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Energy Company Agrees To Pay Over $150 Million To DOJ, CFTC, And Foreign Regulator To Resolve Coordinated FCPA Allegations
12/08/2020On December 3, 2020, the U.S. Department of Justice (“DOJ”) announced that a Texas-based subsidiary of the Swiss energy trading company (“the Company”) had entered into a deferred prosecution agreement (“DPA”) pursuant to which it agreed to pay $135 million to resolve allegations that it conspired to violate the Foreign Corrupt Practices Act (“FCPA”) and to end a parallel investigation in Brazil. The Company also agreed to pay more than $28 million to the Commodity Futures Trading Commission (“CFTC”) for related matters, in the first coordinated resolution between the DOJ and the CFTC in an FCPA matter.
The enforcement action arose from the Company’s having allegedly paid bribes to public officials in Brazil, Ecuador, and Mexico beginning in 2005 and extending all the way to 2020. In Brazil, the Company admitted that it paid over $8 million in bribes to officials at Brazil’s state-owned and controlled oil company Petróleo Brasileiro S.A. (“Petrobras”) in exchange for confidential pricing and competitor information. And according to the DOJ, between 2015 and 2020, the Company also bribed government officials in Ecuador and Mexico in order to retain business in connection with the purchase and sale of oil products. To carry out the bribes, the Company allegedly entered into sham consulting agreements with the officials, set up shell companies, and created fake invoices to pay the bribes.
The DPA entered into by the Company is for a period of three years, but does not require the imposition of an independent monitor, in an apparent nod to the fact that the Company had engaged in significant remediation of its compliance program and agreed to self-report annually to the DOJ during the term of the DPA. DOJ also agreed to credit $45 million to the Company for amounts paid to the Brazilian authorities, resulting in a $90 million payment to DOJ. This agreement to credit the Company for penalties paid to Brazilian authorities is an example of the implementation of DOJ’s “Policy on Coordination of Corporate Resolution Penalties” (the “Policy”), which was released on May 9, 2018, and formally incorporated into the U.S. Attorneys’ Manual. The Policy generally instructs DOJ attorneys “to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company for the same conduct.” At the time of its release, former Deputy Attorney General Rod J. Rosenstein remarked that the Policy expresses a recognition that companies may be subject to numerous regulatory authorities—both in the U.S. and abroad—which may result in disproportionate penalties. Indeed, the resolution is one of many in recent years that was coordinated with Brazilian authorities and is part of the larger trend of increasing anticorruption enforcement by foreign authorities.
Perhaps more significant, as Acting Assistant Attorney General Brian C. Rabbitt noted, this matter represents the DOJ’s first coordinated FCPA-related resolution with the CFTC. In March 2019, the CFTC issued an enforcement advisory announcing that it intended to pursue enforcement actions against companies that engage in foreign corrupt practices that affect the commodities or derivatives markets. While the CFTC does not have direct FCPA enforcement authority, this advisory and, now, this enforcement action, demonstrates the CFTC’s focus on international fraud and manipulation in the commodities markets, which can overlap with foreign bribery and corruption.
The CFTC’s jurisdiction in this matter arose from the fact that, at least according to the CFTC, the Company’s “manipulative and deceptive conduct [primarily the alleged bribes described by the DOJ] undermined the legitimate forces of supply and demand and the integrity of the global physical and derivatives oil markets.” Through such an argument—of alleged “fraud using corrupt practices”—it is easy to see how the CFTC could turn future FCPA cases into fraud and manipulation cases as well. Moreover, while the DOJ and CFTC coordinated the resolution of these claims, the payments owed to each were distinct. The Company agreed to disgorge more than $12.7 million to the CFTC, and to pay the CFTC a penalty of $16 million related to trading activity not covered by the deferred prosecution agreement with the DOJ. Indeed, although the DOJ explicitly credited the Company with its payment to the Brazilian authorities, the DOJ did not do so with respect to the Company’s payments to the CFTC.
With so many actors potentially in play, DOJ’s effort to be transparent in its commitment to applying an inter-agency approach to punishing wrongful conduct in a manner that seeks to avoid “piling on” multiple enforcement actions has been increasingly critical, especially in encouraging companies to self-report wrongdoing. But this is another example of how hard it can be for companies trying to avoid fighting on multiple fronts. Companies should note that DOJ representatives have emphasized that “cooperating with a different agency or a foreign government is not a substitute for cooperating with the Department of Justice,” and that the DOJ “will not look kindly on companies that come to us after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments,” but they must also realize that where various regulators believe they have a basis to act, it will be difficult to limit their involvement.
