It’s been a few months since we’ve discussed the massive corruption case coming out of Brazil related to Petrobras, a state-owned enterprise that is facing allegations its employees both took and paid bribes in the company’s contract dealings. We’ve been following this issue closely because of the potential for individuals with information about bribery of “foreign officials” by publicly traded companies, which violate the FCPA, to report them to the U.S. Securities and Exchange Commission (SEC) under the whistleblower program and receive a monetary reward for the information if more than $1 million in penalties occur as a result.
The SEC has declined to proceed with an enforcement action after an investigation into allegations of bribery by employees of Brookfield Asset Management’s Brazil subsidiary, according to the Wall Street Journal.
A Norwegian contractor of Petrobras has announced the results of an internal investigation into its connections with Brazil’s Petrobras, concluding it is more likely than not that irregular payments were made during contract negotiations with Petrobras. Because Petrobras American Depository Receipts trade on the New York Stock Exchange and it is subject to reporting requirements, Sevan Marine may have violated the Foreign Corrupt Practices Act (FCPA).
Sevan Marine designs and makes cylinder platforms for offshore drilling and floating production. The company’s shares trade on the Oslo stock exchange. As such, it would not normally be subject to the reach of the SEC and the DOJ through the FCPA unless it is operating in the United States. However, because Petrobras is both a state-owned enterprise and itself covered under the FCPA, authorities may choose to bring an enforcement action against the company under a conspiracy theory or another option.
Sevan Marine is not the first company to be implicated in the Petrobras scandal. Transocean, a fleet of mobile offshore drilling units that trades on the New York Stock Exchange under the symbol RIG, is among the companies that may have violated the FCPA through payments to executives of Petrobras to obtain contracts. A Petrobras executive in Brazil testified that he received payments from an agent of the company for a rig-operation contract.
Corruption in Brazil has been a major story over the past year, since the billion dollar Petrobras scandal broke in the media. Other companies are now investigating the possibility of corruption internally if they won contracts in connection with either the FIFA World Cup or the 2016 Summer Olympics. Brazil, last I checked, was second in the geographic rankings for the country that served as the source of the most FCPA investigations. China is #1, by a large amount.
Questions about this or other FCPA issues? We have put together an informational guide for FCPA whistleblowers that may answer your question. If you have need additional information, contact one of our FCPA whistleblower attorneys. We can also assist you in reporting your evidence of bribery by a publicly traded company or other covered entity to the Securities and Exchange Commission. Please contact an attorney via our contact form or call 1-800-590-4116.
U.S. enforcement of the Foreign Corrupt Practices Act puts our nation among the top four enforcers of international standards against cross-border corruption, according to a report by Transparency International released at the end of August.
The report divides the 41 OECD anti-bribery convention countries into those with active, moderate, limited or no enforcement. The United States, German, United Kingdom and Switzerland were the four countries with active enforcement. Four countries improved one category from their 2014 progress report.
Still, there are problems. More than half (22 of 41) of the countries failed to investigate or prosecute any foreign bribery case during the last four years. The OECD Anti-Bribery Convention established legally binding standards to criminalize bribery of foreign public officials in international business transactions. 32 OECD members and 7 non-member countries adopted the Convention, which went into force on February 15, 1999.
Brazil’s enforcement is still classified as little or no enforcement however it was able to more than double its scoring under the point system and it was only one point below classification among the countries with limited enforcement. Brazil has been pursuing enforcement actions against corruption inside its country related to Petrobras and the government’s tax collection.
We expect that the United States will make additional gains in FCPA enforcement as it continues to work through leads in this area provided pursuant to the SEC whistleblower program.
The SEC has reportedly launched a civil investigation into several companies with links to FIFA or other soccer bodies under the Foreign Corrupt Practices Act, according to Reuters last week.
When the FIFA bribery scandal first broke and the DOJ filed charges, we discussed whether a whistleblower in the case could get a reward for providing information. One of the issues that we discussed was that the DOJ did not have a reward program for FCPA violations. As such, we speculated that there would have to be a tie-in to the SEC whistleblower program. If enforcement actions happening because of this investigation result in fines of $1 million, a reward is a definite possibility.
Although there has been no explicit mention of which companies are under investigation, one of the companies that had been identified by the media previously was Nike, which had a contract with a Brazilian soccer organization. It is not yet known whether Nike is part of the current investigation.
In other news, Louis Berger agreed last week to pay $17.1 million to settle bribery charges brought by the Department of Justice. The charges stemmed from $3.9 million in bribe payments made to foreign officials in countries which included India, Indonesia, Vietnam and Kuwait. The bribes paid by the New Jersey construction management company and its employees happened from 1998 until 2010.
The FCPA is jointly enforced by the SEC and DOJ. The Justice Department has the power to enforce it against domestic companies and U.S. citizens while the SEC enforces against the companies that it regulates (“issuers” under the law).
If you would like to speak to a whistleblower attorney concerning suspected violations of the law, a lawyer can be reached by our contact form or calling 1-800-590-4116.
Eletrobras, the tenth largest power utility company in the world and the largest electricity provider in Brazil, has hired a law firm to investigate potential violations of the Foreign Corrupt Practice Act. For those that have been paying attention to the bribery scandals involving the country generally and Petrobras specifically, this should not be a big surprise.
Media attention may have shifted away from Brazil momentarily because of the breaking news over the FIFA corruption scandal. But the pendulum should swing back to the Latin American country soon. It seems that corruption is everywhere there.
Eletrobras delayed its annual report in April because of allegations that the chief executive of Eletronuclear, its subsidiary, took bribes. The investigation by law firm Hogan Lovells is focused on contracts with construction companies implicated in the Brazilian Government’s investigation and other large contracts entered into by the company.
The FCPA Blog is predicting that Petrobras and Eletrobras could yield a substantial number of enforcement actions by the SEC or the DOJ. Since they are publicly traded in the United States, they are subject to the FCPA, the U.S. anti-bribery law. And as state-owned enterprises, any individual or company that bribed them in order to obtain or retain a contract or other business would also violate the FCPA. So the potential is there for these two disclosures to kickstart enforcement actions against many other companies, if the corruption was widespread.
Are you considering blowing the whistle on bribery by a publicly traded company? Review our FCPA whistleblower guide and then contact one of our SEC whistleblower attorneys to have your questions answered. An attorney can be reached by our contact form or by phone at 1-800-590-4116.
The most FCPA investigations are happening with regard to conduct in China. Brazil is dominating headlines with its corruption. But the third annual Global Anticorruption Survey by AlixPartners identified Russia and Africa as the top places posing significant corruption risk.
75% of respondents said Russia posed a significant risk of corruption, with Africa coming in second place with 59% identifying a significant corruption risk there. China (53%), Mexico, (42%) Brazil (41%) and India (32%) were all identified as countries where more than 80 percent of respondents thought there was some risk or a significant risk of corruption.
The survey also asked respondents if there were places in the world where it was impossible to do business without encountering corruption. Of those who said yes, the leading country identified was Russia, cited by 62%.
The overview of the survey starts out by noting a sharp rise in enforcement actions under the Foreign Corrupt Practices Act (FCPA), two of the largest settlements ever recorded in 2014, and the collection of more than twice the amount received in 2013.
The survey asked about internal whistleblower programs at the corporations of respondents. Only 68% of respondents could confirm that their company had a whistleblower hotline and only 55% of that segment could confirm that it was open to suppliers and customers. Third party intermediaries are one of the places where the risk of an FCPA violation is the highest.
For the complete summary, click here to reach the AlixPartners website.
Have questions about blowing the whistle on FCPA violations? Review our FCPA Whistleblower Guide and then contact our SEC whistleblower attorneys with your questions by filling out our contact form or calling 1-800-590-4116.
Braskem has disclosed a potential violation of the FCPA in Brazil to the SEC as two former executives have been accused of bribing Petrobras for raw material supply agreements.
In March, Braskem disclosed allegations made during legal proceedings against third parties that it was involved in improper payments. It started an internal investigation of the matter and has now disclosed that investigation to the SEC.
FCPA Blog said it is the first fallout from Operation Car Wash to be disclosed in an SEC filing. Operation Car Wash is a probe into bribery and corruption occurring in Brazil in connection with the energy company Petrobras. Petrobras employees are accused of taking bribes from the companies it contracts with and paying bribes to government officials in Brazil.
The Foreign Corrupt Practices Act prohibits bribery of foreign officials to obtain or retain business by U.S. companies and U.S. issuers. It also requires accurate books and records as well as sufficient internal accounting controls. Petrobras is a state-owned enterprise and its employees would be considered foreign officials under the law. Both Petrobras and Braskem are listed on the New York Stock Exchange.
Although we are based out of Philadelphia, we are closely following this topic because SEC whistleblowers can earn a reward under the whistleblower program created following the passage of Dodd-Frank. Our whistleblower attorneys represent individuals reporting bribery by companies like this one and we expect that we will see more whistleblowers report companies bribing Petrobras or other foreign officials in Brazil given the level of corruption that has been reported on in the country by the media.
Brazil may be the next hotbed of FCPA activity for the SEC and, based on early reports, there wasn’t an uptick in the number of international whistleblowers tips coming from the country concerning suspected violations. If the goal of the SEC whistleblower program is to alert regulators to areas of concern before they become public knowledge, then this disconnect should be concerning.
The Foreign Corrupt Practices Act bars U.S. companies and U.S. issuers from making payments to foreign officials to obtain or retain business. It also prohibits the lack of internal accounting controls that allows employees, subsidiaries and intermediaries to make prohibited payments. Five years ago, the Dodd-Frank Act authorized rewards to whistleblowers who provide information about FCPA and other securities law violations to the U.S. Securities and Exchange Commission.
The FCPA Blog keeps track of the countries where companies have disclosed internal investigations into potential FCPA violations. On the January 2015 list, Brazil was #2 overall. It received mentions in the disclosures by ten companies. Only China had it beat (and substantially so) with 40 mentions by businesses.
The news coming out of Brazil suggests that this number has the potential to explode upward. The Brazil government is now looking into allegations concerning two multi-billion dollar corruption scandals. State owned oil giant Petrobras has been in the news for a couple months now. But only last week, authorities there announced a tax fraud scheme involving the tax appeals board at the Finance Ministry. The government is investigating seventy companies across a number of different injuries for bribing tax officials.
Brazil is also spending substantially to get ready for the Olympics, and corruption has been suspected in some of these contracts as well. Bilfinger, a German engineering firm covered by a deferred prosecution agreement in 2013 with the Justice Department for FCPA violations in Nigeria, said that the company discovered possible compliance violations related to its provision of monitor walls for security centers.
It seems only a matter of time before US companies come forward based on their activities in Brazil. Although the corruption scandal has predominately involved Brazilian companies, other international companies with operations in Brazil have disclosed problems and investigations. InBev disclosed it was under investigation by Brazilian authorities for hiring a former government official. The SEC also extended the deferred prosecution agreement for orthopedic device manufacturer Biomet last month in light of the company’s disclosure of potential additional violations related to the company’s operations in Brazil and Mexico.
Our SEC whistleblower attorneys throughly analyze the reports released by the SEC Whistleblower Office every year. We now have three full years of data on the countries of origins under the securities whistleblower law. During Fiscal Years 2012 to 2014, there have been only 13 tips from individuals located in Brazil. This data, because of the fiscal calendar of the U.S. Government, runs from October 1, 2011 through the end of September 2014.
With only 13 tips, Brazil is not even the leading country in South America and substantially behind its BRIC peers. Argentina (22) and Mexico (14) both are head of Brazil. India (120), China (111) and Russia (32) outpace the country by a wide margin.
If the goal of the whistleblower program is to provide early warning to regulators about problem areas, then we would have expected this to be an area of high activity over the past few years. Given the reports of widespread corruption in Brazil, that is not being disclosed should have been reported.
At the end of last year, we posted about the OECD Working Group on Bribery report on whistleblowing in Brazil. The report commented on the lack of investigations opened by Brazil as a result of whistleblowers. It offered a cultural aversion to and suspicion of the government as possible explanations.
There are two additional possible explanations for the lack of tips to the SEC whistleblower program besides the obvious possibility that US and multinational companies simply aren’t engaged in bribery in the country. It may be that individuals aren’t aware of it. The publicity about the program here in the United States doesn’t necessarily reach the general Portuguese-speaking public in Brazil. Additionally, some of those fully informed about the option might choose to decline to participate because of the lack of extraterritorial application of the anti-retaliation provisions offered by the Dodd-Frank Act.
There are many other potential explanations for the difference between the number of tips received by the SEC and the number of news stories about corruption coming out of the country, including the possibility that U.S. and multinational corporations operating in Brazil haven’t actually been involved in the bribery of public officials. The SEC whistleblower program is also still in its infancy. The 5 year anniversary of the Dodd-Frank Act is this year and the securities regulator is still getting the word out.
So it is far too early to draw any firm conclusions in this area. It is simply a preliminary hypothesis based on the news reports that we have seen and the data that has been provided by the U.S. Government. If you have other thoughts, our FCPA whistleblower attorneys would love to hear them.
Transparency International released its annual Corruption Perceptions Index for 2014 today. For 20 years, it has solicited expert opinions to rank public sector corruption among the world’s nations. Started in 1995 with survey replies from international businessmen and financial journalists on their perceptions of corruption in 41 countries, there are now 175 countries ranked on the annual list.
The data for 2014 is not encouraging. More than two-thirds of the 175 countries and territories fell closer to “highly corrupt” (1 on a scale of 1 to 100) than they did “very clean”. No country received a perfect score of 100, which would indicate that the survey respondents believe bribery of public officials does not take place there.
In its statement released in conjunction with the scores, Transparency called for the G20 to take a leadership role to end money laundering and company facilitated corruption. Jose Ugaz, Chair of Transparency International, recommended that countries at the bottom adopt radical anti-corruption measures and countries at the top ensure they don’t export corrupt practices to other countries.
More than 25 years ago, the United States made a strong statement that corruption by American citizens and business operating abroad would not be tolerated when it passed the Foreign Corrupt Practices Act. Despite the strong position staked out by the U.S. Government condemning bribery, it appears corruption continues to be a worldwide problem.
Taking a look at the data from 1995 to 2014, there is some reason to be encouraged however. I pulled out the scores for five developing nations (China, Brazil, India, Mexico and Indonesia) which initially scored in the bottom half of the 1995 perceptions index. The average increase over the past 20 years in these five developing nations was 11.68 points.
The perception of each of the five countries has improved over the past 20 years. Four out of the five have improved by more than 10 points on a 1 to 100 scale (the totals were converted from an initial scale of 1 to 10). Only Mexico made a modest gain of 3.2 points (up just 2 points from its 1996 score). Indonesia, which scored below 20 points in both 1995 and 2000, finished 2014 with a substantially improved score of 34 out of 100.
The gains in these developing nations haven’t been matched by the countries I examined in the first world. Pulling out the scores for the United States, Canada, United Kingdom, Germany and Japan, they have, on average, decreased 2.58 points over the same period. Four out of the five fell on the index, with only Japan managing an increase of 8.8 points over its 1995 score.
The data for the United States is of particular interest given the FCPA. The US currently ranks 17th out of the 175 nations in the poll. After initially scoring between 76 to 78 in 1995, 1996 and 1997, it has been between 71 and 73 for seven of the past nine years.
I attempted to look at the data from 2010 to 2014 to see if there were any trends that would loosely correlate to the Dodd-Frank Act and SEC whistleblower program, but it is probably too early to draw any conclusions there. Perhaps in another twenty years.
As part of our own effort to assist individuals in the fight against corruption,a FCPA whistleblower attorney at our law firm will provide a free, confidential consultation to individuals with evidence of bribery of foreign officials by a corporation.