Record FCPA Settlements Continue, Important Lessons To Be Learned
The trend of record-breaking settlements under the Foreign Corrupt Practices Act (“FCPA”) continued last week when, on November 4, 2010, the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) announced that the agencies had reached settlements totaling more than $236 million with seven oil and gas and oilfield services companies. The settling companies and the combined criminal fines and civil penalties were Panalpina, Inc. ($81.84 million), Pride International, Inc. ($56.12 million), Royal Dutch Shell plc ($48.14 million), Transocean, Inc. ($20.7 million), Tidewater, Inc. ($15.45 million), Noble Corp. ($8.16 million), and GlobalSantaFe Corp. ($5.8 million). Not only was this the largest number of companies to simultaneously settle FCPA investigations, three of the settlements have joined the list of the highest ten FCPA settlements of all time. Companies can take several important lessons from these settlements.
These settlements arose from a three-year FCPA investigation conducted jointly by the DOJ and SEC relating to the use of the Swiss freight forwarding company Panalpina by these and other companies in Nigeria and elsewhere. The government alleged, among other things, that Panalpina was paying bribes on behalf of its oil and oilfield services company customers to customs officials in Nigeria and elsewhere to disregard certain regulatory requirements relating to the importation of drilling rigs, vessels, materials, and goods.
Andrews Kurth’s Corporate Compliance, Investigations and Defense team was actively involved in the investigation through the firm’s representation of the audit committee of another oilfield services company that also used Panalpina in Nigeria. Following an extensive and thorough independent investigation, Andrews Kurth’s client was able to fully resolve all FCPA-related issues with the government earlier this year, with no enforcement action by the SEC, no action by the DOJ, and no fines or penalties of any kind.
What lessons can companies take from these recent settlements:
- The FCPA continues to be one of the highest enforcement priorities of the SEC/DOJ and this is not likely to change any time soon. The SEC recently established an enforcement unit dedicated solely to investigation of the FCPA, and senior DOJ officials continue to publicly espouse that FCPA-related prosecutions are one of the agency’s top priorities.
- It is important for company management and the board of directors to exercise the proper “tone at the top” and to diligently follow up on indications of improper activity by company employees and agents abroad. Not only is this likely to prevent FCPA violations, but in the event a violation is detected, it will help ensure that the company is favorably viewed by the government in any potential investigation and is able to secure the most favorable resolution of such investigation. Indeed, in some instances this culture of corporate compliance could lead to no government enforcement action at all.
- A company must have up-to-date FCPA policies, procedures, training, and strong internal controls. These FCPA compliance measures should be periodically reviewed to ensure that they continue to be effective in the changing international business climate.
- FCPA due diligence should be vigorous and meaningful, especially when the company retains foreign agents and service providers, including large companies like Panalpina.
- When a potential FCPA issue arises, a company must take immediate remedial action, including implementing enhanced controls, disciplining responsible employees, terminating any responsible agents or consultants, and maintaining the integrity of all paper and electronic information that may be relevant to the potential violation.
- A public company should always give due consideration to its disclosure obligations when a potential FCPA violation is identified, including the possible need to make disclosure of any internal investigation to its shareholders. Consideration also should be given to self-reporting to the government when a violation is detected, which is often the best practice to follow.
In conclusion, a company can best position itself now—before the advent of any potential FCPA violation—by learning from the lessons in the Panalpina cases to minimize the possibility and consequences of any FCPA violation that may occur in the future.
Please note, prior results do not guarantee a similar outcome and depend on the facts of each matter.