Analyzing ABB’s Third-Time FCPA Case

Swiss industrial giant ABB settled its third FCPA case on Friday, in an enforcement action that generally offers good news for compliance officers but still upends the assumptions we’ve made lately about recidivist offenders and the punishments they’ll face.

ABB agreed to pay $460 million in civil and criminal penalties and accepted a three-year deferred prosecution agreement, and several of its overseas subsidiaries also pleaded guilty to violating the FCPA. But ABB did not end up with a compliance monitor, and its CEO and its chief compliance officer will not need to certify the strength of ABB’s compliance program. 

(CORRECTION: After this post was published, the Justice Department released the text of its agreement, which does include a CCO certification requirement. We have a new analysis on what that entails, although other parts of the post below remains accurate.)

Not bad for a company that is now the world’s first three-time FCPA offender. 

At first glance, this settlement runs contrary to what compliance officers had been told to expect by the Justice Department all year. Crackdowns on recidivists! Larger penalties! Chief compliance officers certifying their programs! Fire, brimstone, and guilty pleas!

This outcome is not that. It warrants a close reading to understand why, and what message this outcome sends to corporate boardrooms and the compliance community.

Let’s start with the misconduct itself. As outlined in the Justice Department’s settlement agreement, ABB’s corruption scheme unfolded in the mid-2010s while several of the company’s subsidiaries were bidding on a power-generation contract with Eskom Ltd., the state-owned electric utility in South Africa. 

Basically, senior ABB executives agreed to hire several sub-contractors that served as a conduit for bribes to a senior Eksom official. That Eksom official then arranged to have ABB win a contract to provide cabling and other equipment to the Kusile Power Station in South Africa. As part of the scheme, ABB excused those sub-contractors from its standard due diligence process, deleted emails to hide the conspiracy, and falsified accounting records to cover up their actions. 

We also need to remember the history here: this is ABB’s third FCPA settlement in the last 20 years. The company first settled civil and criminal charges in 2004, paying a total of $16.5 million for corruption in Nigeria. Then came a second set of civil and criminal charges in 2010, where ABB paid $35.5 million for corruption in Mexico and Iraq. 

We can review the facts of ABB’s latest FCPA case another day; at this point, we’ve heard about bribery schemes involving intermediaries and weak accounting controls 1,000 times before. The important stuff in this case is the settlement. How did ABB avoid a requirement that its CEO and CCO certify the strength of the company’s compliance program? 

ABB’s Settlement Details

First let’s review what ABB’s settlement includes. The company reached deals with both the Justice Department and the Securities and Exchange Commission (plus other settlements with South African and Swiss law enforcement, and another in Germany still pending), so there’s a lot here.

The main terms are:

• $315 million criminal penalty to the Justice Department;
• $75 million civil penalty to the SEC (plus $72 million in disgorgement that was waived as part of ABB’s settlement with South Africa);
• Three-year deferred-prosecution deal;
• A promise to the Justice Department that ABB will implement a fully effective compliance program;
• Quarterly meetings with the Justice Department and annual written reports about the state of ABB’s compliance program, throughout the three years of the DPA;
• Written reports provided to the SEC about the state of ABB’s compliance program.

The settlement does not, however, include an independent compliance monitor nor any formal requirement that ABB’s CEO (Bjorn Rosengren) nor its chief compliance officer (Natalia Shehadeh, whose title is actually chief integrity officer) certify the effectiveness of ABB’s program at the end of the DPA.

That’s the question compliance officers want to ponder about this case: What did ABB do to avoid a monitor and the certification requirement?

After all, the Justice Department has been talking up the idea of a crackdown all year. In September, deputy attorney general Lisa Monaco expressly said: “I want to be clear that this department will disfavor multiple, successive non-prosecution or deferred prosecution agreements with the same company.” Assistant attorney general Kenneth Polite said in March that the department would begin requiring CEOs and CCOs to certify the effectiveness of compliance programs as part of settlements, and in the two FCPA settlements we’ve seen then, such certifications were indeed included.

Last week, however, a third Justice Department official framed certification requirements as a bit more discretionary than most compliance officers had been assuming. Now we have ABB, clearly a recidivist case, avoiding the most unpleasant consequences a corporate FCPA wrongdoer might face: no guilty plea, no monitor, no CEO-CCO certifications. 

You Gotta Reward ’Em Somehow

The Justice Department and SEC both praised several specific steps that ABB took throughout this third case as reason for a more favorable disposition. 

First, ABB at least tried to self-disclose its South Africa misconduct in a speedy manner, even though executives botched the job. As described in the court filings, ABB asked the Justice Department for a meeting “within a very short time” of learning about the South Africa scheme — but the company hadn’t said in that first meeting request that it wanted to disclose FCPA issues in South Africa. Between the time of that meeting request and the actual meeting, however, media outlets broke news of the South Africa corruption to the world. 

That odd set of circumstances cost ABB its chance to win credit for voluntary self-disclosure, although the Justice Department was sympathetic to ABB’s intention to self-disclose. So perhaps the lesson here is that when you have an FCPA issue, just announce it on Twitter and tag the Criminal Division.

Second, the Justice Department and SEC also praised ABB for its “extraordinary cooperation” during their investigations. That cooperation included all the usual steps a company might take, such as regular briefings to prosecutors, producing voluminous documents, organizing those documents in a useful way, and making overseas employees available for interviews. 

One line in the SEC’s settlement order, however, suggests how ABB’s cooperation elevated into the extraordinary: “ABB’s cooperation included real-time sharing of facts learned during its own internal investigation.” 

In other words, ABB was sharing information with regulators as quickly as it found those facts, without necessarily knowing how such admissions might affect its overall case and settlement chances. 

That strikes me as quite important; it demonstrates a true commitment to cooperating with regulators and rooting out misconduct. Cooperation is easy to stomach when you already know all the facts you’re going to disclose, and have a reasonably good sense of what your punishment might be. When you don’t know the full extent of your sins and the punishment to follow, but you cooperate with regulators anyway — that’s an impressive commitment to the culture of compliance that the Justice Department wants to see. 

So even though ABB had several aggravating circumstances against it (third-time offender, failed self-disclosure), the company cooperated so thoroughly — and overhauled its compliance program so extensively — that the Justice Department had to reward all those efforts somehow. Hence we see no monitor and no compliance program certifications. 

Imagine if ABB had undertaken all that effort, and then the Justice Department nailed the company with a monitor and a program certification requirement anyway. That would scare other companies more than encourage them to self-disclose, cooperate, and remediate. 

So maybe it isn’t surprising that the department chose to settle the ABB case in this manner. Maybe the department had less choice than one might suppose.