Toby Duthie, Partner, Forensic Risk Alliance
In recent years, the logistics and freight forwarding industry has been subjected to increased international enforcement of anti bribery and corruption legislation with the Panalpina matter being the most significant investigation in this sector. As well as the proceedings and penalties imposed upon Panalpina itself ,a series of connected US investigations arose from the facts and evidence uncovered by the US authorities. These included investigations into, and settlements with, a series of US issuer companies including Royal Dutch Shell, Transocean, Tidewater Marine and Pride International.
A number of the key reasons in the Panalpina matter why bribes were paid to local officials in countries such as Nigeria, Angola, Azerbaijan, Brazil, Russia, Turkmenistan Saudi Arabia and Kazakhstan included efforts to expedite customs clearance procedures, avoid cargo inspections, avoid duties and taxes, extend Temporary Import Permits ("TIP") to avoid local regulations and overlook incomplete or inaccurate documentation (see table below). The long running schemes required the falsification of documentation and the accounting records of both Panalpina and its US issuer customers in order to disguise these improper payments within their books and records. Typically these companies pled ignorance as to the nature of local arcane assessment and clearance regimes but this did not prove successful as an affirmative defence. The 2010 settlement with Panalpina and its US issuers resulted in penalties of US$156m from the US Department of Justice ("DoJ") and a further US$80m by the US Securities & Exchange Commission ("SEC"), which included the disgorgement of profits earned on contracts obtained through improper payments. In terms of total costs to include legal fees, business interruption and loss of business to competitors, then the total cost to Panalpina would very likely be multiply higher by quite some magnitude.
Other companies in a wide range of sectors have been penalised primarily by the US authorities for various customs related violations, including Vetco, Diageo, Ball and Helmerich & Payne. One of the most important observations from these settlements is the description within the invoices submitted by third parties and the description entered into the prosecuted company's accounting records. For example,
• inflated invoices received by Diageo from a customs brokerage were charged to a "professional services and consulting fees account",
• payments made by Ball's subsidiary were recorded as "fees for customs assistance" or "customs advisory services" or verification charges",
• invoices from customs brokers to H&P included descriptions such as "additional assessments", "urgent processing" and "customs processing".
• payments made by Vetco to customs officials in Nigeria were variously described as "express courier", "interventions" and "evacuations"
Few cases have involved China directly but clear risks arise at points of import and export (especially as regards higher risk borders (e.g. Russia, Kazakhstan and Mongolia) and relate to customs inspection, assessment (or exemption) and clearance. More critical still is the concern of multinationals that they will be exposed through their logistics vendors as per the Panalpina precedent. Also worth noting is that other major logistics vendors are allegedly currently under investigation by the US authorities. In response to this multinationals are increasingly actively auditing the compliance controls of their logistics partners both as part of their tender processes and on an on-going basis. Demonstrably robust anti-bribery controls are increasingly seen as a prerequisite to pre-qualification. Furthermore, and especially in the extractive sector, if compliance breaches are uncovered during an audit or diligence process, then reports are made to the relevant authorities (typically this includes the US Department of Justice). The reach of the US regulators cannot be understated ,a US Dollar payment, a US client base or JV partner, the involvement of a US national is enough to encourage the US prosecutors to assert jurisdiction. Another powerful enforcement trend is also in evidence in China itself with a spate of high profile sector driven Pharma related corruption investigations being underway. Anti bribery compliance is, therefore, increasingly a must have, especially in the logistics sector given its risk profile.