Worldwide: Settlements In Brief: Recent Settlements Highlight Importance Of Preventative Action

Foreign corrupt practices and violations of sanctions and export control increasingly lead to enforcement actions. These enforcement actions are settled regularly by criminal and supervisory authorities. In light of these developments, companies are advised to take appropriate measures. We provide a brief overview of the most important settlements every month. This month we discuss recent settlements with four companies in the US. The first settlement concerns one of Germany's largest banks, Commerzbank AG, which allegedly violated several US laws by doing business with sanctioned entities and failing to have adequate anti-money laundering controls. The second and third settlements also involved violations of US sanctions laws. PayPal had not implemented effective compliance procedures to identify and prevent transactions in apparent violation of the applicable US sanctions regulation. Schlumberger Oilfield Holdings Ltd., one of the largest oilfield services providers in the world, allegedly violated US sanctions by facilitating trade with Iran and Sudan. The fourth and last settlement involved alleged violations of the Foreign Corrupt Practices Act. The settlements highlight the importance of taking preventative action to minimise the risk of violating US law. This can be accomplished by conducting adequate due diligence and making sure compliance measures are effective.

Commerzbank AG

Commerzbank AG (Commerzbank) agreed to pay USD 1.45 billion in fines and penalties. As part of the settlement Commerzbank agreed to forfeit USD 563 million, pay a USD 79 million fine and enter into a deferred prosecution agreement with the Department of Justice (DOJ). The bank had allegedly violated several US laws – including one of the key US sanctions laws, the International Emergency Economic Powers Act – by doing business with sanctioned countries and failing to have adequate anti-money laundering controls. Commerzbank also entered into settlement agreements with other supervisory authorities, including the Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System. Commerzbank admitted and accepted responsibility for violating several US laws. Furthermore, Commerzbank agreed to implement rigorous internal controls and to cooperate fully with the DOJ.

Business with sanctioned countries

According to admissions contained in the deferred prosecution agreement, Commerzbank knowingly and wilfully moved USD 263 million through the US financial system on behalf of Iranian and Sudanese entities subject to US economic sanctions. From 2002 to 2008, Commerzbank engaged in this conduct, using numerous schemes designed, according to the admission, to conceal the true nature of the suspicious transactions from US regulators. Commerzbank admitted that its senior management ignored multiple red flags that should have uncovered the bank's practices at an earlier stage.

Involvement in the Olympus accounting fraud

Under US law, a financial institution is required to detect and report suspicious activity. This is accomplished, among other things, through conducting adequate due diligence. According to the DOJ, Commerzbank failed to conduct adequate due diligence or obtain "know your customer" information with respect to correspondent bank accounts for Commerzbank's own foreign branches and affiliates. According to the DOJ, these systematic deficiencies reflected a failure to maintain adequate policies, procedures and controls to ensure compliance with several US laws and regulations and guard against money laundering. As a result of Commerzbank's failure to comply with US law from 2008 to (at least) 2013, Commerzbank, allegedly, did not detect and report suspicious transactions involving Japan's Olympus Corporation and instead lent money to off-balance-sheet entities created by or for Olympus to perpetrate its fraud.

PayPal, Inc.

On 25 March 2015, the OFAC announced a USD 7,658,300 settlement with PayPal, Inc. to settle alleged violations of trade sanctions against Iran, Sudan and Cuba. From 2006 through 2013, PayPal had failed to implement effective compliance procedures to identify and prevent transactions in apparent violation of the US sanctions. According to the OFAC, the company failed to employ adequate screening technology and procedures to identify the potential involvement of US sanctions targets in transactions they processed. Consequently, PayPal did not properly screen transactions with companies and persons sanctioned by the US.

PayPal has taken remedial action, including the strengthening of its screening processes and measures.

Schlumberger Oilfield Holdings Ltd.

Also on 25 March 2015, the DOJ announced a USD 232.7 million settlement with Schlumberger Oilfield Holdings Ltd. (SOHL), which had allegedly violated US sanctions by facilitating trade with Iran and Sudan. The settlement includes a criminal forfeiture of USD 77.6 million, which represents the proceeds generated by the criminal conduct, as well as a fine of USD 155.1 million. As part of the settlement, SOHL has also agreed to plead guilty. The plea agreement requires SOHL to: submit to a three-year period of corporate probation; continue to cooperate with the government; and not commit any additional felonies under US federal law.

Schlumberger Ltd. (Schlumberger), SOHL's parent company, has agreed to the following additional terms during the term of probation:

  • maintaining its cessation of all operations in Iran and Sudan
  • reporting on Schlumberger's compliance with sanctions
  • responding to requests to disclose information and materials related to Schlumberger's compliance with US sanctions laws when requested by US authorities
  • retaining a third-party compliance consultant to review Schlumberger's internal sanctions policies and procedures and internal audits related to sanctions compliance

From early 2004 until June 2010, Drilling & Measurements (D&M), a US-based Schlumberger business segment, provided oilfield services to Schlumberger customers in Iran and Sudan through non-US subsidiaries of SOHL. SOHL failed to adequately train its employees to ensure that all US persons complied with Schlumberger's sanctions policies and compliance procedures. Consequently, D&M violated US sanctions against Iran and Sudan.

This settlement is one in a series of settlements reached with companies based in the US that were found to have violated sanctions.

The Goodyear Tire and Rubber Company

On 24 February 2015, the US Securities and Exchange Commission (SEC) reached a settlement with The Goodyear Tire and Rubber Company. Goodyear agreed to pay more than USD 16 million in disgorgement and pre-judgment interest to resolve alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). Furthermore, Goodyear must report its FCPA remediation efforts to the SEC for a period of three years.

According to the SEC, between 2007 and 2011, Goodyear's subsidiaries paid over USD 3.2 million in bribes to employees of government-owned entities and private companies in Kenya and Angola to land tire sales. In 2002, Goodyear first acquired a minority interest in the Kenyan subsidiary. By 2006, Goodyear owned a majority interest. Goodyear allegedly did not detect or prevent these improper payments because it failed to conduct adequate due diligence when it acquired a majority interest in the Kenyan subsidiary and to implement adequate FCPA compliance training and controls after the acquisition. This settlement is particularly noteworthy because it partly concerns bribery of private companies instead of public officials. Through the books and records and internal controls provisions, the FCPA clearly also targets non-governmental corruption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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