Effects of FCPA Enforcement Trends on Latin America
- United States
- 09/04/2008
This year has seen no letup in the increasingly aggressive enforcement of the United States Foreign Corrupt Practices Act (“FCPA”). There were more enforcement actions in the first half of 2008 than in any previous year other than 2007. The trend to larger penalties continued as well. In late 2007 and early 2008, Chevron Corporation and AB Volvo entered into settlements of US$30 million and US$19.6 million, respectively, relating to inadequate accounting controls under the FCPA. Other themes that have emerged include:
- The U.S. Government continued to emphasize the importance of conducting thorough due diligence, whether in the transactional setting, when retaining agents, or after potentially problematic conduct is identified. In fact, the failure to conduct due diligence leaves a company in a position where it cannot rationally conclude that no illegal payment was made, and therefore can subject the company to liability. This liability may arise under the relevant recordkeeping and internal control requirements, such as in the cases of Chevron and Volvo cited above.
- In recent years there has been a noticeable increase in FCPA-related civil actions. This activity includes suits by foreign governments, public-company shareholders and business partners. In addition, new legislation has been proposed providing a limited private right of action for any U.S. issuer, domestic concern or person against a foreign concern that violates the FCPA.
Recent settlements illustrate the breadth of potential FCPA exposure. The settlements range across numerous industries, including oil and oil field services, defense, construction and engineering, agricultural and agro-chemical, pharmaceutical, medical, steel, industrial manufacturing and telecommunications, as well as various geographical areas. The cases set forth below illustrate the situation in Latin America.
Mexico
The U.S. Department of Justice (“DOJ”) entered into a non-prosecution agreement with Paradigm B.V., a Dutch software solutions company, in connection with improper payments to Mexican officials and an agent in securing government contracts, along with similar violations in four other countries. A Paradigm subsidiary spent approximately US$22,000 on trips and entertainment for an official, and paid undisclosed amounts to an agent through five different entities without conducting due diligence on the agent or the entities. Paradigm agreed to pay a US$1 million fine, implement new enhanced internal controls, and retain outside counsel for 18 months to review its compliance with the non-prosecution agreement.
The DOJ emphasized that it agreed not to prosecute Paradigm because the company “had conducted an investigation through outside counsel, voluntarily disclosed its findings to the Justice Department, cooperated fully with the Department and instituted extensive remedial compliance measures” — which the DOJ described as “significant mitigating factors.”
Ecuador and Bolivia
Willbros Group, Inc. settled civil charges with the U.S. Securities and Exchange Commission (“SEC”) and entered into a deferred prosecution agreement with the DOJ for bribing Ecuadorian officials and falsely characterizing such payments as “consulting expenses,” “platform expenses” and “prepaid expenses” in its books and records. The international oil and gas pipeline company’s subsidiaries made US$405,000 in payments to current and former officials in Ecuador for a contract that ultimately generated US$3.4 million in revenue.
Certain subsidiaries also evaded taxes in Bolivia through material misstatements (violating SEC anti-fraud provisions). Willbros Group agreed to pay a US$22 million criminal penalty to the DOJ and US$10.3 million in disgorgement and prejudgment interest to the SEC; the company is also required to engage an independent monitor for three years.
Hughes Hubbard’s FCPA experts have prepared a memorandum updating the current status of FCPA enforcement, which may be accessed here.
