Lafarge Part 3: Final Thoughts | Thomas Fox – Compliance Evangelist

We complete our exploration of one of the most public cases of corporate moral failure where Lafarge SA and its Syrian unit Lafarge Cement Syria, or LCS, each pleaded guilty to one count of conspiracy to supply a material support to foreign terrorist organizations and will pay a total sum of $777.78 million. According to the plea agreement, this amount consisted of a total criminal fine of approximately $91 million and forfeiture of $687 million. As previously stated, this is not an enforcement action under the Foreign Corrupt Practices Act (FCPA), but an enforcement action based on USC §2339B for a count of conspiracy to provide material support to one or more foreign terrorist organizations. Although not an enforcement action of the FCPA, the mechanisms by which Lafarge bribed or otherwise financed the terrorist organizations ISIS and ANF are instructive for the practitioner. anti-corruption compliance. These strategies have been outlined in the narrative and discussed in Part 2 of this series.

The costs of corruption

A clear message from this case is the cost of moral bankruptcy and corruption. As stated in the Statement of Facts, “From August 2013 to October 2014, Lafarge and LCS paid ISIS and ANF, through intermediaries, the equivalent of approximately $5.92 million”. For this amount of corruption, via the financing of terrorism and terrorism, Lafarge will pay a total fine of $777.78 million. About the only FCPA case that comes close to this disparity in bribe and penalty amount was the Avon FCPA enforcement action where bribes totaling $8 million led to a reported total penalty of $135 million. At the time of the resolution, Avon had also reported more than $300 million in investigation costs.

At the time of the incidents in question, from 2012 to 2014, Lafarge had annual sales in the range of $2 billion and above and annual revenues in the range of $400 million to $435 million. Very clearly, the bribes paid by Lafarge were not material in a financial accounting sense. Perhaps that’s why no one seemed to be watching the business. However, it makes clear that a relatively small amount of business expenses can incur huge costs in the form of a fine of $777.78 million. We haven’t started discussing pre-resolution costs, but in FCPA cases they range from two to six times the final fine. Even if the pre-resolution costs were 1 times the fine, it would still result in the overall cost of over $1.5 billion.

Non-standard communications monitoring

One area worth considering by the compliance professional is internal communications, as “many Lafarge and LCS executives involved in the scheme used personal email addresses, rather than their corporate email addresses, to carry out the conspiracy. “In September, the Security and Exchange Commission (SEC) announced “charges against 15 brokers and an affiliated investment adviser for widespread and long-standing failures by companies and their employees to maintain and preserve electronic communications. The companies admitted to the facts set forth in their respective SEC orders, acknowledged that their conduct violated record-keeping provisions of federal securities laws, agreed to pay combined fines of more than $1.1 billion, and have begun to implement improvements to their compliance policies and procedures to address these issues.

In a recent speech (Miller’s speech), Senior Assistant Deputy Attorney General Marshall Miller said, after the Monaco Doctrine was announced, in a section titled “Addressing Communications Technology Compliance Challenges,” “Let me now d tackling an area that we recognize is a big challenge for all organizations – employees’ use of personal devices and third-party messaging platforms for work-related communications…including to detect their use for misconduct Regardless of how a business chooses to approach their use for business communications, the end result should be the same: businesses must prevent circumvention of compliance protocols by off-system activities, preserve all data and communications keys and have the ability to quickly produce this information for government investigations.

Now consider this enormous fine and enforcement action in the context of Lafarge executive fraud. Miller’s speech focused on both messaging apps and other forms of business communication. In the Lafarge case, communications were very basic, on company computers using non-work email through channels like AOL or Gmail. Lafarge executives used them outside of standard communication channels to facilitate their crimes with ISIS and the ANF. This part of the enforcement action hasn’t been thoroughly reviewed, but it’s something every compliance professional should consider: Are your employees (or executives) using e unprofessional emails or other forms of communication tools outside of standard company communication methods? The compliance function should work with corporate IT staff to ensure that no executive or employee uses these communication channels and to monitor them if they do.

Mergers and Acquisitions Due Diligence Failures

The final area to consider is mergers and acquisitions (M&A). The Statement of Facts noted: “LAFARGE and certain of its executives, in fact, failed to disclose LCS’s relationships with ISIS and ANF to Holcim throughout the transaction discussions and after the transaction was completed. LCS had ceased producing cement in Syria by the time the transaction with Holcim was finalized, and in the approximately seven months between the completion of the acquisition and the emergence of public allegations regarding misconduct in Syria, Holcim n failed to perform post-acquisition due diligence. on LCS operations in Syria.

Not only did Lafarge executives not disclose this bribery to Holcim, but they also actively discussed pursuing the bribery payment so as not to derail the deal. Also, Holcim apparently did not do their due diligence regarding LCS or any of these matters. Perhaps the intangible nature of the payments was a factor. Whatever the excuse for this failed pre-acquisition audit, it cost Holcim dearly. Although Holcim was not fined, it was the entity that bore the administrative and emotional costs of the investigation leading to the resolution. Dan Chapman once told me that in an overall survey, it could take up to 25% of senior managers’ time. Given the number of investigations around the world on this issue, this figure could be lower. All of these factors speak to the extraordinary costs of an acquiring company’s failure to perform pre-closing compliance due diligence.

We are now at the end of this short series of blogs. The Lafarge case is perhaps the first corporate case since the oil-for-food cases where the complete moral bankruptcy of corporations played such a role. We can only hope it will be that long until we see the next such example.

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