Foreign bribery and FCPA violations
U.S. Foreign Corrupt Practices Act (“FCPA”)
Under the Dodd-Frank Act’s SEC Whistleblower Program, whistleblowers may receive a reward for reporting a violation of the U.S. Foreign Corrupt Practices Act (“FCPA”) to the SEC. As detailed in the SEC’s Resource Guide, the FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. This anti-bribery provision broadly applies to:
- U.S. persons;
- U.S. and foreign public companies that are listed on the stock exchanges in the United States or that are required to file periodic reports with the SEC; and
- certain foreign persons and companies that are acting while in U.S. territory.
Courts have interpreted “foreign officials” broadly. For example, employees of State-owned or State-controlled entities are considered foreign officials under the FCPA. This may include a variety of company types, since the only requirement is that the entity is “controlled by the government of a foreign country that performs a function the controlling government treats as its own.” United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014), cert. denied, 135 S. Ct. 293 (2014).
The FCPA also requires issuers to maintain adequate internal controls. These controls must provide reasonable assurance that transactions are executed and that assets are accessed and accounted for in accordance with management’s authorization. By maintaining these controls, companies are able to provide more-accurate books and records. Common violations of the FCPA internal-control provision include:
- falsifying documents to conceal bribery payments;
- fraudulently mischaracterizing bribes as normal business expenses;
- overbilling with an understanding that some of the payment is a bribe; and
- inappropriate hiring practices, such as hiring candidates solely based on referrals by client executives and government officials.
There is no “materiality” consideration under the books-and-records provision of the FCPA—any failure is considered a statutory violation.
SEC Whistleblower Program and FCPA Violations
Under the SEC Whistleblower Program, whistleblowers may be eligible for monetary awards if they voluntarily provide the SEC with original information about violations of federal securities laws, including FCPA violations, that leads to a successful enforcement action resulting in monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.
Since 2011, the SEC Whistleblower Office has issued more than $1 billion in awards to whistleblowers. The largest SEC whistleblower awards are $114 million and $110 million. In 2019, the total penalties for FCPA violations exceeded $2.5 billion. Whistleblowers disclosing FCPA violations can be eligible for significant awards.
SEC Whistleblower Awards for Disclosures of Foreign Bribery and FCPA Violations
If a whistleblower’s information leads to a successful enforcement action in which the SEC collects monetary sanctions totaling more than $1 million, the whistleblower is eligible to receive between 10% and 30% of the monetary sanctions collected as a whistleblower award. In addition, the SEC will pay awards based on amounts in certain related actions, such as a successful enforcement action brought by the U.S Department of Justice (DOJ).
For example, on December 15, 2008, Siemens AG agreed to pay $350 million in disgorgement to settle the SEC’s charges of violating the FCPA, as well as a $450 million fine to the DOJ to settle criminal charges, totaling $800 million in monetary sanctions. If these two actions occurred today and were based on original information voluntarily provided to the SEC by an eligible whistleblower, the SEC would be required to pay an award to that whistleblower of between $80 million (10% award) and $240 million (30% award) for the two actions. See additional examples of FCPA enforcement actions below.
Top Enforcement Actions for FCPA/Foreign Bribery Violations
The table below identifies some of the top SEC and DOJ enforcement actions against companies for FCPA violations:
|Company||Monetary Sanctions||FCPA Violation|
|Odebrecht||$3.5 Billion||Brazil-based global construction company Odebrecht had a complex corruption scheme that paid out hundreds of millions of dollars in bribes to government officials on three continents for more than a decade. Odebrecht’s sophisticated bribery operation included the creation of a secret financial structure within the company called “Division of Structured Operations.” Its sole purpose was accounting for and disbursing bribery payments. A separate, off-book communications system was used to facilitate and record the illegal payments. Funds were passed through several shell companies to further conceal the bribery.|
|Petrobas||$1.78 Billion||Senior Petrobras executives inflated the cost of infrastructure projects by overpaying contractors that in turn, paid billions in kickbacks to Petrobras executives, who then shared the proceeds with Brazilian politicians and political parties. Petrobras fraudulently recorded the bribes as funds spent on improving and procuring assets, resulting in an overstatement of assets totaling approximately $2.5 billion.|
|Ericsson||$1 Billion||According to the DOJ's announcement of the settlement: "...beginning in 2000 and continuing until 2016, [Ericsson] conspired with others to violate the FCPA by engaging in a longstanding scheme to pay bribes, to falsify books and records and to fail to implement reasonable internal accounting controls. Ericsson used third party agents and consultants to make bribe payments to government officials and/or to manage off-the-books slush funds. These agents were often engaged through sham contracts and paid pursuant to false invoices, and the payments to them were improperly accounted for in Ericsson’s books and records."|
|Telia Company AB||$965 Million||Swedish telecommunications company Telia Company AB and its Uzbek subsidiary Coscom LLC, paid $331 million in bribes to a high ranking Uzbek government official so that Telia could enter the Uzbek telecommunications market and Coscom could gain valuable telecom assets in Uzbekistan. The bribes were concealed through multiple payments, including to a shell company owned by the government official.|
|Braskem S.A.||$957 Million||Brazilian-based petrochemical manufacturer Braskem violated the FCPA by concealing bribes paid to government officials in Brazil through intermediaries over an 8 year period. Braskem paid approximately $250 million into Odebrecht’s (see above) secret bribe payment system and then authorized payments to various politicians, political parties, and officials in Brazil to receive preferential treatment, contracts, and favorable legislation related to the state-controlled oil company Petrobas.|
|Siemens AG||$800 Million||German company Siemens made illicit payments to foreign government officials in numerous countries in exchange for favorable business treatment during bidding processes. It also “engaged in systematic efforts to falsify its corporate books and records and knowingly failed to implement and circumvent existing internal controls.” Bribery by Siemens AG included: in Iraq, four Siemens subsidiaries paid Iraqi government officials $1.7 billion to win 42 contracts as part of the UN Oil-For-Food Program; in Bangladesh, over $5 million in payments were made to officials during a mobile telephone project; in Argentina, over $31 million in payments were made to officials during a national ID card project; in Venezuela, over $18 million in payments were made during two mass transit projects.|
|VimpelCom and Unitel, LLC||$795 Million||The world’s sixth largest telecommunications company VimpelCom and its Uzbek subsidiary Unitel LLC violated the FCPA when they engaged in a conspiracy to make over $114 million in bribery payments to a government official in Uzbekistan over a six year period in exchange for their entrance and continued operations in the Uzbek telecommunications market. The payments were laundered through bank accounts around the world and falsely recorded in company records as equity transactions, consulting and repudiation agreements, and reseller transactions. The bribes were made to the same government official that received illegal payments from Telia company (see above).|
|Alstom||$772 Million||French power and transportation company Alstom S.A. violated the FCPA both by “falsifying its books and records and failing to implement adequate internal controls” and “conspiracy to violate the anti-bribery provisions.” Alstom paid bribes to government officials in many countries around the world, including Egypt, Indonesia, Saudi Arabia, Taiwan, and the Bahamas in exchange for contracts in several power, grid, and transportation projects.|
|KBR-Halliburton||$579 Million||Kellogg Brown & Root LLC (KBR) violated the FCPA by bribing senior government officials in Nigeria over a 10 year period to obtain engineering, procurement, and construction (EPC) contracts. Former parent company Halliburton did not prevent or detect the bribery and falsified records to hide the bribery payments. KBR was part of a four company joint-venture partnership in which all four companies participated in illegal payments to government officials in exchange for Nigerian EPC contracts valued at over $6 billion.|
|Teva Pharma||$519 Million||Teva Pharmaceutical Industries Ltd. (Teva) violated the FCPA by bribing government officials in Russia, Ukraine, and Mexico. In Russia, bribes were paid to influence the increase in sales of Teva’s multiple sclerosis drug Copaxone by the Russian Ministry of Health. In the Ukraine, bribes were paid to influence the government’s approval of Teva drug registrations. In Mexico, bribes were paid to doctors employed by the Mexican government to prescribe Copaxone to patients.|
|Och-Ziff Capital Management Group, LLC||$412 Million||Och-Ziff, a New York-based investment and hedge fund manager, violated the FCPA by repeatedly facilitating corrupt transactions that they knew were bribes being paid to government officials in the Democratic Republic of the Congo, Libya, Chad, and Niger to secure investment opportunities. Och-Ziff was charged with two counts of conspiracy to violate the anti-bribery provisions of the FCPA, one count of fasifying records, and one count of inadequate internal controls.|
|BAE||$400 Million||BAE Systems PLC (BAES) violated the FCPA when it “knowingly and willfully failed to create sufficient compliance mechanisms to prevent and detect violations of the anti-bribery provisions of the FCPA” after stating it would create and implement such policies to ensure FCPA compliance to various U.S. government agencies. BAES regularly hired “marketing advisors” to assist in securing sales of defense items and concealed those relationships from the U.S. government. It made payments to these marketing advisors via shell companies that were not subjected to the level of scrutiny that BAES had told the U.S. government, leading to a violation of making false statements about its FCPA compliance program.|
|Total SA||$398 Million||French oil and gas company Total violated the FCPA when it made approximately $60 million in bribe payments over a nine year period to an Iranian government official in exchange for lucrative oil rights in the Sirri A and E and South Pars oil and gas fields. The illegal payments were cited as business development expenses and made to intermediaries hired as consultants, as designated by the Iranian government official.|
|Alcoa||$384 Million||Alcoa’s Australian subsidiary repeatedly paid bribes to government officials in Bahrain via a London-based consultant hired to assist in negotiations for long-term alumina supply agreements with Alba, one of the largest aluminum smelters in the world and controlled by Bahrain’s government. Alcoa’s mining operations in Australia were the source of the alumina supplied to Alba. The consultant generated the funds needed to pay bribes from commissions and price markups. Bribes were paid to Bahraini government officials, members of Alba’s board of directors, and Alba senior management. Alcoa was found to have failed to implement sufficient internal controls to prevent and detect such bribes.|
|ENI S.p.A, Snamprogetti||$365 Million||Snamprogetti and ENI violated the FCPA’s anti-bribery provisions when they engaged in a decade-long bribery scheme with companies KBR, Technip, and JGC of Japan to bribe Nigerian officials in exchange for EPC contracts by Nigeria LNG Ltd. The four company joint venture was called TSKJ and won contracts to build liquefied natural gas (LNG) facilities on Bonny Island worth more than $6 billion. TSKJ hired two agents to pay the bribes to Nigerian government officials through various sources on behalf of their joint-venture.|
|Technip||$338 Million||Paris-based Technip, a global engineering, construction and services company participated in a decade-long bribery scheme to obtain engineering, procurement, and construction (EPC) contracts in Nigeria with their joint venture partners KBR, Snamprogetti, and JGC of Japan. The contracts to build LNG facilities on Bonny Island were valued at more than $6 billion.|
Recent SEC and DOJ Anti-Bribery FCPA Enforcement Actions
The SEC and DOJ, which are the agencies charged with enforcing the FCPA, have aggressively pursued foreign bribery cases. Since the enactment of the FCPA, the agencies have prioritized the Act and have imposed substantial fines on companies for violations. Examples include:
- On January 9, 2014, ALCOA paid $175 million in disgorgement to the SEC and $223 million in criminal fines and forfeiture to the DOJ for bribing government officials in Bahrain.
- On September 29, 2016, Och-Ziff Capital Management Group LLC agreed to pay nearly $200 million in disgorgement to the SEC and a criminal penalty of more than $213 million to the DOJ to settle charges that the hedge fund violated the FCPA by using intermediaries and business partners to pay bribes to government officials in Africa.
- On November 17, 2016, JPMorgan Chase agreed to pay $264 million in sanctions to the SEC, DOJ and Federal Reserve Board of Governors for a client-referral hiring program called the “Sons and Daughters Program.” This program was expressly designed to hire candidates referred by client executives and government officials. By employing these referrals, the bank was able to win business that generated millions in revenues. From 2006 to 2013, JPMorgan did not deny a single referral from the program. This enforcement action represents the third time the SEC has fined a company for hiring officials’ relatives in violation of FCPA. Andrew Ceresney, SEC Enforcement Division Chief, has indicated that the SEC will continue to sweep the referral hiring practices.
- On December 21, 2016, engineering conglomerate Odebrecht and Braskem agreed to pay a total of $3.5 billion in a record FCPA settlement with U.S., Brazilian, and Swiss authorities. Beginning in 2001, the companies used a hidden business unit to pay hundreds of millions of dollars in bribes to corrupt foreign officials in the Petrobras corruption scandal. Investors brought a class action suit against the Brazilian oil giant Petrobras as result of the scandal, which settled for $3 billion.
- On December 22, 2016, Teva Pharmaceutical Industries Ltd. agreed to pay $519 million to the SEC and DOJ to settle U.S. charges that it violated the FCPA by paying bribes in its operations in Ukraine, Mexico, and Russia. The U.S. has extensively enforced the FCPA on pharmaceutical firms over the years, especially in countries with national health systems. In these countries, doctors are considered “public officials” for FCPA purposes, which dramatically increases their exposure to FPCA violations. Also in 2016, pharmaceutical giants GlaxoSmithKline, AstraZeneca, and Novartis all settled cases involving FCPA violations.
- On January 16, 2017, Rolls-Royce agreed to pay $809 million to the DOJ to settle allegations of a long-running scheme to bribe government officials in exchange for government contracts. The settlement proceeds were split between the UK, the United States, and Brazil. The Department of Justice reported that it received nearly $170 million. Read more here.
- On January 18, 2017, medical device company Orthofix International agreed to pay more than $14 million to the SEC to settle charges that it made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales and improperly booked revenue causing the company to materially misstate financial statements from at least 2011 to Q1 2013.
- On July 27, 2017, oil field service company Halliburton agreed to pay $29.2 million to the SEC to settle charges that it violated the books and records and internal accounting controls provisions of the FCPA by failing to conduct competitive bidding and awarding lucrative oilfield services contracts to a specific local company owned by a former Halliburton employee who was a friend and neighbor of the government official who would ultimately approve the award of the contracts. Halliburton outsourced more than $13 million worth of business to the local company.
- On September 21, 2017, telecommunications provider Telia Company AB agreed to pay $965 million to settle charges that it offered and paid at least $330 million in bribes to enter the Uzbek telecommunications market. According to the SEC’s order, Telia paid the bribes through a shell company that was controlled by an Uzbek government official who was in a position to exert significant influence over other Uzbek officials, causing them to take official actions to benefit Telia’s business in Uzbekistan.
- On November 29, 2017, SMB Offshore, a company specializing in manufacture and design of offshore oil drilling equipment, agreed to pay $238 million to resolve charges that the company bribed foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq for government contracts. According to the DOJ, the company paid more than $180 million to middlemen while knowing that the money would go towards bribing officials. The scheme involved some of the highest-level executives within the company and lasted for more than a decade (1996-2012). The company entered into a deferred prosecution agreement.
- On December 22, 2017, Keppel Offshore & Marine Ltd. (KOM) and its U.S. subsidiary agreed to pay approximately $422 million to resolve charges that it violated the FCPA by paying millions to public officials in Brazil to win contracts with the Brazilian state-owned oil company Petrobras. According to the information filed in the Eastern District of New York, the bribery scheme yielded $350 million in profits. KOM used agreements with consulting companies to facilitate the bribe payments to obtain business from Petrobras and conceal the bribes. KOM is paying approximately to U.S. regulators and the remaining amount to enforcement authorities in Singapore and Brazil.
- On April 30, 2018, Panasonic agreed to pay $143 million to resolve charges of FPCA and accounting fraud violations involving its global avionics business. According to the SEC’s order, Panasonic offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help Panasonic in obtaining and retaining $700 million in business from the airline. In addition, the SEC found that Panasonic fraudulently overstated net income by more than $82 million for the fiscal year ending June 30, 2012, by prematurely recognizing revenue on an agreement. Panasonic accomplished the fraud by backdating the agreement and providing misleading information to its external auditor.
- On July 5, 2018, the SEC announced that Credit Suisse Group AG agreed to pay $30 million to the SEC and $47 million to the DOJ to resolve charges that it violated the anti-bribery and internal accounting provisions of the FCPA. According to the SEC’s order, between at least 2007 and 2013, Credit Suisse provided valuable employment to the relatives and friends of certain foreign government officials as a personal benefit to the requesting officials in order to obtain or retain investment banking business or other benefits for the bank. This quid pro quo arrangement resulted in multiple deals and substantial profits for Credit Suisse. Specifically, the SEC found that in a six-year period, Credit Suisse offered to hire more than 100 individuals referred by or connected to foreign government officials, resulting in millions of dollars of business revenue.
- On August 27, 2018, Legg Mason Inc. paid approximately $34 million to resolve an SEC charge that a subsidiary Permal Group Inc. partnered with Société Générale S.A., to solicit business from state-owned financial institutions in Libya by paying bribes through an intermediary. Société Générale paid the Libyan Intermediary approximately $26.25 million for supposed “introductory” services and Lybian financial institutions purchased seven structured notes linked to funds managed by Permal that were worth approximately $950 million. Legg Mason agreed to disgorge approximately $27.6 million of ill-gotten gains and pay $6.9 million in prejudgment interest.
- On September 4, 2018, the SEC announced that Paris-based pharmaceutical company, Sanofi, agreed to pay more than $25 million to resolve charges that its subsidiaries made corrupt payments to win business. According to the SEC’s order, the schemes involved bribing government officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products. The SEC’s press release indicated that the Commission will continue to focus on bribery in connection with pharmaceutical sales as it remains as a significant problem.
- On September 12, 2018, United Technologies Corporation (UTC) agreed to pay $13.9 million to resolve charges that it violated the FCPA by paying Azerbaijani officials to facilitate the sales of elevator equipment for public housing in Baku and as part of a kickback scheme to sell elevators in China. The scheme in Azerbaijan involved the use of sham subcontractors and intermediaries to make improper payments. According to the order, the violation in China entailed UTC, through its joint venture, making unsupported payments to a sales agent, “disregarding the high probability that at least some of the money would be used to make unlawful payments to a Chinese official to obtain confidential information to sell engines to a Chinese state-owned airline.” UTC self-reported the misconduct and timely provided facts developed during its internal investigation.
- On December 6, 2019, Ericsson agreed to pay over $1 billion to resolve FCPA violations arising out of the Company’s scheme to make and improperly record tens of millions of dollars in improper payments around the world for approximately 17 years. That amount includes $540 million that will be paid to the SEC for disgorgement and prejudgment interest. According to a Department of Justice press release, Ericsson used third party agents and consultants to make bribe payments to government officials and/or to manage off-the-books slush funds. These agents were often engaged through sham contracts and paid pursuant to false invoices, and the payments to them were improperly accounted for in Ericsson’s books and records.
- On June 25, 2020, pharmaceutical company Novartis agreed to pay $346 million to settle SEC and DOJ charges that the company violated the FCPA. According to the SEC’s press release announcing the settlement, between 2012 and 2016 “Novartis or its former subsidiary Alcon Inc. engaged in schemes to make improper payments or to provide benefits to public and private healthcare providers in South Korea, Vietnam, and Greece in exchange for prescribing or using Novartis or Alcon products.”
For a detailed list of previous SEC enforcement actions for FCPA violations, click here.
Foreign Bribery and FCPA Violations in Real Estate, Construction and Infrastructure
According to EY’s 2017 Report on Bribery, the “real estate, construction, and associated industries are among the sectors with the highest level of corruption risk.” Indeed, the report reveals that 13% of companies in EY’s 2016 Global Fraud Survey “thought that bribery was ‘common practice’ in the industry.” By 2025, EY predicts that global infrastructure spending will reach $9 trillion, more than doubling the 2012 spending of $4 trillion.
In the report, EY identifies “corruption pressure points” that explains why the risk of corruption is so high in the industry. Two of the pressure points listed are:
- Bribe takers – the ultimate decision-making control is generally assigned to a small group of individuals in the public sector. This provides many opportunities for solicitation by public officials.
- Bribe givers – most projects require additional help (local subcontractors, consultants and agents) who may be willing to pay bribes to secure business or obtain permits.
Finally, the report highlights that two-thirds of the foreign bribery cases in 2014 occurred in only five sectors: extractive (19%), construction (15%), transportation and storage (15%), information and communication (10%), and manufacturing (8%). Due to the rise in enforcement, we expect to see continued focus on these industries.
CFTC Enforcement of FCPA
Some FCPA violations also implicate the Commodity Exchange Act, i.e., bribery can give rise to liability for fraud, manipulation, false reporting, or a number of other types of violations under the CEA and CFTC regulations. According to a CFTC whistleblower alert, foreign corrupt practices may include:
Corrupt practices that alter the prices in commodity markets that drive U.S. derivatives prices; Bribes employed to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives, paid out of funds investors believed were being used to invest; or Corrupt practices used to manipulate benchmarks that serve as the basis for related derivatives contracts, as prices that are the product of corruption might be falsely reported to benchmarks.