Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight some notable settlements that were reached in the US and the Netherlands in February. Enforcement in February mainly focused on the bribery of foreign officials in both the US and the Netherlands. The Dutch Public Prosecution Service, the U.S. Department of Justice and the Securities and Exchange Commission settled with Vimpelcom Ltd. for a record amount of approximately USD 795 million in connection with allegations of bribery of foreign officials. Furthermore, both the DOJ and the SEC settled with PTC Inc. for bribing Chinese officials in order to obtain certain contracts. In addition, there was also a noteworthy settlement that was not based on the U.S. Foreign Corrupt Practices Act. This was the USD 2.5 million settlement that the U.S. Office of Foreign Assets Control entered into with Barclays Plc. for violating the Zimbabwe sanctions regime.
Vimpelcom settles with Dutch prosecutors and US regulators in major FCPA case
Vimpelcom Ltd. and its subsidiaries, Silkway Holding BV and Unitel LLC (Vimpelcom), have settled with the Dutch Public Prosecution Service (OM), the DOJ and the SEC for a total amount of approximately USD 795 million for the alleged bribery of foreign public officials and the forgery of documents. As part of its deferred prosecution agreement with the DOJ, Vimpelcom agreed “to implement rigorous internal controls, retain a compliance monitor for a term of three years and cooperate fully with the ongoing investigation.” Moreover, the DOJ filed two civil suits to recover assets totalling USD 850 million currently located in bank accounts in Switzerland, Belgium, Luxemburg and Ireland. This settlement signals the OM’s new approach of issuing much lengthier and more detailed press releases than before and is therefore important for all companies established in the Netherlands that deal with government officials (see below).
According to the OM, SEC and DOJ, Vimpelcom bribed an Uzbek government official to facilitate its entry into the Uzbek telecommunications market. Vimpelcom wanted to buy Unitel LLC and Buztel, two Uzbek telecommunications providers. Internal Vimpelcom documents indicate that these purchases were only possible with the help of a local partner, Talikant Ltd. However, the ultimate beneficial owner of Talikant was an Uzbek government official who was closely related to a high-ranking Uzbek official. Since this government official could influence who would be able to buy Unitel LLC and Buztel, the board of Vimpelcom allegedly decided to cooperate with Talikant and, therefore, with the government official. Vimpelcom bought the companies and Talikant received a 7% share and a put-option of at least USD 37.5 million if the companies were sold.
After entering the Uzbek telecommunications market, Vimpelcom required multiple licences as assigned by the Uzbek regulator. According to the press releases, Vimpelcom made multiple payments to Talikant to secure the licences from 2006 to 2012. Both during its entry into the Uzbek market and in the following years, Vimpelcom allegedly engaged a law firm to examine whether the payments to Talikant complied with the U.S. Foreign Corrupt Practices Act (FCPA). However, Vimpelcom managers did not supply the law firm with all necessary information, such as information on the involvement of a government official in Talikant.
To cover up the bribes of the foreign government official, Vimpelcom allegedly also falsified its books and records. The DOJ’s press release also notes that Vimpelcom lacked internal controls, allowing the bribes to continue until 2013 when they were discovered during an internal investigation. This case is important for all enterprises that deal with foreign officials, since it indicates that unlawful acts will not only be severely punished by US regulators, but also by Dutch authorities: not only did the OM cooperate with the DOJ and SEC, it also seems to be following their lead in imposing more severe penalties. In this case, the penalties are severe even after they were mitigated in view of Vimpelcom’s cooperation with the official investigation. But the DOJ stated that the sentence could have been reduced further if Vimpelcom had voluntarily self-disclosed the bribery and forgery during its internal investigation in 2013.
The OM also followed the US approach in another respect, that is, how the settlement is presented to the public. In the Netherlands, the OM is required to issue a press release for all settlements above EUR 50,000. In the past, the OM has been criticised for a lack of transparency in these press releases. The OM has often provided a very limited explanation of its reasons for agreeing to a certain settlement amount. Moreover, its press releases have only stated the general facts of the case. This approach seemed to change when the OM published a more elaborate press release in the SBM Offshore case. The current press release on Vimpelcom contains even more information, including a seven-page document stating the facts of the case. When considering whether to settle with the OM or take the case to court, enterprises should take the OM’s tougher stance into account.
PTC settles with the DOJ and SEC for bribing Chinese government officials
PTC Inc. entered into a non-prosecution agreement with the DOJ and a deferred prosecution agreement with the SEC to settle claims that two of its Chinese subsidiaries had violated the FCPA by bribing Chinese government officials with gifts, entertainment and travel to and within the US. The NPA with the DOJ includes a USD 14.54 million penalty, an obligation to cooperate with further investigations, enhancement of PTC’s compliance programme, and an obligation to report on improvements of the compliance programme to the DOJ. The DPA with the SEC includes an amount of USD 11.585 million in disgorgement and USD 1.764 million in prejudgment interest. Additionally, the SEC settled with an individual for FCPA violations for the first time. The SEC stated that the former PTC employee was offered a DPA, since he had cooperated significantly with the SEC’s investigation.
In this case, while entering into contracts with multiple Chinese state-owned enterprises, PTC allegedly provided the employees of these enterprises – that is, government officials – with gifts, entertainment and trips to and within the US. According to the press releases, even though these expenses did not have any business purpose, they were presented as such in PTC’s books and records.
The PTC case is the first FCPA case in which the SEC has settled with an individual for his criminal conduct. Whether this constitutes the beginning of a new SEC policy, in which the FCPA is also regularly enforced against individuals, remains to be seen. The PTC case also indicates (similar to the Vimpelcom case) the importance of early and voluntary self-disclosure. The DOJ stated that PTC did not receive full cooperation credit because it had not immediately disclosed all information found during its internal investigation, but only after the DOJ had brought some of the information it had discovered to PTC’s attention.
Barclays pays USD 2.5 million for violations of Zimbabwe sanctions regime
Barclays Plc (Barclays) settled with the Office of Foreign Asset Control (OFAC) for the amount of USD 2,485,890 for violations of the Zimbabwe sanctions regime between July 2008 and September 2013. OFAC stated that during these years, Barclays allegedly processed 159 transactions for or on behalf of customers of its Zimbabwe office, while 50% or more of these enterprises were directly or indirectly owned by a person on the OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List).
According to the OFAC, while the Zimbabwe office had an electronic customer system in place, this system did not function properly. For instance, the system did not include information on related parties to an account. While Barclays tried to fix this problem several times, it never fully succeeded in this respect.
Allegedly, besides problems with the electronic customer system, the “Know Your Customer procedures” of the Zimbabwe office were hard to follow. As a result, the office did not obtain information regarding ultimate beneficial owners. Only in 2011 did Barclays become aware of this problem. It then tried to enforce its anti-money laundering policies in several offices in Africa, but crucial information was again not included in the electronic customer system.
The press release states that Barclays received a notification in October 2012 that a transaction had been blocked by a US institution because the customer was owned for 50% or more by a person on the SDN list. Subsequently, Barclays started an internal investigation and this finding was confirmed. However, three more transactions were blocked by US institutions in 2012 and 2013.
This case signals that it is not sufficient for enterprises or banks to pay attention to compliance and update their internal programmes; they need to be de facto compliant in order to escape penalties. Moreover, a relevant factor was that the misconduct was not voluntarily self-disclosed. However, the OFAC did not find the case to be “egregious” since Barclays significantly cooperated with its investigation, and “the prohibited entities were not publicly identified or designated and included on the SDN List at the time that Barclays processed transactions for or on their behalf.” Thus, the case shows the importance of compliance when doing business with countries subject to a sanctions regime.
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