When clothing retailer Ralph Lauren Corp. and French oil and gas company Total S.A. recently resolved charges of Foreign Corrupt Practices Act violations, the results couldn't have been any more different.
Ralph Lauren Corp. entered into a non-prosecution agreement with the Securities and Exchange Commission and the U.S. Justice Department and will pay $1.6 million in fines and disgorgement. Meanwhile, Total got whacked with $400 million in penalties—the fourth largest FCPA settlement ever—and locked itself into a three-year deferred prosecution agreement with the Justice Department, complete with an external compliance monitor.
Taken together, the two cases speak volumes about the factors the SEC and Justice Department weigh in resolving FCPA charges, including the elements of a compliance function that the agencies are looking to see, and how the actions of the company once a charge is leveled can influence the end results.
While companies fret over cooperation credit and compliance attributes, however, the severity of the enforcement action is still often tied to the facts of the case. According to a government official close to both investigations, speaking on the condition of anonymity since he was not authorized to comment on the cases, the biggest difference between the Ralph Lauren and Total cases boiled down to the “amount of the bribes paid and the overall value of the benefits received.”
Government agencies accused Ralph Lauren Corp of paying $593,000 in bribes to customs officials in Argentina in exchange for expediting the process of importing products into the country over a four-year period. Total, was accused of $60 million in bribes paid to intermediaries of an Iranian government official over a period of nearly a decade in exchange for securing two major oil and gas contracts in Iran. In addition, Total made more than $150 million in illegal profits through the bribery scheme, according to the charges. “The Total case is different in several respects,” says Michael Volkov, CEO and founder of the Volkov Law Group.
“The size of the bribes and how many years they've been paid out speak to the government's view of the company's conduct,” says Mark Cohen, a partner and co-founder of law firm Cohen & Gresser. “A larger bribe paid out over many years is going to be a more negative factor for a company than a one-time incident.”
Self-Disclosure
The cases together also serve as yet another example of the potential tangible monetary benefits to be gained from voluntary self-disclosure. Unlike Ralph Lauren Corp., which self-disclosed the bribery after an internal review uncovered the misconduct, Total waited for the government to approach them.
According to the DPA, had Total chose to voluntarily disclose the misconduct it might have faced a base fine of $147 million, instead of raising its culpability score by not cooperating. “It is likely that the failure to voluntarily disclose cost Total $75 million,” says the government official.
Still, some FCPA experts say the benefits to voluntary self-disclosure are not as cut-and-dry as they should be. In Ralph Lauren's case, for example, it's difficult to say what the result could have been had they not self-disclosed. “The problem for most companies is that voluntary disclosure doesn't guarantee a pass,” says Lucinda Low, a partner in the law firm of Steptoe & Johnson.
“It's troublesome that we don't have that sort of standard out there,” says Volkov. “What that leads to is different treatment of similarly situated parties.”
Internal Controls
Another big difference between Ralph Lauren and Total's cases was their level of internal controls. “Ralph Lauren Corp. discovered this problem after it put in place an enhanced compliance program and began training its employees,” Kara Brockmeyer, the SEC's FCPA unit chief, said in a statement. “That level of self-policing along with its self-reporting and cooperation led to this resolution.”
Total, on the other hand, either had no compliance controls in place, “or they were basically obliterated or circumvented,” says Volkov. “Let's be honest, they could give a [expletive] about their internal controls.”
“In most of these [FCPA] cases, you're going to get information requests and usually multiple information requests from the agencies. At minimum, cooperation means responding adequately to those information requests.”
—John Davis,
Member Coordinator of the FCPA,
Miller & Chevalier
Internal control failures is likely a large contributing factor to why the consent agreement included the costly undertaking for Total of appointing an independent compliance monitor. According to the DPA, this individual must have “demonstrated expertise” in helping companies comply with the FCPA.
For a period of three years, the compliance monitor will evaluate the effectiveness of Total's internal controls, recordkeeping, and financial reporting policies and procedures as they relate to its books and records, internal accounting controls, and anti-corruption laws.
The monitor also will have the authority to take all reasonable steps necessary to ensure that it is fully informed about Total's compliance program. To this end, Total must provide the monitor with all documents, records, facilities, and employees, as reasonably requested by the monitor.
Neither Ralph Lauren Corp. nor Total responded to requests for comment.
Cooperation Credit
Both cases together also bring to light what potential benefits cooperation can offer.
In entering into the NPA, the SEC credited Ralph Lauren with:
· Providing English language translations of documents to the staff;
· Summarizing witness interviews that the company's investigators conducted overseas. Making overseas witnesses available for staff interviews and bringing witnesses to the United States;
· Terminating employment and business arrangements with all individuals involved in the wrongdoing;
· Strengthening internal controls and procedures for third-party due diligence; and
· Significantly enhancing its anti-corruption policies and practices to remediate weaknesses in its internal controls.
UNLAWFUL PAYMENTS
Below is an excerpt from In the Matter of Total, S.A., that provides examples of the illegal actions taken by the company.
Sirri A and E
Total is an international oil and gas company involved primarily in the
exploration for, development, production, and sale of oil and natural gas from around the world. Beginning in 1995, Total negotiated a development contract with NIOC to allow Total to develop the Sirri A and E oil and gas fields.
NIOC was an agency and instrumentality of the Government of Iran and its
officers and employees were “foreign officials,” within the meaning of the FCPA, Title
15, United States Code, Section 78dd-1(f)(1)(A).
Prior to Total's executing the development contract with NIOC, in late May 1995 Total held a meeting with the Iranian Official and agreed to enter into a purported consulting agreement with an intermediary designated by the Iranian Official. The payments that would be made to an intermediary pursuant to the consulting agreement were for the purpose of inducing the Iranian Official to use his influence to assist in obtaining NIOC's signature to the Sirri A and E development agreement.
During the course of its unlawful scheme, Total, acting through a senior executive and others, corruptly made certain payments and took certain acts for the purpose of inducing the Iranian Official to use his influence to assist Total, including the following payments and acts concerning Sirri A and E.
On July 13, 1995, Total signed a contract with NIOC granting Total development rights over the Sirri A and E oil fields (the “Sirri A/E Development Agreement”).
On July 10, 1995, three days prior to the announcement of the Sirri A/E Development Agreement, Total International Ltd. (“Total International”), a Bermuda-registered subsidiary of Total, entered into a Consulting and Services Agreement (the “Umbrella Agreement”) with Intermediary One, acting at the direction of the Iranian Official. Total made all payments under the Umbrella Agreement at the direction of the Iranian Official
to his designated intermediary. The Umbrella Agreement had no specific terms for payment, or other consideration, but instead provided that the parties would, from time to time, enter into Consulting Services Requests, which the parties understood would detail the amounts of the unlawful payments that Total would pay at the direction of the Iranian Official. Moreover, and despite the Umbrella Agreement's reference to the provision of “economic and marketing research and support services” to Total by Intermediary One, Total International entered into the Umbrella Agreement with Intermediary One as a mechanism for Total to pay at the direction of the Iranian Official millions of dollars in unlawful payments to Intermediary One, for the purpose of inducing the Iranian Official to use his influence in connection with NIOC's entering
into the Sirri A/E Development Agreement.
Also on July 10, 1995, the parties entered into the first Consulting Services Request (the “First Consulting Services Request”), providing for a series of payments from Total to Intermediary One. That same day, Total International made a $500,000 payment from an account held at a United States bank in New York City to an account at a Swiss bank. Over the next two-and-a-half years, pursuant to the First Consulting Services Request, Total made an additional five payments to intermediaries totaling approximately $16 million from accounts in Switzerland to an account held at a Swiss bank, at the direction of the Iranian Official.
Source: SEC.
In comparison, in Total's DPA, the Justice Department credited the company only with producing “relevant documents from abroad and disclosure of the results of its internal investigation into the misconduct.”
“In most of these [FCPA] cases, you're going to get information requests and usually multiple information requests from the agencies,” says John Davis, a member coordinator of the FCPA and international anti-corruption practice Group of law firm Miller & Chevalier. “At minimum, cooperation means responding adequately to those information requests.”
That does not mean companies are not allowed to engage in discussions with regulators to refine what information you think they should be looking at. “The company will need to provide all the information to the agencies that they deem relevant to the matter at hand,” says Davis.
Providing information from other jurisdictions that the agencies might not be able to get themselves is another way to earn cooperation credit. Also, turning over results from any internal investigation or internal audit that may have been conducted will also go a long way toward earning a less-severe penalty, says Davis.
“Are you helping the agency maximize its effective resources in terms of looking at these issues?” says Davis. “That would be appreciated by the agencies and seen as a key area of cooperation.”
What Now?
While Ralph Lauren can largely move on, Total's troubles are far from over. In addition to U.S. enforcement authorities, French enforcement authorities are also investigating Total, Total's chairman and chief executive officer, and two additional individuals to consider if they have violated French law, including France's foreign bribery law.
The Justice Department's enforcement actions against Total and the investigation by French officials mark the “first coordinated action by French and U.S. law enforcement in a major foreign bribery case,” Acting Assistant Attorney General Mythili Raman said in a statement.
“Our two countries are working more closely today than ever before to combat corporate corruption, and Total, which bought business through bribes, now faces the criminal consequences across two continents,” Raman added.
A robust anti-corruption compliance effort is still the best way to defend against the kind of outcome that Total is now suffering through. Not only will it help companies earn leniency on FCPA enforcement, such programs can help companies uncover bribery and corruption earlier, before the situation grows out of control. “Anti-corruption enforcement is here to stay,” says Cohen. “If you're a major company doing business in many different parts of the world, you need to have a state-of the-art compliance program in place. And you have to review it, monitor it, and update it on a regular basis.”
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