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 recent settlements with two US companies. In the first case, US banking and financial services firm JPMorgan settled with the SEC, Department of Justice and Federal Reserve System in connection with alleged violations of anti-corruption rules. JP Morgan had allegedly hired relatives and friends of important foreign officials to win business and banking deals. This settlement highlights the broad scope of the Foreign Corrupt Practices Act, which enables US authorities to fight bribery abroad. The settlement also shows that US authorities interpret bribery broadly to include this type of hiring practice. The second settlement concerns violations of trade sanctions by US drilling company National Oilwell Varco. This company and two subsidiaries violated Iran, Cuba and Sudan trade sanctions from 2002 to 2009, resulting in a recent USD 25 million settlement. Particularly interesting in this settlement are the aggravating and mitigating factors, as highlighted by the U.S. Office of Foreign Assets Control.
JPMorgan settles FCPA matter for USD 264 million
JPMorgan Chase and its Hong Kong subsidiary JPMorgan APAC settled on 17 November 2016 with three US authorities for a total amount of USD 264 million. JPMorgan agreed to pay more than USD 130 million in disgorgement to the SEC and another USD 61.9 million civil penalty to the Federal Reserve System's Board of Governors. Both US authorities also issued a cease and desist order. JPMorgan APAC agreed to pay a USD 72 million criminal penalty to the DOJ as part of a non-prosecution agreement. The settlement is a result of alleged FCPA violations by JPMorgan from 2006 to 2016 which, according to the SEC, involved the creation of a hiring scheme to win business in China by employing relatives and friends of clients and Chinese government officials.
The special programme, which bypassed JPMorgan's normal hiring process, was referred to as the Sons and Daughters Program and aimed to increase business opportunities in, for example, Chinese initial public offerings. According to the SEC, unqualified persons were offered an internship or employment at JPMorgan, because of their links to important officials who were able to create business for the company. According to the Chief of the SEC Enforcement Division's FCPA Unit, "referral hires vs revenue" spreadsheets were created to monitor the alleged programme. Some of the individuals also knew they were hired to attract business to JPMorgan, according to the US Attorney.
According to the SEC, JPMorgan was able to gain more than USD 100 million by giving well-paid jobs and internships to approximately 100 candidates. In addition to the special hiring programme, JPMorgan APAC employees tried to conceal the practices, according to the DOJ.
JPMorgan APAC, as part of the non-prosecution agreement, agreed to continue its cooperation with the DOJ, to enhance its compliance programme and to report to the DOJ on its implementation. Furthermore, for those individuals abroad who engaged in the alleged corrupt practices, the DOJ has made clear it will work together with the FBI to further investigate them.
Both the SEC and the DOJ highlight several mitigating factors, which were considered when determining the settlement:
- cooperation with the investigation
- significant action against individual employees who either were involved in the misconduct or failed to stop it
- financial sanctions by the company against former or current employees
This settlement indicates that the FCPA is not only limited to situations where the advantage offered directly benefits the foreign official, but extends to advantages that benefit relatives and friends of the foreign officials; see also In context April 2016. It is important for companies to ensure that their anti-corruption policies cover this aspect of the FCPA and to approach the hiring of relatives of governmental officials with caution.
National Oilwell Varco settles trade sanctions violations
The Office of Foreign Assets Control (OFAC) fined US driller National Oilwell Varco and its subsidiaries Dreco and Almar on 14 November 2016. Oilwell Varco agreed to pay USD 25 million for violating trade sanctions. The alleged violations took place between 2002 and 2009 and involved the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Sudanese Sanctions Regulations.
The entire list of US authorities that have settled include the DOJ, the Department of Commerce, the Bureau of Industry and Security, the U.S. Department of Treasury, the OFAC, and the U.S. Immigration and Customs Enforcement. In addition, National Oilwell Varco concluded a Non-Prosecution Agreement with the U.S. Attorney's Office for the Southern District of Texas. In its enforcement information, the OFAC set out in detail in which alleged violations of trade sanctions National Oilwell Varco engaged, including the USD 13.6 million sale and exportation of goods to Iran between September 2006 and January 2008 and the USD 21,000 export of goods from the US to Sudan in 2005 and 2006.
According to OFAC, the alleged violations were egregious as National Oilwell Varco had every reason to know about the prohibited actions, but did not act accordingly. Furthermore, National Oilwell Varco did not voluntarily self-disclose the alleged misconduct.
A very interesting part of the information OFAC provided is the extensive reflection on both the aggravating and the mitigating factors underlying the settlement. Aggravating factors included the disregard for the violated sanctions and its effects, the fact that National Oilwell Varco is a highly developed company working in regions with high sanctions risk, and the inadequacy of its compliance programme. Mitigating factors were:
- no violations were found in the five years before the alleged violations in this case
- the company cooperated with the investigation, including interrupting the limitation period for more than 2600 days
- the company remediated and further enhanced the compliance programme
This case highlights the need for a well-functioning compliance programme when doing business with sanctioned countries. This prevents violations and is clearly mentioned as a mitigating factor in enforcement by authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.