French multinational building products company Lafarge pleaded guilty to providing material support and resources to two U.S.-designated foreign terrorist groups in Syria, representing the Department of Justice’s (DOJ) first corporate material support for terrorism prosecution.
Lafarge and its defunct Syrian-based subsidiary, Lafarge Cement Syria (LCS), agreed Tuesday to pay nearly $778 million in fines and forfeiture to resolve a charge laid in U.S. District Court for the Eastern District of New York. Lafarge was accused of providing material support and resources from 2013-14 to the Islamic State of Iraq and al-Sham (ISIS) and the al-Nusrah Front (ANF).
The money helped shield the Lafarge cement facility in northern Syria and its employees from being attacked or harassed by ISIS and ANF, which controlled the region during that period of the Syrian civil war.
“The terrorism crimes to which Lafarge and its subsidiary have pleaded guilty are a vivid reminder of how corporate crime can intersect with national security,” said Deputy Attorney General Lisa Monaco in a DOJ press release. “The defendants partnered with ISIS … to enhance profits and increase market share—all while ISIS engaged in a notorious campaign of violence during the Syrian civil war. This case sends the clear message to all companies, but especially those operating in high-risk environments, to invest in robust compliance programs, pay vigilant attention to national security compliance risks, and conduct careful due diligence in mergers and acquisitions.”
The DOJ noted neither Lafarge, LCS, nor the building products conglomerate that would buy Lafarge in 2015—Swiss-based Holcim—fully cooperated with its investigation.
The misconduct began when Lafarge decided to continue doing business during the Syrian civil war at a $680 million cement plant it built in the Jalabiyeh region, even when many other companies left or shuttered operations in the country. The DOJ said Lafarge paid monthly “donations” to the armed groups worth nearly $6 million, in part so its employees could pass through checkpoints located near the plant, and another $1.1 million to third-party intermediaries for negotiating payments with the groups.
Lafarge and LCS would later enter into a revenue-sharing agreement with the terrorist groups in which payments were structured based on the amount of product Lafarge and LCS were able to sell. The agreement helped incentivize the terrorist groups to act in Lafarge’s economic interest, the DOJ said. LCS even provided ISIS with periodic sales reports to verify payment amounts were correct.
The DOJ added LCS asked the terrorist groups to impose taxes or block delivery of cement to the region from Turkish competitors, in order to drive up the prices of Lafarge’s products.
In September 2014, Lafarge and LCS finally evacuated the cement plant. ISIS took over the facility and sold the contents of the cement already produced there for a profit of $3.2 million, the DOJ said. All told, Lafarge generated $70 million in sales from its northern Syrian facility from 2013-14, while gains to all participants in the scheme totaled more than $80 million, the agency said.
Compliance considerations: Lafarge and LCS executives took great pains to conceal the scheme. Company executives required intermediaries “to create business entities with names not obviously linked to the intermediaries and created invoices with false descriptions of services rendered for an intermediary to submit to LCS,” the DOJ said. The executives asked ISIS not to use the word “Lafarge” on any of their agreements and conducted much of their business via personal emails, the agency continued.
“This case sends the clear message to all companies, but especially those operating in high-risk environments, to invest in robust compliance programs, pay vigilant attention to national security compliance risks, and conduct careful due diligence in mergers and acquisitions.”
Deputy Attorney General Lisa Monaco
In October 2014, as a condition of paying an intermediary for having negotiated with ISIS and other armed groups, Lafarge and LCS executives required the intermediary to sign an agreement terminating his agreement to provide services to LCS, the DOJ said.
“Critically, the Lafarge and LCS executives backdated the termination agreement to Aug. 18, 2014, a date shortly after the United Nations Security Council had issued a resolution calling on member states to prohibit doing business with ISIS and ANF, to falsely suggest that he had not been negotiating with ISIS on behalf of LCS after the UN resolution,” the DOJ said.
Lafarge was purchased by Holcim in 2015, after the misconduct had occurred. Lafarge executives did not disclose payments made to ISIS and ANF during pre-merger due diligence talks with Holcim, nor did they disclose any of the other material support the company provided to the terrorist groups. Holcim, however, never conducted pre- or post-due diligence of LCS’s operations in northern Syria, the DOJ said.
Holcim noted in a statement Lafarge executives concealed the misconduct from it before and after the merger, as well as from external auditors.
Lafarge also faces legal threats in French courts related to the same misconduct, including charges of being complicit in crimes against humanity.
Lafarge is not the only company accused of paying bribes to ISIS. Swedish telecom Ericsson earlier this year launched an internal investigation into allegations of paying ISIS so it could operate in Iraq from 2011-19.
Company responses: Holcim said when it learned in 2016 of the allegations regarding Lafarge’s payments to terrorist groups, it “proactively and voluntarily conducted an extensive investigation, led by a major U.S. law firm and overseen by the board of directors. It publicly disclosed the principal investigative findings in 2017 and separated from former Lafarge SA and LCS executives who were involved in these events.”
The DOJ said Holcim has an effective risk and compliance program in place to “detect and prevent any similar potential conduct,” and thus did not appoint an independent compliance monitor in the case, according to the company.
“Holcim operates to the highest ethical standards in strict compliance with the laws of all its jurisdictions,” the company said. “Today’s resolution reaffirms Holcim’s commitment to conducting all its business with utmost integrity.”
In a separate statement, Lafarge said, “Lafarge SA and LCS have accepted responsibility for the actions of the individual executives involved whose behavior was in flagrant violation of Lafarge’s code of conduct. We deeply regret that this conduct occurred and have worked with the U.S. Department of Justice to resolve this matter.”