United States: Company Prosecutions

Koninklijke Philips Electronics N.V. Held Liable by SEC for Polish Subsidiary's Actions

On April 5, 2013, the SEC announced that it had reached an agree-ment with, and issued a Cease and Desist Order (the "Order") against, Koninklijke Philips Electronics N.V. ("Philips") for improper payments made by its Polish subsidiary Philips Polska sp. z. o.o. ("Philips Poland"). Philips, which is based out of the Netherlands, is a broad based manufacturer with numerous subsidiaries engaged in sectors ranging from healthcare goods and services, to consumer goods, to lighting fixtures and devices. It has shares registered on the New York Stock Exchange and files periodic reports with the SEC, thereby rendering itself an "issuer" as the term is used in the FCPA. Philips Poland, as Philips's subsidiary, bids on "public tenders" to provide medical equipment to "Polish healthcare facilities." Under the terms of the Order, Philips will be required to disgorge $3,120,597 and to pay $1,394,581 in prejudgment interest, for a total penalty of $4,515,178, to settle books and records and internal controls violations.

The conduct underlying the Order occurred between 1999 and 2007 and consisted of at least 30 "transactions" whereby improper payments were made to Polish officials to help secure medical supply contracts for Philips Poland. In addition to frequently using third party agents to facilitate these improper payments, Philips Poland, with the assistance of Polish healthcare officials, would insert the specifica-tions of its equipment into the public bid requirements. Consequently, the inclusion of these requirements greatly increased the odds that Philips would receive the contract. The improper payments gener-ally amounted to between 3% and 8% of the value of the contracts, and frequently were shared by both Polish officials and employees of Philips Poland. These improper payments were "falsely characterized and accounted for in Philips' books and records" and because "Philips Poland's financial statements are consolidated onto Philips' books and records," the parent's books and records were also incorrect. As the parent company, and because its own books were inaccurate, Philips was directly liable for the acts of its subsidiary.

The misconduct should have been uncovered in 2007, however, despite an internal audit, Philips did not uncover the improper payments. In 2009, Polish prosecutors indicted 23 individuals, including employees of Philips Poland and healthcare officials, for violating "laws related to public tenders." Thereafter, in 2009-2010, Philips reviewed the conduct of its subsidiary, uncovered the bribes, and then self-reported to both the SEC and the DOJ. In addition to self-reporting, Philips also affirmatively undertook to remedy and prevent future abuses. The company hired three law firms and two auditing firms to investigate the improper conduct, fired employees that violated the law, increased its due diligence procedures, over-hauled its contract administration and review processes and updated its anti-corruption training program.

Parker Drilling to Pay $15.8 Million Under Deferred Prosecution Agreement for Bribes to Nigerian Officials

On April 16, 2013, the DOJ and the SEC announced that they had entered into agreements with Parker Drilling Company ("Parker") to settle anti-bribery, books and records, and internal controls viola-tions under the FCPA. Parker, described in the DOJ Press Release as "a publicly listed drilling-services company, headquartered in Houston," agreed to pay an $11.76 million DOJ fine, as well as to disgorge $3,050,000 and to pay pre-judgment interest in the amount of $1,040,818 to the SEC. The DOJ filed a one count criminal informa-tion and entered into a three-year DPA with the company. The SEC charged the company and ultimately agreed to the above referenced penalties. Additionally, the SEC specifically noted the assistance of the DOJ's "Fraud Section, the Federal Bureau of Investigation, and the United Kingdom's Crown Prosecution Service and Metropolitan Police Service" in successfully investigating Parker.

The conduct at issue was uncovered through the previous investiga-tion of Panalpina World Transport Limited ("Panalpina"). Panalpina, in 2001-2002, improperly claimed to have exported and then re-imported drilling equipment for Parker into Nigeria. As a result, Parker was fined $3.8 million by the "Nigeria's Customs Service." To lessen this fine, Parker contracted an "intermediary agent" who was paid $1.25 million to reduce the violation. The agent then improperly used a portion of those funds to entertain government officials and ultimately managed to reduce Parker's fine by over $3 million to $750,000. The DOJ reported that email exchanges between this agent and Parker execu-tives referenced the agents' dealings with, among others, "Nigeria's Ministry of Finance, State Security Division, and a delegation from the president's office."

The DOJ and the SEC entered into the agreements with Parker based on a number of factors, including the company's "extensive, multi- year investigation," cessation of relationships with parties violating 6the law, increased and enhanced compliance procedures including greater "scrutiny of high-risk third-party agents and transactions" and ongoing cooperation with the government.

Ralph Lauren Enters First Dual Non-Prosecution Agreements with the SEC and the DOJ

On April 22, 2013, the DOJ and the SEC announced that they had both entered into NPAs with Ralph Lauren Corporation. This is the first time that the SEC has ever used an NPA. The conduct at issue concerns bribes paid by a wholly-owned Argentinian subsidiary of Ralph Lauren Corp., PRL S.R.L. The conduct and bribes were described by the DOJ as "[intended] to obtain paperwork necessary for goods to clear customs; permit clearance of items without the necessary paperwork and/ or the clearance of prohibited items; and, on occasion, to avoid inspection entirely." The conduct occurred from 2004 through 2009 and total payments amounted to $593,000. Under the NPA with the DOJ, Ralph Lauren has agreed to pay a total of $882,000, and under the NPA with the SEC, the company will disgorge $593,000 and pay prejudgment interest in the amount of $141,845.79.

Both the DOJ and the SEC acknowledged their agreement to the NPAs was based upon Ralph Lauren's willingness to cooperate with the government's investiga-tion. Ralph Lauren, which self-disclosed the conduct at issue within two weeks of its discovery, subsequently disclosed docu-ments and witness interviews to the government, conducted a worldwide risk assessment, made overseas staff available for interviews, and ended its opera-tions in Argentina. Additionally, Ralph Lauren implemented a new compliance program, which it did not have when the conduct occurred and terminated the employment of violating parties. Furthermore, the company committed itself to increasing the robustness of its internal controls and third-party due diligence, including establishing a whistle-blower hotline and retaining a compliance attorney.

Total S.A. to Pay $398 Million in FCPA Penalties, Fines, and Disgorgement

On May 29, 2013, the DOJ and the SEC announced agree-ments with Total S.A. ("Total") to settle alleged FCPA violations for a combined sum of more than $398 million. The DOJ filed a three-count information and DPA in the Eastern District of Virginia, whereby Total agreed to a $245.2 million penalty and to implement an improved compli-ance program. The SEC issued a Cease and Desist Order ("CDO") which requires, among other things, that Total pay $153 million in disgorgement.

Total, a French company head-quartered in Nanterre, France, is an oil and gas exploration and development firm with operations around the world. It is a publicly held company with SEC-registered American Depository Shares traded on the New York Stock Exchange. As a public company, Total is an "issuer" as defined by 15 U.S.C. § 78dd-1 for purposes of the FCPA, and accordingly, is subject to the anti-bribery, books and records and internal control provisions of the FCPA.

As described in both the DOJ's press release and the criminal information, between 1995 and 2004, Total paid $60 million in bribes through intermediaries to an Iranian Official who facilitated lucrative exploratory and devel-opment contracts between Total and National Iranian Oil Company ("NICO"). These contracts are alleged to have allowed Total to obtain access to the Sirri A and E Oil fields around or on Sirri Island, which is situated over the South Pars gas field, the largest national gas field in the world. These alleged bribes were improperly described on Total's books as "business development expenses."

As part of the DPA entered into with the DOJ, Total agreed to pay $254.2 million in fines, to continue implementing a compli-ance and ethics program and to hire a French national as a Corporate Compliance Monitor. The term of the DPA is three years and seven days and was granted based on three main factors: parallel investigations by French law enforcement, the evidentiary challenges presented, and the company's disclosure of its internal investigation and cooperation with the government. Under the CDO, the company will be required, among other things, to retain a compliance consul-tant and to pay $153 million in disgorgement.

This case represents a coopera- tive effort by both French and U.S. law enforcement to hold a company liable for its corrupt foreign activities and, as noted by the SEC's press release, "[c] harges also were recommended today by the prosecutor of Paris (François Molins, Procureur de la République) of the Tribunal de Grande Instance de Paris for violations of French Law." Investigations by French authori-ties are now likely against Total, its Chairman, CEO, and at least two unnamed individuals.

Keyuan Pharmaceuticals

In March 2013, the SEC entered into a joint settlement with Keyuan Pharmaceuticals, Inc. and its former CEO Aichun Li, over alleged violations of the books and records and internal controls provisions of the FCPA. Keyuan also settled in regards to violations of other anti-fraud, federal securities laws. The SEC's complaint against Keyuan alleged that from 2008 through 2011, the pharmaceu-tical company maintained an off-book account that was used to channel approximately $1 million that was used to fund gifts to Chinese government officials. The gifts ranged from household goods to direct cash handouts. Keyuan and Aichun agreed to an injunction of futures securities laws violations, as well as paying civil penalties of $1 million and $25,000, respectively. Keyuan is headquartered in Ningbo, China and was formed in April 2010.

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