The Rise of Multinational FCPA Criminal Prosecutions: First Ever Coordinated French and U.S. Action


By: Mauro Wolfe

On May 29, 2013, the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) joined with French enforcement authorities to announce charges against French-based oil and gas company Total S.A. The SEC entered into a cease-and-desist order against Total, wherein Total agreed to pay disgorgement and prejudgment interest of $153 million. The DOJ filed a criminal information against Total, but promised to dismiss the case if Total behaved for the next three years. This is known as a deferred prosecution agreement. The price tag for the settlement was an additional $245.2 million. According to the DOJ, “French enforcement authorities announced earlier today that they had requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the Criminal Court for violations of French law, including France’s foreign bribery law.” The alleged conduct in this case is egregious, requiring little comment or insight. U.S. authorities stated:  

According to the deferred prosecution agreement, in 1995 Total sought to re-enter the Iranian oil and gas market by attempting to obtain a contract with the National Iranian Oil Company (NIOC) to develop the Sirri A and E oil and gas fields. In May 1995, Total entered into negotiations with an Iranian official who served as the chairman of an Iranian state-owned and state-controlled engineering company. Total subsequently entered into a purported consulting agreement pursuant to which Total would corruptly make payments to an intermediary designated by the Iranian official to secure NIOC signing a development agreement with Total for the Sirri A and E project, which NIOC did in July 1995. Over the next two-and-a-half years, Total paid approximately $16 million in bribes under the purported consulting agreement. 

 

In 1997, Total sought to negotiate a contract with NIOC to develop a portion of the South Pars gas field, the world’s largest gas field. At the direction of the Iranian official, Total and a second intermediary entered into another purported consulting agreement that called for Total to make large payments to the intermediary. In September 1997, Total executed a contract with NIOC that granted it a 40 percent interest in developing phases two and three of the South Pars gas field. Over the next seven years, Total made unlawful payments of approximately $44 million pursuant to the second purported consulting agreement.   

 

In sum, between 1995 and 2004, at the direction of the Iranian official, Total corruptly made approximately $60 million in bribe payments under the agreements for the purpose of inducing the Iranian official to use his influence in connection with Total’s efforts to obtain and retain lucrative oil rights in the Sirri A and E and South Pars oil and gas fields. Total mischaracterized the unlawful payments as “business development expenses” when they were, in fact, bribes designed to corruptly influence a foreign official. Further, Total failed to implement effective internal accounting controls, permitting the consulting agreements’ true nature and true participants to be concealed and thereby failing to maintain accountability for assets.   

 

If your company needs advice on avoiding this behavior, you may have worse problems. Nevertheless, what are the broader implications of this case to FCPA enforcement generally? In addition, what is the significance, if any, of the joint French/US investigation? The first issue that comes to mind is, how did the U.S. have jurisdiction over a French company?   Total was a French corporation based in Nanterre, France, and its wholly owned subsidiary, Total International, was registered in Bermuda. “Intermediary One” was a Swiss private bank and “Intermediary Two” was a British Virgin Island LLC. The recipients of the alleged bribes were Iranian officials who used Iranian-controlled entities. According to the U.S. prosecutors, the U.S. has jurisdiction for several reasons: 

 

1.      Total had a number of subsidiaries in the U.S.   

 

2.      Total was an issuer for FCPA purposes because its securities (American Depositary Receipts or “ADRs”) were registered with the SEC and traded on a U.S. exchange. 

 

3.      Total’s EDGAR filings were filed in Alexandria, Virginia 

 

4.      There was a $500,000 bank wire from New York to Switzerland.    

The use of ADRs as a basis of jurisdiction has been used in the past and appears to be alive and well. Foreign companies that are trading on a US exchange via ADRs must recognize that the U.S. will attempt to use this a basis for jurisdiction. There are various types of ADRs, however, and they are all not treated precisely the same for FCPA purposes. Consult your FCPA expert in order to understand the exact ADR type that you have and whether you would be deemed an “issuer” and have reporting requirements under U.S. securities laws.

 French and U.S. authorities have been working together for decades on a variety of criminal matters. For those former federal prosecutors who have worked on joint investigations with French law enforcement, this case would not appear to be new. However, in a statement, the DOJ said, “We announce the first coordinated action by French and U.S. law enforcement in a major foreign bribery case. Our two countries are working more closely today than ever before to combat corporate corruption, and Total, which bought business through bribes, now faces the criminal consequences across two continents.” This statement seems to reflect a new law enforcement paradigm between the U.S. and France. Has the attitude of the French authorities towards anticorruption harkened a new era of global anti-corruption cooperation? While it is clear that one case alone does not create a trend, we will remain watchful of future cooperation efforts.

The most compelling question may be, how are French companies going to react? Having some experience with French companies and their attitude towards the FCPA, let’s just say that at times it feels like trying to get my 9 year-old child to eat her vegetables, any vegetable. Moreover, it is highly unlikely that the French will export their anti-corruption laws to the extent the U.S. does, but let’s see what happens. Given the new developments in cross-border anti-corruption investigations this year, 2013 may be the year that global anti-corruption cooperation reaches a historic level. It appears that the French are arriving fashionably late, but, alas, they have arrived nonetheless. The question remains who will arrive next… China or Brazil?

 

 

 

 
 
 
 
 

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.