I conclude my review of the Amec Foster Wheeler (Foster Wheeler) Foreign Corrupt Practices Act (FCPA) enforcement action. Today, I want to close with the result and some key lessons for the 2021 compliance professional. These facts are laid out in the Department of Justice’s (DOJ) Deferred Prosecution Agreement(DPA) and the Securities and Exchange Commission (SEC) Cease and Desist Order (Order). Also, a very large shout out to the Stanford Law School, Foreign Corrupt Practices Act Clearing House which is by far the best academic resource for all things FCPA related. It is free and if you are interested in FCPA enforcement or compliance in the least you should sign up for the site.
I. FCPA Penalties
It is not clear when or how this FCPA investigation began but given it involved Petrobras, it would not be too surprising if this matter was uncovered through Lava Jato. However, even though the bribery scheme was uncovered it was not through self-disclosure as the DPA noted there was no self-disclosure by any of the companies involved. Nevertheless, after the matter was brought to the attention of the recalcitrant parties, they did see the light and cooperated with the DOJ and SEC. The Order noted, “Amec Foster Wheeler, and subsequently Wood [John Wood Group PLC], cooperated in the Commission’s investigation by identifying and timely producing key documents identified in the course of its own internal investigation, providing the facts developed in its internal investigation, and making current or former employees available to the Commission staff, including those who needed to travel to the United States.” The DOJ DPA stated, “the Company received full credit for its cooperation and Wood’s cooperation with the Fraud Section”. This cooperation resulted in a 25% reduction of the DOJ penalty assessed.
All the parties involved also remediated thoroughly. The Order stated, “Amec Foster Wheeler’s and Wood’s remedial efforts included termination of employees responsible for the misconduct and enhancements to its internal accounting controls. Amec Foster Wheeler, and subsequently Wood, strengthened its ethics and compliance organization; enhanced its code of conduct, policies and procedures regarding gifts and hospitality, and the use of third parties; created positions to address potential risks; and increased training of employees on anti-bribery issues.” The DPA went further noting that Wood also remediated its compliance program for all “Wood Group companies.” Both this cooperation and remediation garnered the companies substantial benefits under the FCPA Corporate Enforcement Policy. This translated to an approximately $6 million reduction in the DOJ assessed penalty. Finally, Wood was not required to retain an independent monitor.
II. Lessons Learned
a. Internal Controls
As numerous commentators have noted, this matter arose originally back in 2011. Perhaps things were different some 10 years ago and companies did not take the FCPA as seriously as it is taken now or perhaps both Foster Wheeler and Wood did not simply concern themselves with obeying the law. However, when you have systemic corruption, at all levels of an organization from a former Board Chair to an active Chief Executive Officer (CEO) to the General Counsel (GC) down to the Country Manager, you clearly have a culture program in an organization. Hopefully in 2021, if a GC is asked to draft an agreement, even an interim agreement which violates a company’s internal controls for the vetting and contracting with third-party agents, that GC would stop the process. But if not, there should trip wires which would alert those at the highest level of a corporation that a key control has been over-ridden or worked around. This of course means the Board of Directors should have visibility into the highest risks an organization faces and in the world of international commerce, a third-party sales agent is that level of risk.
But it is not simply a set of controls in the creation and execution of contracts, it is also robust controls in the area of accounts payable and finances as well. Finance, Accounts Payable and other departments also have a role so that if a suspicious payment or one outside the standard form of documentation appears, it should warrant further review. Even after everything that went down in Brazil, the Foster Wheeler Accounts Payable could have raised questions about the payments up to the Chief Financial Officer (CFO) and eventually the Audit Committee or the Board of Directors.
Moreover, in 2021 these types of internal controls can be fully automated. In others, the controls over-rides or blatant disregard can be prevented through a tech solution. There are multiple vendors in the compliance space which can do so and frankly there is no excuse not to automate this process. As Matt Kelly noted in Radical Compliance, “Now, I appreciate that numerous Foster Wheeler executives were turning a blind eye to the corruption here. That’s precisely why compliance teams need to implement automated third-party oversight, along with rigorous exception request policies — so that when managers do try to override internal controls for nefarious purposes, those decisions stick out like a sore thumb.”
b. Mergers & Acquisitions
There is one final key lesson to be garnered from this enforcement action, and it involves the compliance roles in mergers and acquisitions (M&A). There were at least two acquisitions involved here where the acquiring entity; first Amec acquired Foster Wheeler (forming Amec Foster Wheeler) and then the second, the John Wood Group PLC (acquiring Amec Foster Wheeler) failed to perform either sufficient pre-acquisition due diligence or even post-acquisition audit of the acquired company’s high-risk ventures. Once again, this involved Petrobras which was well-known for corruption issues by 2014. There was no mention of the failures of Amec and Wood in the M&A areas on this matter but clearly something went through unnoticed.
Since at least the 2012 FCPA Resource Guide, the DOJ and SEC have specified the steps for compliance in M&A. It is pre-acquisition due diligence which should form the basis of post-acquisition integration. After acquisition, there should be a full forensic FCPA audit and investigation, most notably in high-risk markets and with high-risk ventures. There must be full compliance training and integration of the acquired entity into the acquirer’s compliance regime.
Things might have turned out very different if these steps were taken. Bada Bing, Bada Bang.
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