlement in 2016 of allegations relating to bribery of Chinese and Russian doctors)
- GlaxoSmithKline ($20 million settlement in 2016 of allegations relating to bribery of Chinese health care professionals)
- Novartis ($25 million settlement in 2016 of allegations relating to bribery of Chinese doctors
- Bristol-Myers Squibb & Co. ($14 million settlement in 2015 of allegations relating to bribery of healthcare professionals at state-owned hospitals in China)
- Eli Lily & Co. ($29 million settlement in 2012 of allegations relating to bribery of government employed physicians in Russia, Brazil, China and Poland)
- Johnson & Johnson ($70 million settlement in 2011 of allegations relating to conspiracy and bribery of doctors employed by state-controlled health care systems in Greece)