Albemarle corporation, agreed to a $2.8 million payment in penalties and disgorgement to the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) to settle Foreign Corrupt Practices Act (FCPA) violations related to bribery in Vietnam, India, and Indonesia. According to the DOJ, Albemarle conspired to pay bribes to government officials in these countries between 2009 and 2017 through its third-party sales agents and subsidiary employees, to obtain and retain chemical catalyst business with state-owned oil refineries, resulting in around $98.5 million in illicitly gained profits.
Albemarle agreed to the SEC’s findings and to a cease-and-desist order against future FCPA violations, along with agreeing to pay more than $81.8 million in disgorgement and over $21.7 million in prejudgment interest, totaling more than $103.6 million.
In a parallel action, Albemarle entered into a three-year non-prosecution agreement (NPA) with the DOJ, agreeing to pay a criminal penalty of approximately $98.2 million and around $98.5 million in administrative forfeitures. The DOJ credited $81.8 million of the forfeiture against disgorgement for “its substantial cooperation and extensive and timely remediation pursuant to” Division Corporate Enforcement and Voluntary Self-Disclosure Policy.
Initiating the first FCPA application of the Compensation Incentives and Clawbacks Pilot Program announced earlier this year, the DOJ agreed to a penalty reduction for $763,453 in bonuses withheld from qualifying employees by Albemarle. The DOJ further stated that Albemarle disciplined “employees involved in the misconduct, including terminating eleven employees and withholding bonuses from sixteen employees.”
According to an internal SEC administrative order, Albemarle was charged with violating the FCPA’s anti-bribery, recordkeeping, and internal accounting controls provisions.
Investigations first started in back 2018 when Albemarle self-disclosed FCPA scrutiny.
While Albemarle had centrally coordinated compliance, internal audit functions, contracting, legal, and finance, it sold catalysts through sales offices and third-parties in Indonesia, Vietnam, and India, as well as the United Arab Emirates (UAE) and China.
Albemarle was purportedly well aware of the risk of bribery. The SEC findings report and inhouse audits conducted by Albemarle starting in 2013 identified numerous red flags and compliance gaps in their reliance on third-party agents and distributors in their Refining Solutions area. “For example, sales agents and distributors were paid: despite incomplete due diligence; despite a lack of an executed contract; despite having a contract that lacked required anticorruption provisions; and at rates higher than those provided for by contract – all in contravention of Albemarle’s policies and procedures.” Albemarle also failed to obtain reports of their agent’s sales activities, backdated various agreements and reimbursed vague, unsupported and extra-contractual expenses.
According to the SEC, “Albemarle sold refinery catalysts globally through agents and distributors approved by Albemarle sales, business, legal, compliance, and finance personnel and management.”
Albemarle undertook some effort to closing compliance gaps by hiring compliance personnel, reducing the number of sales agents and distributors without contracts, and implementing software to assist in third-party onboarding and contracting. According to the SEC, “it failed to devise and maintain a sufficient system of internal accounting controls with respect to commission rates and deviations from contracted rates.”
It’s well known by the regulators that 90% of FCPA violations are prompted by third-parties and third-party business providers. These are often concerned with a company’s downstream supply chains and the companies themselves within foreign locales. What can be acceptable, or even legal, in one country, may not be legal elsewhere, and there is no reduction of a company’s legal responsibility if they have management or financial activity in the US.
The Albemarle enforcement once again highlights the need for strong compliance programs and Tier III human and business due diligence investigations to mitigate risk, especially when it comes to third-parties and foreign subsidiaries and agents. Thirty-five percent of third-party vendors have corruption related issues.
Albemarle, as the SEC remarked, “failed to devise and maintain a sufficient system of internal accounting controls with respect to commission rates and deviations from contracted rates…despite certain Albemarle personnel having knowledge of red flags indicating the agents would use a portion of the commission to make bribe payments….” In some quarters, certain parties appear to have been willing to take the risk.
The lesson here is the critical need for companies to partner with an independent, unbiased global security and risk management company capable of providing a business with a comprehensive analysis of all available public record data, supplemented with detailed in country field investigative intelligence to identify known, and more importantly, unknown conditions, and provide clear recommendations and actionable steps. There is something to say about the adage “not leaving the fox to guard the henhouse.”
To discuss how to protect your business from FCPA violations, or to assess third party risk, reach out to Infortal here.