The FCPA: The New SEC and DOJ Enforcement Priority – Part VII, Industry Wide Investigations
Two hallmarks of the new FCPA enforcement priority is industry wide investigations and a focus on individuals. In the past the focus tended to be on individual business organizations. Now however both the SEC and DOJ have broadened their focus to key on entire industries while, at the same time giving increased attention to the prosecution of individuals.
Perhaps the largest industry wide inquiry centers on the United Nations Oil For Food Program (“OFFP”). According to the Report of the Independent Inquiry Committee Regarding the OFFP, produced by a committee chaired by former Federal Reserve Chairman Paul Volker, “Iraq manipulated the Program to dispense contracts on the basis of political preference and to derive illicit payment from companies that obtained oil and humanitarian goods contracts.” The report concludes that 2,253 companies made over $1.8 billion in illicit payments to the Iraqi government. Subsequently, a number of companies disclosed inquiries related to the program.
Following the issuance of the Report, the SEC and DOJ opened investigations. A number of enforcement actions related to the OFFP have been brought. Some of these actions have been brought with the assistance of other regulators such as the Office of Foreign Asset Control (“OFAC”). The prosecutions have involved contracts on both the oil and humanitarian side of the program. On the oil side, the cases typically involve the payment of “surcharges” to Iraq’s Oil Marketing Organization by the contracting company. On the humanitarian side the actions typically involve the payment of “after sales service fees” frequently paid by inflating the value of the contract and the agent’s commissions. Examples of the cases brought to date include the following:
El Paso Corporation: Based on the oil side of the program the SEC claimed the company paid $2.1 million in surcharges on 15 contracts on which the company made a profit of $5.4 million. The SEC action was settled with a statutory injunction prohibiting future violations of the books, records, and internal control provisions and the payment of $5.4 million in disgorgement (tied to the criminal settlement) and a civil penalty of $2.2 million. The criminal inquiry was resolved with a non-prosecution agreement under which the company agreed to forfeit $5.48 million which will be transferred to the Development Fund of Iraq sanctioned under a U.N. resolution. SEC v. El Paso Corp., Civ. Action No. 07-00899 (S.D.N.Y filed Feb. 7, 2007).
Textron, Inc.: Based on the humitarian side of the OFFP, the case centered on what the SEC claimed were “kickback payments” of $650,000 paid by two French subsidiaries as “after sales service fees” made by inflating the value of the contract and the agent’s commissions which the company later reimbursed. To resolve the SEC inquiry the company consented to the entry of a statutory injunction prohibiting future violations of the books, records and internal control provisions and the payment of $2.2 million in disgorgement, $450,000 in prejudgment interest and an $800,000 civil penalty. Textron also agreed to comply with certain undertakings regarding its FCPA program. The DOJ inquiry was resolved by entering into a non-prosecution agreement and agreeing to pay a fine of $1.15 million. SEC v. Textron, Inc., Civ. Action No. 07001505 (D.D.C. Filed Aug. 23, 2007); see also DOJ press release here.
Additional actions brought last year based on the OFFP include:
—SEC v. York International Corp., Civil Action No. 7-01750 (D.D.C. Filed Oct. 1 2007); U.S. v. York International Corp., No. 07-01750 (D.D.C. Filed Oct. 1, 2007).
—SEC v. Ingersoll-Rand Co. Ltd., Civil Action No. 07-01955 (D.D.C. Filed Oct. 31, 2007); U.S. v. Thermo King Ireland Ltd., No. 07-296 (D.D.C. Filed Oct. 31, 2007); U.S. v. Ingersoll-Rand Italiana S.P.A., No. 07-00294 (D.D.C. Filed Oct. 31, 2007).
—U.S. v. Chevron Corp., Civil Action No. 07-10299 (S.D.N.Y. Filed No. 14, 2007); (in addition to the SEC action the DOJ inquiry was resolved with a non-prosecution agreement; the inquiries by OFAC and New York County District Attorney’s Office were resolved with the payment of fines).
Finally, one settlement of note involve SEC v. Akzo Nobel, N.V., Civil Action No. 07-02293 (D.D. C. Filed Dec. 20, 2007) and the related DOJ inquiry. The SEC action was settled with a standard statutory injunction prohibiting future violations of the FCPA books, records and controls provisions, the payment of $1.6 million in disgorgement, $584,000 in prejudgment interest and a civil penalty of $750,000. The DOJ investigation concluded with a non-prosecution agreement. As part of this agreement DOJ deferred the payment of any fine in view of the expected action by the Dutch authorities. This is the first time DOJ has deferred to a foreign regulator in an FCPA case.
Next: Cases against individuals