For those who might have wondered if the Sessions Justice Department (DOJ) was going to enforce the Foreign Corrupt Practices Act (FCPA), that question seems to have been answered in the affirmative. In September, the DOJ and Securities and Exchange Commission (SEC) announced the largest FCPA fine ever, that being against Telia Company at $965MM. Now we have five criminal matters involving individuals who all were involved in the Rolls Royce Ltd. (RR) corruption case, in which the corporate matter had been resolved in January before the new administration took power. There were four guilty pleas and one Indictment of a defendant on the lam.
Yesterday, the DOJ announced it had secured guilty pleas from four individuals. According to the DOJ Press Release, they were: James Finley, who had been a Vice President and Global Head of Sales of Rolls-Royce’s Energy Division pled guilty on July 28, to one count of conspiracy to violate the FCPA and one count of violating the FCPA.” Aloysius Johannes Jozef Zuurhout, who was a Director of an international engineering consulting firm which worked for Rolls-Royce’s former customer in Kazakhstan, Andreas Kohler, who had been a Sales Manager of Rolls-Royce’s Energy Division and Keith Barnett, who had been a Regional Director of Rolls-Royce’s Energy Division all “pled guilty to one count of conspiracy to violate the FCPA”. Additionally there was one Indictment brought against brought against Petros Contoguris, who had acted as an intermediary of Rolls-Royce in Kazakhstan, was charged with one count of conspiracy to violate the FCPA, one count of conspiracy to launder money, seven counts of violating the FCPA and 10 counts of money laundering.
All of the individual were involved in a wide-ranging corruption scheme used by RR to pay bribes to receive international contracts, primarily around a gas pipeline in Central Asia which it built for a Joint Venture (JV) owned by Kazakhstan and Chinese state-owned enterprises. According to the BBC, “In exchange for the payments, Rolls-Royce Energy Systems Inc, which is a US subsidiary of the UK engineering giant, won work with Asia Gas Pipeline which is building and connecting a gas pipeline between central Asia and China. Mr Finlay, a former senior executive in energy at Rolls-Royce, pleaded guilty on to one count of conspiracy to violate the Foreign Corrupt Practices Act and one count of violating the act. Mr Barnett, a former regional director in energy at Rolls-Royce, Mr Zuurhout, previously an energy sales employee at the company and Mr Kohler each pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act.”
In addition to answering the question of whether the Sessions DOJ would prosecute FCPA cases, it also demonstrated the continuing international cooperation in investigations and enforcement. Obviously the lion’s share of the fines and penalties against RR are going to the UK government for the spade work done by the UK Serious Fraud Office (SFO). Yet these guilty pleas and indictment demonstrate the cooperation when it comes to individual enforcement as well. The DOJ Press Release noted, “The Criminal Division’s Office of International Affairs provided significant assistance in this matter. The United Kingdom’s Serious Fraud Office provided significant cooperation and assistance in this matter, as did law enforcement colleagues in Brazil, which both coordinated with the Department to reach simultaneous resolutions with Rolls-Royce. The Department also thanks its law enforcement colleagues in Austria, Germany, the Netherlands, Singapore and Turkey.”
For the compliance practitioner there was some interesting information on the bribery scheme as well. According to the Contoguris Indictment it is alleged that, by working with employees of Technical Advisor, an international engineering consulting firm, he and defendant Kohler, “devised a scheme with Rolls-Royce executives and employees, including Zuurhout, Barnett and Finley, where Rolls-Royce would pay kickbacks to the Technical Advisor employees, and bribes to at least one foreign official, and disguise these payments as commissions to Contoguris’s company, Gravitas, in exchange for helping Rolls-Royce win contracts with Asia Gas Pipeline LLP (AGP).”
AGP was created to build and connect a gas pipeline between Central Asia and China. The Technical Advisor purported to provide independent engineering consulting advice and other services to AGP. After AGP awarded RR a contract in November 2009, worth approximately $145MM, RR “made commission payments to Gravitas, and Contoguris then passed a portion of those commission payments onto the Technical Advisor employees knowing that they would share that money with a foreign official consistent with their corrupt agreement.”
Rather amazingly (or perhaps stupidly) there were a number of meetings, phone calls, emails and other forms of communications originating from or to the US. Also there were money transfers through the US banking system. One can only assume the defendants were extremely arrogant in thinking they would not be discovered, caught or arrested. RR kept its collective corporate response short and sweet, only saying, as reported in The Guardian, “A spokesperson for the company said: “Rolls-Royce has committed to full ongoing co-operation with the Department of Justice and cannot comment on action against individuals.””
While it is not clear if there are other indictments or guilty pleas in the works from the US side of the Atlantic, it will certainly be interesting to see if the SFO brings any individual criminal charges. Yet for the US compliance practitioner, this fall is shaping up to be quite an interesting quarter going forward for FCPA cases, first with Telia Company and now these individual actions. Of course, Wal-Mart is still hanging out there as are several other long-standing FCPA investigations.
Additionally the SFO stated in a Press Release that “The SFO’s investigation in respect of the conduct of individuals in Rolls-Royce Civil, Defence, Marine and former Energy Divisions continues. The SFO and DOJ continue to cooperate in their parallel investigations.” This may portend additional individual prosecutions in either the UK or US.
Overlaid on all of these matters is the announced DOJ review of the various Memos, FCPA Pilot Program and other information which has been released over the past few years by the DOJ on its expectations for companies and compliance programs. November is traditionally the time when the DOJ both brings out new information in speeches at conferences and wraps-up where enforcement has gone over the past year. Hopefully it will continue to be an informative end of the FCPA year.
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