[1]A gripping cautionary tale is hidden in the Statement of Facts [2] attached to the Archer Daniels Midland (ADM) non-prosecution agreement (NPA). The NPA, which ADM signed with the DOJ last December, related in part to FCPA violations in Venezuela, as well as Ukraine. The total FCPA settlement amount was $54.3 million.
In summarizing the underlying facts, the DOJ tells a story of how FCPA risks in joint ventures can manifest – a story of good due diligence, bad actors, and a complicated global institution struggling to coordinate its distant limbs.
First, the characters:
- ADM is a massive global food-processing and commodities-trading corporation.
- “ADM Latin” refers to a wholly-owned subsidiary of ADM, which handled the accounting, invoicing and payments made in connection with sales by ADM’s regional joint ventures.
- “ADM Venezuela” refers to a joint venture between ADM Latin and several individuals in Venezuela.
- “Executive A” refers to one of ADM Venezuela’s joint venture partners – also a high-level executive at ADM Venezuela.
The Story – told through excerpts from the Statement of Facts
Around 1998, ADM uncovered potential FCPA violations by prospective joint venture partners in Venezuela:
ADM employees reported to ADM’s management that “some business practices [of the joint venture partners]… could be construed as violations of the Foreign Corrupt Practices Act…”
… Venezuelan customers of the joint venture partners at times requested that “commissions” be added to the price at which the joint venture partners sold them grain and then subsequently instructed that these “commissions” be wired to accounts in the United States under the customer’s control.
Having identified FCPA risk with a potential partner, ADM took action by instituting a policy prohibiting repayment of excess funds to any account other than that which was originally used. But ADM didn’t follow through:
However, although this policy was made known to Executive A and some ADM Venezuela employees, it was initially not formalized and from in or around 1999 until in or around 2004 the same practices continued.
The joint venture partners apparently responded by repackaging “commission” payments as “deferred credit expenses” (DCEs).
The customers submitted excess payments to ADM Latin, claiming that the overpayment was attributable to deferred credit expenses (“DCE”)… [The] customer, through Executive A and others at ADM Venezuela, instructed ADM Latin to… pay the [excess DCE payments] into different bank accounts outside of Venezuela in the name of third parties. These DCE refund payments were handled by ADM Latin’s credit department.
In 2004, ADM conducted an audit that again uncovered the illicit payments, and again took action (though not enough to impress the DOJ).
Although ADM took some remedial measures, including terminating the employment of the credit employee who had signed off on the refunds, conducting limited training on compliance for its joint venture partners, and instituting a written policy prohibiting refund payments of DCE to bank accounts different than the accounts from which the money came, the policy was narrowly drawn only to cover DCE payments. ADM did not train ADM Latin employees and did not take adequate steps to monitor ADM Latin and ADM Venezuela to prevent such payments in forms other than DCE.
The joint venture partners just repackaged the payments again – back to “commissions” this time – such that they would be processed by a department other than the credit department that was now presumably alert to the scheme.
From in or around 2004 to in or around 2009, various customers, with the help of ADM Venezuela, including Executive A, began classifying these additional expenses as “commissions” or “commissions K,” rather than DCE, which were processed by the accounting department at ADM Latin, rather than the credit department. Therefore, when the customers instructed that the excess “commissions” be paid to third-party entities at third-party bank accounts, ADM Latin authorized and made the payments.
The scheme continued until at least 2009. It seems likely that “global internal investigation” triggered by the discovery of a Ukrainian bribery scheme uncovered – for the third time – this corruption scheme involving ADM Venezuela.
Conclusions (besides “if this is what you call gripping, maybe we shouldn’t hang out”)
- FCPA violations aren’t always the main event. The corrupt scheme described above appears to be primarily commercial bribery between private parties – not a violation of the FCPA. The FCPA appears to have been violated when an official from a government entity purchasing from ADM Venezuela took advantage of the existing fraud scheme.
- Joint ventures can be hard to control. ADM was aware of the risks posed by the joint venture partner, but it never had them under control. This kind of scenario can arise easily in a joint venture, where the local partner may have more influence over operations than a huge multinational. Also, as in this case, a joint venture partner may know enough about your operations to take advantage of gaps in your compliance program.
- Implementation is as important as due diligence. ADM identified FCPA risks and took action, but failed to leverage its control over the accounting and payment processes. Steps to mitigate risks should be designed carefully, by people who know the system. In other words, sometimes compliance officers need to bring in someone who understands the difference between the credit and accounting departments at the regional subsidiary.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
© 2014 FCPAméricas, LLC