Since late March, the U.S. government has announced several significant enforcement actions under the Foreign Corrupt Practices Act (FCPA), the main U.S. law that prohibits bribery of non-U.S. government officials.
Often working in coordination with its enforcement counterparts in other parts of the world, the U.S. Justice Department (DOJ) and Securities & Exchange Commission (SEC) have resolved three notable matters against companies, and pursued one individual enforcement matter. The alleged bribery involved in these matters occurred in multiple countries in Africa and South America.
The resolutions come as the DOJ continues to emphasize the importance of effective corporate compliance programs. In March, Assistant Attorney General Kenneth Polite stated, “Support your compliance team now or pay later,” and announced a new DOJ program requiring CEOs and Chief Compliance Officers to certify that their compliance efforts are “reasonably designed and implemented to detect and prevent violations of the law.”
In the context of a concerted effort by the U.S. government to pursue FCPA violations, these matters serve as a reminder of the substantial penalties that can be imposed under the FCPA and, in particular, the importance of regular compliance oversight, including through audits and other compliance reviews.
Glencore Pleads Guilty to FCPA Violations
On May 24, Glencore, a Swiss-based commodity trader, pled guilty to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) for paying almost $100 million in bribes to government officials in Brazil, Cameroon, the Democratic Republic of Congo, Equatorial Guinea, Ivory Coast, Nigeria, and Venezuela.
According to the DOJ, from 2007 to 2018, Glencore used fictitious consulting agreements, intermediary companies, correspondent bank accounts, “service fees,” and exaggerated invoice payments to compensate government officials in exchange for lucrative crude oil contracts. The DOJ asserted that Glencore personnel used coded language to hide illegal payments – personnel referred to bribes as “filings,” “newspapers,” “journals,” or “pages” and disguised bribes as “commissions” for oil. For example, in Nigeria, Glencore and its affiliates apparently used intermediaries to disperse over $50 million to Nigerian civil servants; in the Democratic Republic of Congo, the company paid nearly $1 million to dismiss a lawsuit and head off an audit.
Glencore also pled guilty to market manipulation, admitting to distorting fuel oil benchmarks in the Ports of Los Angeles and Houston. In 2021, Emilio Jose Collado, a Glencore fuel oil trader, pled guilty to one count of conspiracy to engage in commodities price manipulation.
In total, the company agreed to pay over $1.1 billion in fines related to the plea agreements – $700 million in the bribery case and another $485 for manipulating and trading on bogus market conditions. Glencore has also been placed under a three-year compliance monitorship meaning the company must engage an independent monitor, approved by the DOJ, to effectively serve as a deputy of the DOJ in regularly evaluating the company’s internal controls and the newly created compliance program, then reporting to the DOJ. While the United States coordinated guilty pleas from Glencore with enforcement authorities in the United Kingdom and Brazil, investigations against the company are continuing in the Netherlands and Switzerland.
Stericycle Penalized for Bribes in Mexico, South America
On April 18, Stericycle, a multinational waste disposal company, agreed to pay over $84 million in penalties after American and Brazilian authorities consummated a joint investigation into the company’s bribery of Argentinian, Brazilian, and Mexican government officials. The company entered into a Deferred Prosecution Agreement with the DOJ after being charged with violating both the anti-bribery and books and records provisions of the FCPA.
According to the government, Stericycle paid over $10.5 million in bribes to government officials. The corruption scheme, primarily spearheaded by a Stericycle Latin America division executive, was used to secure new waste management contracts, the priority release of funds owed under existing contracts, and avoid fees. Bribes were typically paid in cash and extensively tracked using spreadsheets and code names, including falsely recording some payments as seemingly legitimate expenses related to “debt collection” and “first aid training.” Perhaps not surprisingly, the company also falsified Sarbanes-Oxley certifications.
Stericycle has agreed to continue cooperating with the DOJ, strengthen its compliance program, and implement an independent compliance monitor for two years.
Tenaris Pays SEC for Books and Records Violations
On June 2, Tenaris, a Luxembourg-based steel pipe manufacturer, announced it had paid $78.1 million to settle an SEC investigation into alleged bribery of Brazilian government officials. The SEC alleged that Confab, a Tenaris-owned company, entered into a relationship with a government official who successfully pressured the Brazilian state-owned oil company, Petrobas, to ignore international tendering procedures for certain contracts on which Confab was bidding. Notably, the SEC’s calculation of the benefit to Tenaris factored in the influx of business for Confab, which enabled Confab to continue producing pipes in Brazil. This, in turn, reduced shipping costs and put the company in a better position than its international competitors.
The SEC alleged that the Petrobras official was paid a total of at least $10.4 million in bribes. That amounts to approximately 0.5% of revenue associated with the ill-gotten contracts. To conceal the payments, the official allegedly formed an Uruguayan shell company to receive payments for “consultancy and advisory services.” The bribes are also alleged to have been falsely reported in Confab’s accounting books.
In announcing the penalty, the SEC emphasized that, notwithstanding previous enforcement action related to bribes paid to officials in Uzbekistan, Tenaris had failed to implement meaningful internal controls necessary to prevent this behavior. These failings constituted violations of the FCPA’s internal accounting controls provisions.
According to the SEC, Tenaris conducted an internal investigation using outside counsel but found no Tenaris involvement in the payments. Instead, the investigation found that a Confab-associated third-party made the payments to the Petrobas official. In addition to the penalties, the SEC settlement stipulates that the company must report on its ongoing efforts to increase compliance and remedy internal control issues every six months for the next two years. Tenaris also committed to terminating its commercial agents in Brazil and reducing the overall use of commercial agents globally.
Coal Company Sales Manager Indicted for FCPA, Other Criminal Actions
In late March 2022, the DOJ announced that a federal grand jury had indicted Charles Hunter Hobson on violating the FCPA and engaging in money laundering and wire fraud. Hobson was a sales manager for an unnamed coal company, which had not been charged with any crime at least as of the date of Hobson’s indictment.
According the DOJ, Hobson bribed officials at Al Nasr Company for Coke and Chemicals (Al Nasr), a state-owned Egyptian company, in exchange for sales contracts with Al Nasr. Hobson used his company’s sales agent in Egypt to facilitate the bribes. A portion of commissions paid to the sales agent was used to bribe officials at Al Nasr.
Hobson is charged with one count of conspiracy to violate the FCPA, two counts of violating the FCPA, one count of conspiracy to launder money, two counts of money laundering, and one count of conspiracy to commit wire fraud. He faces up to five years in prison for each bribery conspiracy and bribery charge and up to 20 years in prison for each money laundering conspiracy, money laundering, and wire fraud charge.
Lesson Learned: Importance of Compliance Audits, Reviews
In each of these matters, payments were made either directly by the wrongdoer or, more often, through a third party. Many FCPA enforcement actions involve third parties as simply taking improper action through a third party representative does not shield against liability.
These matters also spotlight the DOJ’s increased reliance on corporate monitorships, a markedly different approach than stipulated in previous DOJ guidance, where monitors were called “the exception, not the rule.” The current policy was delineated in an October 28, 2021 memorandum from Deputy Attorney General Lisa Monaco arguing that the “department should favor the imposition of a monitor where there is a demonstrated need for, and clear benefit derived from, a monitorship.”
Monitorships usually are imposed after the department balances “1) the potential benefits that employing a monitor may have for the corporation and the public and 2) the cost of a monitor and its impact on the operations of the corporation.” The department also weighs the effectiveness of the company’s current compliance program to determine whether a monitor is warranted. In cases where non-compliance is limited to isolated incidents, a monitor is likely unnecessary; however, a monitor may be imposed when compliance programs are ineffective or structurally insufficient.
Finally, these enforcement actions serve as a reminder of the importance of regular compliance reviews. In theory, the use of code words to disguise bribes could be identified relatively easily by an earnest auditor. Presumably, the companies involved in these matters, or at least the operations from which improper payments emanated, were not audited very robustly.
We regularly counsel clients about the value of periodic compliance reviews. Such reviews are a well-established best practice under DOJ guidance and a valuable compliance measure in our experience. The companies paying significant penalties in these matters would undoubtedly have benefited from a deeper review of their books, records, and controls.
The Bass Berry & Sims Compliance & Government Investigations team regularly assists U.S. and non-U.S. companies with investigations, audits, and other reviews under the FCPA.
* The authors would like to thank law clerk Stephen Finan for his valuable contributions to this article.