The UK resolution of the John Wood Group PLC (Wood) Bribery Act offense has been released. Wood found itself in the position of “carrying the can” for the corrupt conduct of Foster Wheeler and the company which acquired it, Amec (Amec Foster Wheeler). One can only marvel at how much worse the facts listed in the UK resolution documents were than in the US Foreign Corrupt Practices Act (FCPA) settlement.
The UK resolution was via a Deferred Prosecution Agreement (DPA). The DPA made for some explosive reading as, not too surprisingly, much of Foster Wheeler’s business model was based on bribery and corruption. It turns out this business model was used by Foster Wheeler across the globe, not simply in Brazil. In the Indictment, as laid out by the Serious Fraud Office (SFO), Foster Wheeler engaged in bribery and corruption in Saudi Arabia, Malaysia, Nigeria and India. This business model based upon bribery and corruption extended back until at least 1996 and was carried forward up to the acquisition of Foster Wheeler by Amec. Given the pervasive nature of bribery and corruption by Foster Wheeler as a business model it makes the failures of Amec and later Wood in their pre-acquisition due diligence even more remarkable.
While the US FCPA resolution focused on the corrupt third-party agents that Foster Wheeler put itself in bed with while doing business in Brazil, the UK resolution focused on the equally corrupt leadership of the company after bribery and corruption was uncovered in Saudi Arabia, Malaysia and Nigeria via an internal investigation headed up by the law firm Baker Boots LLP. The UK DPA clearly demonstrated a pattern and practice of bribery and corruption which went up to the highest levels.
As Justice Edis noted in the UK DPA, “At all times during this period FWEL [Foster Wheeler] had in place policies which ought to have prevented this from happening, but it has transpired that these policies were not followed.” He then quoted the SFO for the following, “The SFO’s investigation identified multiple occasions on which the above policies and procedures were circumvented and breached, leading the SFO to conclude that there existed within FWEL a culture of disregard for compliance policies and procedures.” Justice Edis then concluded, “I read this to be a reference to all the “above policies” and to be a description of a state of affairs which had persisted throughout the Indictment period. The policies changed, but they never worked because FWEL [Foster Wheeler] did not want them to.” [emphasis supplied] In other words, a culture of corruption was so burned into Foster Wheeler, it is doubtful much of anything could be done.
- The Board
Even with this entire culture of corruption there are multiple lessons to be learned. We start with the Foster Wheeler Board of Directors. Simply because the Board made the wrong decision and most certainly put its collective head in the sand when allegations of corruption were brought forward in 2007, via a Baker Botts report of corruption allegations in Malaysia; this does not mean there are no lessons to draw upon. Here I can think of at least two.
a. Response
First when allegations of bribery and corruption are raised, a Board has the obligation to do more than say simply “Thank you, Sir. May I have another” to the law firm which uncovered the allegations. The DPA revealed, “On at least four occasions [including Saudi Arabia] between 2007 and 2010 senior employees and directors within the Foster Wheeler Group instructed Baker Botts LLP to conduct internal investigations into suspicions that employees within FWEL [Foster Wheeler] (including senior employees and directors) had engaged in corrupt activities and in some instances had concealed these activities. Despite these investigations uncovering evidence that FWEL senior employees and directors may have violated applicable laws relating to bribery and appropriate record keeping, the Foster Wheeler Group did not report the outcome of these investigations to authorities in any jurisdiction, including the UK, at the time.” Moreover, these reports were historical in their nature in that in 2008 Baker Botts produced a report into events in Malaysia, and in 2009 a report into the Nigerian events. These reports examined matters which had occurred some time before. However, this activity was not successful in stopping corruption as the dates in the Indictment reveal.
b. Self-Reporting
What was the Board’s response beyond doing nothing? They got a legal opinion that they did not have to report the conduct. While this may have been a correct statement of the law, it was a devastatingly bad business decision. It cost a successor company twice removed from the illegal conduct over $177 million in penalties. No doubt the investigation and pre-settlement remediation were far beyond that price. But beyond this insipid legal response, Justice Edis was clear in his condemnation, stating “here is a moral duty on all citizens in this respect which extends at least equally to corporations. This failure by the Board of FWL was deplorable. It is compounded by the fact that their efforts to address corruption even within their own organisation were unsuccessful. Within a short time, the very similar offending in Brazil began.”
For any US listed company this set of facts could well have led to criminal indictments of the Board members individually. At the very least the company would pay millions in shareholder lawsuits based on violations of its Caremark duties. The Board’s decision allowed a multimillion-dollar bribery scheme to continue, corrupting multiple countries and businesses in its wake.
2. Mergers and Acquisitions
It continues to amaze me that through two subsequent acquisitions, the endemic and culture of corruption at Foster Wheeler was never uncovered in pre-acquisition due diligence. One might even appropriately ask if either Amec or Wood did any pre-acquisition due diligence from the compliance perspective. In addition to the Foster Wheeler Board ignoring the results from the multiple Baker Botts investigations of corruption in multiple countries, somehow the two acquiring companies did not discover these reports either. Apparently, no one talked to the Foster Wheeler Chief Compliance Officer (CCO), General Counsel (GC) or Head of Internal Audit about compliance issues.
But M&A has two components, pre- and post-acquisition phases. In the post-acquisition phase, phase a company is tasked with auditing the company it acquired from the compliance perspective. It is not clear from the UK DPA whether this was done or not but what is clear is that no entity involved in this imbroglio self-disclosed anything to the UK SFO, US Department of Justice (DOJ) or any other enforcement agency. All of this is simply inexcusable.
Taken together, the US DPA and the UK DPA detailed a company so corrupt that their business strategy was based on bribery. One of the questions I have after reading all the US and UK documents is why the total penalty was so low? One can only credit the John Wood Group, who not only accepted the responsibility to “carry the can” for the illegal acts of Foster Wheeler but also extensively remediated both Amec Foster Wheeler and its other organizations far beyond which it was legally obligated to do.
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