On August 10, 2023, the Grupo Aval Acciones y Valores S.A. entered into an agreement with the U.S. Department of Justice along with the Securities and Exchange Commission to pay $80.8 million dollars as a result of an FCPA fine. These fines were related to a toll road project the company was pursuing in Colombia. What led to these fines? Let’s take a deeper look at what the Grupo Aval settlement involves.
The Grupo Aval Acciones y Valores S.A. (Grupo Aval), is a financial company headquartered in Bogota, Columbia. They do business under a number of subsidiaries, such as the Banco de Bogota and the Banco de Occidente. These subsidiaries offer services to private individuals, while others work mainly with government entities and corporations providing banking services, payroll loans, mortgages, credit cards, equity investments, and treasury operations.
Grupo Aval was founded in January 1994 by Luis Carlos Sarmiento Angulo, and now employs over 80,000. According to Forbes, the company has an annual revenue of more than $6 billion and profits of over $500 million, so paying an $80 million fine is significant.
The fines leveled against Grupo Aval were brought after the Department of Justice launched an investigation into one of their subsidiaries, Corporacion Financiera Colombiana S.A. (Corficolombiana). The investigation launched by the DOJ and the SEC revealed that the company had worked with an executive from Odebrecht, a construction conglomerate based in Brazil, to conspire to win contracts.
Corficolombiana made these bribes through its former president and an executive from Odebrecht. In total, they paid over $23 million to members of the Colombian government between 2012 and 2015, including illegal campaign contributions made in 2014. In return for these bribes, the government officials awarded the companies the contract to build a toll highway. This highway was planned to run for 328 miles across Colombia, and Corficolombiana would oversee the construction and operation of the highway.
Corficolombiana paid over $28 million in order to secure the contract and an extension to it. This led to Grupo Aval having an “improper financial benefit” of around $30 million. However, that’s a very insignificant amount compared to the billions that Odebrecht has made over the years.
A joint investigation conducted by the U.S., Switzerland, and Brazil resulted in Odebrecht, now rebranded as Novonor, entering into a massive $3.5 billion dollar resolution for global bribery in 2016. This investigation brought to light over $780 million in bribery in more than a dozen different countries, including Colombia, Mexico, Peru, and Argentina. Odebrecht/Novonor made billions in the resulting contracts and other kickbacks from these bribes.
While the SEC had charged Grupo Aval with a higher penalty, they allowed the company to take credit for the fines paid to the Colombian government for these illegal activities. This credit, which was about half of the fine, was contingent on Grupo Aval dropping their appeal of the Colombian equivalent of the SEC’s resolution.
In the end, Grupo Aval and Corficolombiana paid $40.6 million in criminal penalties and entered a three-year deferred prosecution agreement (DPA). The company and its subsidiary also paid $40.2 million in prejudgment interest and disgorgement for a total of $80.8 million. The final penalties were assessed based on the FCPA’s anti-bribery provisions and accounting provisions.
Grupo Aval leadership had to publicly acknowledge that they had participated in a bribery scheme. In fact, the DOJ reduced the amount of the fines by 30 percent because Grupo Aval quickly took steps to begin an internal investigation, worked closely and openly with the DOJ and SEC, and took extensive action to determine the cause of the bribery, those involved, and how to prevent such criminal behavior in the future.
Grupo Aval and its subsidiaries now operate under an enhanced compliance program that uses additional third-party risk management services to help identify potential bribery schemes.
This case highlights one of the biggest issues in large companies: the lack of substantive compliance controls and internal communications. Grupo Aval leadership claimed they had no idea what executives in their subsidiary were doing. Had they known, they would have taken the opportunity to address the corruption involved. Reportedly, leadership in the subsidiary did not disclose that they were engaging in bribery and other illicit activities, leaving Grupo Aval vulnerable to the fallout.
Large corporations with subsidiaries must keep open lines of communication and are required to assess and investigate internal situations. Part of this involves putting the right people in charge. While it’s not clear how much due diligence was done during the hiring of Corficolombiana executives, it does raise the question of whether or not these individuals had previously engaged in bribery and other forms of corruption.
Infortal works with clients prior to company acquisitions and executive hiring to make certain this type of information is discovered. Our goal is to find information that will help you make these important decisions.
Would you be shocked to learn that your new business partner or their subsidiaries are involved in bribery to obtain contracts, engage in money laundering or other fraudulent activities, are engaged in unsafe labor practices, use forced labor, circumvent sanctions, or other illegal or questionable business practices? It’s always important that you learn about the target company, subsidiary, or partner that you’re planning to work with.
Just as with individuals, Infortal can provide deep due diligence into businesses, including vendors, partners, and companies you plan to acquire or merge with. We will work to uncover bribery scandals, corruption, fraud, embezzlement, lawsuits, and other actions that would present a risk to your company.
Taking a proactive approach is essential to manage risks today and the DOJ expects corporations to take a preventative approach by conducting comprehensive due diligence investigations.
Reach out to Infortal to discuss due diligence investigations into new executives, business partners, vendors, distributors and manufacturers, and when you acquire other companies (M&A). You need to know about red flags with companies before you work with them to avoid unnecessary risk. Infortal’s due diligence investigations will help you identify signs of corruption before entering into business transactions.
We provide an extensive array of due diligence investigation services designed to provide your company with enhanced risk management and resilience as you navigate complex risk landscapes.