Featured Expert Contributor, White Collar Crime and Corporate Compliance
Gregory A. Brower is Chief Global Compliance Officer for Wynn Resorts. He also serves on WLF Legal Policy Advisory Board and is a former U.S. Attorney.
A French building materials manufacturer and its Syrian subsidiary made history last week week by pleading guilty to federal terrorism charges after a long-running investigation led by DOJ’s National Security Division. This is the first ever criminal prosecution of a company for conspiring to provide material support to a foreign terrorist organization (“FTO”) in violation of U.S. law. The companies were immediately sentenced to terms of probation and penalties totaling nearly $800 million. The details reveal significant potential lessons for companies doing business is certain regions of the world.
According to the plea documents, the two defendants, Lafarge, and Lafarge Cement Syria (“LCS”) conspired to pay two FTO’s, the Islamic State of Iraq and al-Sham (“ISIS”) and the al-Nusrah Front (“ANF”), for permission to operate a cement plant in Syria during 2013 and 2014. The defendants opened the plant in May of 2010 at a cost of approximately $680 million and operated it until September of 2014. After the start of the Syrian Civil War in 2011, the companies paid armed factions in the war, including ISIS and ANF, a total of nearly $6 million to ensure continued operation of the plant, protect plant employees, and obtain economic advantage over their competitors in the region. These payments violated 18 U.S.C. § 2339B(a)(1). By late 2014, the situation in Syria became increasingly dangerous and LCS evacuated its plant there.
In early 2014, Lafarge began discussions about a share-purchase agreement with a Swiss company, Holcim. During due diligence for a potential deal, the companies shared information, but Holcim apparently did not specifically inquire about LCS’s operations in Syria. Lafarge, in turn, did not disclose any information about the payments to ISIS and ANF. By July of 2015, Lafarge became a wholly owned subsidiary of Holcim. In February of 2016, a website run by a group opposed to the Syrian regime alleged that Lafarge and LCS had made payments to ISIS. Once Holcim’s head of compliance and chief legal officer became aware of these allegations, Holcim engaged a law firm to conduct an internal investigation. The firm presented the investigative report to Holcim’s board of directors in April of 2017 and within days, the company issued a press release announcing the results of the investigation including that Lafarge and LCS had made payments to the FTO’s and that the companies’ management know about the payments.
The plea agreement makes clear that no evidence indicates the defendants’ or their employees’ support of the FTO’s terrorist ideologies or goals. However, the DOJ news release detailed the lengths to which the defendants pursued and concealed their scheme, including the use of false invoices; extraordinary cooperation with ISIS to verify the payments were correct per their agreement; attempts to require that ISIS not use the Lefarge name on any of the documents memorializing their agreements; and the use of personal email addresses by involved company executives.
Although this may be the first time DOJ has charged a corporation with providing material support for terrorism, the compliance failures that led to this debacle are not new and include the following:
Protection Payments. While the material support for terrorism aspect of this case is unique, the extortion part is not. With limited exceptions, companies should never pay when faced with extortionate demands, especially from government or quasi-government thugs.1 At best, the payments may not violate federal law, but will inevitably lead to a never-ending spiral of more demands, larger payments, and potential violence in any event. Worse yet, the payments may violate federal law, including the Foreign Corrupt Practices Act or, as here, the material support statute.
Any company facing an extortion effort should consult with counsel and consider immediately contacting law enforcement.
Prohibited Payments. DOJ officials have recently emphasized their concern with the intersection of corporate crime and national security. Traditionally, this connection has been focused on corporate business activities that violate various sanctions, export controls, and money laundering laws. The Lafarge case presents a new area of focus for DOJ—the terrorism statutes. Indeed, as Assistant Attorney General for the National Security Division Matthew G. Olsen said in announcing the Lafarge plea agreement, “[w]e are committed to ensuring that companies that seek to access U.S. markets and the U.S. financial system uphold their basic obligations under U.S. law.” AAG Olsen also made clear that this kind of conduct will not be excused just because the offending company does not actually support the ideology of the FRO in question. Making such prohibited payments for purely business reasons is no defense.
Due Diligence. Presumably because Lafarge’s operations in Syria never accounted for more than 1% of the company’s sales, Holcim apparently did not specifically inquire about those operations while performing due diligence before closing the acquisition. Deputy Attorney General Lisa Monaco focused on this point in her remarks about the plea agreement, stating that Holcim “did not perform due diligence of Lafarge’s operations in Syria, despite the clear compliance risks posed by operations in the region.” Doing business during certain time frames in certain regions of the world may not be possible without resorting to corrupt conduct. In retrospect, Holcim obviously should have asked how Lafarge was able to operate for two years in a war zone before evacuating. Even had Holcim taken steps to look more closely and ask more question, it may not have received the true story from Lafarge, but the plea agreement makes clear that the logical questions weren’t even asked.
The Long Arm of U.S. Law. U.S. criminal laws, including the terrorism statutes, have an exceptionally long reach and can extend to multi-national companies in ways that may be surprising to many. Any company that in any way seeks to access U.S. markets or the U.S. financial system is a potential target for federal investigators is well-advised to conduct itself accordingly both before and after it finds itself to be a target of an investigation. Here, not only did these foreign companies ultimately face justice in the U.S., but they also failed to cooperate with the investigation when afforded an opportunity to do so, thus enhancing their culpability in the eyes of DOJ.
This case is, in many ways, a cautionary tale for multi-national companies, especially those doing business in or seeking to do business in certain regions of the world. Operating a business in certain high-risk environments and acquiring companies with such a history carry significant risks of their own. Robust due diligence in both contexts, no matter how costly or complicated, is always far better for all concerned than looking the other way and hoping that a criminal investigation never comes.
Note
- One possible exception arises when an individual is facing an immediate threat of injury or death. For a recent discussion of DOJ guidance on this topic, see a March 15, 2022, post on this blog entitled “Four Key Takeaways from DOJ Advisory Opinion Clarifying Extortion Exception to FCPA.”