Chemical Giant Cooks the Books, Pays $218 Million for Bribery Scheme

The chemical industry recently got a dose of reality. Albemarle Corporation, a leading industry player, has agreed to pay a whopping $218 million to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to resolve the SEC investigation for violation of securities law. This hefty charge stems from violations of the Foreign Corrupt Practices Act of 1977 (FCPA) and Securities Exchange Act of 1934, a critical piece of the federal legislation that combats bribery in international commerce for all publicly traded companies in the US. Let’s dissect this case study in corruption and explore the details of Albemarle’s transgression.

Violations of the FCPA

The FCPA makes it unlawful for certain entities and persons to bribe foreign government officials to obtain or retain business. Recently, Albemarle Corporation admitted to violating the anti-bribery, recordkeeping, and internal accounting controls provisions of the Foreign Corrupt Practices Act 1977 and failing to keep up with the audit and financial disclosure requirements laid down in the Securities and Exchange Act 1934 in numerous ways:

Misconduct of Third Party Agents

The corporation used agents for over 7 years to bribe officials in India, Vietnam, and Indonesia. These bribes helped Albemarle retain catalyst business with public sector oil refineries and private sector refineries from India.

Recordkeeping Requirements

The FCPA mandates that companies maintain accurate and complete books and records that fairly reflect their transactions. In contravention of this requirement, Albemarle engaged in a practice of mischaracterizing payments to sales agents, recording them as legitimate transactions over a period of several years.

Accounting Controls

The corporation also failed to maintain proper control over its internal accounting as expected. This failure led to wide-ranging misconduct from Albemarle. It was highlighted that even though many red flags were seen over the years, the corporation still did not take any active efforts to comply with the internal accounting control requirements established by the law.

Breakdown of Penalties

Albemarle faced significant financial consequences for its FCPA violations:U.S. Department of Justice (DoJ) Resolution

The DoJ entered into a 3-year non-prosecution agreement wherein Albemarle voluntarily agreed to the following penalties:

◉ A $99 million criminal fine
◉ A forfeiture of approximately $98 million (with $81.9 million credited towards SEC disgorgement)
◉ To show continuous support in present or future trials regarding this matter
◉ To enhance its compliance program and present reports to the DoJ showcasing such measures and its effects for the term of the NPA

Note: In order to streamline enforcement actions and deter corporate misconduct, a policy exists under which disgorgement collected by the DoJ is credited to the SEC. The objective of this policy is to strike a balance by preventing excessive fines and ensuring companies do not profit from their wrongdoings.U.S. Securities and Exchange Commission (SEC) Order

After confirmation of anti-bribery, recordkeeping and accounting control violations to the SEC, Albemarle consented to:

◉Cease and desist from committing or causing any future violations of these provisions

◉ Pay disgorgement of approximately $81.8 million prejudgment interest of more than $21.7 million, totaling more than $103.6 million

Remedial Measures and Cooperation

Albemarle received credit under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) for cooperating throughout the investigation with the DoJ. These actions included:

◉ Voluntary disclosure of misconduct
◉ Prompt reporting of internal investigation records, presentation of documents and witnesses

Moreover, the organization also promptly engaged itself in remedial measures such as:

◉ Termination of 11 employees and withholding bonus of 16 employees
◉ Proper implementation of controls after internal investigation
◉ Investing in compliance resources
◉ Taking effective steps to reduce corruption risks by updating policies
◉ Extensive training and revision of compensation structure to incentivize performance beyond sales targets

A Learning Opportunity for Global Businesses

As a cautionary tale for multinational corporations venturing into international commerce, this case offers invaluable lessons. It sets an example for other companies in establishing comprehensive anti-corruption compliance programs, thereby mitigating the risk of similar entanglements.

A Proactive Approach

Albemarle’s reliance on third-party agents for sales demonstrably exposed the company to significant FCPA risks. To effectively navigate this challenge, corporations must implement a multi-pronged approach.

◉ Firstly, a comprehensive due diligence process for all third-party relationships is paramount. This entails a thorough examination of potential partners’ past conduct, reputation, and adherence to anti-corruption principles.

◉ Secondly, ongoing monitoring of these relationships is crucial. Companies should not become complacent after the initial selection process; continuous vigilance is essential to identify and address any potential red flags that may surface over time.

Beyond Policy Documents

Effective FCPA compliance transcends the mere existence of a policy document gathering dust on a shelf. This necessitates the creation of an atmosphere where employees feel empowered to report suspected wrongdoing without fear of retribution. Regular and comprehensive training programs on anti-bribery regulations and internal controls equip employees with the necessary knowledge and tools to identify and prevent corruption within their spheres of influence.

Reviews and Training

To cultivate an ethical sales environment, corporations must use a two-pronged approach. Periodic evaluations and adjustments to compensation structures, encompassing incentive programs, ensure that employee motivations align with desired conduct. Further, comprehensive training programs actively inculcate a focus on the overarching objective of corporate growth, going beyond mere revenue generation.

Transparency Through Recordkeeping

Albemarle’s lack of transparency, evidenced by inaccurate records, proved to be a critical factor in its downfall. Regular internal audits and reviews conducted by independent bodies can further bolster transparency and strengthen the efficacy of internal controls.

Beyond the Minimum

While self-disclosure and cooperation with investigations can demonstrably lead to reduced penalties, the ideal scenario for any corporation is to avoid such situations altogether. Companies should consider:

◉ Investing in data analytics tools to identify suspicious activity patterns within their operations

◉ Conducting thorough risk assessments for high-risk markets to anticipate potential challenges and tailor their compliance strategies

The global marketplace demands a commitment to ethical conduct, and proactive measures are the key to ensuring a clean track record and avoiding the reputational and financial repercussions exemplified by the Albemarle case.