Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight some notable settlements which were signed in several countries. In the first case, two Brazilian construction and petrochemical companies, Odebrecht S.A. and Braskem S.A., settled with the Securities and Exchange Commission, the US Department of Justice, and Brazilian and Swiss prosecutors for violation of US anti-bribery rules as well as books and records provisions. The total settlement sum of USD 3.5 billion is the largest ever penalty in a foreign bribery case. In the second case, the Israeli generic drugs manufacturer Teva Pharmaceutical settled with the SEC and DOJ to resolve charges of making improper payments to government officials in several countries, in violation of US anti-bribery provisions. With this settlement, Teva becomes the first Israeli company to appear in the list of the top ten biggest cases under the Foreign Corrupt Practices Act. The settlement also emphasises US authorities' long reach in fighting bribery abroad. In the final case, UK-based engineering group Rolls-Royce settled with Brazilian, US and UK authorities for allegations of a long-running bribery scheme. The GBP 671 million fine is the largest ever levied by the UK's Serious Fraud Office.
The amount of settlements rushed through these two months can be connected to the end of the FCPA Pilot Program in April 2017. The new US administration must now decide whether or not to extend the Program.
Odebrecht S.A. and Braskem S.A. pay largest ever penalty in foreign bribery case
Odebrecht and its affiliate Braskem settled with American, Brazilian and Swiss authorities for allegations of an international bribery and political kickback scheme on 21 December 2016. Both Odebrecht and Braskem were charged with conspiring to violate the FCPA in the period from 2006 to 2014, and agreed to settle for a combined total amount of at least USD 3.5 billion. According to the DOJ, the final amount of the settlement with Odebrecht will be determined based on an analysis of their ability to pay.
Odebrecht, which operates in over 25 countries, has admitted to paying approximately USD 800 million to Brazilian government officials and legislators in exchange for USD 3.34 billion in ill-gotten benefits. For over a decade Odebrecht and its co-conspirators allegedly engaged in a secret internal financial scheme designed to bribe government officials, their representatives and political parties in more than 12 countries. As part of the scheme, Odebrecht and its co-conspirators created and funded a secret business structure within the company that was used for the approval and disbursement of bribe payments to government officials. This 'Division of Structured Operations' was founded in 2006 and utilised an entirely separate off-book communication system that allegedly concealed their activities. Odebrecht's finance department, as well as certain Odebrecht affiliates, funded this alleged scheme using wire transfers through one or more off-shore entities.
Under this settlement, around 80% of Odebrecht's monetary penalty will go to the Brazilian authorities, who led the way in the investigation. The US and Swiss authorities will both receive an amount equivalent to 10% of the total sum. The SEC did not bring a case against Odebrecht because the agency does not have jurisdiction in this matter.
According to the DOJ, Odebrecht failed to voluntarily disclose the conduct that led to the investigation, but will receive 25% credit for its cooperation with the US Fraud Section. According to the US plea agreement, Odebrecht must improve its anti-corruption compliance programme and has agreed to the imposition of an independent compliance monitor to reduce the risk of repeat misconduct. Odebrecht has reassured authorities of its continued cooperation with law enforcement, including a commitment to discipline or terminate the employment of the individuals responsible for the misconduct.
According to the SEC, Braskem S.A has also admitted paying bribes in order to secure lucrative construction contracts in Brazil. Braskem – whose ADRs trade on the New York Stock Exchange – agreed to pay a total global criminal penalty of USD 957 million and USD 325 million in disgorgement of profits, including USD 65 million to the SEC and USD 260 million to Brazilian authorities. The DOJ agreed to credit the criminal penalties paid to Brazilian and Swiss authorities as part of its agreement with Braskem. The US will receive USD 94.8 million, 15% of Braskem's total settlement.
The DOJ reached these solutions with Odebrecht and Braskem based on several factors, including; the nature and seriousness of the offence, which involved sophisticated schemes to bribe government officials using the highest levels of the companies; the lack of an effective compliance and ethics program; and credits for the cooperation of both companies. Odebrecht and Braskem also took remedial measures, including the enhancement of their anti-corruption compliance protocols and disciplining or terminating the employment of individuals responsible. Earlier in 2016, Odebrecht's former CEO had already been sentenced to 19 years imprisonment after being found guilty of corruption charges in Brazil.
The Odebrecht case emphasises the international cooperation between foreign public prosecutors to investigate and prosecute bribery and corruption violations. Significantly, the investigation of Odebrecht and Braskem and the subsequent anti-bribery enforcement did not emanate from Europe or the US, but from Brazil. The DOJ furthermore stated that these resolutions are a result of an extraordinary multinational effort to investigate and prosecute long-lasting corruption schemes and that it illustrated the importance of global partnerships in law enforcement.
Teva Pharmaceuticals first Israeli company to be penalised under FCPA
On 22 December 2016, the DOJ and SEC jointly penalised the Israeli drug manufacturer Teva Pharmaceutical for a total of USD 519 million to settle alleged violations of the Foreign Corrupt Practices Act (FCPA). Teva agreed to resolve criminal charges relating to schemes designed to bribe government officials in Russia, Ukraine and Mexico between 2007 and 2013. Teva entered into a deferred prosecution agreement (DPA) with the DOJ and agreed to pay a criminal penalty of USD 283 million. The SEC will receive an additional USD 236 million in disgorgement and interest. As part of the settlement, Teva's Russia subsidiary pleaded guilty to conspiracy to violate anti-bribery provisions of the FCPA.
According to the DOJ, Teva made more than USD 200 million in illicit profit by bribing high-ranking government officials in health ministries, intending to increase its market share, obtain regulatory approvals and increase sales at annual drug purchase auctions. Teva admitted paying bribes to a Ukrainian senior government official to get the approval for Teva drug registrations, enabling Teva to sell its products in the country.
Under the DPA, Teva agreed to:
- pay a criminal penalty of USD 283 million
- enhance its compliance programme and internal controls
- adopt a stand-alone third-party due diligence programme
- retain an independent compliance monitor for three years
- continue to cooperate with the authorities during the investigation
This settlement is the first US settlement with an Israeli company that ranks in the top ten biggest FCPA settlements.
The DOJ emphasises the importance of timely and complete cooperation if a company wants to receive full cooperation credit, in line with the one-year FCPA pilot programme that started in April 2016. According to the DOJ, Teva failed to voluntarily self-disclose the misconduct and only cooperated after the SEC served it with a subpoena. Despite Teva's efforts to cooperate, the DOJ stated that Teva delayed the process in the early stages of the Fraud Section's investigation by vastly overstating assertions of attorney-client privilege. Teva responded late to certain document requests from the Fraud Section and therefore did not receive full cooperation credits. In the end, a 20% discount on the low end of the US Sentencing Guidelines was granted.
This case also highlights the importance for companies to have an effective third-party screening procedure and a due diligence programme for screenings of politically exposed persons (PEPs) – such as government officials – who engage with the company on a government's behalf.
Enforcement record for the SFO by Rolls-Royce settlement
In January 2017, Rolls-Royce settled with the SFO, DOJ and Brazilian authorities and agreed to pay more than USD 800 million to resolve long-running corruption allegations. Rolls-Royce entered into a DPA with the SFO and admitted to bribery and corruption involving intermediaries in a number of overseas markets. With this DPA, the SFO set an enforcement record by imposing 75% of the total fine, resulting in a criminal penalty of USD 605 million. This was the largest single investigation conducted by the SFO and its third DPA settlement since the instrument became available in 2014. In related proceedings, Rolls-Royce also settled with the DOJ and agreed to pay a USD 170 million criminal penalty. An additional USD 25.5 million must be paid as part of a leniency agreement with the public prosecutor in Brazil (MPF).
The settlement with Rolls-Royce followed a four-year investigation, initiated by the SFO. The investigation revealed systematic and long-running use of corrupt accounting practices as well as bribing of government officials between 1980 and 2013, across 13 countries. The settlement demonstrates the wide scale of the SFO's internal investigation.
Rolls-Royce admitted that it had failed to prevent conspiracy to make bribery payments in connection with its business operations. According to the DOJ, Rolls-Royce paid over USD 35 million in bribes through third parties to high-level foreign officials with substantial decision-making authority. In exchange, Rolls-Royce received confidential information and, along with its affiliated entities, was awarded several contracts.
The DOJ rewarded Rolls-Royce with a credit (effectively a deduction) of USD 25 million of the total fine in the US for the overlap between the fines in the US and Brazil. Therefore, the total fine to be paid in the US is USD 170 million. According to the DOJ, the conduct underlying the leniency agreement with the MPF overlaps with the conduct underlying part of the DOJ's settlement.
Rolls-Royce agreed to report on compliance enhancements for three years and continue its cooperation with the SFO, including cooperating with future prosecutions of individuals. Rolls-Royce has also set up an audit committee at each of its units.
The Rolls-Royce settlement is notable because it sets a precedent for voluntary self-reporting in DPAs issued by the SFO. Although the Rolls-Royce investigation was not triggered by a self-report – it came to light when two whistleblowers posted allegations online – the SFO argued that because of Rolls-Royce's extensive cooperation and provision of further information which may not have been revealed without this cooperation, it should be treated as having self-reported. The Crown Court ruled that, in accordance with the particular circumstances of this case, they should not distinguish between Rolls-Royce's assistance and that of a self-report from the outset. In the previous two DPAs, the SFO emphasised that it is highly important that companies self-report misconduct in order to allow the possibility of entering into a DPA. The Rolls-Royce case indicates that a DPA is still possible, in appropriate circumstances, even in cases where the company has not self-reported.
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