Defense and government contracting company IAP Worldwide Services yesterday agreed to pay a $7.1 million penalty and entered into a non-prosecution agreement with the Department of Justice to resolve a government investigation into whether the company conspired to bribe Kuwaiti officials to secure a government contract.
James Michael Rama, a former vice president of IAP, also pleaded guilty before U.S. District Court Judge James Cacheris of the Eastern District of Virginia to one count of conspiracy to violate the anti-bribery provisions of the FCPA for his involvement in the bribery scheme. His sentencing will take place on Sept. 11.
In 2004, Kuwait’s Ministry of the Interior (MOI) initiated the Kuwait Security Program (KSP), a project intended to provide nationwide surveillance capabilities for several Kuwaiti government agencies primarily through the use of closed-circuit television. The project was divided into two phases: a planning and feasibility period called “Phase I” and an installation period called “Phase II.”
The MOI was responsible for overseeing the KSP, including selecting contractors to facilitate its implementation. Revenues from the Phase II contract were expected to be substantially greater than from Phase I.
According to admissions made in the NPA and Rama’s plea agreement, IAP and Rama schemed to ensure that IAP worked as the consultant for Phase I so that it could tailor the requirements for the Phase II contracts to IAP’s strengths, which would give the company an advantage in the Phase II bidding. To that end, both IAP and Rama admitted that in February 2006, executives and senior employees of IAP, including Rama, set up a shell company called “Ramaco” to bid on Phase I, in part to conceal IAP’s role in crafting the Phase II requirements and its conflict of interest in connection with securing the Phase II contract. Ultimately, Ramaco secured the Phase I contract for approximately $4 million.
Admissions made in the NPA and Rama’s plea agreement further stated that Rama and IAP agreed that half of that amount ($1.8 million) would be diverted to a consultant who would pay bribes to Kuwaiti government officials to assist IAP in obtaining and retaining the Phase I contract and to obtain the Phase II contract. IAP and Rama admitted that they disguised the payments by transferring funds Ramaco received to an IAP bank account and then to the consultant through a series of accounts and intermediaries.
The NPA requires IAP’s continued cooperation and further requires that IAP “conduct a review of its existing internal controls, policies and procedures, and make any necessary modifications to ensure that the company maintains accurate record keeping and a rigorous anti-corruption compliance program,” the Justice Department stated.
Specifically, the NPA requires that IAP establish the following key components:
High-level commitment: IAP will ensure that its directors and senior management provide strong, explicit, and visible support and commitment to its corporate policy against violations of the anti-corruption laws and its compliance code.
Policies and procedures: IAP will develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA and other applicable foreign laws.
Periodic risk-based reviews: IAP will develop compliance policies and procedures on the basis of a periodic risk assessment addressing the individual circumstances of the company, in particular the foreign bribery risks facing IAP.
Proper oversight and independence: IAP will assign responsibility to one or more senior corporate executives of the company for the implementation and oversight of the company’s anti-corruption compliance code, policies, and procedures.
Training and guidance: IAP will implement mechanisms designed to ensure that its anti-corruption compliance code, policies, and procedures are effectively communicated to all directors, officers, employees, and, where necessary and appropriate, agents and business partners.
Internal reporting and investigations: IAP will maintain, or where necessary establish, an effective system for internal and, where possible, confidential reporting by, and protection of, directors, officers, employees, and, where appropriate, agents and business partners concerning violations of the anti-corruption laws or the company’s anti-corruption compliance code, policies, and procedures.
Enforcement and discipline: IAP will implement mechanisms designed to effectively enforce its compliance code, policies, and procedures, including appropriately incentivizing compliance and disciplining violations.
Third-party relationships: IAP will institute appropriate risk-based due diligence and compliance requirements pertaining to the retention and oversight of all agents and business partners.
Mergers and acquisitions: IAP will develop and implement policies and procedures for mergers and acquisitions requiring that the Company conduct appropriate risk-based due diligence on potential new business entities, including appropriate FCPA and anti-corruption due diligence by legal, accounting, and compliance personnel.
Monitoring and testing: IAP will conduct periodic reviews and testing of its anti-corruption compliance code, policies, and procedures designed to evaluate and improve their effectiveness in preventing and detecting violations of anti-corruption laws and the company’s anti-corruption code, policies, and procedures, taking into account relevant developments in the field and evolving international and industry standards.
Additionally, under the terms of the NPA, IAP must report periodically to the Criminal Division and to the U.S. Attorney’s Office of the Eastern District of Virginia regarding remediation and implementation of its compliance program and internal controls, policies and procedures.