Criminal and supervisory authorities regularly settle enforcement actions. In light of these developments, we advise companies to take appropriate measures. This month we highlight the settlements of Analogic Corp. and subsidiary BK Medical ApS with the DOJ and SEC for alleged violations of the Foreign Corrupt Practices Act's books-and-records-provisions. The settlement with the SEC requires the companies to pay USD 7.67 million in disgorgement and USD 3.8 million in prejudgment interest. Furthermore, the former Chief Financial Officer of BK settled with the SEC for USD 20,000 for his role in the alleged conduct. He neither confirmed nor denied the allegations. The non-prosecution agreement with the DOJ includes a fine of USD 3.4 million. This settlement seems to indicate that the DOJ is bringing the "new enhanced strategy" into practice, as previously announced in 2015 (Yates Memo) and April 2016 (Foreign Corrupt Practices Act Enforcement Plan and Guidance/ FCPA Pilot), in motivating companies to voluntarily self-disclose, fully cooperate and remediate. It stresses the importance of self-reporting and full cooperation when irregularities are found in the company. But more importantly, it emphasises the importance of having the right compliance framework in place, giving the company the guidance and ability to respond appropriately to incidents.
Analogic Corp. (Analogic), a technology company specialised in medical equipment, and its subsidiary BK Medical ApS (BK) based in Denmark, settled with both the DOJ and SEC on 21 June for alleged violations of the books-and-records-provisions of the Foreign Corrupt Practices Act (FCPA). According to the DOJ and SEC, BK had a role in a number of transactions from 2001 until 2011 which were at a high risk for corruption, tax evasion or other criminal conduct. The DOJ's press releases state that after BK entered into a sales agreement with a distributor (often from Russia), the distributor would then allegedly instruct BK to send an invoice for an amount higher than the agreed sales price. The difference between the actual price and the amount in the invoice was sent to third parties by BK. BK is said to have followed these instructions, even though it did not have any business relationships with the third parties. Moreover, no due diligence was allegedly conducted on the payments, leaving the existence of a legitimate business purpose for the payments unknown. As a result, at least a portion of these payments was allegedly received by doctors working for Russian state-owned enterprises (that is, foreign public officials). According to the DOJ, BK caused Analogic to falsify its own books, records and accounts by stating that its conduct complied with both internal policy and official legislation. The Chief Financial Officer of BK allegedly played a large role in this matter.
In certain ways, the settlements reflect the 2015 Yates Memorandum and the recently published DOJ "Foreign Corrupt Practices Act Enforcement Plan and Guidance" (FCPA Guidance), including a one-year FCPA pilot. Under the pilot, companies can receive mitigation credit (in addition to the credit available under the U.S. Sentencing Guidelines) if they voluntarily self-disclose FCPA-related misconduct, fully cooperate with the DOJ and timely and appropriately remediate. In line with these guidelines, the DOJ's press release states that Analogic and BK will cooperate with investigations into individuals by foreign authorities. The DOJ's FCPA Guidance notes that intensifying its international approach is necessary to combat international corruption. The Analogic and BK settlements thus fit within the FCPA Guidance's international ambitions.
According to the FCPA Guidance, a company may receive up to a 50% reduction on the bottom end of the U.S. Sentencing Guidelines fine range if it:
- voluntarily and fully discloses the misconduct
- meets the additional requirements under the FCPA pilot
- fully cooperates with the authorities and takes timely and appropriate remediation measures.
While BK received 30% mitigation credit, it might have received more credit if it had disclosed the results of its internal investigation on certain individuals, according to the DOJ.
The non-prosecution agreement sets out the factors that the 30% credit was based on:
- BK received full credit for voluntarily and timely reporting the alleged incidents to the authorities.
- BK did not receive full cooperation credit, since the DOJ felt that BK had not shared all relevant results from its internal investigation with the authorities. The DOJ specifically mentions that BK did not share the identity of several "state-owned entity end-users" and several statements by employees. Full cooperation is a requirement under the pilot to receive full credit (in addition to the credit available). It means active cooperation resulting in the disclosure of all relevant facts (See also In context 11 May 2016).
The non-prosecution agreement with the DOJ contains several other arrangements besides paying the USD 3.4 million fine. BK, for example, agreed to improve its internal compliance programme and to periodically report to the DOJ about this. BK has also taken extensive remedial measures (including implementing enhanced financial controls, FCPA training and a new distributor due diligence programme). Because of this, the DOJ did not appoint a compliance monitor.
These settlements also focus on the possible prosecution of the individuals involved. BK agreed to cooperate not only with further investigations by the DOJ, but also with possible investigations into individuals by foreign authorities, as advocated by the Yates Memorandum (see the In context of 14 October 2015).
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