The month of June closed out one of the most interesting half-years in the Foreign Corrupt Practices Act (FCPA) realm. We have had the Cognizant Technology Solutions Corporation declination, Fresenius Medical Care AG & Co. KGaA Non-Prosecution Agreement (NPA) and Mobile TeleSystems PJSC (MTS) Deferred Prosecution Agreement (DPA) to get us through Q1. In April there was the Department of Justice’s (DOJ) Evaluation of Corporate Compliance Programs, 2019 Guidance. In June we had the big one finally resolved, that of course being Walmart Inc.

The last week of June brought us the TechnipFMC plc (TechnipFMC) enforcement action, which was settled via a DPA and a guilty plea from the company’s US subsidiary, Technip USA Inc. (Technip USA). There were other settlement documents include an Information for Technip USA and an Information for TechnipFMC as well. While the total fine and penalty is $296 million, TechnipFMC will pay about $82 million in the US, with the remainder of its penalties going to authorities in Brazil. $500,000 of this amount will be paid by Technip USA as a criminal penalty under its guilty plea.

The enforcement action had some unusual facts and characteristics which are worth noting. The first item is that Technip is now a FCPA recidivist, having previously been a part of the first Halliburton FCPA enforcement action involving its then subsidiary KBR and its bribery to gain contracts in Nigeria. Technip was one of four joint venture (JV) partners who, along with KBR ran afoul of the FCPA. The second interesting item is that TechnipFMC is a merger of Technip plc and FMC Corp which took place in January 2017. It is one of the first times two companies under FCPA investigation, for unrelated FCPA allegations, agreed to merge prior to resolving the outstanding FCPA issues.

Like so many other companies, Technip ran afoul of the FCPA in conjunction with the obtaining of contracts from the Brazilian national oil company Petróleo Brasileiro S.A. (Petrobras). In the DOJ Press Release it stated, “According to admissions and court documents, beginning in at least 2003 and continuing until at least 2013, Technip conspired with others, including Singapore-based Keppel Offshore & Marine Ltd. (KOM) and their former consultant, to violate the FCPA by making more than $69 million in corrupt payments and “commission payments” to the consultant, companies associated with the consultant and others, who passed along portions of these payments as bribes to Brazilian government officials who were employees at the Brazilian state-owned oil company, Petrobras, in order to secure improper business advantages and obtaining and retaining business with Petrobras for Technip, Technip USA and Joint Venture. In addition, Technip made more than $6 million in corrupt payments to the Workers’ Party in Brazil and Workers’ party officials in furtherance of the bribery scheme.”

As a part of the Technip portion of the resolution, Technip’s former consultant Zwi Skornicki also pleaded guilty in the Eastern District of New York to a one-count criminal information charging him with conspiracy to violate the FCPA for his role in the bribery scheme. Skornicki also served as a consultant to KOM and is awaiting sentencing by the judge overseeing the entire matter, US District Judge Kiyo A. Matsumoto of the Eastern District of New York.

The Press Release also noted, “In related proceedings, the company settled with the Advogado-Geral da União (AGU), the Controladoria-Geral da União (CGU) and the Ministério Público Federal (MPF) in Brazil over bribes paid in Brazil. The United States will credit the amount the company pays to the Brazilian authorities under their respective agreements, with TechnipFMC paying Brazil approximately $214 million in penalties.”

FMC got into FCPA hot water for its work in Iraq after the US invasion. FMC managed to get caught in a never-ending request for illegal gratuities from certain Iraqi oil ministry officials and state-owned oil company employees. FMC paid monies to get on bid lists, get bids submitted, get bids reviewed with favorable ratings and, finally, to get bids actually approved at the highest levels in Iraq so a contract could be awarded to the company.

It demonstrates a prime example of once you go down the road of paying bribes to secure contracts, you are just as likely to be sucked dry. The Press Release further noted, “beginning by at least 2008 and continuing until at least 2013, FMC conspired to violate the FCPA by paying bribes to at least seven government officials in Iraq, including officials at the Ministry of Oil, the South Oil Company and the Missan Oil Company, through a Monaco-based intermediary company in order to win secure improper business advantages and to influence those foreign officials to obtain and retain business for FMC Technologies in Iraq.”

The mention of a “Monaco-based intermediary company” is certainly intriguing. It is believed that the company so mentioned is Unaoil. Rumors have long swirled around Unaoil and the FCPA. Unaoil has consistently denied that it did anything wrong and has fought the UK Serious Fraud Office (SFO) tooth and nail over its attempts to investigate the company. The Press Release did note the cooperation of the Principality of Monaco.

TechnipFMC received a 25% off the US Sentencing Guidelines for its cooperation. It did not receive credit for self-disclosure. However, it did not sustain the requirement for a monitorship as did Walmart.

Part II - the Bribery Schemes

TechnipFMC (when it was only Technip before its merger with FMC) was a part of the great Petrobras bribery scheme. It had a straight-forward bribery scheme where third-party consultants were paid commissions which were then passed on to Petrobras employees as bribes. There were also direct payments to members of the then ruling party of Brazil, the Workers Party. While the facts surrounding the Petrobras bribery scheme were almost routine, the fact that Petrobras itself was in on the bribery scheme bears mentioning for the compliance professional.

There were multiple instances cited in the DPA where bribes were demanded by Petrobras officers and directors or members of the Brazilian Workers Party and they were routinely paid by TechnipFMC. The bribe payments were then charged directly to the contracts which TechnipFMC held with Petrobras. These bribe payments were approximately 1% of the contract value but when you have a contract valued at $1 billion or more, the monies add up quickly. This final point brings up two critical issue for the compliance professional. First, do you have visibility into the contracting process for high value contracts? Second, do you have visibility into the contract chargebacks which are paid by the customer? Finally, for payments routed out of the company, do you have visibility into those through your Accounts Payable (AP) function?

As the bad guys become more sophisticated, this type of bribery scheme where the customer is in on it will proliferate. Most companies do not have a mechanism for performing due diligence on their customers. However, as the Petrobras matter (and several others since that time) demonstrate, having a crooked customer is a known risk for which you must account going forward.

One of the interesting TechnipFMC factors was its creative use of a joint venture (JV) with KOM, the Singapore based company which has previously gone through a FCPA enforcement action. This led to other parts of the scheme where the monies paid by Petrobras for the good and services was then remitted back to corrupt Petrobras officers and directors as well as members of the Brazilian Workers Party. In this instance, the TechnipFMC/KOM JV took a portion of the profits and sent it to Technip USA as a portion of their profits. From there Technip USA paid money to the corrupt third-party consultants through a Swiss bank account. Later this scheme was changed so that KOM made the payments directly to the third-party consultant and then billed the charges back to Technip USA as legitimate JV expenses. Once again there was no compliance oversight on any of these steps.

Further, TechnipFMC used the timed honored approach of hiring children of Petrobras officials as corrupt actions. The DPA does not report if TechnipFMC used a spreadsheet to keep track of the profits directly attributable to the hiring of sons and daughters of government officials. However, the actions were enough to warrant inclusion in the DPA and Information.

FMC (once again before it merged with Technip) engaged in some old-fashioned bribery tactics in Iraq. The company made corruption payments to obtain seven contracts which brought monetary value of only $5.3 million to the company. Yet the facts surrounding FMC demonstrate that even when you have a corrupt payment baked into an agreement as a fixed commission rate, corrupt officials always have the collective hands out asking for more. Every time that FMC would get close, another level of bureaucracy would pop up and ask for additional corrupt payments. Sometimes this was done through the avenue of additional review and sometimes it was done through the mechanism of playing one corrupt bidder off against another. You might have thought at some point FMC would have wised up and said it was not going to play along any more but it apparently did not do so.

The business units knew they were violating internal company procedures when, at one point, an agent wanted his commission rate increased to 12%. The Business Development (BD) representative noted he would need a business justification to push the increase through and came up with a false justification. Once again, the monies were wired from the US to Monaco to the third party which distributed the funds as corrupt payments.

Part III - Lessons Learned

Neither company received any credit for self-reporting. However both companies did receive credit for their thorough internal investigation, meeting the Justice Department’s requests promptly, proactively identifying issues and facts that would likely be of interest to the Fraud Section and the Justice Department, making regular factual presentations to the Fraud Section and the Justice Department, voluntarily making foreign-based employees available for interviews in the United States, producing documents to the Fraud Section and the Justice Department from foreign countries in ways that did not implicate foreign data privacy laws, and collecting, analyzing and organizing voluminous evidence and information for the Fraud Section and the Office.”

Technip engaged in significant remedial measures listed in the DPA, including “separating or taking disciplinary action against former employees, ceasing to retain the intermediaries involved in the conduct, banning the use of all commercial consultants in Brazil, suspending all payments to commercial consultants in Brazil, providing additional compliance training to employees and ce1iain third parties, and making specific enhancements to the Company’s internal controls and compliance program.”

The Company is also reported to have “enhanced and has committed to continuing to enhance its compliance program and internal controls, including by implementing heightened controls and additional procedures and policies relating to third parties, conducting ongoing reviews of its compliance program, increasing the resources the Company dedicates to compliance”. Unfortunately, there were no separate remedial steps listed for FMC which it took before the merger so those cannot be listed or evaluated.”

The TechnipFMC FCPA resolution demonstrates that while Petrobras itself may have settled the fallout will long continue. The Petrobras corruption scandal may eventually be exceeded on the world’s stage yet the corruption was so pervasive it may take some time to do so. This FCPA enforcement also drives home the requirement that compliance practitioners need to have greater and more visibility into significant transactions. Petrobras heralded the first time the customer itself was fully in on the bribery scheme.

There were multiple instances cited in the DPA where bribes were demanded by Petrobras officers and directors or members of the Brazilian Workers Party and they were routinely paid by TechnipFMC. The bribe payments were then charged directly to the contracts which TechnipFMC held with Petrobras. These bribe payments were approximately 1% of the contract value but when you have a contract valued at $1 billion or more, the monies add up quickly. This final point brings up two critical issue for the compliance professional. First, do you have visibility into the contracting process for high value contracts? Second, do you have visibility into the contract chargebacks which are paid by the customer? Finally, for payments routed out of the company, do you have visibility into those through your Accounts Payable (AP) function?

As the bad guys become more sophisticated, this type of bribery scheme where the customer is in on it will proliferate. Most companies do not have a mechanism for performing due diligence on their customers. However, as the Petrobras matter (and several others since that time) demonstrate, having a crooked customer is a known risk for which you must account going forward.

The TechnipFMC rounds out the first half of 2019 in the FCPA enforcement year. It has certainly been an eventful six months. I cannot wait to see what the second half brings.