On May 12, 2021, Telefonaktiebolaget LM Ericsson (“Ericsson”) announced that it had reached an agreement to settle a claim by a competitor, Nokia Corporation, for €80 million (approximately $97 million).[1]  Although Nokia’s complaint against Ericsson was not filed publicly, and therefore the details of the claim are not known, Ericsson’s announcement stated that “[t]he settlement relates to events that were the subject of a 2019 resolution with the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) of investigations into Ericsson’s violations of the U.S. Foreign Corrupt Practices Act (FCPA).”[2]  This appears to be a rare instance in which a company that allegedly paid bribes to obtain business from a government entity agreed to compensate a competitor that lost out on the business opportunity as a result of the corrupt conduct, and demonstrates a further, significant risk of follow-on litigation relating to FCPA violations.

In late 2019, Ericsson entered into settlements with both the DOJ and SEC, paying total penalties and disgorgement of over $1 billion to resolve the government’s investigation into FCPA violations, involving an alleged bribery scheme spanning more than fifteen years and several countries, in order to win lucrative contracts from state-owned telecommunications entities.  Ericsson entered into a deferred prosecution agreement with the DOJ in connection with charges of conspiracy to violate the anti-bribery, books and records, and internal controls provisions of the FCPA.[3]  An Ericsson subsidiary in Egypt also pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA.[4]  The SEC’s civil complaint against Ericsson alleged violations of the FCPA’s anti-bribery, books and records, and internal controls provisions.[5]  Ericsson’s resolutions with the DOJ and SEC place it as the fourth largest FCPA case of all time based on penalties and disgorgement assessed.

By way of reminder, there is no private right of action under the FCPA.  Nevertheless, news of an FCPA investigation or enforcement action can often lead to follow-on private litigation.  Most typically, related shareholder litigation, including securities class actions and shareholder derivative actions, is commonly filed against publicly-traded companies investigated for FCPA violations, typically in connection with a drop in share price associated with the announcement of an investigation or settlement.  Some recent examples include:

  • A putative class action alleging that Avon Products, Inc. made materially false and misleading statements in violation of the U.S. federal securities laws, following disclosures by Avon regarding an internal investigation into allegations of FCPA violations.[6] While the lawsuit was pending, Avon resolved FCPA-related investigations with the DOJ and SEC for a total of $135 million, and an Avon subsidiary in China pleaded guilty to conspiracy to violate the FCPA.[7]  Avon subsequently settled the class action litigation for $62 million.[8]
  • A consolidated putative class action alleging that Braskem S.A. violated the U.S. federal securities laws by failing to disclose a bribery scheme, filed after the scheme was exposed by a Brazilian newspaper.[9] While the lawsuit was pending, Braskem pleaded guilty to conspiracy to violate the FCPA and agreed to pay $957 million to authorities in the United States, Brazil, and Switzerland.[10]  Braskem subsequently settled the class action litigation for $10 million.[11]
  • A shareholder derivative action alleging that current and former directors and officers of Qualcomm Incorporated breached their fiduciary duties by failing to prevent purported FCPA violations by the company.[12] The lawsuit was filed after Qualcomm entered into a settlement with the SEC for $7.5 million.[13]  The court ultimately dismissed the complaint for failure to plead that the defendants had acted in bad faith or that the directors faced a substantial likelihood of personal liability such that plaintiffs’ failure to make a pre-suit demand on the board was excused.[14],[15]

However, it is uncommon to see a case such as Nokia’s, in which a competitor alleges it suffered damages as a result of corrupt conduct.  One example of such a case was brought by NewMarket Corporation against Innospec Inc.  In that case, which followed Innospec’s guilty plea and $40.2 million global settlement to resolve a FCPA investigation,[16] NewMarket asserted federal and Virginia state law antitrust and commercial bribery claims, alleging that Innospec bribed government officials in Iraq and Indonesia to ensure that its products were favored over NewMarket’s.[17]  Innospec reportedly settled the case for $45 million in 2011.[18]

Another example is a case brought by Korea Supply Company against Lockheed Martin Corporation and Lockheed Martin Tactical Systems, Inc., following a corruption investigation by Korean authorities.  Korea Supply Co. alleged that Lockheed Martin had bribed Korean government officials, and that this was the reason that Lockheed Martin obtained a Korean government contract even though Korea Supply Co.’s bid was $50 million lower and the Korean military had rated its products superior to those of Lockheed Martin.[19]  The California Supreme Court held that a civil claim under California law for intentional interference with prospective economic advantage may be predicated upon pleading that the defendant violated the FCPA.[20]

Additionally, there have been instances in which a plaintiff has alleged bribery of foreign officials as a predicate offense under the U.S. Racketeer Influenced and Corrupt Organizations Act (“RICO”).  For example, Environmental Tectonics Corporation International (“ETC”) brought such a lawsuit against W.S. Kirkpatrick & Co., alleging that Kirkpatrick had been awarded a contract, which ETC also bid for, as a result of commissions paid to Nigerian officials.[21]  ETC filed the lawsuit after Kirkpatrick pleaded guilty to violating the FCPA.[22]

In recent years, there has been a trend of FCPA resolutions with the government involving larger and larger amounts of money.  At the time, Ericsson’s settlement with the DOJ and SEC was the second largest FCPA-related settlement.  It is very likely that this trend will continue and that the next few years will continue to see additional large FCPA settlements.  Given the significant amount of benefits that companies in these cases are alleged to have received, competitors may seek to bring litigation against a settling company particularly where the companies have admitted to certain misconduct as part of the resolution with the government,[23] thus making it more likely that the competitor could recover a favorable judgment or reach a favorable settlement.  In announcing the settlement with Nokia, for example, Ericsson stated that the settlement amount “reflects uncertainty, risk, expense, and potential distraction from business focus associated with a potentially lengthy and complex litigation.”[24]

The risk of follow-on litigation underscores the importance to companies involved in FCPA-related investigations of considering the collateral consequences of any negotiated settlement with the government.  It also underscores the importance of taking appropriate steps to put the company in the best position to defend against subsequent lawsuits, including preserving attorney-client privilege and work-product protection, and carefully considering admissions in any statements of fact negotiated with the government, or public statements relating to compliance issues.  Finally, at bottom, it underscores the importance of companies having effective compliance programs to detect and prevent any potential FCPA violations in the first instance.

[1] Press Release, Ericsson, Ericsson announces settlement with impact in second quarter 2021 (May 12, 2021), https://www.ericsson.com/en/press-releases/2021/5/ericsson-announces-settlement-with-impact-in-second-quarter-2021.

[2] Id.

[3] Press Release, U.S. Department of Justice, Ericsson Agrees to Pay Over $1 Billion to Resolve FCPA Case (Dec. 6, 2019), https://www.justice.gov/opa/pr/ericsson-agrees-pay-over-1-billion-resolve-fcpa-case.

[4] Id.

[5] Press Release, U.S. Securities and Exchange Commission, SEC Charges Multinational Telecommunications Company With FCPA Violations (Dec. 6, 2019), https://www.sec.gov/news/press-release/2019-254.

[6] See Second Amended Complaint for Violations of the Federal Securities Laws, City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11-cv-4465 (PGG) (S.D.N.Y. Oct. 24, 2014), ECF No. 56.

[7] Press Release, U.S. Department of Justice, Avon China Pleads Guilty to Violating the FCPA by Concealing More Than $8 Million in Gifts to Chinese Officials (Dec. 17, 2014), https://www.justice.gov/opa/pr/avon-china-pleads-guilty-violating-fcpa-concealing-more-8-million-gifts-chinese-officials; Press Release, U.S. Securities and Exchange Commission, SEC Charges Avon With FCPA Violations (Dec. 17, 2014), https://www.sec.gov/news/pressrelease/2014-285.html.

[8] See Stipulation and Agreement of Settlement, City of Brockton Ret. Sys. v. Avon Prods., Inc., No. 11-cv-4465 (PGG) (S.D.N.Y. Aug. 18, 2015), ECF No. 71.

[9] See Second Amended Consolidated Class Action Complaint, In re Braskem S.A. Sec. Litig., No. 15-cv-5132 (PAE) (S.D.N.Y. May 20, 2016), ECF No. 69.

[10] Press Release, U.S. Department of Justice, Odebrecht and Braskem Plead Guilty and Agree to Pay at Least $3.5 Billion in Global Penalties to Resolve Largest Foreign Bribery Case in History (Dec. 21, 2016), https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve; Press Release, U.S. Securities and Exchange Commission, Petrochemical Manufacturer Braskem S.A. to Pay $957 Million to Settle FCPA Charges (Dec. 21, 2016), https://www.sec.gov/news/pressrelease/2016-271.html.

[11] Braskem, Notice to the Market, Class Action Settlement (Feb. 21, 2018), https://www.braskem.com.br/RI/news-detail/class-action-settlement.

[12] In re Qualcomm Inc. FCPA S’holder Derivative Litig., C.A. No. 11152–VCMR, 2017 WL 2608723, at *1 (Del. Ch. June 16, 2017).

[13] See Press Release, U.S. Securities and Exchange Commission, Qualcomm Hired Relatives of Chinese Officials to Obtain Business (Mar. 1, 2016), https://www.sec.gov/news/pressrelease/2016-36.html.

[14] Qualcomm, 2017 WL 2608723, at *2-4.

[15] Other examples include shareholder litigation against Petróleo Brasileiro S.A., Embraer S.A., Centrais Elétricas Brasileiras S.A., General Cable Corporation, VEON Ltd., SciClone Pharmaceuticals, Inc., Willbros Group, Inc., Nature’s Sunshine Products, Inc., Faro Technologies, Inc., InVision Technologies, Inc., Wal-Mart Stores Inc., Baker Hughes Inc., Alcoa Inc., Cobalt International Energy, Inc., and Dow Chemical Company.

[16] See Press Release, U.S. Department of Justice, Innospec Inc. Pleads Guilty to FCPA Charges and Defrauding the United Nations; Admits to Violating the U.S. Embargo Against Cuba (Mar. 18, 2010), https://www.justice.gov/opa/pr/innospec-inc-pleads-guilty-fcpa-charges-and-defrauding-united-nations-admits-violating-us; Press Release, U.S. Securities and Exchange Commission, SEC Charges Innospec for Illegal Bribes to Iraqi and Indonesian Officials (Mar. 18, 2010), https://www.sec.gov/news/press/2010/2010-40.htm.

[17] See Second Amended Complaint, NewMarket Corp. v. Innospec Inc., No. 10-cv-00503 (HEH) (MHL) (E.D. Va. Jan. 27, 2011), ECF No. 41.

[18] Joe Palazzolo, Innospec To Pay $45 Million To End Lawsuit Over Bribery, Wall Street Journal (Sept. 27, 2011), https://www.wsj.com/articles/BL-CCB-5137.

[19] Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937, 942 (Cal. 2003).

[20] Id. at 954.

[21] See Env’t Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052, 1055-56 (3d Cir. 1988).  In that case, the U.S. Supreme Court also held that the Act of State Doctrine did not bar ETC’s RICO claims against Kirkpatrick.  See W.S. Kirkpatrick & Co., Inc., v. Env’t Tectonics Corp., Int’l, 493 U.S. 400 (1990).

[22] See Press Release, U.S. Department of Justice (Nov. 20, 1986), https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/08/10/1985-11-20-kirkpatrickws-press-release.pdf.

[23] In Ericsson’s deferred prosecution agreement, it “expressly agree[d] that it shall not . . . make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by the Company . . . or the facts described in the attached Statement of Facts.”  Deferred Prosecution Agreement ¶ 23, United States v. Telefonaktiebolaget LM Ericsson, No. 19-cr-884 (AJN) (S.D.N.Y. Dec. 6, 2019), ECF No. 6, https://www.justice.gov/opa/press-release/file/1272151/download.

[24] Press Release, supra note 1.