International Law Advisory - 2008 Year End FCPA Round-Up—The Shoes Just Keep Dropping

In addition to the monumental Siemens settlement discussed in our last alert, the end of 2008 saw a number of additional Foreign Corrupt Practices Act ("FCPA") enforcement actions by both the Department of Justice (“DoJ”) and the Securities and Exchange Commission (“SEC”).  Most of these represented further activity in ongoing cases.  They reflect a variety of trends and developments, including the authorities’ continued focus on individual prosecution, the emergence of FCPA issues in antitrust cases, the first revocation of a deferred prosecution agreement, continued Oil-for-Food prosecutions, a willingness to pursue foreign nationals and assets, and collateral fallout from the Siemens settlement.  This advisory briefly summarizes these cases, involving prosecutions of  (1) two additional executives of Willbros Group Inc., (2) Aibel Group Ltd., (3) Mr. Misao Hioki, of Bridgestone, (4) Fiat S.p.A., and (5) an in rem forfeiture action against foreign bank accounts based on an aggressive jurisdictional theory.

Willbros—Further Individual Prosecutions Unsealed

As previously reported, on May 14, 2008, Willbros Group and its subsidiary Willbros International paid $22 million and entered into a deferred prosecution agreement with the DoJ to settle criminal FCPA charges stemming from the alleged actions of Willbros officials and consultants with respect to projects in Nigeria, Ecuador and Bolivia.  Willbros Group also paid $10.3 million, comprised of the disgorgement of $8.9 million, plus prejudgment interest of $1.4 million, to resolve the SEC's civil enforcement action.   At the time, the combined penalties were the second highest ever paid to resolve an FCPA action.  In the past three years, five other executives for Willbros have pleaded guilty to FCPA charges with respect to these projects.¹

Enforcement actions against two other individuals known to have been associated with the Nigerian and Ecuadorian projects have now been revealed.  Around the time of the corporate settlement in May 2008, a former executive, James K. Tillery, and an ex-consultant, Paul G. Novak, of Willbros International were charged with violating the FCPA by making improper payments totaling approximately $6 million to officials of the Nigerian and Ecuadorian governments.² The indictments were sealed until early December 2008, when Novak was arrested by U.S. authorities upon his attempted entry into the United States from South Africa.  Tillery’s whereabouts are unknown.

If convicted of all charges, Tillery and Novak each face sentences of up to 35 years in prison and fines of $250,000, or twice the pecuniary gain or loss from the offense, whichever is greater, for conspiring to violate the FCPA and for each individual violation of the FCPA.  Additionally, both Tillery and Novak were charged with conspiring to launder the bribe payments through purported consulting companies controlled by Novak.  The indictment alleges that most of the bribe payments were laundered through Novak, a Nigerian national, and his Nigerian consulting company partner.  If convicted of the money laundering conspiracy, Tillery and Novak face fines of $500,000 or twice the value of the funds involved in the transfer.

The U.S. prosecution and apprehension of Novak, a foreign national who played a third-party role in the bribery scheme, while not unprecedented, demonstrates the DOJ’s commitment to broad use of its jurisdictional authorities in FCPA cases.

DoJ Press Release regarding Tillery/Novak:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-19-08willbros-guilty.pdf

DoJ Indictment regarding Tillery/Novak:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-19-08willbros-indictment.pdf

DoJ's May 14, 2008 release regarding the Deferred Prosecution Agreement with Willbros Group Inc.:
http://www.justice.gov/opa/pr/2008/May/08_crm_417.html

SEC's May 14, 2008 Litigation Release No. 20571 regarding the Settlement with Willbros Group Inc.:
http://www.sec.gov/litigation/litreleases/2008/lr20571.htm 

SEC's May 14, 2008 civil complaint against Willbros Group Inc., Jason Steph, Gerald Jansen, Lloyd Biggers and Carlos Galvez

DOJ's November 5, 2007 Press Release regarding Jason Edward Steph's guilty plea:
http://www.usdoj.gov/criminal/pr/press_releases/2007/11/11-05-07jesteph-plea.pdf

Steph's November 5, 2007 Plea Agreement with the DOJ:
http://www.usdoj.gov/criminal/pr/press_releases/2007/11/11-05-07jesteph-plea-agree.pdf

Aibel Group Ltd. – 2007 DPA Revoked for Non-Compliance

On November 21, 2008, Aibel Group Ltd. (“Aibel”), a UK company formerly part of the Vetco Gray group of companies, pleaded guilty to charges of conspiracy to violate the FCPA and a substantive violation of the anti-bribery provisions of the FCPA.³  At the same time, Aibel Group admitted that it was not in compliance with a deferred prosecution agreement (DPA) it had entered into with the Justice Department in February 2007 regarding the same underlying conduct.  The plea agreement requires Aibel to pay a $4.2 million criminal fine and serve two years on organizational probation.

The Vetco companies’ February 2007 FCPA settlement involved guilty pleas and the payment of $26 million in fines by several Vetco entities.  At that time, those fines represented the highest FCPA fines to date.  The settlements also triggered a wave of customs-related investigations in the oil and gas industry which are ongoing.  Aibel was the only entity to emerge from the settlement with a DPA, which called for Aibel to abide by certain requirements for two years or face prosecution.

The DoJ did not identify a specific reason it revoked the 2007 DPA, except stating cryptically that Aibel had “failed to meet its obligations” while at the same time acknowledging that Aibel had devoted "substantial time, personnel, and resources to meeting the obligations of its DPA."  Although the revocation of the Aibel DPA represents the first instance of such action in the FCPA context, with the rise in the use of DPAs in the last five years, it may not be the last.

2008 DoJ Press Release regarding Aibel Plea Agreement:
http://www.usdoj.gov/opa/pr/2008/November/08-crm-1041.html

2008 Aibel Plea Agreement

DoJ Press Release for 2007 Aibel Deferred Prosecution Agreement:
http://www.usdoj.gov/opa/pr/2007/February/07_crm_075.html 

Aibel 2007 Deferred Prosecution Agreement with DoJ

Misao Hioki—Antitrust Case Develops a Bribery Component

On December 10, 2008, Misao Hioki, a Japanese citizen and executive of Bridgestone Corporation, a Japanese rubber products manufacturing company, pleaded guilty to charges of conspiracy to rig bids in violation of the Sherman Act, and to bribe foreign officials in violation of the FCPA.  Mr. Hioki was initially arrested and indicted for his participation in the antitrust price-fixing and bid-rigging conspiracy, in which there have been several previous prosecutions.  During the course of its investigation into the those charges, the DoJ Antitrust Division discovered information regarding FCPA violations in several Latin American countries. The DoJ charged that Hioki and other officials in the so-called “marine hose cartel” negotiated and approved improper payments to employees of government-owned businesses, who are foreign officials under the FCPA, to secure business for his company and its U.S. subsidiary.

Bridgestone has publicly announced that it too is under investigation for potential violations of both the FCPA and antitrust laws. Although Mr. Hioki became the ninth person from the cartel to plead guilty to bid-rigging, he is the first to plead to an FCPA charge.  Mr. Hioki was sentenced to two years in prison and fined $80,000. The Hioki case, while not  the first time a case that has started out as something else has acquired an FCPA dimension, marks the DoJ Antitrust and Criminal Division’s first-ever joint FCPA/antitrust prosecution.  It also emphasizes the DoJ’s willingness to pursue foreign as well as U.S. nationals.

DOJ's Dec. 10, 2008 Press Release:
http://www.usdoj.gov/opa/pr/2008/December/08-at-1084.html

Fiat S.p.A.—Another Oil-for-Food Settlement

On December 22, 2008, Fiat S.p.A (“Fiat”), an Italian corporation based in Turin, Italy, and an issuer under the federal securities laws, entered into a deferred prosecution agreement with the DoJ, under which it agreed to pay a $7 million criminal penalty, and a settlement with the SEC under which it agreed to pay $3.6 million in civil penalties and another $7 million in disgorgement of profits, for a total of $17.6 million.  Fiat admitted that three of its subsidiaries made improper payments totaling $4.4 million to officials of the former Iraqi government in connection with the Oil-for-Food Program (OFFP).  The three Fiat subsidiaries – Iveco, CNH Italia and CNH France – made the payments to secure contracts to provide industrial pumps, gears and other equipment. The subsidiaries inflated the price of contracts by 10 percent before submitting the contracts to the United Nations for approval.

Fiat is the tenth company to settle charges with the DoJ or SEC in connection with the OFFP.  There have been three other OFFP settlements with U.S. authorities in 2008 alone:  Siemens, AB Volvo, and Flowserve Corporation.  Like several other companies, Fiat will be required to appoint a compliance monitor.

DOJ's Dec. 22, 2008 Press Release:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-22-08fiat-guilty.pdf

Fiat Deferred Prosecution Agreement:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-22-08fiat-deferred-agreement.pdf

Iveco Criminal Information:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-22-08fiat_iveco_info.pdf

CNH France Criminal Information:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-22-08fiat_cnh_france.pdf

CNH Italia Criminal Information:
http://www.usdoj.gov/criminal/pr/press_releases/2008/12/12-22-08fiat-cnh-italia.pdf

SEC's Litigation Release No. 20835 (December 22, 2008) in Securities and Exchange Commission v. Fiat S.p.A. and CNH Global N.V., Civil Action No. 08 CV 0221 (D.D.C.):
http://www.sec.gov/litigation/litreleases/2008/lr20835.htm

SEC's Civil Complaint against Fiat and CNH Global:
http://www.sec.gov/litigation/complaints/2008/comp20835.pdf

Siemens Settlement Brings Collateral U.S. Proceedings Against Foreign Bank Accounts

In the wake of the Siemens settlement in mid-December, the Justice Department has initiated an in rem forfeiture action against bribe proceeds in Singapore.  As reported in our advisory of January 8, 2009, three Siemens subsidiaries plead guilty as part of the unprecedented settlement.  One of these was Siemens Bangladesh, which admitted to $5.3 million in improper payments to obtain favorable treatment during the bidding process on a mobile telephone project.

These payments, like many of the improper payments in the Siemens case, were funneled to government officials through consultants.  The complaint reveals that the government was able to interview these consultants, and presumably secured information about their bank accounts from those interviews.  As a result, U.S. prosecutors, on January 8, 2009, initiated an in rem forfeiture action against assets held in three separate bank accounts in Singapore.  Two of the accounts were allegedly owned by the consultants, and one was allegedly owned by a company controlled by the son of the former Prime Minister of Bangladesh, Arafat Rahman a/k/a “Koko.”  The monies held in these accounts are asserted to be the proceeds of bribes paid by Siemens Bangladesh in connection with the telephone project and by China Harbor Engineering Company in connection with a separate project in Bangladesh. 

The complaint reveals an aggressive jurisdictional theory on the part of the government.  U.S. jurisdiction is predicated on the fact that the transfers, although involving foreign banks only, were dollar-denominated.  Rather than relying on their clearance through the U.S. payment system, the complaint cites the belief of a Special FBI agent that such funds would have moved through U.S. correspondent accounts of each of the originating and receiving foreign banks.  It does not, however, provide any specifics as to such movements as accounts.   

The complaint is also interesting for the predicate offenses it cites as underlying the alleged criminal money laundering offenses.  These include not just FCPA violations, but also extortion by foreign officials and conspiracy to commit extortion, including extortion under Bangladesh law—a crime that can apparently lie based on reputational or fiscal injury, not just physical injury.

This case, which bears watching, may presage an increased interest in using forfeiture authorities by U.S. prosecutors in corruption cases against the proceeds of crime where their whereabouts can be identified, even if those whereabouts are not within the United States.

Siemens Forfeiture Action

We will continue to keep you apprised of developments related to FCPA enforcement. If you have any questions or for further information, please feel free to contact Lucinda Low at 202.429.8051; Ed Krauland at 202.429.8083; Pat Norton at 202.429.8034; Erik Kitchen at 202.429.8132; Matt Herrington at 202.429.8164; Philip Khinda at 202.429.8189; Andrew Irwin at 202.429.8177; Julia Court Ryan at 202.429.6418; David Lorello at 44(0)20.7367.8007; Alexandra Baj at 202.429.6478; Tom Best at 202.429.8079; Owen Bonheimer at 202.429.6266; Michael Pass at 202.429.8101; Brittany Prelogar at 202.429.5518; Sarah Lamoree at 202.429.6488; William Gordon at 202.429.8013; Vincenza Rabenn at 202.429.1305.

¹ See Complaint, SEC v. Willbros Group Int’l et. al., No. 4:08-cv-01494 (S.D. Tex. 2008); Plea Agreement, United States v. Steph, No. H-07-307, (S.D. Tex. 2007).

² As detailed in previously reported cases, the majority of the alleged improper payments were made in Nigeria, where Tillery and Novak allegedly made payments to the Nigerian National Petroleum Corporation (NNPC), the state-owned oil company in Nigeria, its subsidiary, and several Nigerian government officials, in order to obtain a major gas pipeline engineering, procurement and construction project known as the Eastern Gas Gathering System (EGGS).  The project was worth approximately $387 million.  With respect to Ecuador, Tillery and Novak are accused of making approximately $300,000 in improper payments to officials of state-owned PetroEcuador and its subsidiary, PetroComercial, to obtain a project that involved the rehabilitation of approximately 16 kilometers of a gas pipeline.  This project was worth approximately $3 million.

³ The facts of the matter are known from the time of the DPA:  From 2002 to 2005, Aibel arranged at least 378 corrupt payments to Nigerian officials totaling about $2.1 million.  Aibel's work in Nigeria involved a deepwater oil drilling operation known as the Bonga Project, for which the company provided engineering, procurement and subsea construction equipment.  The improper payments were made in an effort to induce Nigerian customs officials to give the defendants preferential treatment during the customs process.  The improper payments were coordinated largely through an affiliate of Aibel in Houston and were paid through an unnamed freight forwarding company.