ABB FCPA Resolution: Part 2 – The Corruption Partners | Thomas Fox – Compliance Evangelist

We continue our exploration of the latest resolution of a Foreign Corruption Practices Act (FCPA) violation involving the Swiss construction giant, ABB Ltd. The most obvious significance is from the fact that ABB is now the first three-time convicted violator of the FCPA, having prior FCPA resolutions in 2004 and 2010. The moniker of a three-time FCPA violator is certainly not one that any corporation wants to claim, yet here we are. The total fine and penalty for the violation was $315 million, with credited amounts going to South Africa, Switzerland, and Germany for ABB’s violations of those country’s anti-corruption laws. There was also a $75 million fine credited to the Securities and Exchange Commission (SEC). In addition to the SEC Order, the DOJ Press Release and Plea Agreement are also available. Conspicuously missing at this point are resolution documents from South Africa, Switzerland, and Germany.

We are exploring this FCPA enforcement action to see what lessons might be garnered from it. While we are doing so, please keep three key questions in mind: (1) How did ABB obtain such a superior resolution? (2) As a three-time FCPA violator, how did the company avoid a monitor? (3) Why was there no requirement for Chief Compliance Officer (CCO) certification? Today, we consider the corrupt partners that ABB brought into the deal with Eskom to facilitate the company’s bribery and corruption.

Capture Team and Sales Shark

In reading the resolution documents, one can only wonder at the culture of corruption which permeated ABB in the 2014-2017 timeframe. After finding out a business opportunity existed in South Africa with the national power company Eskom, ABB created a ‘Capture Team’ which was staffed largely by executives in the corporate headquarters as “The capture team did not possess confidence in personnel at ABB-South Africa to get access to the people at Eskom that would be making the decisions in regard to the C&I contract. As a result, Executive B, who had experience with obtaining business from Eskom with a previous employer, became directly involved in coordinating the efforts to win the business.” In other words, the corporate office did not believe the ABB South African operation was corrupt enough to get the job done so they stepped in to do so.

Thereafter, “at the suggestion of Executive B that a ‘sales shark’ was needed in pursuing the C&I contract, the capture team appointed Capture Team Lead, “a highly experienced sales expert” with a reputation for non-transparency about how he went about interactions with clients.” That is exactly what ABB commenced to do as thereafter Capture Team Lead, Executive B, brought in the ABB South Africa, Local Senior Manager to “set up private meetings and sent clandestine communications with Eskom officials to obtain and share confidential information regarding the Kusile C&I tender, including Eskom’s budget price and ABB’s schedule.”

 Corrupt Subcontractor 1 and Bribe Pre-Payment

This led to a business relationship with corrupt Subcontractor 1, whose sole function was to funnel bribe payments to corrupt Eskom executive(s) to facilitate ABB South Africa winning the contract. But there was a problem as the corrupt Subcontractor 1 did not meet the required business criteria to work with ABB. Indeed, “A supply chain manager at ABB-South Africa, who was not aware of the bribery scheme, raised concerns that Service Provider A was unqualified for the work for which it was being considered and that its proposed price was excessive. Given that Executive B and Capture Team Lead were part of the bribe scheme, the concerns went unaddressed by ABB management in South Africa and Switzerland.” Just to demonstrate that Subcontractor 1 was brought in to facilitate the payment of bribes, when Subcontractor 1 joined the bid team, the cost immediately went up by some $9 million. Finally, to top how unusual the arrangement with Subcontract 1 had become “ABB-South Africa signed its subcontract with Service Provider A for approximately $7.2 million which, contrary to internal company policy, was awarded without competitive bidding. The subcontract included a provision for an advanced payment of ten percent, as Eskom Official wanted an upfront payment.”

Corrupt Subcontractor 1 did their job in the corruption scheme by passing on internal and confidential information from their corrupt contact at Eskom, which ABB used to secure the contract. The Eskom official wanted an upfront, pre-payment for the corruption award of the contract to ABB. As odd as all of this was, or perhaps to demonstrate there is no honor among thieves, Subcontractor 1 decided it wanted to keep all the monies to be made as the pre-payment to the corrupt Eskom official. According to the SEC Order, “The bribe scheme nearly came undone when Service Provider A’s chair refused to share the spoils with the Eskom Official due to an apparent falling out between them. In order to save the illicit arrangement, Capture Team Lead attempted to broker a peace between the two, going so far as arranging a face-to-face meeting, but the efforts were unsuccessful.” This put the ABB bid at risk.

Corrupt Subcontractor 2 and a Waiver

The answer was simply to retain another corrupt South African business partner, who was a friend of a close friend of the corrupt Eskom official. (Reminds me of a great line from Dr. No – I like friends who have friends.) Once again, the problem was that corrupt Subcontractor 2 did not meet ABB’s internal requirements to become a business partner. This required an internal ABB waiver. ABB corporate arranged a US ABB employee from a US office, “who specialized in the SCM processes, travel to South Africa to manage the course of obtaining one. During the second week of February 2016, after spending a number of days in South Africa, the American employee was able to secure for [corrupt Subcontractor 2] a formal waiver premised on its working through two specific sub-subcontractors who were qualified for the job.” However, all of this was ruse and sham corrupt Subcontractor 2 was already on the worksite “and the message from ABB-South Africa was that Service Provider B was required to be used by Eskom, the American employee felt he had no choice but to arrange this waiver” corrupt Subcontractor 2.

In short, there is much to unpack in this matter. Join us tomorrow where we look at the bribery schemes.

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