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2014 YEAR-IN-REVIEW ..................... 1

COLUMNS

IN THE INTERIM ................................ 2

COMPLIANCE CORNER: REDUCING PENALTIES WITH COOPERATION AND COMPLIANCE .......................... 5

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2014 YEAR-IN-REVIEW

For FCPA enforcement, 2014 was a year that started and ended with a bang, as several high-profile enforcement actions buoyed the year into one of the most significant in terms of corporate penalties. In January 2014, in the fifth largest FCPA settlement ever, Alcoa World Alumina agreed to pay a criminal fine of $209 million and forfeit $14 million to resolve allegations that it paid millions of dollars in bribes to officials in the Kingdom of Bahrain. Alcoa Inc., the parent company, agreed to pay $161 million in disgorgement to resolve SEC civil charges related to the bribery scheme. Then, bookending the year, two other major settlements were announced. On December 17, in the third largest FCPA settlement against a U.S. company, Avon entities agreed to pay a total of $135 million to settle SEC and DOJ charges that Avon Products’ Chinese subsidiary made payments and gifts to Chinese officials responsible for implementing and overseeing direct selling regulations in China. Then, on December 22, Alstom S.A. pleaded guilty and agreed to pay $772 million in criminal penalties to settle charges that Alstom bribed officials in Indonesia, Saudi Arabia, Egypt, the Bahamas and Taiwan in order to secure $4 billion in contracts. The Alstom penalty is the largest ever criminal penalty assessed under the FCPA and the second largest amount ever collected in an FCPA enforcement action.

Thus, while the number of corporate enforcement actions was generally on par with 2013, this year saw some of the largest FCPA settlements ever reached, underscoring the seriousness with which the government continues to pursue FCPA enforcement actions. In terms of corporate penalties, the $1.6 billion levied in 2014 was more than double the $730 million levied in 2013. In fact, 2014 was the second largest year ever in terms of corporate penalties.

2014 was also notable in terms of enforcement activity against individuals. The DOJ has signaled that it is placing more focus on the prosecution of individuals under the FCPA. In November 2014, Assistant Attorney General Leslie Caldwell, head of DOJ’s criminal division, stressed a focus on prosecuting “individuals responsible for the misconduct, no matter how high their ranking may be” within the company. DOJ’s scorecard also shows an increased attention to individual prosecutions; DOJ prosecuted 11 individuals in 2014, and 12 in 2013, as compared to only two in 2012.

In another development, several major 2014 settlements—most notably Alcoa and Smith & Wesson—reflect a continued SEC trend toward resolving FCPA cases through the use of administrative proceedings. The SEC’s FCPA Unit Chief, Kara Brockmeyer, disclosed last year that the SEC will begin to rely more frequently on administrative proceedings, as opposed to more traditional district court actions, to resolve FCPA-related enforcement matters. This approach is made possible by the Dodd-Frank Act, which expanded the SEC’s authority to obtain penalties in administrative proceedings, giving the SEC the ability to assess a variety of civil penalties on companies without going to court. This trend will likely continue into upcoming years, especially in light of the advantages that administrative proceedings afford the SEC. Most notably, the cost and burden of managing

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ANTI-CORRUPTIONQuarterly4th Quarter 2014

2006 2007 2008 2009 2010 2011 2012 2013 2014 PendingInvestigations**

8 9

1619 20

14

28

15

49

2622

25

11 12

21 20 19

11

92

114

2006 2007 2008 2009 2010 2011 2012 2013 2014 PendingSettlement**

87.2155.1

803.0

644.6

1885.12

502.7

260.3

731.1

1569.71

2

2

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* New criminal or civil cases (settled or contested) instituted by year

** Based upon public disclosures of investigations

* Includes disgorgement; does not include non-U.S. fines** Includes publicly disclosed reserves for future FCPA

settlements

9/29/2014 Agilent Technologies, Inc., a company that makes testing and measurement equipment for the medical industry, disclosed in its Form 8-K that an investigation regarding sales practices in China by third-party intermediaries and company employees ended without prosecution by the SEC and DOJ.

10/1/2014 Ben Aissa, SNC-Lavalin’s former head of construction, accepted a plea deal from the Swiss authorities for time served, which was 29 months. Aissa had been named in connection with $22 million in bribes allegedly paid by former SNC-Lavalin employees. Subsequently, Aissa was extradited to Canada and charged with 16 counts, including fraud and bribery charges, in connection with $160 million in alleged bribes paid to the son of Muammar Gaddafi.

In November, Aissa was granted bail set at $250,000 and was ordered to wear an electronic bracelet pending his next court appearance. In this case, SNC-Lavalin is referred to as an injured party in the indictment.

10/6/2014 The U.S. Supreme Court denied a petition to review whether employees of state-owned enterprises are considered “instrumentalities” thereby falling within the definition of “foreign officials” under the FCPA in Esquenazi et al. v. United States. The Supreme Court has, to date, never heard an FCPA case.

10/8/2014 GlaxoSmithKline, the UK’s largest pharmaceutical company, announced an investigation into allegations of improper payments in the United Arab Emirates following receipt of a whistleblower email from a GSK sales manager in the UAE.

11/5/2014 UK High Court of Justice issued a decision in UBS (AG) v. UBS Limited addressing numerous important questions regarding bribery. The court held that, “[w]here the agent of one party to a contract pays a bribe to the agent of the other party, the party whose agent was bribed is entitled to avoid the contract (and claim damages from the principal of the agent who paid the bribe).” The Court found this to be the case even when the principal neither authorized nor was aware of the agent’s bribery, holding that “[n]o honest principal authorizes its agent to pay a bribe, but… a principal may nevertheless be responsible in law for the consequences of a bribe paid by its agent within the course of the agent’s employment or authority.”

11/12/2014 SBM Offshore, the Dutch-based offshore oil and gas industry participant,

agreed to pay $240 million to Dutch authorities to settle bribery allegations in Angola, Brazil and Equatorial Guinea. Prosecutors had alleged that SBM paid sales agents $200 million in illegal commissions between 2007 and 2011. SBM also announced that the DOJ has closed its parallel investigation into the company.

11/17/2014 The DOJ’s second FCPA opinion procedure of 2014 clarified successor liability. DOJ stated that if the Requestor, a multinational company headquartered in the U.S., planned to acquire a foreign company riddled with suspected illegal payments to foreign officials the acquisition did not create successor liability for the Requestor unless the foreign company had been subject to U.S. criminal jurisdiction.

12/2/2014 The OECD released a report on foreign bribery, analyzing more than 400 cases worldwide between 1999 and 2014, and concluding that “most international bribes are paid by large companies, usually with the knowledge of senior management.”

12/3/2014 In October, China announced that the Ministry of Public Security had captured at least 88 fugitives wanted on charges of corruption and other economic crimes. Forty additional individuals are reported to

FCPA-Related Cases*

DOJ SEC

Corporate FCPA-Related Penalties*(in U.S. millions)

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be in discussions to surrender and return to China. Foreign countries that assist with the capture of the fugitives can share up to 80% of the fugitives’ forfeited assets. Most recently, China announced its desire to use U.S. courts to sue fugitives, despite the lack of an extradition treaty between China and the U.S.

12/4/2014 Airbus is under investigation for alleged bribery in connection with its $3.7 billion in border security contracts in Romania and Saudi Arabia, according to German officials.

12/5/2014 Former Bechtel Corporation senior executive, Asem Elgawhary, pleaded guilty for taking $5.2 million in kickbacks in exchange for rigging bids for state-run power contracts in Egypt. Elgawhary is set to be sentenced on March 23, 2015.

12/11/14 Dallas Airmotive Inc., a Texas-based aircraft engine maintenance, repair and overhaul firm, admitted that it bribed Latin American officials to win government contracts. The company agreed to pay $14 million to resolve the FCPA charges with the DOJ as part of a Deferred Prosecution Agreement.

12/15/14 Siemens’ former CFO, Heinz-Joachim Neubürger, agreed to pay the company $3.1 million to settle a civil recovery claim connected to the global bribery scandal Siemens resolved with U.S. and German authorities in 2008. Before Neubürger agreed to the settlement, Siemens already had reached agreements with ten executives, including its former chairman and chief executive, totaling approximately $25 million.

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FCPA prosecutions through the administrative process is lower since administrative proceedings are heard before administrative law judges and are not subject to the traditional rules of evidence. Furthermore, FCPA settlements brought in administrative proceedings require no judicial approval. This is crucial, especially in light of recent cases where district court judges have complicated and scrutinized several SEC prosecutions. Lastly, the imposition of a cease-and-desist order under an administrative proceeding requires only that the SEC establish a “likelihood” that a defendant will violate federal securities law, in contrast with the higher “reasonable likelihood” standard required by a court-ordered injunction.

Another trend in 2014 was the government’s emphasis that companies’ cooperation in FCPA investigations will result in meaningful credit when it comes time to reach a resolution. In a speech in November, SEC Enforcement Director Andrew J. Ceresney highlighted the agency’s commitment to giving credit for cooperation. He said that the SEC “recognize[s] that it is important to provide benefits for cooperation to incentivize companies to cooperate. And we have been focused on making sure that people understand there will be such benefits.” He highlighted the agency’s “wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.”

Finally, as we reported in an earlier issue of this newsletter, the FCPA is no longer the “only game in town,” as countries from Brazil to Canada are implementing and stepping up enforcement of their own anti-bribery laws. Indeed, the U.K’s Serious Fraud Office announced in December that it had secured its first convictions under the U.K. Bribery Act. Increasingly, companies need to be aware of anti-corruption efforts in other countries and ensure that their compliance programs are meeting not only FCPA standards but also those of anti-bribery laws in other jurisdictions.

These enforcement actions and trends, along with other major developments related to anti-corruption in 2014, are summarized below.

CORPORATE FCPA ENFORCEMENT ACTIONS

Alcoa World Alumina LLC

On January 9, 2014, Alcoa World Alumina LLC, a majority-owned subsidiary of Alcoa Inc., pleaded guilty in the Western District of Pennsylvania to one count of violating the anti-bribery provisions of the FCPA. The company agreed to pay a criminal fine of $209 million and forfeit $14 million to settle the DOJ’s charges that it paid millions of dollars in bribes through a London-based middleman to officials of the Kingdom of Bahrain in violation of the FCPA. Alcoa Inc., the corporate parent, also agreed to pay $161 million in disgorgement to resolve SEC civil charges for conduct related to the bribery scheme. The SEC settled the matter through an administrative order rather than through civil charges filed in court. In addition to the monetary penalty, Alcoa and Alcoa World Alumina agreed to cooperate with the Department in its continuing investigation of individuals and institutions involved in these

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12/16/2014 Bruker Corporation settled an FCPA investigation with the SEC agreeing to pay $2.4 million. The SEC alleged that Bruker violated the FCPA’s internal controls and books and records provisions by paying for sightseeing trips and shopping expenses for Chinese government officials. The SEC, however, credited Bruker for self-reporting its misconduct and providing extensive cooperation during the investigation.

12/22/2014 Alstom S.A., a French power and transportation company, pleaded guilty to charges that it violated the FCPA’s books and records and internal controls provisions through a bribery scheme spanning several countries, including Indonesia, Saudi Arabia, Egypt and the Bahamas. Alstom agreed to pay over $772 million to resolve the enforcement action with the DOJ – the largest criminal penalty ever paid in an FCPA case. The plea agreement cites many factors considered by the DOJ in seeking such a significant penalty, including: Alstom’s failure to voluntarily disclose the misconduct, even though it was aware of related misconduct at a U.S. subsidiary; Alstom’s refusal to fully cooperate with the Department’s investigation for several years; and Alstom’s lack of an effective compliance and ethics program at the time of the conduct. Alstom’s Swiss and American subsidiaries have entered into deferred prosecution agreements and admitted that they conspired to violate the FCPA. And to date, the DOJ has announced charges against five individuals, including four corporate executives of Alstom and its subsidiaries, for alleged corrupt conduct involving Alstom.

matters. The combined $384 million settlement ranks as the fifth largest for FCPA-related cases. The $161 million in disgorgement to the SEC ranks as the third largest FCPA disgorgement of all time.

Since 1989, one of Alcoa’s largest customers has been Aluminum Bahrain B.S.C. (“Alba”), an aluminum extraction company in which the Bahrain government is a 77 percent stakeholder. According to court documents, Alcoa secured a long-term alumina supply agreement with Alba by agreeing to sell over 1.5 million metric tons of alumina to Alba through offshore shell companies owned by a London-based middleman “consultant” with close ties to Royal Family members. After Alcoa secured the supply agreement with Alba, at the request of members of Bahrain’s Royal Family who controlled the tender process, Alcoa hired the middleman as a sham sales agent and agreed to pay him a corrupt commission designed to conceal bribe payments. Over time, Alcoa invoiced increasingly larger volumes of alumina sales through the middleman’s shell companies, which permitted the middleman to make larger bribe payments to certain Bahrain government officials and senior members of Bahrain’s Royal Family. To conceal the bribe payments, the middleman and Bahrain government officials used various offshore bank accounts at several major financial institutions around the world, including in Guernsey, Luxembourg, Liechtenstein and Switzerland.

In their press releases, the government made clear that it will not tolerate companies who outsource bribery to agents, and companies who employ agents to commit bribery will be held equally responsible under the law. As U.S. Attorney David J. Hickton noted: “Today’s case shows that multinational corporations cannot get away with using middlemen to structure sham business arrangements that funnel kickbacks to government officials.”

Smith & Wesson

On July 28, 2014, Smith & Wesson Holding Corporation (“Smith & Wesson”) agreed to pay $2 million in an out-of-court settlement with the SEC, stemming from charges under the FCPA that the company paid bribes in various countries, including Pakistan and Indonesia, in order to secure contracts to supply firearm products to foreign military and police forces. In lieu of filing a civil complaint, the SEC settled the matter through an administrative order. To comply with the order, Smith & Wesson must also periodically report its FCPA compliance efforts to the SEC for a two-year term.

In its order, the SEC alleged that Smith & Wesson’s international sales staff offered or made illegal payments and gifts that were intended for government officials in various countries. It claimed that this was done from 2007 through 2010 in an attempt to increase the company’s international sales. For instance, the SEC alleged that Smith & Wesson retained a third-party agent in Pakistan who assisted the company in securing a contract to sell pistols to the Pakistani police worth $100,000 by gifting over $11,000 worth of firearms to Pakistani police officials. The SEC also alleged that Smith & Wesson made or authorized similar payments through third-party agents in Indonesia, Turkey, Nepal, Bangladesh, and other countries in connection with pending or contemplated sales contracts. The order concluded that Smith & Wesson’s actions violated the anti-bribery, books and records, and internal controls provisions of the FCPA.

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In cooperating with the SEC investigation, Smith & Wesson promptly terminated the pending international sales contracts and agreed to implement a better FCPA compliance program and internal control process. Additionally, the company terminated its entire international sales staff.

The case highlights the importance of compliance practices for all companies, even if they are small, if they conduct business internationally. It also illustrates the importance of remedial actions, including employee terminations.

Layne Christensen Company

On October 27, 2014, Layne Christensen Co., a Texas-based water management, construction and drilling firm, agreed to pay $5.1 million to settle SEC claims that two of the company’s subsidiaries had violated the FCPA. According to the SEC, between 2005 and 2010, Layne’s subsidiaries made around $800,000 in improper payments to foreign officials in various African countries in order to receive tax benefits, secure customs clearance for equipment, avoid customs duties, and secure work permits for employees. The SEC investigation began after a 2010 internal investigation prompted Layne to self-report potential violations. The company settled the claims through an administrative order without going to court, and without admitting or denying fault. Layne agreed to pay $3,893,472 in disgorgement, $858,720 in prejudgment interest, and a $375,000 penalty. The SEC said it was lenient towards Layne because of the company’s “self-reporting, remediation, and significant cooperation with the SEC’s investigation.”

Dallas Airmotive

On December 11, 2014, Dallas Airmotive, Inc., a Texas-based aircraft engine maintenance, repair and overhaul service provider, agreed to pay a $14 million criminal penalty to settle allegations of bribing Latin American government officials to gain contracts through its corporate affiliate in Brazil, in violation of the FCPA. Dallas Airmotive admitted to conspiring with officials in Brazil, Peru and Argentina, in a plot to gain government contracts between 2008 and 2012. According to the criminal indictment filed in the United States District Court for the Northern District of Texas as part of the deferred prosecution agreement, Dallas Airmotive’s Brazilian affiliate, Dallas Airmotive do Brasil, worked with Dallas Airmotive to use front companies that disguised bribery payments to officials and paid third parties to deliver money to foreign officials. The indictment specifically mentions a $35,000 wire transfer from New York City to Rio de Janeiro to two officials to pay them for their work securing government contracts for Dallas Airmotive. The indictment also relays a chain of damning emails between Dallas Airmotive and Dallas Airmotive do Brasil managers and foreign officials, including an exchange with a retired Peruvian Air Force officer demanding payments for the company’s use of his connections in the Air Force industry. The DOJ disclosed that it had been assisted in the case by its “law enforcement counterparts in Brazil.”

Bruker Corporation

On December 15, 2014, Bruker Corp. agreed to pay $2.4 million to settle the SEC’s charges that Bruker violated the FCPA by paying for sightseeing trips and shopping expenses for Chinese government officials responsible for buying

No company aspires to have the SEC or DOJ investigate it for possible FCPA violations. A company can reduce the brunt of potential penalties, however, by engaging with government agencies and bolstering its internal compliance programs as part of a negotiation process and/or settlement. Such an approach can lead to important financial savings in negotiating a resolution. A recent SEC settlement with Layne Christensen illustrates the point, as the company slashed its potential penalties in half, as a result, at least in part, of its compliance remediation and enhancements.

In October 2014, the SEC found that Texas-based drilling company Layne Christensen (“Layne”), through its African and Australian subsidiaries, made improper payments to government officials in five African countries in order to receive tax breaks, customs clearance, work permits, inspection approval, and avoidance of several tax and employment penalties. In total, the SEC found that from 2005 through 2010 Layne made over $1 million in payments and received benefits of $3.9 million in these countries. The SEC ultimately found the company had violated the FCPA’s books and records, internal controls and anti-bribery provisions. The company agreed to pay a $5.1 million penalty. Media reports cited the DOJ’s decision to close its investigation and Layne’s cooperation with the SEC as contributing factors that lowered the company’s penalties.

In explaining its settlement figures, Kara Brockmeyer, the Chief of the

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FCPA Unit of the SEC Enforcement Division, cited, among other things, Layne’s commitment to overhauling its internal compliance program as a factor “credited in determining the appropriate remedy.”

Layne initiated a detailed outside investigation, disciplined executive-level employees involved with the violations, publicly disclosed its wrongdoings, and self-reported its findings to the SEC. In addition, Layne committed itself to revamping its compliance program; The company revised its anti-bribery and accounting policies, internal compliance training, and due diligence efforts with outside vendors. Layne installed a chief compliance officer and three full-time compliance staffers to monitor developments and consult outside groups’ opinions on future compliance improvements. In contrast, none of the five other companies who settled FCPA investigations with the SEC this year took remedial measures to hire new compliance-dedicated employees.

Layne’s compliance enhancements followed much of what the government has declared as best practices. Assistant Attorney General for the DOJ’s Criminal Division, Leslie Caldwell, explained in an October speech that for a compliance program to receive credit in investigations, “it must have demonstrated effectiveness, with messages about compliance that come from the top and echo throughout the corporate hallways.” Caldwell’s speech identified ten “hallmarks” of effective compliance programs:

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the company’s products. According to the SEC, Bruker, a Massachusetts-based life sciences company, used sham “collaboration agreements” to funnel money to Chinese officials to ensure that state-owned entities provided research on the company’s products or used its products in demonstration labs. The other improper payments involved reimbursements for Chinese officials to travel on sightseeing and shopping trips to countries such as France, Austria, Switzerland, Italy, and Sweden.

The SEC settled the case with an administrative order, and Bruker consented to the order without admitting or denying the findings. Bruker self-reported its misconduct and “provided extensive cooperation during the SEC’s investigation,” the SEC reported in a statement. The company agreed to pay $1,714,852 in disgorgement, $310,117 in prejudgment interest, and a $375,000 penalty. In March 2012, Bruker had fired employees as the result of an internal investigation into allegations of bribery in China. The SEC said it “considered the company’s significant remedial acts as well as its self-reporting and cooperation with the investigation when determining a settlement.”

Avon Products, Inc.

On December 17, 2014, Avon Products, Inc. agreed to pay $135 million to settle parallel charges by the SEC and the DOJ that Avon violated the FCPA by failing to detect and prevent $8 million worth of gifts in cash, travel and entertainment that its subsidiary in China paid to Chinese regulatory officials. Avon, a global beauty products company, learned about FCPA problems at its subsidiary through an internal audit report in late 2005. Examples of improper payments alleged in the SEC complaint include paid travel for Chinese officials and gifts of Louis Vuitton merchandise, Gucci bags, Tiffany pens and luxury box seat tickets to the China Open tennis tournament. Avon initially directed that reforms be instituted at the subsidiary, but ultimately no reforms were ever implemented. “Avon missed an opportunity to correct potential FCPA problems at its subsidiary, resulting in years of additional misconduct that could have been avoided,” said Scott Friestad, Associate Director of the SEC’s Division of Enforcement. U.S. Attorney Preet Bharara said that “Avon China was in the door-to-door influence-peddling business, and for years its corporate parent, rather than putting an end to the practice, conspired to cover it up.”

The company will pay a $67.7 million criminal fine, along with a $67 million SEC settlement. Avon must also retain an independent monitor to review its FCPA compliance program for 18 months, followed by an 18-month period of self-reporting on its compliance efforts. The settlement is subject to federal court approval. According to reports, Avon spent more than $300 million on its internal FCPA investigation. The settlement is the third largest ever against a U.S. company.

Alstom S.A.

On December 22, 2014, Alstom S.A. pleaded guilty and agreed to pay $772 million in criminal penalties to settle charges under the FCPA that Alstom bribed officials in Indonesia, Saudi Arabia, Egypt, the Bahamas and Taiwan, in order to secure $4 billion in contracts. This is the largest ever criminal penalty

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assessed under the FCPA and the second largest amount ever collected in an FCPA enforcement action. The DOJ charged that Alstom, a French engineering firm, violated the books and records and internal controls provisions of the FCPA by bribing officials tied to state-owned companies in order to secure various power, grid and transportation projects. The misconduct spanned the globe, including an attempt by company officials to bribe a member of the Indonesian parliament to secure a power plant project. As part of the settlement, Alstom Power Inc. and Alstom Grid Inc., two U.S. subsidiaries, entered into deferred prosecution agreements and admitted to conspiracy charges under the anti-bribery provisions of the FCPA. A separate Swiss subsidiary, Alstom Network Schweiz AG, pleaded guilty to conspiracy charges under the anti-bribery provisions of the FCPA.

The DOJ noted that the settlement amount is based on multiple factors, including Alstom’s failure to report misconduct, its refusal to fully cooperate with DOJ’s investigation for several years, the breadth of the misconduct, and Altsom’s lack of an effective internal compliance program. The DOJ has criminally charged four individuals in connection with its Alstom probe, including four Alstom executives. Three have pleaded guilty thus far, including one last quarter.

With this settlement, the DOJ and SEC have collected nearly $1.5 billion this year in resolving FCPA claims.

INDIVIDUAL ACTIONS

Government Officials in India

A federal indictment—returned under seal on June 20, 2013, and unsealed on April 2, 2014—charged six foreign nationals, including a Ukrainian businessman and a government official in India, with an alleged racketeering conspiracy to bribe officials in India to gain titanium mining rights. Five of the six defendants were also charged with conspiracy to violate the FCPA, among other offenses. The indictment was issued by the U.S. District Court for the Northern District of Illinois.

One defendant, Dmitry Firtash, a Ukrainian national, was arrested on March 12, 2014, in Vienna, Austria. Firtash controls Group DF, an international conglomerate of companies that was directly and indirectly owned by Group DF Limited, a British Virgin Islands company. The five other defendants listed include: Andras Knopp, 75, a Hungarian businessman; Suren Gevorgyan, 40, of Ukraine; Gajendra Lal, 50, an Indian national and permanent resident of the United States, who formerly resided in Winston-Salem, N.C.; Periyasamy Sunderalingam, aka “Sunder,” 60, of Sri Lanka; and K.V.P. Ramachandra Rao, aka “KVP” and “Dr. KVP,” 65, a Member of Parliament in India, who was an official of the state government of Andhra Pradesh and a close advisor to the now-deceased chief minister of the State of Andhra Pradesh, Y.S. Rajasekhara Reddy.

Beginning in 2006, the defendants allegedly conspired to pay bribes to secure licenses to mine minerals in the eastern coastal Indian state of Andhra Pradesh. Firtash was the leader of the enterprise and caused the participation of certain Group DF companies in the project. Firtash allegedly met with

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1. High-level of Commitment Companies should set a tone from the highest levels of management about the importance of compliance.

2. Written Policies Companies should strongly consider memorializing compliance guidelines for all employees to read, and translate them into different languages, if needed, in order to be clear on what is acceptable behavior.

3. Periodic Risk-Based Review Companies should conduct regular reviews of their compliance efforts and assess threats and areas of improvement. This effort is particularly important for subsidiary branches of a company, which may be more vulnerable to compliance concerns, as was the case in Layne.

4. Proper Oversight and Independence Companies should install a dedicated, independent compliance apparatus that can effectively respond to compliance issues. This freedom to act is essential to allow for decisive actions in the compliance arena—be it internal or external.

5. Training and Guidance Companies should initiate consistent training efforts that will help reduce the risk of future wrongdoings across a company.

6. Internal Reporting Companies should establish confidential reporting systems that promote greater

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Indian government officials, including Chief Minister Reddy, to discuss the project and its progress, and authorized payment of at least $18.5 million in bribes to both state and central government officials in India to secure the approval of licenses for the project. Firtash also allegedly directed his subordinates to create documents to make it falsely appear that money transferred for the purpose of paying these bribes was transferred for legitimate commercial purposes, and he appointed various subordinates to oversee efforts to obtain the licenses through bribery. The mining project was expected to generate more than $500 million annually from the sale of titanium products, including sales to unnamed “Company A,” headquartered in Chicago.

The indictment seeks forfeiture from all six defendants of more than $10.59 million. The DOJ is also seeking forfeiture of Firtash’s interest in 14 companies registered in Austria, 18 companies registered in the British Virgin Islands, as well as 127 other companies registered in Cyprus, Germany, Hungary, the Netherlands, Seychelles, Switzerland and the United Kingdom, and 41 bank accounts in several of the same countries.

Benito Chinea and Joseph DeMenses

On April 14, 2014, Benito Chinea, the former chief executive officer of New York-based broker-dealer Direct Access Partners LLC, and Joseph DeMeneses, a former partner at the brokerage firm, were charged in federal court in New York with FCPA violations for allegedly bribing an official at Venezuela’s state-owned economic development bank. Both individuals face one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and five counts of violating the Travel Act. The SEC also announced civil charges against Chinea and DeMeneses for fraud, manipulation, and making false statements in SEC filings.

According to the allegations in the indictment, Chinea and DeMeneses were accused of paying kickbacks to Maria de los Angeles Gonzalez de Hernandez, a vice president of finance at Banco de Desarrollo Economico y Social de Venezuela (BANDES) in exchange for the bank’s bond-trading business. Chinea and DeMeneses, together with three Direct Access Partners, Ernesto Lujan, Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado—employees in the firm’s Miami office—participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the brokerage firm and in return, agents and employees of the brokerage firm split the revenue generated from this trading business with Gonzalez. The Defendants generated over $60 million in commissions from trades with BANDES. The conspirators then concealed their misconduct by routing the payments to Gonzalez through third parties and into offshore bank accounts.

The SEC’s charges stemmed from the conspirators’ alleged attempts to cover up the bribery scheme. The SEC alleged that, during its periodic examination of Direct Access Partners, LLC, in November 2010, DeMeneses and others agreed that they would take steps to conceal the true facts of the firm’s relationship with BANDES, including deleting emails, in order to hide the actual relationship from regulators.

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communication of potential compliance issues. Without a fear of stigma or retaliation, employees may feel more flexible to report issues they see at work.

7. Investigation Companies should stand ready to conduct internal investigations of FCPA complaints when warranted.

8. Enforcement and Discipline Companies should punish both low- and high-level employees for the same wrongful conduct in the same way. This uniformity instills more credibility in a company’s compliance program.

9. Third-Party Relationships Companies should educate their partners in the importance of compliance efforts. Too often, third parties may serve as proxies for a company’s wrongful behavior.

10. Monitoring and Testing Companies should remain on the cutting-edge of compliance reform. They must evolve with changing regulations and assess the policies that work.

Further, companies can be well-served by keeping abreast of the latest regulations and appropriately refining their internal controls and training. To the extent practicable, it is often helpful to staff a team of dedicated compliance employees, including appointing a chief compliance officer. Taken together, these steps can assist in mitigating the risk of an investigation. And if a company is involved in an FCPA investigation, these steps may further mitigate liability.

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Ernesto Lujan, a former managing partner of the SEC-registered broker-dealer, Tomas Alberto Clarke Bethancourt (also known as Tomas Clarke), a former senior vice president and Jose Alejandro Hurtado, a broker, each have already pleaded guilty to six counts of conspiring to violate the FCPA, the Travel Act and money laundering, and substantive counts of the offenses. They agreed to cooperate with prosecutors and have not yet been sentenced.

This development is yet another example of the DOJ’s continuing focus on pursuing individual wrongdoers for violations of the FCPA. As Acting Assistant Attorney General David O’Neil noted, “Today’s charges show once again that we will aggressively pursue individual executives, all the way up the corporate ladder, when they try to bribe their way ahead of the competition.”

Joseph Sigelman

On May 9, 2014, Joseph Sigelman, former CEO of a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, was indicted for paying bribes to an official at Ecopetrol SA, Colombia’s state-controlled oil company, and defrauding the company by taking kickbacks. Sigelman was charged by a federal grand jury in the District of New Jersey with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money and substantive FCPA and money laundering violations. 

According to the DOJ, Sigelman and others paid a Colombian government official—an employee of Colombia’s national gas company, Ecopetrol SA—with bribes amounting to $333,500 in order to win an oil contract worth $39 million.

Sigelman and his conspirators then took steps to conceal the bribe payments from the company’s board members by depositing the money into Sigelman’s bank account in the Philippines and by creating a “side letter” that falsely justified the payments. The DOJ also alleged that Sigelman ran a separate kickback scheme in connection with an acquisition of another company on behalf of the company. Sigelman and his co-conspirators also attempted to conceal these payments by funneling the money into the same bank account in the Philippines.

Sigelman is the third former officer of the company to face FCPA-related charges. Gregory Weisman, 42, of Moorestown, New Jersey, the former general counsel of the company, pleaded guilty on November 8, 2013, to conspiracy to violate the FCPA and to commit wire fraud. Sigelman’s co-CEO, Knut Hammarskjold, 42, of Greenville, South Carolina, pleaded guilty to the same charge on February 18, 2014.

If this case reaches trial, the charges against Sigelman would be the first FCPA charges brought to criminal trial since 2012. Thus, the trial proceedings could provide valuable insight into the tactics and strategies that authorities have been using to pursue bribery investigations of individual executives in recent years.

Mark Jackson and William Ruehlen

On July 1, 2014, a federal district court in Houston, Texas, vacated, pending enforcement actions against Mark Jackson and William Ruehlen, former executives of Noble Corporation (“Noble”), after the SEC agreed to settle the case. As part of the settlement, Jackson and Ruehlen consented to the entries of final judgments, enjoining them

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from violating or aiding and abetting a violation of the FCPA. But neither Jackson nor Ruehlen were required to pay a penalty or admit the SEC’s allegations.

Jackson, the former CEO of Noble, and Ruehlen, former head of the company’s Nigeria unit, were charged in February 2012 with books-and-records offenses for bribing officials in Nigeria in exchange for illegal import permits for drilling rigs. The SEC initially brought charges against Noble, Jackson and Ruehlen, as well as another company executive—Thomas O’Rourke—who served at different times as the company’s controller and director of internal audit. Noble and O’Rourke agreed to settlements with the SEC and the DOJ in 2010, but Jackson and Ruehlen decided to litigate the case.

Jackson and Ruehlen initially filed a motion to dismiss the case, arguing that the SEC’s interpretation of the FCPA was unconstitutionally vague and that they lacked “corrupt intent,” having made facilitation payments—and not bribes. They also argued that the statute of limitations already had run, because much of the alleged misconduct had occurred more than five years before they were charged. As the case was being litigated, the Supreme Court decided Gabelli v. S.E.C., 133 S. Ct. 1216 (2013), holding that the statute of limitations runs from the occurrence of the fraud and not the discovery of the fraud. This weakened the SEC’s position in the case, as did the district court’s ruling that the SEC bore the burden to negate the FCPA’s facilitation payments exception and to establish “corrupt intent.” The parties continued to litigate the case, with the court denying the SEC’s motion for summary judgment, and the parties ultimately settled mere days before the start of trial.

The case highlights the potential difficulties the SEC faces in litigating cases under its broad interpretation of the FCPA, and it also highlights the potential for a more favorable eventual settlement if a party initially litigates the charges. While O’Rourke was required to pay a penalty and agree to an injunction on all five charges brought by the SEC against him, Jackson and Noble paid no penalties and were each subject to an injunction under only one charge.

William Pomponi

On July 17, 2014, William Pomponi, a former vice present of regional sales at Alstom Power Inc., a French power company, pleaded guilty to conspiracy to violate the FCPA, in connection with Alstom’s operations at an Indonesian power plant. The DOJ claimed in its indictment that Pomponi, as well as other individuals associated with Alstom, hired two consultants to facilitate bribes over a seven-year period. The

bribes were allegedly paid to several Indonesian officials, including a member of the Indonesia Parliament, in order to secure a $118 million contract for the power plant. The government initially brought FCPA and money laundering charges against Pomponi, as well as conspiracy charges tied to the FCPA and money laundering allegations. Pomponi is the fourth defendant to plead guilty in the matter. Two other executives have pleaded guilty, as has Alstom’s partner on the Indonesian power plant project. And as noted previously, Alstom S.A. recently settled with the DOJ, agreeing to pay $772 million in the largest ever criminal penalty in an FCPA case.

Bernd Kowalewski

On July 24, 2014, Bernd Kowalewski, the former president and CEO of BizJet, pleaded guilty to conspiracy to violate the FCPA, as well as one substantive violation of the FCPA, for his role in bribing government officials in Mexico and Panama in order to secure contracts for aircraft maintenance, repair and overhaul. The DOJ alleged that Kowalewski and his co-conspirators paid bribes directly to foreign officials and also passed bribes through shell companies owned by one of the co-conspirators. Court filings detailed the conspiracy, in which the defendants discussed the need to pay “commissions” or “incentives” to pilots, maintenance directors and other foreign officials. BizJet is based in Tulsa, Oklahoma.

This case highlights the potential benefit of cooperating with the government’s investigation. Several other defendants in the case, including BizJet and two of the charged co-conspirators, received much more favorable outcomes than Kowalewski, ostensibly due to their cooperation with DOJ authorities. In 2012, BizJet entered into a three-year deferred prosecution agreement with the DOJ to resolve FCPA offenses in Latin America, and the other co-conspirators received significant reductions to their sentences. Also, BizJet’s indirect parent company, Lufthansa Technik AG, entered into an agreement with the DOJ in which the DOJ agreed not to prosecute if the company satisfied its obligations under the agreement for three years. Kowalewski was eventually arrested in Amsterdam and brought to the United States to face charges, while the final co-conspirator, Jaid Jensen, still remains at large.

Frederic Cilins

On July 26, 2014, Frederic Cilins, a French citizen and former employee at the mining company, BSG Resources, was sentenced to two years in prison for obstructing an ongoing federal grand jury investigation into possible FCPA violations.

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The investigation had centered on whether BSG had paid bribes to win mining concessions in the Republic of Guinea. Cilins pleaded guilty to the charges in March. In recorded phone calls and meetings, Cilins was heard agreeing to bribe the widow of former Guinea President Lausana Conte, in exchange for giving him documents to be destroyed. According to the DOJ, Cilins knew that the documents had been requested by the FBI and needed to be produced to a federal grand jury.

OTHER DEVELOPMENTS

UK Serious Fraud Office Legislation

On February 24, 2014, legislation became effective permitting the UK Serious Fraud Office (“SFO”) to enter into deferred prosecution agreements (“DPAs”) regarding violations of the UK Bribery Act, among other offenses.

The SFO’s “DPA Code of Practice” suggests that the agency is looking for organizations to be genuinely proactive in dealing with offending parties, including the timely reporting of wrongdoing unknown to the SFO and early engagement regarding timetable, work-plans and assistance with the prosecution of individuals.  Leniency will be shown to organizations with proactive compliance, those which take unprompted remedial actions, and those that have completely changed their management. If done properly, a self-report and a DPA can help limit damage to an organization.  Conversely, the DPA Code warns that a failure to act appropriately during a self-report potentially will lead to a prosecution of the organization.

Ultimately, even with this new legislation, the SFO has indicated that prosecutions, as opposed to DPAs, will remain its “preferred option,” and that the primary factor used to determine whether a DPA is appropriate is whether the company has provided “unequivocal cooperation.”

In a related development, the SFO secured its first convictions under the Bribery Act. On December 5, 2014, two individual defendants were convicted for their role in a £23 million biofuel scam, and on December 22, 2014, a jury found Smith & Ozman, a printing company, guilty of making £500,000 in corrupt payments to secure contracts in Africa.

DOJ issues first FCPA Opinion Procedure

On March 17, 2014, the DOJ issued the first FCPA Opinion Procedure Release of the year. Pursuant to 15 U.S. Code §§ 78dd-1(e) and 78dd-2(f ), the DOJ is required to provide timely responses to specific inquiries made by a company seeking an opinion as to whether specified prospective conduct conforms with the DOJ’s present enforcement of

the FCPA. The purpose of these Releases is to provide useful insight and guidance for companies and individuals who fall within the confines of the FCPA and are unsure of whether the contemplated conduct violates the FCPA.  

This particular Release—FCPA Opinion Procedure Release 14-01— concerned the appropriate anti-corruption controls and protections a company ought to implement in a financial transaction with a business partner who is also a government official. The FCPA does not prohibit issuers from entering into business relationships with foreign officials; however, such relationships present the risk of the foreign official using his position to influence the obtaining of business for the issuer. 

The Requestor in this case—a U.S. financial services company and investment bank—sought an opinion concerning the prospective purchase of the remaining minority interest from a foreign shareholder who holds a senior government position in a foreign country. The Requestor brought this inquiry after it purchased a majority interest in a foreign company in 2007 and one of the foreign shareholders, who is now the company’s CEO, assumed the role of a high-level official at the foreign country’s central monetary and banking agency in 2011. In sum, the CEO of the foreign company was a “foreign official” within the meaning of the FCPA. The Requestor is now seeking to buy out the foreign shareholder for the current, true market value of the shares.

The DOJ ultimately concluded that it would not take enforcement action if the Requestor proceeded to buy out the foreign shareholder/official. The government took a fact-based approach, noting four factors that influenced its decision: 1) The purpose of the buyout— to sever the existing financial relationship—was legitimate; 2) The financial terms were reasonable based on the current market; 3) The Requestor disclosed the identity of the foreign official to other senior employees of the company, noting that he is prohibited from participating in business with the company; and 4) Both parties recused themselves from each other’s business.

Overall, the Release articulates helpful guidelines for companies engaged in business transactions with foreign officials.  Such business transactions must have legitimate purposes and reasonable financial terms to help establish a lack of corrupt intent.  Moreover, the transactions and circumstances must be completely transparent to the appropriate parties and strict recusal measures must be taken by both parties.

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DOJ Speech Reinforces Commitment to Vigorous FCPA Enforcement

On March 20, 2014, in a speech at the Global Anti-corruption Compliance Congress, the acting Assistant Attorney General Mythili Ramam reiterated the DOJ’s commitment to vigorously enforce the FCPA, stating that the DOJ will continue to use a “multi-faceted approach” in fighting global corruption. She asserted that fighting global corruption was no longer a mere “priority,” but a “baseline imperative.”

To demonstrate this point, Ramam highlighted four notable features of the DOJ’s recent anti-corruption efforts. First, she pointed to the “upward trend in the prosecution of individuals.” Second, she asserted that the Department is “no longer dependent on [its] ability to look back at misconduct,” but is “working in real time to find and stop ongoing corrupt activity.” Raman cited the recent prosecution of a French citizen, Fredric Cilins, where the DOJ used an undercover agent and a wiretap during the investigation. Third, Raman noted that the Department is starting to use a “wide range of federal criminal statutes” outside of the FCPA to prosecute those committing foreign corruption, such as “wire fraud, Travel Act violations, money laundering and obstruction of justice.” Lastly, Raman emphasized that the Department is “not only prosecuting bribe givers, we are prosecuting the bribe takers as well.” All in all, these four developments suggest that the Department is not only continuing to improve its anti-corruption enforcement program, but also expanding the scope of those who can be prosecuted for foreign corruption.

The Acting Assistant Attorney General’s speech illustrates that FCPA enforcement actions may well increase in the coming years. Raman made it clear that the DOJ is enhancing its rigorous anti-corruption program by developing the “latest investigative techniques,” utilizing a “full range of statutes,” and devoting considerable resources to further combat international corruption. Because the DOJ will be taking an aggressive approach to combat foreign corruption, international companies must continue to improve their FCPA/anti-corruption compliance programs and vigilantly monitor exposure to FCPA risks.

Esquenazi Interprets “Foreign Official” Broadly

On May 16, 2014, the Eleventh Circuit affirmed the convictions of Joel Esquenazi and Carlos Rodriguez for bribing officials of Telecommunications D’Haiti, S.A.M. (“Haiti Telco”). The central question in the case was whether Haiti Telco was an “instrumentality” of the Haitian government within the meaning of the FCPA. In making its decision, the U.S. Court of Appeals for the Eleventh Circuit adopted the

DOJ’s broad interpretation of the term “foreign official” under the FCPA and defined the term “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The court further elaborated that “what constitutes control and what constitutes a function the government treats as its own are fact-bound questions.” Thus, the Eleventh Circuit seems to be proposing a totality of circumstances test with no single dispositive factor.

The Eleventh Circuit’s decision in United States v. Esquenazi is the first appellate court interpretation of the meaning of “foreign official,” and a significant victory for the DOJ. The interpretation of what is an “instrumentality” is the bedrock of many FCPA enforcement actions, and the Eleventh Circuit’s definition is broad enough to encompass a wide spectrum of entities with varying degrees of foreign government ownership and/or control. Unfortunately for business stakeholders, the current trend in the courts, as evidenced by the Esquenazi decision, is to approach the question of whether a state-owned enterprise is an instrumentality of the government ultimately as a question of fact.

DOJ FCPA Opinion Release

On November 7, 2014, the DOJ issued its second FCPA opinion release of the year. The release focused on the intersection of FCPA, merger and acquisition activity, and successor liability. The DOJ reiterated that successor liability under the FCPA does not “create liability where none existed before.” The Requestor Company was a U.S.-based issuer in the consumer products industry and contemplated an acquisition of a foreign Target Company that had engaged in foreign bribery and deficient recordkeeping. The Target Company did not have a compliance program, and its directors and employees apparently knew nothing about laws against bribing government officials. The DOJ told the Requestor Company that, even if the Target Company had committed acts that could have violated the FCPA, the DOJ did not intend to initiate an FCPA enforcement action because the improper payments did not occur in the U.S. or involve U.S. individuals or issuers, and “[t]he Department would thus lack jurisdiction under the FCPA to prosecute Requestor (or for that matter, Seller or the Target Company) for improper payments made by Seller or the Target Company prior to the acquisition.” However, the DOJ expressed no view as to the adequacy or reasonableness of the proposed merger, as the “circumstances of each corporate merger or acquisition are unique and require specifically tailored due diligence and integration processes.”

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THE FCPA/ANTI-CORRUPTION PRACTICE OF SIDLEY AUSTIN LLP

Our FCPA/Anti-Corruption practice, which involves over 90 of our lawyers, includes creating and implementing compliance programs for clients, counseling clients on compliance issues that arise from international sales and marketing activities, conducting internal investigations in more than 90 countries and defending clients in the course of SEC and DOJ proceedings. Our clients in this area include Fortune 100 and 500 companies in the pharmaceutical, healthcare, defense, aerospace, energy, transportation, advertising, telecommunications, insurance, food products and manufacturing industries, leading investment banks and other financial institutions.

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