As part of our occasional series of conversations with voices in the compliance world, we caught up with Timothy Treanor, a partner with law firm Sidley Austin who represented oil and gas company PetroTiger. In June, PetroTiger became just the second company in recent history of the Foreign Corrupt Practices Act (after Morgan Stanley in 2012) to avoid prosecution by the Justice Department, despite guilty pleas by three of its top executives. Treanor provides insight into how PetroTiger escaped charges.
Typically when the Justice Department brings FCPA charges against a company’s executives, charges against the company itself aren’t far behind. The Justice Department’s rare declination followed a guilty plea by Joseph Sigelman, the former co-chief executive officer of PetroTiger, for conspiring to pay bribes to a foreign government official in violation of the FCPA.
At his plea hearing, Sigelman admitted to conspiring with co-CEO Knut Hammarskjold, PetroTiger’s former general counsel Gregory Weisman, and others to make illegal payments of $333,500 to David Duran, an employee of the Colombian national oil company, Ecopetrol. Sigelman admitted to making the payments in exchange for Duran’s assistance in securing a $45 million oil services contract for PetroTiger.
Sigelman was the third former PetroTiger executive to plead guilty in the case. In 2013, Weisman pleaded guilty to conspiracy to violate the FCPA and to commit wire fraud. Last year, Hammarskjold pleaded guilty to similar charges.
What corporate defense strategies proved most effective during the negotiation process?
We were able to show that the three convicted executives were not fully disclosing the financial condition of the firm to the board. They changed the budget without board authorization. They did a number of different things to deceive the board.
We were also able to show through evidence that board members were not just sitting by, letting the executives run amok. From the very beginning, they imposed a stringent business Code of Conduct. They responded to issues that arose and had not turned a blind eye.
When they heard rumors of potential misconduct, they interviewed employees to try to understand if there were integrity issues that needed to be addressed. This led to one of the board members being banned from company premises by one of the executives, because he believed that the board member was interfering with the operation of the company. E-mails retained by the company substantiated that claim, and we presented it through the evidence.
The board also fought to bring in forensic accountants to take a look at financial transactions within the firm. That didn’t happen, in part because the executives didn’t allow it to happen, but the effort was there.
The board was very aggressive about upholding high standards of integrity. They were doing all the things that the government would want to see board members doing.
What actions did the board take after discovering the misconduct that the Department of Justice looked upon most favorably?
After finding out about the misconduct, the board was quick to remediate any deficiencies that they uncovered. They enhanced financial controls and other compliance controls and did a full review of their policies and procedures. They had the executive management team attend specific trainings, and we were able to show that to the government as well. I think that proved to be very helpful to the company.
They went so far as to push [the culpable executives] out of the company and bought back their shares. Given that these executives were substantial shareholders of the company, that’s a pretty drastic move to push them out and get them to sell back their shares.
By doing so, that ultimately led to our second—and maybe our strongest—argument, which was that, “If you punish the company, you’re only punishing the good guys and heaping more victimization upon them. To punish them would be unfair.” We were persistent in our argument.
How responsive was the Justice Department in accepting that argument?
The Department initially was surprised that we would ask for such a resolution in a case like this, in which senior executives were implicated. They told me it was an aggressive request, but to their credit they listened.
ABOUT TIMOTHY TREANOR
Timothy Treanor is a partner and global co-leader of the white-collar criminal defense and investigations practice group at Sidley. He is also a former federal prosecutor who represents companies and individuals in investigations, enforcement actions, and prosecutions conducted by various government agencies, including the U.S. Department of Justice, the Securities and Exchange Commission, and the New York Attorney General’s Office, and he frequently manages parallel criminal and civil proceedings and global investigations involving enforcement agencies in multiple countries. Corporate clients he represents include leading companies in a variety of industries, including financial services, pharmaceuticals, insurance, oil and energy, and technology. Treanor also advises companies on the development of internal compliance programs and provides compliance counseling on a host of criminal issues, including the Foreign Corrupt Practices Act, anti-money laundering, sanctions, fraud detection, anti-counterfeiting, and internet gambling issues.
Treanor has extensive experience working with corporate compliance monitors. He currently serves as lead counsel to the Monitor of HSBC Holdings and its subsidiaries appointed by the Justice Department, the U.K. Financial Conduct Authority, and the Board of Governors of the Federal Reserve System, in connection with HSBC’s $1.9 billion resolution of money laundering and sanctions violations. As a federal prosecutor, Treanor selected and managed a corporate compliance monitor for a corporate defendant and advised on the Justice Department’s Guidelines for selecting and using monitors.
I think it would have been very easy for them to say, “Listen, you have two CEOs and a general counsel who have been implicated. There is no way we’re letting the company off without some sort of punishment that we can show for this conduct.” But they worked through our arguments and talked about alternatives and what that would mean for the company. It was a fairly extensive discussion over a period of months.
How much of a factor did PetroTiger’s voluntary disclosure of the misconduct play into the Justice Department deciding not to prosecute the company?
I think that was a huge consideration. I know the Department of Justice has not been willing to draw a line and say, “If you self-disclose, you’re eligible for a declination. If you don’t, you’re not.” They’re not that black and white. To me, however, if you don’t self-disclose—if the government finds out about the misconduct on its own—you’re at a significant disadvantage in getting a declination. The fact that PetroTiger came forward was a big plus.
What broader lessons can other companies take away from PetroTiger’s case?
One of the key factors that the Department of Justice considers when determining the severity of an FCPA violation is whether any senior executives were involved in the misconduct. In this case, you have the two co-CEOs who were convicted, and the general counsel who was convicted, of participating in FCPA offenses.
Nonetheless, the company received a declination. So for others out there it shows that under the right circumstances you can, perhaps, get a favorable resolution in an FCPA matter, even in a case in which senior executives were involved. When you have a board in which the outside directors are doing everything right, that that can be a defense.
It pushes the boundaries of the types of cases that are eligible for a declination.
What parting words would you leave with other companies that are facing an investigation for violations of the FCPA?
The dialogue, and the tone of the dialogue, is very important. You have to establish the government’s confidence in you. You have to establish that the investigation you’ve done, and the facts you have uncovered, have integrity—that that process was an appropriate process, and that they can rely upon what you’re telling them.
The government will come to you with a skeptical eye, looking for signs that they should not be relying upon your work, and you have to pass their scrutiny. We got through that process, I believe very successfully, because we had cast a wide net when we were looking for facts, and we had been very aggressive in our search.
When you get a declination, you say, “Thank you,” and you don’t ask a lot of questions.
Thank you, Tim.