Friday, December 19, 2014
SEC ALLEGES AVON PRODUCTS INC. VIOLATED FOREIGN CORRUPT PRACTICES ACT
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
December 17, 2014
The Securities and Exchange Commission today charged global beauty products company Avon Products Inc. with violating the Foreign Corrupt Practices Act (FCPA) by failing to put controls in place to detect and prevent payments and gifts to Chinese government officials from employees and consultants at a subsidiary.
Avon entities agreed to pay a total of $135 million to settle the SEC’s charges and a parallel case announced today by the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of New York.
The SEC alleges that Avon’s subsidiary in China made $8 million worth of payments in cash, gifts, travel, and entertainment to gain access to Chinese officials implementing and overseeing direct selling regulations in China. Avon sought to be among the first allowed to test the regulations, and eventually received the first direct selling business license in China in March 2006. The improper payments also were made to avoid fines or negative news articles that could have impacted Avon’s clean corporate image required to retain the license. Examples of improper payments alleged in the SEC’s complaint include paid travel for Chinese government officials within China or to the U.S. or Europe as well as such gifts as Louis Vuitton merchandise, Gucci bags, Tiffany pens, and corporate box tickets to the China Open tennis tournament.
“Avon’s subsidiary in China paid millions of dollars to government officials to obtain a direct selling license and gain an edge over their competitors, and the company reaped substantial financial benefits as a result,” said Scott W. Friestad, an Associate Director in the SEC’s Division of Enforcement. “Avon missed an opportunity to correct potential FCPA problems at its subsidiary, resulting in years of additional misconduct that could have been avoided.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, the improper payments occurred from 2004 to 2008. Avon management learned about potential FCPA problems at the subsidiary through an internal audit report in late 2005. Avon management consulted an outside law firm, directed that reforms be instituted at the subsidiary, and sent an internal audit team to follow up. Ultimately, however, no such reforms were instituted at the Chinese subsidiary. Avon finally began a full-blown internal investigation in 2008 after its CEO received a letter from a whistleblower.
The SEC alleges that Avon’s books and records failed to accurately record the details and purpose of the payments. In some instances, payments were concealed by falsely recording the transactions as employee business expenses or as reimbursement of a third-party vendor. In other instances, the records for the payments set forth almost no detail at all. The resulting books and records did not allow a reviewer to ascertain the government official or state-owned entities that received the payments or the purpose for which the payments were made.
The SEC’s complaint charges Avon with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Avon, which neither admitted nor denied the allegations, agreed to pay disgorgement of $52,850,000 in benefits resulting from the alleged misconduct plus prejudgment interest of $14,515,013.13 for a total of more than $67.36 million. In the parallel criminal matter, Avon entities agreed to pay $67,648,000 in penalties. Avon also is required to retain an independent compliance monitor to review its FCPA compliance program for a period of 18 months, followed by an 18-month period of self-reporting on its compliance efforts. Avon would be permanently enjoined from violating the books and records and internal controls provisions of the federal securities laws. In reaching the proposed settlement, which is subject to court approval, the SEC considered Avon’s cooperation and significant remedial measures.
The SEC’s investigation was conducted by Paul W. Sharratt and Roger Paszamant and supervised by David Frohlich. The SEC appreciates the assistance of the Fraud Section of the Department of Justice, the U.S. Attorney’s Office for the Southern District of New York, and the Federal Bureau of Investigation.
Wednesday, December 17, 2014
AIRCRAFT ENGINE MAINTENANCE CO. TO PAY $14 MILLION FOR PAYING BRIBES TO FOREIGN OFFICIALS
FROM: U.S. JUSTICE DEPARTMENT
Wednesday, December 10, 2014
Dallas Airmotive Inc. Admits Foreign Corrupt Practices Act Violations and Agrees to Pay $14 Million Criminal Penalty
Dallas Airmotive Inc., a provider of aircraft engine maintenance, repair and overhaul services based in Grapevine, Texas, has admitted to violations of the Foreign Corrupt Practices Act (FCPA) and agreed to pay a $14 million criminal penalty to resolve charges that it bribed Latin American government officials in order to secure lucrative government contracts.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Special Agent in Charge Diego Rodriguez of the FBI’s Dallas Division made the announcement.
A criminal information, filed today in federal court in the Northern District of Texas as part of the deferred prosecution agreement, charges Dallas Airmotive with one count of conspiring to violate the FCPA and one count of violating the FCPA’s anti-bribery provisions.
According to Dallas Airmotive’s detailed admissions in the statement of facts accompanying the deferred prosecution agreement, between 2008 and 2012, the company bribed officials of the Brazilian Air Force, the Peruvian Air Force, the Office of the Governor of the Brazilian State of Roraima, and the Office of the Governor of the San Juan Province in Argentina. Dallas Airmotive used various methods to convey the bribe payments, including by entering into agreements with front companies affiliated with foreign officials, making payments to third-party representatives with the understanding that funds would be directed to foreign officials, and directly providing things of value, such as paid vacations, to foreign officials.
This case is being investigated by the FBI’s Dallas Field Office and is being prosecuted by Trial Attorney David M. Fuhr of the Criminal Division’s Fraud Section. Assistant U.S. Attorney Michael C. Elliott from the U.S. Attorney’s Office for the Northern District of Texas has provided assistance in the case. The department acknowledges the assistance of law enforcement counterparts in Brazil. The Criminal Division’s Office of International Affairs also provided significant assistance.
Monday, December 15, 2014
DEFENSE CONTRACTOR PLEADS GUILTY TO FRAUD RELATED TO SUPPLYING TROOPS IN AFGHANISTAN
FROM: U.S. JUSTICE DEPARTMENT
Monday, December 8, 2014
Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan
Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held United Arab Emirates (UAE) company, pleaded guilty today to major fraud against the United States and agreed to resolve civil violations of the False Claims Act, in connection with a contract to provide food and water to the U.S. troops serving in Afghanistan, the Justice Department announced today. The companies pleaded guilty in the Eastern District of Pennsylvania (EDPA) and paid $288.36 million in the criminal case, a sum that includes the maximum criminal fine allowed.
In addition, Supreme Group B.V. and several of its subsidiaries have agreed to pay an additional $146 million to resolve a related civil lawsuit, as well as two separate civil matters, alleging false billings to the Department of Defense (DoD) for fuel and transporting cargo to American soldiers in Afghanistan. The lawsuit was filed in the EDPA, and the fuel and transportation allegations were investigated by the Southern District of Illinois and the Eastern District of Virginia, respectively, along with the Department’s Civil Division.
“The civil resolutions and agreements reflect the Justice Department’s continuing efforts to hold accountable contractors that have engaged in war profiteering,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division. “The department will pursue contractors that knowingly seek taxpayer funds to which they are not entitled.”
“These companies chose to commit their fraud in connection with a contract to supply food and water to our nation’s fighting men and women serving in Afghanistan,” said U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania. “That kind of conduct is repugnant, and we will use every available resource to punish such illegal war profiteering.”
The Criminal Fraud
In 2005, Supreme Foodservice AG, now called Supreme Foodservice GmbH, entered into a contract with the Defense Supply Center of Philadelphia (DSCP, now called Defense Logistics Agency – Troop Support) to provide food and water for the U.S. forces serving in Afghanistan. According to court documents, between July 2005 and April 2009, Supreme Foodservice AG, together with Supreme Foodservice KG, now called Supreme Foodservice FZE, devised and implemented a scheme to overcharge the United States in order to make profits over and above those provided in the $8.8 billion subsistence prime vendor (SPV) contract. The companies fraudulently inflated the price charged for local market ready goods (LMR) and bottled water sold to the United States under the SPV contract. The Supreme companies did this by using a UAE company it controlled, Jamal Ahli Foods Co. LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price the Supreme companies were charging for bottled water. The fraud resulted in a loss to the government of $48 million.
Supreme AG, Supreme FZE and Supreme’s owners (referred to in court documents as Supreme Owners #1 and #2) made concentrated efforts to conceal Supreme’s true relationship with JAFCO, and to make JAFCO appear to be an independent company. They also took steps to make JAFCO’s mark-up on LMR look legitimate, and persisted in the fraudulent mark-ups even in the face of questions from DSCP about the pricing of LMR.
Even though the SPV contract stated that the Supreme food companies should charge the government the supplier’s price for the goods, emails between executives at the companies (referred to as Supreme Executive #1, #2, etc) reveal the companies’ deliberate decision to inflate the prices. Among other things, Supreme Owner #1 increased the mark-up that JAFCO would impose on non-alcoholic beer from 25 percent to 125 percent. On or about Feb. 16, 2006, during a discussion about supplying a new product to the U.S. government, one Supreme executive wrote to another, “I am very sure the best option is to buy it from Germany and mark up via [JAFCO], like [non-alcoholic] beer.”
In early March 2006, after a DSCP contracting officer told the Supreme food companies that she wanted to see a manufacturer’s invoice for specific frozen products, Supreme Foodservice GmbH lowered its prices for those products to prices that did not include a JAFCO mark-up. On March 14, 2006, instead of disclosing that the initial pricing had included a mark-up, a Supreme executive misled the DSCP representative by saying, “Based on more realistic quantities, we have been able to negotiate a better price,” to explain the change in pricing.
In June 2006, when a DSCP contracting officer raised questions about pricing focusing on four specific items, Supreme executives again misled the DSCP, claiming that the high prices were for a high quality of product, and offering to sell lower quality products for lower prices. Supreme Foodservice GmbH did this even after analyzing its JAFCO margin on the four items in question and finding its profit margins were between 41 and 56 percent.
In September 2007, after a fired Supreme executive threatened to tell the DSCP about the fraud, his former employer entered into negotiation of a “separation agreement” with that executive to induce that executive not to disclose the ways in which the Supreme food companies were overcharging the DSCP. The agreement stated that the executive would receive, among other things, a payment of 400,000 euros in September 2010, provided that the executive did not cause: a deterioration in the economic situation linked to the SPV contract; the termination of the SPV contract; or a decrease in the price levels for products, specifically including LMR and bottled water provided to the U.S. government.
Defendant Supreme GmbH pleaded guilty to major fraud against the United States, conspiracy to commit major fraud and wire fraud. Supreme FZE, which owns JAFCO, pleaded guilty to major fraud against the United States. The Supreme companies agreed to jointly pay $48 million in restitution and $10 million in criminal forfeiture. Each company also agreed to pay $96 million in criminal fines. In addition, as a result of the criminal investigation, the Supreme companies paid $38.3 million directly to the DSCP as a refund for separate overpayments on bottled water.
The Civil Settlements
In a related civil settlement, Supreme Group agreed to pay another $101 million to settle a whistleblower lawsuit, filed in the U.S. District Court for the EDPA by a former executive, which alleged that Supreme Group, and its food subsidiaries, violated the False Claims Act by knowingly overcharging for supplying food and water under the SPV contract. The payment also resolves claims that, from June 2005 to December 2010, the Supreme food companies failed to disclose and pass through to the government rebates and discounts it obtained from its suppliers, as required by its SPV contract with the United States.
“Today’s results are part of an ongoing effort by the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense's acquisition process from personal and corporate greed,” said Deputy Inspector General for Investigations James B. Burch for the U.S. Department of Defense’s Office of the Inspector General. “The Defense Criminal Investigative Service will continue to pursue allegations of fraud and corruption that puts the Warfighter at risk.”
“We are very pleased with this resolution, and are gratified that the public can now see what we've been aggressively investigating,” said Director Frank Robey of the U.S. Army Criminal Investigation Command's Major Procurement Fraud Unit (MPFU). “Companies that do business with the government must comply with all of their obligations, and if they overcharge for supplying our men and women in uniform who are bravely serving this nation, they must be held accountable for their actions.”
Separately, Supreme Site Services GmbH, a Supreme Group subsidiary, agreed to pay $20 million to settle allegations that they overbilled for fuel purchased by the Defense Logistics Agency (DLA) for Kandahar Air Field (KAF) in Afghanistan under a NATO Basic Ordering Agreement. The government alleged that Supreme Site Services’ drivers were stealing fuel destined for KAF generators while en route for which the company falsely billed DLA.
“It is important that government contractors supporting conflicts abroad be held accountable for their billings to the government,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia. “The DoD investigating components are instrumental in protecting the interests of the government, and their efforts in this investigation are to be commended.”
Supreme Group’s subsidiary Supreme Logistics FZE also has agreed to pay $25 million to resolve alleged false billings by Supreme Logistics in connection with shipping contracts between the U.S. Transportation Command (USTRANSCOM), located at Scott Air Force Base in Illinois, and various shipping carriers to transport food to U.S. troops in Afghanistan during Operation Enduring Freedom. The shipping carriers transported cargo destined for U.S. troops from the United States to Latvia or other intermediate ports, and then arranged with logistics vendors, including Supreme Logistics, to carry the cargo the rest of the way to Afghanistan. The United States alleged that Supreme Logistics falsely billed USTRANSCOM for higher-priced refrigerated trucks when it actually used lower-priced non-refrigerated trucks to transport the cargo.
“The U.S. Attorney’s Office for the Southern District of Illinois is committed to protecting the integrity of all of the vital missions carried out at Scott Air Force Base, including the mission of the U.S. Transportation Command,” said U.S. Attorney Stephen R. Wigginton for the Southern District of Illinois. “These vital services carried out by the brave men and women of the armed forces of the United States deserve, and will receive, our full support, and this office will do everything possible to protect their missions.”
“These settlements are victories for American taxpayers,” said Special Inspector General John F. Sopko for Afghanistan Reconstruction. “It sends a clear signal that whether a case involves a mom and pop outfit or a major multinational corporation, we will work tirelessly with our investigative partners to pursue justice any time U.S. dollars supporting the mission in Afghanistan are misused.”
The EDPA lawsuit was initially filed under the qui tam or whistleblower provisions of the False Claims Act, by Michael Epp, Supreme GmbH’s former Director, Commercial Division and Supply Chain. The False Claims Act prohibits the submission of false claims for government money or property and allows the United States to recover treble damages and penalties for a violation. Under the Act’s whistleblower provisions, a private party may file suit on behalf of the United States and share in any recovery. The case remained under seal to permit the United States to investigate the allegations and decide whether to intervene and take over the case. Epp will receive $16.16 million as his share of the government’s settlement of the lawsuit.
The criminal and civil matters in the EDPA were the result of a coordinated effort by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Pennsylvania, DCIS, U.S. Army’s Criminal Investigative Command’s MPFU and the FBI.
The investigation of Supreme Site Services ’ alleged false billings for fuel was conducted by the Civil Division and the U.S. Attorney’s Office for the Eastern District of Virginia, and the investigation of Supreme Logistics’ alleged false invoices for transportation was handled by the Civil Division and the U.S. Attorney’s Office for the Southern District of Illinois. Both matters were investigated by the Defense Contract Audit Agency Office of Investigative Support, the Army Audit Agency, the International Contract Corruption Task Force, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit, the DoD Office of Inspector General’s DCIS, the Special Inspector General for Afghan Reconstruction, the U.S. Air Force Office of Special Investigations and the Naval Criminal Investigative Service.
The claims resolved by the civil settlements are allegations only, except for the conduct for which the Supreme food companies have pleaded guilty.
Sunday, December 14, 2014
U.S. DOL UPDATES LISTS OF GOODS PRODUCED USING CHILD OR FORCED LABOR
FROM: U.S LABOR DEPARTMENT
US Labor Department announces updated lists of goods
produced by child labor, forced labor
WASHINGTON — The sixth edition of the "List of Goods Produced by Child Labor or Forced Labor," mandated by the Trafficking Victims Protection Reauthorization Act of 2005, was released today by the U.S. Department of Labor's Bureau of International Labor Affairs. In accordance with Executive Order 13126, ILAB also published an initial determination to add carpets from India to its "List of Products Produced by Forced or Indentured Child Labor." In addition to publishing this initial determination regarding Indian carpets, ILAB re-released its EO 13126 List from 2013 with additional specific information about the listed products.
"There's a story behind each item on these lists — a child facing back-breaking labor without education or other opportunities for a better life or an adult trapped in a dismal job through deceit or threats," said U.S. Secretary of Labor Thomas E. Perez. "These lists raise awareness about child and forced labor. Through collective efforts we can, and must, work together to end these cycles of exploitation."
New items can be added to the TVPRA List if they are made with child labor, forced labor or both. The 11 goods made with child labor that have been added to the sixth edition of this list are: garments from Bangladesh; cotton and sugarcane from India; vanilla from Madagascar; fish from Kenya; fish from Yemen; alcoholic beverages, meat, textiles, and timber from Cambodia; and palm oil from Malaysia. One good, electronics from Malaysia, has been added to the TVPRA List for being produced with forced labor.
Per the regulations implementing EO 13126, all updates to this list are first published as initial determinations in the Federal Register for public comment. ILAB welcomes public comments on the proposed addition of Indian carpets to the EO List. Comments can be made at http://www.regulations.gov, docket DOL-2014-0004, through Jan. 30, 2015.
The department also re-released its full EO 13126 List from 2013 featuring a new format, with short paragraphs elaborating on each item on this list. "We hope that these additional details provide a more complete picture of the forced child labor behind the listed products, enabling governments, nongovernmental organizations, businesses and consumers to better target their efforts to end these deplorable practices," Secretary Perez added.
"By publishing these lists, our goal is to shed light on the plight of the estimated 168 million child laborers and 21 million forced laborers around the world, especially as they relate specifically to goods we use every day," said Deputy Undersecretary of Labor for International Affairs Carol Pier. "Child labor and forced labor are fundamental human rights violations, and they are also bad business practices that stifle economic development. We look forward to continuing our engagement with these countries, and with stakeholders in the highlighted sectors, to help end this labor exploitation and promote inclusive economic growth."
The TVPRA List was first published on Sept. 10, 2009. The TVPRA of 2013 requires submission of this list to Congress not later than Dec. 1, 2014, and every two years thereafter. Executive Order 13126 was signed by President Bill Clinton in 1999, and ILAB updates this list periodically. Each list has its own mandates and requirements. The TVPRA List has broader coverage, including goods made by any form of exploitative child as well as forced labor of anyone — adults or children. The EO 13126 List covers the smaller sub-set of children working in forced labor conditions. The EO 13126 List is intended to ensure that U.S. federal agencies do not procure goods made by forced or indentured child labor. Under procurement regulations, federal contractors who supply products on the EO 13126 List must certify that they have made a good faith effort to determine whether forced or indentured child labor was used to produce the items supplied.
As part of its ongoing efforts to encourage businesses and industry groups around the world to address child labor and forced labor in their supply chains, in 2012 ILAB published an extensive online resource, Reducing Child Labor and Forced Labor: A Toolkit for Responsible Businesses.Today, ILAB is announcing the release of French and Spanish language versions of this Toolkit. These new translated versions will enable businesses and other interested parties in French- and Spanish-speaking countries to better understand how to identify and address child labor, forced labor and related practices wherever they occur.
ILAB's global mission is to improve working conditions, raise living standards, protect workers' ability to exercise their rights and address the workplace exploitation of children and other vulnerable populations so that workers around the world are treated fairly and able to share in the benefits of the global economy. ILAB has been producing reports to raise awareness globally about child labor and forced labor since 1993. Since 1995, ILAB has also funded projects that provide assistance to vulnerable children and their families. ILAB has funded 280 projects in more than 90 countries to combat the worst forms of child labor.
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