In this series, we examine compliance violations and the resulting fines paid by companies. We will also explore the details of the violations to help other organizations steer away from these pitfalls.
In this sixth post, we will look into how Gunvor settled $661 million with the FCPA for compliance violations.
What is FCPA?
The Foreign Corrupt Practices Act (FCPA) is a United States federal law enacted in 1977 to prohibit U.S. citizens and entities from bribing foreign officials to benefit their businesses. The FCPA has two main provisions – the anti-bribery provision, which prohibits the payment of bribes to foreign officials to obtain or retain business. The accounting provisions require companies to maintain accurate books and records and have internal controls to prevent corruption. The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) enforce the FCPA.
Background of the Case
Gunvor Group, one of the world’s largest commodities trading companies based in Switzerland, found itself in the crosshairs of the DOJ for its involvement in a decade-long bribery scheme. Gunvor was required to plead guilty to one count of FCPA conspiracy, resulting in a heavy financial penalty.
Penalties and Fines
The DOJ did not permit Gunvor to enter into a deferred or non-prosecution agreement. Instead, the court sentenced Gunvor to pay a criminal monetary penalty of $374,560,071 and to forfeit $287,138,444 in ill-gotten gains. Gunvor’s sentence included credits of up to one-quarter of the criminal fine for amounts paid to resolve related investigations by Swiss and Ecuadorian authorities, provided payments were made within one year.
Simultaneously, the Office of the Attorney General of Switzerland announced a resolution involving approximately $98 million paid by Gunvor to Swiss authorities.
Misconduct Details
Gunvor’s misconduct involved systemic bribery payments to officials of the Ecuadorian Ministry of Hydrocarbons and Petroecuador, the Ecuadorian state-owned oil company, in exchange for valuable contracts to acquire oil products. Gunvor earned more than $384 million in profits from these corruptly obtained contracts.
From 2012 to 2020, Gunvor paid $97 million in bribes to third-party contractors, aware that some of these funds would end up with Ecuadorian officials. The bribery scheme began in 2011, involving complex arrangements where government departments offered loans to Petroecuador in return for oil resources. Private trading companies, including Gunvor, established relationships with these departments to market, sell, and transport oil products. To gain preferential access to these oil resources, Gunvor paid bribes to government officials through the shell companies of the Pere brothers.
All negotiations and meetings happened in the U.S. to plan and execute the bribery scheme. $1.7 million was given to Ecuador officials and Gunvor earned $384 million in profits. All the parties involved were instructed to communicate through personal emails using aliases.
Four individuals were also implicated in this case. They are Antonio Pere, a former consultant for Gunvor; his brother, Enrique Pere, a former consultant for Gunvor; Raymond Kohut, a former Gunvor employee; and Nilsen Arias Sandoval, a senior employee of Petroecuador. All pled guilty to conspiracy and money laundering charges.
Though this is a straightforward case of bribery for favorable benefits, what makes this case unique is the length of the bribes and the depth of its violations.
Learnings from the Settlement
Gunvor’s settlement with the FCPA highlights compliance lessons for other organizations to consider.
Strengthening Compliance Programs
Following the settlement, Gunvor undertook significant steps to enhance its compliance framework. These included eliminating the use of third-party business agents, implementing rigorous due diligence for third-party relationships, and establishing a robust internal review framework for counterparty payments. Gunvor also enhanced its independent compliance committee, which now oversees high-risk transactions and the overall effectiveness of the compliance program.
Historical Issues and Strict Enforcement
The DOJ viewed Gunvor’s case strictly due to its history of bribery payments. Despite entering into an agreement with Swiss authorities in 2019 concerning bribery payments made in Congo from 2009 to 2012, Gunvor allowed bribery to continue in Ecuador. This lapse highlighted the importance of addressing and correcting compliance issues promptly.
Inadequate Internal Controls
Gunvor’s internal controls failed to detect or prevent the bribery scheme. This was evident when compliance officials only became aware of the payments in 2018. Despite requests for documents from the Pere brothers until May 2020, no documentation was provided, and relationships with the brothers were eventually terminated.
Improving Compliance Culture
Post-settlement, Gunvor focused on cultivating a compliance-centric culture. This involved evaluating its compensation policies to incentivize compliance, hiring additional compliance personnel, and improving the overall compliance program. Gunvor also conducted compliance culture reviews and implemented a risk-based communication policy to prevent the use of unencrypted messaging applications.
Key Compliance Enhancements
Due to this high-profile investigation, Gunvor was forced to make changes to its compliance programs. The notable changes are:
- Third-Party Evaluation: Gunvor eliminated the use of third-party business agents and enhanced due diligence procedures for third-party relationships.
- Internal Review Framework: It established a robust framework for internal review and additional scrutiny for high-risk third-party payments.
- Independent Compliance Committee: An independent compliance committee was tasked with reviewing high-risk transactions and ensuring the effectiveness of the compliance program.
- Compliance Program Review: Gunvor engaged external resources to review its compliance program and test its effectiveness.
- Hotline and Reporting Process: The reporting process and hotline for compliance issues were improved, and the investigation of hotline complaints was enhanced.
- Compliance Culture Reviews: Regular reviews were conducted to assess and improve the compliance culture within the organization.
- Communication Policy: A risk-based communication policy was implemented to address the problems associated with using unencrypted messaging applications.
The above learning and actions are invaluable for organizations operating in financial and non-financial sectors. They can implement the above measures proactively to prevent compliance violations and avoid the resulting fines and reputational damage.
Final Thoughts
Gunvor’s settlement with the FCPA is a reminder of the severe consequences of compliance failures and the importance of maintaining robust internal controls and a strong compliance culture. Organizations, especially those in high-risk industries like commodities trading, must prioritize comprehensive compliance programs and regular reviews to detect and prevent corrupt practices.
The Gunvor case also presents the need for ongoing vigilance and the importance of addressing compliance issues promptly. Organizations can learn from Gunvor’s missteps and implement rigorous compliance measures to better protect themselves from the significant financial and reputational damage associated with FCPA violations.