FCPA developments: Glencore, Ericsson and increasing regulatory enforcement
Regulators in both the US and the UK have recently undertaken significant enforcement action against companies for alleged violations of foreign anti-corruption legislation. On December 5, the United Kingdom’s Serious Fraud Office (SFO) announced that it had launched a bribery investigation into alleged anti-corruption violations by Glencore. On December 6, 2019, the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) announced they had entered into a deferred prosecution agreement (DPA) with fines totaling over $1 billion with Sweden-based telecommunications company Telefonaktiebolaget LM Ericsson (Ericsson) in settlement of Foreign Corrupt Practices Act (FCPA) charges.
The Glencore investigation
The SFO has launched a bribery investigation into the Anglo-Swiss multinational Glencore, one of the world’s largest mining and commodities firms. While the SFO will not comment or provide specific details on an ongoing investigation, they are said to be investigating “suspicions of bribery in the conduct of business by the Glencore group of companies, its officials, employees, agents, and associated persons”. Previous reports indicate that the SFO intended to open a formal bribery investigation into the company for its work with Israeli businessman Dan Gertler and his alleged ties to the leader of the Democratic Republic of Congo. Glencore has released a statement saying it has “been notified that the Serious Fraud Office (SFO) has opened an investigation into suspicions of bribery in the conduct of business of the Glencore Group”, and that it “will co-operate with the SFO investigation”.
The UK investigation is the latest in a string of compliance actions faced by Glencore in various jurisdictions. The company was subpoenaed in July 2018 by the US Department of Justice (DOJ) over possible violations of the FCPA relating to operations in Nigeria, Venezuela, and the Democratic Republic of Congo. The company is also under investigation in Brazil for alleged bribery involving Petrobras. Glencore has also been subject to regulatory enforcement in Canada. In December 2018, the Ontario Securities Commission (“OSC”) approved a settlement against Glencore as the majority shareholder in Katanga Mining Ltd., for financial misstatements and failure to disclose risks related to the Democratic Republic of Congo. Under the OSC settlement Glencore agreed to pay $30 million in penalties and costs, and institute various control mechanisms. This settlement included a $2.45 million fine and four-year trading ban against the former head of Glencore’s copper business.
The Glencore investigation is the first Commodity Futures Trading Commission (CFTC) investigation involving potential corruption since the agency’s enforcement unit was expanded earlier this year. The CFTC does not have the power to bring criminal prosecutions but can seek civil penalties and trading bans. Foreign corruption cases in the US have historically been led by the DOJ criminally and the SEC civilly.
The SFO’s investigation into Glencore underscores the multijurisdictional exposure that multinational companies face with respect to foreign corruption allegations. Companies doing business overseas may potentially be simultaneously subject to investigation and possibly prosecution under anti-corruption legislation, both extraterritorially and domestically, in multiple jurisdictions. Notably, the U.K. Bribery Act applies to organizations carrying on a business or part of a business in the UK, regardless where they may be incorporated or formed. Similarly, (as discussed in further detail below) the FCPA applies to issuers including companies traded on U.S. exchanges.
The Province of Ontario has recently established its own Serious Frauds Office modelled on the UK SFO. The combined taskforce of both investigators and specialized Crown prosecutors will focus primarily on situations involving serious or complex fraud, bribery and corruption. Like its UK counterpart, the Ontario office has the ability to seek criminal penalties including imprisonment and asset seizure. No guidelines or other materials on how the office will operate have been published to date.
The Ericsson settlement
On December 6, 2019, the U.S. SEC and DOJ announced they had entered into a deferred prosecution agreement (“DPA”) with Ericsson in settlement of outstanding FCPA charges against the company. The settlement includes a $520 million criminal penalty to the DOJ and $540 million to the SEC in disgorgement and interest. In its statement on the settlement the DOJ stated its intention to “continue to pursue cases such as these in order to preserve a global commerce system free of corruption.”
The settlement is related to alleged historical breaches by Ericsson of the FCPA dating from 2000 and spanning across five countries. The FCPA violations subject to the settlement include allegations of using third party agents to make payments to government officials and “slush funds”, funding travel for government officials, paying consultants for information on government contracts, and bribing officials for state contracts. This is said to include the use of sham contracts for services that were never allegedly performed and paid pursuant to false invoices in Vietnam, Egypt, China, Indonesia, Kuwait, and Djibouti. It is the SEC/DOJ position that, in many instances, Ericsson took active steps to conceal these payments and recorded them improperly in its books and records.
In reaching the settlement, Ericsson entered into a three-year DPA in the southern district of New York. Per the DPA, Ericsson agreed to enhance its internal controls and compliance program. For doing so, and for its ongoing cooperation, Ericsson received a 15% credit. The SEC/DOJ stated the credit was reduced because of Ericsson’s alleged failure to comply with all terms of the DPA. These failures are said to include failing to disclose certain allegations of corruption, failing to produce certain relevant documents, and failing to implement adequate disciplinary measures against certain employees.
The Ericsson settlement reinforces both the multinational breadth of FCPA jurisdiction, and the scale of fines being issued by U.S. enforcement authorities. At over $1 billion USD, the fine is the second largest in the history of FCPA enforcement, with nine of the ten largest fines issued under the FCPA being against non-U.S. companies. As noted above, the FCPA applies to issuers including companies traded on U.S. exchanges. As such, Canadian companies are often subject to its jurisdiction.
The importance of effective compliance
In order to comply both with foreign anti-corruption legislation such as the Bribery Act and FCPA, and with the Corruption of Foreign Officials Act and anti-corruption provisions of the Criminal Code in Canada, companies should have effective compliance programs in place prohibiting corruption in all its forms and establishing appropriate internal controls to avoid or minimize future regulatory enforcement including fines and potential jail terms for individuals involved. In addition to prohibiting corruption, companies must also maintain books and records and set up internal controls designed to ensure bribery does not occur. Such internal controls include (without limitation):
- a control environment that covers the organization’s tone regarding integrity and ethics;
- risk assessments;
- control activities that cover policies and procedures designed to ensure that management directives are carried out (e.g., approvals, authorizations, reconciliations, and segregation of duties);
- information and communication; and
Compliance programs should also include internal whistleblower reporting systems, and companies should actively investigate allegations. Investigations should be undertaken and any decisions with respect to whether to self-report allegations should be made after having sought the advice of external counsel.