In the past several years there has been a significant decrease in Foreign Corrupt Practices Act (FCPA) enforcement efforts. Reports suggest that corporate criminal cases have decreased by roughly 50% since 2012. FCPA enforcement has dipped particularly dramatically – from more than 40 actions brought by the DOJ and/or SEC in 2019 to only 15 brought by the DOJ and/or SEC in 2021.
Asked recently about the current enforcement environment, Glenn Leon, the head of the Fraud Section of the Criminal Division of the U.S. Justice Department (DOJ), emphasized that the Fraud Section is prioritizing quality over quantity. Leon highlighted the recent Glencore and Stericycle settlements that together resulted in over $1 billion in penalties. Mr. Leon also teased two FCPA resolutions – settlements with ABB and Honeywell – that have now been announced.
Each is discussed below.
ABB agrees to pay over $462 million to settle FCPA investigations
On December 2, ABB, the Swiss technology company, agreed to pay over $462.5 million to end investigations by the DOJ, the U.S. Securities and Exchange Commission (SEC), the National Director of Public Prosecution in South Africa, and the Attorney General of Switzerland. The investigations targeted bribes allegedly paid to South African officials to obtain engineering contracts related to the construction of a power plant.
According to the DOJ, between 2014 and 2017, ABB engaged subcontractors to bribe a South African official working at Eskom Holdings Limited – a state-owned energy company. In return, the South African official arranged “negotiations” with ABB, leading to the award of contracts at inflated prices. ABB improperly recorded the payments as legitimate business expenses in violation of the FCPA’s books and records provision.
To resolve the charges, ABB entered a three-year deferred prosecution agreement (DPA) with the DOJ, and agreed to pay a total criminal penalty of $315 million. Notably, the DOJ concluded that a compliance monitor was unnecessary given extensive remedial measures ABB implemented. The company also settled with the SEC, agreeing to pay a civil penalty of $75 million and $72.5 in disgorgement and prejudgment interest.
The three-year DPA makes ABB the only company (thus far) to have entered into three separate FCPA settlements.
Honeywell to pay $202.7 million to end civil and criminal investigations
On December 19, Honeywell, a multinational technology and manufacturing company, agreed with the DOJ and SEC to pay over $200 million in criminal penalties, disgorgement, and prejudgment interest to resolve investigations into FCPA violations. According to the government, the investigations related to bribery in Algeria and Brazil, and involved violations of the FCPA’s anti-bribery, books and records, and internal accounting controls provisions.
In Brazil, Honeywell OUP, a wholly-owned Honeywell subsidiary, allegedly made payments through an intermediary to an individual who worked for Petrobras, the state-owned oil company. According to the DOJ, a total of $4 million was paid to the official in exchange for his help in securing a $425 million contract to build an oil refinery. Honeywell agreed to a three-year DPA with the DOJ, and the company agreed to pay a criminal penalty of $79 million, with up to $39.6 million credited for the penalties paid to Brazilian authorities.
SEC prosecutors also alleged that Honeywell committed FCPA violations in Algeria. In an internal administrative order, the SEC asserted that a general manager of a Honeywell wholly-owned subsidiary entered into a “fictitious sales consultancy agreement” to make bribes to an Algerian government official. The Honeywell employee paid a “consultant” $300,000 which, “through a series of intermediary transfers,” was used to reimburse another third party for a $75,000 bribe given to an employee of Sentratech, Algeria’s state-owned oil company. The bribe allegedly helped Honeywell settle a dispute over a liquidated damages amount and the construction schedule pertaining to an Algerian refinery.
While the SEC declined to apply a civil penalty, Honeywell is required to pay a total of $42,445,977 in disgorgement and prejudgment interest. In announcing the resolution, and presumably as an explanation for the decision not to impose a civil penalty, the SEC emphasized Honeywell’s efforts to strengthen its ethics and compliance program, terminate sales directors involved with the bribery, eliminate sales agents generally, improve compliance policies, strengthen due diligence and financial controls over third parties, and provide additional training to employees.
Lessons Learned: Third-Party Risk, Compliance Measures as Mitigation
There are a few specific points to take from these enforcement actions. First, and as is often the case in FCPA and other anti-bribery enforcement matters, third-party representatives can create substantial compliance risk. That risk is apparently too great for Honeywell, which reportedly has begun curtailing its use of agents.
Second, the energy industry and other heavily regulated industries remain particularly ripe for corruption. Working in such industries necessitates regular dealings with government officials, whether employed by a government agency or a state-owned entity. Such officials often have substantial discretion to make important business decisions which in turn creates incentives for bribery to ensure decisions are favorable. Companies acting in extractive industries, aerospace and defense, health, finance, and other such industries need to be especially cautious about bribery.
Third, these matters highlight the continuing efforts by U.S. enforcement officials to partner with regulators in other parts of the world. For example, the ABB matter is reportedly the first investigation in which U.S. prosecutors worked in coordination with their South African counterparts. (As an aside, the settlement comes in the context of South African President Ramaphosa railing against corruption, calling it “a dire threat,” while also being the subject of corruption allegations.) If a more robust relationship between U.S. and South African authorities develops, companies with operations in South Africa may want to focus extra attention on compliance in South Africa, one of Africa’s largest economies.
Finally, the ABB resolution underscores a recent focus on recidivist conduct. Earlier in 2022, Tenaris and Oracle also found themselves on the repeat-offender list when they each resolved FCPA enforcement actions brought by the SEC. Since the inception of the FCPA, approximately 20 companies have resolved more than one FCPA enforcement action. ABB, however, is the first company (to date) to resolve three FCPA enforcement actions. The message is clear: FCPA compliance obligations are ongoing, repeat offenders are under a microscope, and recidivist conduct is not likely to be forgiven.
For more information on the firm’s International Trade Practice, and specifically, assistance on Foreign Corrupt Practices Act (FCPA) issues, contact the authors at email@example.com or firstname.lastname@example.org. The authors would like to thank our law clerk Stephen Finan for his contributions to this article.