Industrial manufacturing giant Honeywell International has agreed to pay $160 million to settle civil and criminal FCPA charges that the company bribed foreign government officials in Brazil and Algeria.
The case has lingered like a cloud over Honeywell’s head for years. The misconduct itself happened in the early 2010s, and Honeywell first disclosed more than a year ago that it expected to pay $160 million in disgorgement, interest, and penalties. In addition to the monetary penalties, Honeywell also agreed to a three-year deferred-prosecution deal with the Justice Department, but will not have an independent compliance monitor.
One also assumes that Honeywell’s CEO and chief compliance officer will need to certify the strength of the company’s compliance program when the DPA ends in 2025, but the text of the DPA hasn’t been released yet so I’m not 100 percent certain.
What happened, exactly? We can begin with the Brazil violations.
As described in the settlement order with the Securities and Exchange Commission, Honeywell’s Brazil subsidiary had been invited in 2010 to bid on building two refineries for Petrobras, Brazil’s state-owned oil company. A local Honeywell manager working on the Petrobras account recommended an intermediary there “who said that he had access to Petrobras’s downstream director responsible for the project.” They soon worked up a plan where Honeywell would submit a $425 million proposal; the intermediary would get a 3 percent commission, or $12 million.
The account manager and the intermediary then met with a Brazilian lobbyist who had close ties to the Petrobras downstream director. They hatched a scheme where the lobbyist and the Petrobras director would get a cut of the intermediary’s commission.
Eventually Honeywell won a $348 million project with Honeywell. The Brazil intermediary’s final commission was $10.4 million, and $4 million of that sum kicked back to the Petrobras director (who apparently was known as “the King” in company emails).
Meanwhile, the internal control violations were glaring. The Honeywell Brazil employee responsible for calculating the intermediary’s commission payments never asked for any invoice from him. When the intermediary then changed his company’s name and wanted payments re-routed to a Swiss bank account, Honeywell Brazil employees just rubber-stamped those requests too.
Documentation and FCPA training for accounting employees; we’ve talked about this, people.
Algeria Misconduct Too
The Justice Department’s settlement with Honeywell only mentions the FCPA violations in Brazil. The SEC, however, also dinged Honeywell for separate FCPA violations that happened in Algeria at roughly the same time.
In that case, Honeywell’s Belgium subsidiary had been working on a project with Sonatrach, Algeria’s state-owned oil company. By 2010, however, negotiations on future work had reached an impasse, and Honeywell Belgium decided to hire an intermediary in Monaco to help get the project back on track. The settlement documents don’t name the Monaco intermediary, but previous published reports have identified the party as Unaoil, which itself is no stranger to anti-corruption probes.
Anyway, employees at Honeywell Belgium and Unaoil then orchestrated a series of “pass-through payments” and sham consulting deals in 2011 and 2012 to funnel several hundred thousand dollars into the pockets of Algerian officials who managed Sonatarch. Unaoil The Monaco intermediary “admitted that it recorded the payments with internal codes the Monaco agent sometimes used for bribe payments,” according to the SEC settlement order.
Cooperation and Compliance Credit
Honeywell did not self-disclose its misconduct to regulators, so credit for voluntary self-disclosure went out the window. The company did, however, receive credit for cooperation with the Justice Department once the investigation was underway. That cooperation included all the usual steps we’ve come to expect lately, such as providing information Honeywell uncovered during its own internal investigation, making detailed presentations to prosecutors, and providing voluminous documentation, translated into English where necessary.
The SEC, meanwhile, praised Honeywell for a raft of reforms to its compliance program. Among those reforms:
- Firing sales directors involved in the Brazil misconduct, and demoting an employee with significant supervisory duties over the misconduct there;
- Implementing a program to eliminate Honeywell Brazil’s use of sales agents altogether (as of late 2021, the subsidiary had reduced its sales agent force by two-thirds);
- Consolidating the due diligence process into one automated system and requiring third parties to submit quarterly reports and FCPA certifications;
- Implementing a system of digital end-to-end controls over payments to third party agents;
- Assuring that payments to intermediaries are made by wire transfer to an account belonging to the same party and to a bank account where the sales intermediary resides;
- Enhancing training provided to Honeywell employees and sales intermediaries on anti-corruption, controls, and other compliance issues.
We still need to see whether Honeywell’s CEO and CCO need to certify the company’s compliance program as part of the settlement, but so far that requirement now seems to be standard fare for significant FCPA cases. Once we get our hands on a copy of the deferred-prosecution agreement, we’ll post an update.