Cooperating And Showing Hardship Yields 'Discounted' $2 Million Penalty For FCPA Violations

Author:Mr D. Anthony Rodriguez and Nicholas A. Roethlisberger
Profession:Morrison & Foerster LLP
 
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On July 17, the U.S. Department of Justice ("DOJ") announced that Nordam Group, Inc., a privately held Oklahoma-based aircraft repair company, admitted that a subsidiary and an affiliate, with the approval of Nordam employees, violated the Foreign Corrupt Practices Act ("FCPA") by bribing employees of state-owned or -controlled airlines in China. The bribes totaled almost $1.5 million over nine years, securing nearly $2.5 million in profits. Nordam assented to a non-prosecution agreement, and will pay what the DOJ described as a discounted $2 million penalty—a relatively modest sum as FCPA penalties go.

The misconduct was not a novel fact pattern, and the terms of the non-prosecution agreement generally follow the norm, but one feature of the Nordam case is notable. Perhaps signaling the DOJ's willingness, in certain circumstances, to set a penalty that will punish but not destroy, the DOJ noted that it set the penalty at $2 million because Nordam had demonstrated that a larger penalty would "substantially jeopardize" the company's viability.

"DO WHAT YOU HAVE TO DO" – USING OVERSEAS AFFILIATES TO PAY BRIBES IN CHINA

In the non-prosecution agreement,1 Nordam admitted that employees of its Singapore-registered subsidiary and affiliate bribed employees of state-owned or -controlled airlines in China in an effort to obtain business. Payments were funneled to employees of the airlines, and were described as "commissions" and "facilitator fees." On some occasions, the payments were included in inflated invoices, resulting in the customer unknowingly covering the cost of the bribe.

U.S.-based Nordam employees approved the bribes. In one email, a Nordam employee told two employees of a Nordam affiliate that they should be careful when paying bribes, but acknowledged that you "[d]o what you have to do to get the business. . . . I also understand the reality of doing business in Asia." In another, a Nordam employee agreed to split customer payments "50/50" over a certain amount, "if our friends can help us."

In all, Nordam and its affiliates paid as much as $1.5 million in bribes to secure about $2.5 million in profits.

THE CONSEQUENCES

Nordam's agreement with the DOJ includes four key components: (1) the $2 million penalty; (2) an admission that the bribery took place; (3) enhanced compliance and monitoring measures; and (4) cooperation with the DOJ over the next three years. In return, the DOJ agreed not to prosecute the company. The non-prosecution agreement,...

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