Another FCPA Action With No Monitor

Another week, another FCPA enforcement action against a Swiss commodities trader — and one that again might leave compliance officers puzzled, since it involves a repeat corporate offender that didn’t self-disclose, yet still managed to walk away without a compliance monitor.

The company in question is Trafigura, which last week pleaded guilty to charges that it paid bribes to government officials in Brazil. As described in the plea agreement, the misconduct happened from 2003 into 2014, and involved $19.7 million in “corrupt commissions,” some portion of which was diverted into the back pockets of executives at Petrobras, the state-owned oil company in Brazil that had its own FCPA settlement in 2018. 

The details of Trafigura’s infractions should sound familiar to compliance professionals by now. Several of the company’s senior executives conspired with several others who either worked for Petrobras or hovered around the company as affiliated business partners. The two groups used shell companies to move money around, and relied on “illicit-market money exchangers” known in Brazil as doleiros to get the cash that went to specific bribe recipients.

So, yeah: sketchy third parties, clandestine meetings in Miami, bogus invoices for “consulting services,” and all the usual we’ve seen in so many FCPA enforcement actions before. This ultimately led to $46.5 million in ill-gotten proceeds for Trafigura. 

The final settlement includes an $80.5 million criminal penalty, $46.5 million in disgorgement, a raft of compliance program reforms, and a three-year plea deal where Trafigura will make annual reports to the Justice Department on the progress of those reforms. At the end of it all, Trafigura’s CEO and chief compliance officer will also need to certify the effectiveness of the company’s compliance program.

What this settlement did not include, however, is a compliance monitor.

Turning Off the Monitor

Reasonable people might wonder how Trafigura avoided an independent compliance monitor, because the circumstances of this enforcement action were not flattering.

First, the company did not voluntarily self-disclose its misconduct to the Justice Department. That runs contrary to the first and highest command of the department’s Corporate Enforcement Policy — that if you want a favorable resolution, thou shall voluntarily self-disclose. Well, not here.

Second, however the Justice Department got wind of Trafigura’s misconduct, the company wasn’t cooperative at the start of the ensuing investigation. Specifically, “during the early phase of the government’s investigation, [Trafigura] failed to preserve and produce certain documents and evidence in a timely manner and, at times, took positions that were inconsistent with full cooperation.” (Trafigura did later change its attitude and ultimately provided extensive cooperation.)

Third, this was not Trafigura’s first corporate misconduct rodeo. In 2006 its German subsidiary pleaded guilty to entry of goods by means of false statements; and in 2010 a Dutch court convicted the company of environmental offenses in connection with the discharge of petroleum waste in Africa. 

Plus, while Trafigura ultimately accepted responsibility for its criminal conduct in this matter, “its early posture in resolution negotiations also caused significant delays and required the department to expend substantial efforts and resources to develop additional admissible evidence,” the Justice Department said, before the company “constructively reengaged in agreeing to a negotiated resolution.” (I dare any married man to use that phrase instead of admitting to your wife, “I was wrong.”) 

None of this looks good. The company didn’t self-disclose, muddled its cooperation, had a recidivist history, and had senior executives involved in the misconduct. All of it suggests that a monitor should at least be up for consideration, if not a foregone conclusion — and yet, Trafigura skated away without one. How? 

Better Late Than Never: Remediation

Despite all those unflattering circumstances, prosecutors ultimately gave Trafigura lots of credit for its compliance remediation. Those steps included:

• Ending the use of third-party agents for business origination, a step we also saw in the Gunvor FCPA settlement last month and similar to other recent FCPA enforcement actions where the company in question ceased using third parties for various tasks.
• Implementing enhanced, risk-based policies and procedures for  anti-corruption, use of intermediaries and consultants, third-party payments, and joint venture and equity investment risk assessments.
• Providing additional resources for employee training, controls testing, and compliance monitoring.
• Adding new controls for the handling of high-risk third parties. 

Trafigura also agreed to all the other usual steps we see for a corporate compliance program, such as making a stronger commitment to a culture of compliance; implementing a strong system of internal accounting controls; revising incentive compensation structures to favor compliance; and implementing appropriate disciplinary measures for anti-corruption violations.

(That last one is particularly interesting because prosecutors had also faulted Trafigura for being “slow to exercise disciplinary and remedial measures for certain employees whose conduct violated company policy.”)

Trafigura also agreed to provide three years of annual progress reports to the department. Those reports (plus follow-up meetings to discuss each one) serve as a substitute for the independent oversight of the compliance program that a compliance monitor would normally provide.

If this arrangement sounds familiar, that’s because it’s the same set of “enhanced compliance reporting requirements” that Gunvor agreed to provide to settle its case. It’s also quite similar to the Freepoint FCPA settlement in December: criminal penalty, enhanced reporting, no monitor. Now we have a third example of prosecutors going that route.

Was Trafigura’s misconduct worse than Gunvor’s or Freepoint’s? That’s hard to say. The Gunvor case involved more money, and the company had a more recent history of anti-corruption; but Trafigura at first dragged its feet on cooperation, as did Freepoint, where Gunvor apparently hadn’t. Trafigura also had that bit about slow-rolling employee discipline. None of these firms self-disclosed their misconduct at all. 

Either way, these cases send mixed messages to the compliance community. It looks like you can get away with not self-disclosing misconduct and perhaps even slow-rolling your cooperation, if you’re prepared to invest lots in a newly invigorated compliance program and tolerate the Fraud Section as your new BFFs for the next three years of a settlement agreement. 

On the other hand, Gunvor, Freepoint, and Trafigura were involved in misconduct that prosecutors had known about for years, and the misconduct happened a long time ago — long enough that perhaps executives at that time didn’t understand the games they were playing with the Justice Department. 

One would hope that if some other offender ignored self-disclosure and cooperation for recent misconduct, after the Justice Department had made its expectations abundantly clear, a monitor would be assigned. Then again, SAP was a recidivist FCPA offender with misconduct that happened into the late 2010s, and it settled its latest offenses in January without a monitor. 

So who knows? Maybe the Justice Department has decided to turn off the monitor permanently.