The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) are continuing to aggressively pursue alleged violations of the Foreign Corrupt Practices Act (FCPA) committed by corporations and individuals.
Within the past few weeks, four corporations — Control Components Inc., Nature’s Sunshine Products, Inc., Avery Dennison Corporation, and Helmerich & Payne Inc. — have announced settlements or guilty pleas based on alleged improper payments made in violation of the FCPA, and a criminal trial against two film producers charged with making payments to Thai officials related to the Bangkok International Film Festival is expected to start next week, marking the third trial this year involving FCPA allegations.
Moreover, the director of the SEC’s Division of Enforcement recently announced formation of a “specialized unit” within the Division dedicated to identifying violations of the FCPA.
Criminal Charges Against Control Components Inc. and its Former Executives
Of these matters, the guilty plea entered by Control Components Inc. (CCI) is the most significant in scope. CCI is a California-based company that manufactures control valves for use in nuclear, oil and gas, and power generation industries. On July 22, 2009, the company pleaded guilty to violating the anti-bribery provisions of the FCPA, 15 U.S.C. § 78dd-2, and the Travel Act, 18 U.S.C. § 1952, which outlaws travel or use of the mail to promote, carry out, or facilitate commercial bribery in violation of state law. According to the Criminal Information, from 1998 through 2007, CCI made corrupt payments to officers and employees of state-owned and privately-owned companies around the world, the majority of which were located in China, Korea, Malaysia, and the United Arab Emirates. In particular, CCI admitted in its guilty plea to making approximately 236 unlawful payments between 2003 and 2007 for the purpose of obtaining or retaining business. These unlawful payments included bribes totaling $4.9 million to officials of state-owned companies in violation the FCPA, and bribes totally $1.95 million made to officials of privately-owned companies in violation of the Travel Act. The inclusion of so-called “commercial bribery” – bribery of one private party by another private party – is a notable development, as it signals that the DOJ will enforce against violations involving both public and private bribery.
CCI’s parent, British company IMI plc, conducted an internal audit of CCI in 2004. The DOJ has alleged that senior executives of CCI attempted to prevent the audit, even going so far as to try to prohibit IMI plc’s auditors from entering CCI’s headquarters, instructing employees to withhold information from the auditors, and providing false information to the auditors. Furthermore, the DOJ alleges in the Criminal Information that CCI’s senior executives continued to make unlawful payments after the 2004 audit and provided false information to lawyers hired by CCI to perform an internal investigation in 2007.
A federal district court judge for the Southern District of California sentenced CCI to pay an $18.2 million criminal fine. The company must also implement a compliance program and retain an independent compliance monitor for three years.
Based on the same allegations of corrupt payments and subsequent cover-up, the DOJ has also pursued criminal charges against eight former CCI executives. Two former high-ranking officers of CCI have already pleaded guilty to conspiring to violate the FCPA. In December 2008, Mario Covino, formerly CCI’s Director of Worldwide Factory Sales, pleaded guilty to causing employees and agents of CCI to make corrupt payments totaling $1 million to officials of state-owned companies, and admitted to deleting and instructing other employees to delete emails that referred to the corrupt payments. Richard Morlock, CCI’s former Finance Director, pleaded guilty in January 2009 to causing the payment of approximately $628,000 in bribes to officers of several foreign state-owned companies. Then, in April 2009, the DOJ indicted six former CCI executives, including the former CEO, for violations of the FCPA and Travel Act. They are scheduled to go to trial in December 2009.
Other Recent FCPA-Related Matters
As noted previously, CCI is not the only company to come under DOJ and SEC scrutiny for potential FCPA violations in recent weeks: three other companies have recently resolved FCPA-related matters.
Nature’s Sunshine, a vitamin and herb manufacturer, announced a settlement with the SEC on July 31, 2009, involving a $600,000 civil penalty for alleged violations of the FCPA by a subsidiary in 2000 and 2001, according to the SEC’s Complaint. Similarly, label-maker Avery Dennison has resolved charges brought by the SEC based upon kickbacks and gifts provided to Chinese government officials, according to the SEC’s cease and desist order. Avery Denninson will pay a civil penalty of $200,000 and disgorgement of $273,213 together with $45,257 in pre-judgment interest.
In addition, Helmerich & Payne, a company that provides oil drilling equipment and personnel on a contract basis, has entered into a deferred prosecution agreement with the DOJ and a settlement with the SEC after voluntarily disclosing improper payments to government officials in Argentina and Venezuela to avoid duties and taxes on imported goods and to import goods that could not be lawfully imported, according to the DOJ’s press release and the SEC’s cease and desist order. Pursuant to the settlements, the company must pay a $1 million fine and disgorge to the SEC $320,604 plus pre-judgment interest of $55,077.22.
Finally, marking 2009 as the most active FCPA trial year yet, trial is expected to commence next week against two California-based film-makers who were indicted on allegations of bribing Thai officials for a film festival contract. This follows convictions this year of investor Frederic Bourke and Congressman William Jefferson, both on FCPA-related charges. In a prior Client Alert, we described how this year’s enforcement activity has focused on individuals.
SEC Forms “Specialized Unit” within Division of Enforcement to Identify Violations of the FCPA
In a speech delivered to the New York City Bar Association on August 5, 2009, Robert Khuzami, director of the SEC’s Division of Enforcement, announced changes to the structure of the Division of Enforcement. One of the initiatives Khuzami will implement is the creation of five “specialized units” within the Enforcement Division. In addition to units for Asset Management, Market Abuse, Structured and New Products, and Municipal Securities and Public Pensions, there will also be a dedicated FCPA Unit. Stating that “more needs to be done,” Khuzami described goals of “being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”
FCPA enforcement remains a top priority for the DOJ and SEC. The recent guilty pleas, settlements, and trials involving both corporations and individuals make this very clear, and the SEC’s formation of a dedicated FCPA enforcement unit suggests that this trend will not abate. Companies operating in jurisdictions or industries presenting FCPA-related risks should confirm that their compliance programs properly manage these risks.