On April 24, 2017, Holcim Group issued a press release announcing the conclusion of the investigation into the payment of its subsidiary LaFarge to designated terrorist organizations. The Press Release stated in part, “The Board has now concluded the independent investigation and confirmed that a number of measures taken to continue safe operations at the Syrian plant were unacceptable, and significant errors of judgement were made that contravened the applicable code of conduct. The findings also confirm that, although these measures were instigated by local and regional management, selected members of Group management were aware of circumstances indicating that violations of Lafarge’s established standards of business conduct had taken place. . . .”
This statement is but one step in a lengthy and sordid process where LaFarge SA (before it merged with Holcim) made millions of dollars in payments to the terrorist group ISIS so that it could keep its Syrian cement plant open and get all the business it could do so during the Syrian Civil War. The Press Release concluded, “In hindsight any misdeeds may seem clear. However the combination of the war zone chaos and the “can-do” approach to maintain operations in these circumstances may have caused those involved to seriously misjudge the situation and to neglect to focus sufficiently on the legal and reputational implications of their conduct.” Indeed. [Emphasis supplied]
As reported by Law360, “France-based Lafarge and its defunct Damascus, Syria unit Lafarge Cement Syria, or LCS, each pled guilty to a count of conspiring to provide material support to foreign terrorist organizations and will pay a total of $777.78 million.” According to the Plea Agreement, this total amount consisted of a total criminal fine of approximately $91 million and forfeiture of $687 million. Please note this is not a Foreign Corrupt Practices Act (FCPA) enforcement action but an enforcement action based on USC 2339B for one count of conspiracy to provide material support to one or more foreign terrorist organizations. While this is not a FCPA enforcement action, it is a matter about corporate culture, tone at the top, senior executive involvement in corruption; in short it is all about compliance and ethics. This complete failure of compliance and ethics makes it a forceful study of the failings of corporate culture in the starkest way possible.
As laid out in the Statement of Facts, Lafarge finished construction of the Jalabiyeh Cement Plant in northern Syria at a cost of approximately $680 million and began operations in 2010. However, almost immediately “it faced strong competition from cheaper cement imported into northern Syria from Turkey, and in December 2010, Executive 3 sought the assistance of Intermediary 1 to intervene with the Syrian government to control the importation of competing Turkish cement.” In early 2011, the Syrian Civil War broke out and LCS wanted to be the biggest supplier in the soon to be war ravaged country. However, in 2012, ISIS began to gain strength and take over territory near the plant. ISIS also threatened LCS employees through intimidation and kidnapping.
Thereafter, five Lafarge executives from the corporate home office became involved in two-year campaign to pay off ISIS to allow the plant to keep in operation and to not threaten its employees. Beginning in the spring of 2013, Lafarge began paying protection money to ISIS through intermediaries and other third-party suppliers. The reason articulated was laid out in the Statement of Facts, (1) keep the investment in the physical assets (i.e., the plant); (2) keep the investment made in employees; (3) stay in the market to keep out Turkish competitors; and (4) make some profits. The payoffs to ISIS were made through a variety of schemes.
There was the old-fashioned way – cash, in the form of fixed monthly payments. There were payments made through intermediaries. You could not call them sales agents, but they were third parties charged with getting the protection for the bribes paid by LCS. There was a ‘tax’ paid on each truck that went in or out of the plant on roads controlled by ISIS. Eventually, in late 2013, these mechanisms morphed into a new business relationship between LCS and ISIS so that both sides were paid out of the profits from the sale of cement in Syria. For LCS it was simply a cost of doing business. At one point, Intermediary 1 was quoted for the following, “We currently sell for $8 to $10 million per month, with a $2 million profit, and pay less than 1⁄4 for protection. Other factories are paying for protection just to exist, without making the profits we are.”
But it did not simply stop with sales and ROI on paying bribes. LCS also purchased raw materials from ISIS, thereby contributing to international terrorism. The Statement of Facts noted, “Also in or about late 2013, LCS began to use Intermediary 2 to engage directly with ISIS-connected suppliers for the purchase of raw materials and supplies. LAFARGE and LCS retained the services of Intermediary 2 after he had personally met with the then-LAFARGE Group Honorary Chairman and a member of the LAFARGE Board of Directors who was a former LAFARGE Chief Executive Officer on September 16, 2013.”
Over the next few blog posts, I will be looking at the Lafarge enforcement action for lessons for the anti-corruption compliance professional. However, there are two additional points buried in all this corruption which bear noting. The first was reported by Pete Brush, in the Law360 article cited above, who wrote that during the court hearing where US District Judge William F. Kuntz II accepted the company’s guilty plea, he stated “This case impacts the victims of terrorist acts.” This would seem to indicate that any person who may have been the victim of ISIS terrorism could now bring suit against Lafarge (open question as to its successor).
The second item was buried in the Plea Agreement which said, “Lafarge’s commitment, in Attachment B, to guarantee the Defendants’ compliance with the terms of this Agreement.” [Emphasis supplied] Note the language used is not ‘certification’ as articulated in the Monaco Memo but ‘guarantee’ compliance with the terms of the Plea Agreement. How would you like to be the one who made that representation?
Tomorrow, we look at the bribery/payment schemes.