A BIRD S-EYE VIEW OF DOJ S FCPA FINES AND SETTLEMENTS

Transcription

1 5 OCTOBER 2014, ISSUE 1 A BIRD S-EYE VIEW OF DOJ S FCPA FINES AND SETTLEMENTS BY: DR. MUKESH BAJAJ, DR. OOMMEN THOMAS, DR. URMI MUKHERJEA HIGHLIGHTS FCPA settlements are determined based on the facts and circumstances of individual cases, as well as on a defendant s financial condition or inability to pay. The actual fine paid by a settling company is usually, but not always, within the determined fine range as provided under the US Sentencing Guidelines. In the settlements we analyzed, we find that the settlement amounts are less than 10% of the defendant s cash resources in a majority of the cases. Of the top 10 largest FCPA settlements, eight of the settling companies or their parents were based outside the U.S. The 1977 Foreign Corrupt Practices Act (FCPA) as amended in 1998 makes bribing or paying foreign government and other officials to help in obtaining or retaining business unlawful. 1 The FCPA applies to U.S. corporations as well as foreign entities that are either publicly listed in the U.S. or otherwise required to file reports with the Securities and Exchange Commission (SEC). The U.S. Department of Justice (DOJ) has the responsibility to enforce FCPA in criminal matters whereas the SEC is responsible for the enforcement of civil matters under the FCPA. The DOJ and SEC also cooperate with U.S. and foreign law enforcement agencies, such as the FBI and UK s Serious Fraud Office, to enforce anticorruption laws. Government enforcement of the FCPA has been steady or growing in recent years. The Organisation for Economic Cooperation and Development s (OECD) Working Group on Bribery noted in December 2012 that the US has continued to robustly enforce the FCPA. 2 In the October 2010 through December 2012 period, the SEC brought 29 civil enforcement actions while the DOJ brought 38 separate criminal actions against corporate entities. 3 Fitch Ratings noted that the average size of FCPA penalties had increased over time. 4 A study by Shearman & Sterling, LLP (cited by Fitch Ratings) notes that the [t]otal DOJ criminal and SEC civil fines for FCPA enforcement imposed on corporations from 2002 through 2009 ranged from under $1 million to nearly $156 million annually. In 2013, the settlement with Total S.A. alone resulted in fines close to $400 million while Weatherford International paid criminal and civil fines of more than $150 million. 5 In this article, we review how fine ranges are determined and where settlements occur relative to the fine range for the top 10 FCPA settlements from 2008 onwards. We find that the final settlement is related to the facts and circumstances of individual cases including a defendant s financial condition. THE SETTLEMENT PROCESS AND FINE DETERMINATION Typically, a plea agreement, a Deferred Prosecution Agreement (DPA) 6 or a Non Prosecution Agreement (NPA) 7 between the DOJ and the defendants lays out the basis for the FCPA settlement fines and/or criminal penalties. The agreement is conditional on the company acknowledging and accepting responsibility for its acts, paying a

2 6 OCTOBER 2014, ISSUE 1 fine and submitting to government oversight in many cases. 8 See for example, the DPA in the May 2013 United States v. Total S.A. matter. 9 We will use the Total S.A. matter to illustrate the settlement process and fine determination. The initial Base Fine that the court considers in a plea deal is based on the United States Federal Sentencing Guidelines. OFFENSE LEVEL DETERMINATION The Base Fine is determined on the basis of the Offense Level that relies on factors such as the size of loss caused, number of victims, whether there was significant conduct outside the U.S. or whether sophisticated means were used, as shown in Table 1 (following USSC 2B1.1.). TABLE 1: FACTORS VS. OFFENSE LEVEL FACTORS OFFENSE LEVEL Base Offense Level 6 Size of loss caused 30 if loss exceeds $400 million 28 if loss is between $200 and $400 million 26 if the loss is between $100 and $200 million 6 if loss is between $30,000 and $70,000 4 if loss is between $10,000 and $30,000 2 if loss is between $5,000 and $10,000 0 if loss is less than $5,000 Number of victims 6 if >250 victims 4 if >50 and <250 victims 2 if <50 victims Significant Conduct Outside U.S. or Sophisticated Means 2 BASE FINE DETERMINATION The Base Fine is calculated (following USSC 8C2.4.) as the greatest of: 1. the amount from the table below corresponding to the offense level determined previously; 2. the pecuniary gain to the organization from the offense; or 3. the pecuniary loss from the offense caused by the organization, to the extent the loss was caused intentionally, knowingly, or recklessly. The Base Fine for Total S.A., based on its purported gain from the offense, was determined to be $147 million.

3 7 OCTOBER 2014, ISSUE 1 TABLE 2: OFFENSE LEVEL & BASE FINE OFFENSE LEVEL BASE FINE ($ MILLIONS) OFFENSE LEVEL BASE FINE ($ MILLIONS) > CULPABILITY SCORE DETERMINATION Under the Sentencing Guidelines (following USSC 8C2.5.), the alleged offender s Culpability Score is used to determine a Fine Range based on the Base Fine. The score is calculated as the sum of scores given to various factors as shown in the table below. TABLE 3: FACTORS AND INCREMENTAL CULPABILITY SCORE FACTOR INCREMENTAL CULPABILITY SCORE Base Score 5 Number of employees and high-level personnel involvement or pervasive tolerance Prior history 5 if >5,000 4 if >1,000 and <5,000 etc. 2 if within 5 years of a criminal adjudication (or 2 civil adjudications) of a similar misconduct 1 if within 10 years of the same Mitigating factors such as self-reporting, cooperation, and acceptance of responsibility -5 if the organization reported the offense prior to threat of disclosure and within a reasonably prompt time after being aware of the offense; fully co-operated and demonstrated recognition and acceptance of responsibility for its conduct; -2 if the organization fully co-operated and demonstrated recognition and acceptance of responsibility for its conduct; -1 if the organization demonstrated recognition and acceptance of responsibility for its conduct. Total S.A. scored (-2) = 8 as its Culpability Score. DETERMINING THE FINE RANGE The Fine Range is determined as (Base Fine * Minimum Multiplier) to (Base Fine * Maximum Multiplier) where the minimum and maximum multipliers for the fine are based on the Culpability Score as shown in the table below.

4 8 OCTOBER 2014, ISSUE 1 TABLE 4: CULPABILITY SCORE VS. MULTIPLIER RANGE CULPABILITY SCORE MULTIPLIER RANGE >=10 2 to to to to to to 2.0 For example, Total S.A. s culpability Score was 8 and Base Fine was $147 million. Hence, its Fine Range was $235.2 million (or 1.6 x $147 million) to $470.4 million (or 3.2 x $147 million). OTHER FACTORS INFLUENCING THE FINE In determining the amount of the fine within the applicable guideline range, the court and hence the DOJ consider various other factors in making plea deals (following USSC 8C2.8.): the sentence should reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford adequate deterrence, and protect the public from further crimes of the organization; the organization s role in the offense; any collateral consequences of conviction, including civil obligations arising from the organization s conduct; any non-pecuniary loss caused or threatened by the offense; whether the offense involved a vulnerable victim; any prior criminal record of an individual within high-level personnel of the organization or high-level personnel of a unit of the organization who participated in, condoned, or was willfully ignorant of the criminal conduct; any prior civil or criminal misconduct by the organization other than that counted under Culpability Score; any culpability score higher than 10 or lower than zero; partial but incomplete satisfaction of the conditions for one or more of the mitigating or aggravating factors set forth in 8C2.5 (Culpability Score); any factor listed in 18 U.S.C. 3572(a) (see below); and whether the organization failed to have, at the time of the instant offense, an effective compliance and ethics program. In determining whether to impose a fine, and then the amount, time for payment, and method of payment of a fine, in addition to the factors concerning issues of equity

5 9 OCTOBER 2014, ISSUE 1 and justice set forth in 18 U.S.C (a), the court is also required to consider the following factors enumerated in 18 U.S.C (a): the defendant s income, earning capacity, and financial resources; the burden that the fine will impose upon the defendant, any person who is financially dependent on the defendant, or any other person (including a government) that would be responsible for the welfare of any person financially dependent on the defendant, relative to the burden that alternative punishments would impose; any pecuniary loss inflicted upon others as a result of the offense; whether restitution is ordered or made and the amount of such restitution; the need to deprive the defendant of illegally obtained gains from the offense; the expected costs to the government of any imprisonment, supervised release, or probation component of the sentence; whether the defendant can pass on to consumers or other persons the expense of the fine; and if the defendant is an organization, the size of the organization and any measure taken by the organization to discipline any officer, director, employee, or agent of the organization responsible for the offense and to prevent a recurrence of such an offense. If an offense results in pecuniary gains for the defendant or loss to a person other than the defendant, then the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process. (18 U.S.C Sentence of fine). The court (and the DOJ) can also consider the defendant s inability to pay and reduce the fine in those cases. Under USSC 8C3.3, the court can reduce fines to the extent that imposition of such fine would impair the settling company s ability to make restitution to victims. Fines can also be reduced if the court finds that the organization is not able and, even with the use of a reasonable installment schedule, is not likely to become able to pay the minimum fine required. RECENT FCPA SETTLEMENTS Below are some of the largest overall FCPA settlements when including civil penalties to the SEC and foreign regulators since ALCOA INC. In January 2014, Alcoa World Alumina (majority-owned and controlled by Alcoa Inc.) pleaded guilty to charges that it paid millions of dollars in bribes to Kingdom of Bahrain officials, through a middleman in London, and violated the anti-bribery provision of the FCPA. 10 Alcoa agreed to pay a criminal fine of $209 million and administratively forfeited $14 million to the DOJ. At the same time Alcoa also settled with the SEC and agreed to pay $161 million in disgorgement, thus paying total penalties and fines of $384 million.

6 10 OCTOBER 2014, ISSUE 1 Alcoa s Fine Range as proposed by the DOJ was $446 million to $892 million and thus the fine actually paid by Alcoa is below the lower end of this range. (Note: Alcoa s plea agreement acknowledges that Alcoa s financial condition, as well as the company s cooperation with the DOJ, were factors relevant to the size of the fines paid by Alcoa). HALLIBURTON, INC. AND KELLOGG, BROWN & ROOT, LLC On February 11, 2009, Kellogg Brown & Root, LLC (KBR), a former subsidiary of Halliburton Inc. pled guilty to violation of FCPA for plotting to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts related to the construction of liquefied natural gas (LNG) facilities on Bonny Island in Nigeria. 12 KBR agreed to pay $402 million in criminal fines to the DOJ for violation of FCPA antibribery provisions. KBR and Halliburton, KBR s parent company at the time of the alleged violations, agreed to jointly pay $177 million in disgorgement of profits to the SEC for the violation of books and records and internal controls related to the bribery. The total fine paid by Halliburton and KBR was $579 million which fell within the DOJ proposed Fine Range of $376.8 million to $753.6 million. 13 TECHNIP S.A. On June 28, 2010, the DOJ filed a DPA and criminal charges against Technip S.A., a Paris-based engineering and construction company, for allegedly violating the FCPA anti-bribery provisions. 14 Technip had participated in the joint venture along with KBR that had bribed Nigerian government officials to obtain EPC contracts related to the construction of LNG facilities in Bonny Island in Nigeria. Technip agreed to pay $240 million in criminal penalties to the DOJ as well as $98 million to the SEC in disgorgement of profits related to related civil charges for violation of the FCPA books and records and internal controls provisions. The total fine of $338 million paid by Technip was in the DOJ proposed Fine Range of $318.4 million to $638.8 million. TOTAL S.A. On May 29, 2013, Total S.A., a French oil and gas corporation entered into a DPA with the DOJ for three years for allegedly violating the FCPA anti-bribery, books and records and internal controls provisions. The FCPA charges were in connection with bribes paid to Iranian government officials in exchange for oil and gas concessions. Total S.A. agreed to pay $245.2 million in criminal penalties as well as $153 million to the SEC in related disgorgement. The final settlement amount of $398.2 million was within the DOJ proposed Fine Range (as discussed earlier) of $235.2 million to $470.4 million. TOP 10 FCPA SETTLEMENTS Table 5 summarizes the fines and penalties paid in the 10 largest FCPA settlements (as well as total settlements with the DOJ, the SEC and other authorities).

7 11 OCTOBER 2014, ISSUE 1 TABLE 5: SETTLEMENT STATISTICS: LARGEST 10 FCPA SETTLEMENTS ($ MILLIONS, IN ASCENDING ORDER) COMPANY Weatherford Intl. DOJ DISGORGEMENT/ SEC AND DOJ OTHER TOTAL PENALTY CIVIL PENALTY (SEC) SETTLEMENT SETTLEMENT 2 $87.2 $65.6 $152.8 $0.0 $152.8 Daimler AG $93.6 $91.4 $185.0 $0.0 $185.0 JGC Corporation $218.8 $0.0 $218.8 $0.0 $218.8 Technip S.A. $240.0 $98.0 $338.0 $0.0 $338.0 Eni S.p.A 1 $240.0 $125.0 $365.0 $0.0 $365.0 Alcoa $223.0 $161.0 $384.0 $0.0 $384.0 Total SA $245.2 $153.0 $398.2 $0.0 $398.2 BAE Systems, plc $400.0 $0.0 $400.0 $0.0 $400.0 Halliburton, $382.0 $177.0 $559.0 $0.0 $559.0 Inc. 1 Siemens AG $450.0 $350.0 $800.0 $856.0 $1, In the case of KBR and Snamprogetti, most of the settlement amount was paid by Halliburton, Inc. and Eni S.p.A, respectively (for example, Halliburton paid $382 million and KBR paid $20 million to the DOJ). As such, the settlement amount and cash resources presented are only for the primary payor of the settlement amount. 2 Total Settlement is the sum of fines paid to all prosecuting authorities. For example, the total settlement paid by Siemens includes fines paid to the DOJ, the SEC and the Munich Public Prosecutor s Office. OF THE TOP 10 LARGEST FCPA SETTLEMENTS, EIGHT OF THE SETTLING COMPANIES OR THEIR PARENTS WERE BASED OUTSIDE THE U.S.

8 12 OCTOBER 2014, ISSUE 1 ECONOMIC IMPACT OF AN FCPA SETTLEMENT The final assessment of FCPA penalties is calculated on the basis of the U.S. Federal Sentencing Guidelines as well as certain company-specific factors. In eight of the top 10 settlements we reviewed, the total settlement amount with all agencies fell within the Fine Range calculated by the DOJ, but each of the settlements varied relative to the Fine Range. As Chart 1 highlights, there was significant diversity among the top 10 settlements as to where the final settlements were located relative to the proposed Fine Ranges, with the settlements ranging between 47% and 113% of the mid-point of the range. Notably, JGC s and Alcoa s final settlements were below the bottom end of their Fine Ranges. CHART 1: TOP 10 FCPA SETTLING COMPANIES AS OF MARCH 2014 One potential explanation (though not the only one the Alcoa settlement identified cooperation with the DOJ as an influencing factor) for why the actual settlement relative to the proposed fines can differ from settlement to settlement relates to the differences in financial condition of the defending company and its inability to pay a large fine. THE INABILITY TO PAY As mentioned earlier, the court can reduce fines in certain cases to take into account a defendant s inability to pay. Under USSC 8C3.3, the U.S. Government can reduce fines to the extent that the imposition of such fines would impair the settling company s ability to make restitution to victims. The U.S. Government can also reduce fines if the court finds that the organization is not able and, even with the use of a reasonable installment schedule, is not likely to become able to pay the minimum fine required. For example, on March 18, 2010, Innospec Inc., a global specialty chemicals company with headquarters in the U.K., pled guilty to 12 charges brought by DOJ, 15 and negotiated a combined settlement of $40.2 million instead of a fine in the range of

9 13 OCTOBER 2014, ISSUE 1 $101.5 million to $203 million as proposed by the DOJ. 16 Innospec represented that were the company to pay more than the amount agreed [i.e. $40.2 million], the continued viability of the company would be threatened 17 and developed a 5-year payment plan of $40.2 million in consultation with U.S. and U.K. authorities. INNOSPEC S FINANCIAL CONDITION AND ITS INABILITY TO PAY It is instructive to consider Innospec s financial condition at the time, given the inability to pay argument that was articulated in its settlement with the DOJ. Innospec faced significant difficulty in rapidly replacing its lucrative but shrinking (due to environmental regulations) tetra ethyl lead (TEL) production business. 18 Innospec had a weak credit profile and certain of its credit ratios were close to covenant breach levels. 19 The company faced large cash outflows including substantial pension liabilities. Innospec s cash resources (free cash flow + cash) of $148.8 million as of March were not adequate to cover the initially proposed DOJ and SEC penalty of $161.6 million. Innospec finally paid $14.1 million to the DOJ, (compared to an initial proposed penalty of $101.5 million), $11.2 million to the SEC, (compared to an initial proposed penalty of $60.1 million), $12.7 million to U.K. s Serious Fraud Office, and $2.2 million to the Department of Treasury s Office of Foreign Assets Control. 21 Thus, Innospec paid total fines of $40.2 million compared to the DOJ proposed Fine Range of $101.5 to $203 million or about 26% of the mid-range of the proposed DOJ fine. Innospec s total fine was 27% of its available cash resources. IMPACT OF FCPA SETTLEMENTS ON FIRMS RESOURCES FCPA settlements can have substantial economic impact on the settling companies. The drain it creates on the settling companies cash resources for instance, may limit the ability of a firm to fund its day-to-day operations, invest in research and development or the property, plant and equipment necessary to maintain the firm s competitive market position. Further, as credit rating agencies have recognized, it may impact the firms ability to service its debt. For example, Fitch notes that [a]side from management distraction and reputational risk, additional compliance costs and fines could have rating implications for those companies with modest FCF and/or liquidity. It should also be noted that it can take years from the discovery of a violation to the time a plea agreement is reached. 22 To evaluate the economic impact of FCPA settlement on a company, we examined the FCPA settlement amounts of the top 10 settling companies relative to their cash resources. See Table 6. Since the funding of an FCPA settlement typically would come from the flow of cash generated from operations and the stock of liquid assets that the company may draw from, we measured cash resources as the sum of: Cash on hand reported on the company s balance sheet for the quarter/reporting period prior to the settlement date; and Cash expected to be generated from operations, which was measured using history as proxy for expectations, as the cash flow over the 12 months trailing the settlement date. This is consistent with the way credit rating agencies evaluate the economic impact of FCPA settlements when they compare the settlement amounts to the companies cash resources. 23 The agencies quantify cash resources as the sum of the current liquidity on the balance sheet and cash that is expected to be generated in the near term.

10 14 OCTOBER 2014, ISSUE 1 As our primary measure of cash generated from operations, we relied upon free cash flow (operating cash flow from balance sheet less capital expenditure). This measure is the most reliable and commonly used measure of the cash that becomes available to the company from operations. (Note: We used historical cash flow simply as a proxy for future cash flows that, if available, would be a better indicator of a company s ability to pay fines in the future). 24 TABLE 6: SETTLEMENT STATISTICS: LARGEST 10 FCPA SETTLEMENTS (IN ASCENDING ORDER) COMPANY AGREEMENT TYPE COOPERATION CASH RESOURCES 2 SCORE 1 $ MILLIONS Weatherford Intl. 3 DPA -2 -$130.0 Daimler AG Plea Agreement -2 $17,429.9 JGC Corporation DPA -1 $2,527.9 Technip S.A. DPA -2 $4,089.5 Eni S.p.A 4 DPA -2 $2,323.6 Alcoa Plea Agreement -2 $1,822.0 Total SA DPA -2 $14,976.9 BAE Systems, plc Plea Agreement -1 $7,418.1 Halliburton, Inc. 4 Plea Agreement -2 $1,974.0 Siemens AG Plea Agreement -2 $19,036.4 To examine how the settlements reached by defendants in FCPA investigations compared to their inability to pay, we computed the ratio of settlements to cash resources for the top 10 settling companies. These ratios we computed are presented in Table 7. TABLE 7: SETTLEMENT TO CASH RESOURCES COMPANY DOJ SEC SEC AND DOJ TOTAL Weatherford Intl. 3 NMF NMF NMF NMF Daimler AG 0.54% 0.52% 1.06% 1.06% JGC Corporation 8.66% 0.00% 8.66% 8.66% Technip S.A. 5.87% 2.40% 8.26% 8.26% Eni S.p.A % 5.38% 15.71% 15.71% Alcoa 12.24% 8.84% 21.08% 21.08% Total SA 1.64% 1.02% 2.66% 2.66% BAE Systems, plc 5.39% 0.00% 5.39% 5.39% Halliburton, Inc % 8.97% 28.32% 28.32% Siemens AG 2.36% 1.84% 4.20% 8.70% Mean 7.37% 3.22% 10.59% 11.09% Median 5.87% 1.84% 8.26% 8.66%

11 15 OCTOBER 2014, ISSUE 1 1 The cooperation score is the score determined by the DOJ based on mitigating factors such as self-reporting, cooperation and acceptance of responsibility as mentioned in the section on Culpability Score Determination. 2 Cash resources for a Settling Company was defined as follows: Cash balance as of the end of the quarter prior to settlement + trailing 12 months free cash flow at the time of the settlement. 3 Weatherford International had negative Free Cash Flow and negative cash resources for the twelve months prior to settlement. We have marked the corresponding Settlement to Cash Resources ratios as NMF or No Meaningful Figure. They have been excluded from our calculation to maintain methodological consistency. 4 In the case of KBR and Snamprogetti, most of the settlement amount was paid by Halliburton, Inc. and Eni S.p.A, respectively (for example, Halliburton paid $382 million and KBR paid $20 million to the DOJ). As such, the settlement amount and cash resources presented are only for the primary payor of the settlement amount. For a company negotiating a settlement with the DOJ/SEC, especially those facing liquidity constraints, Table 7 provides an indication of the range of possibilities it faces. As it indicates, the DOJ settlements range from 0.54% of a firm s cash resources to 19.35%, while the total settlements (including fines paid to the SEC and foreign regulators) range from 1.06% to 28.32% of a firm s cash resources. These results suggest that an FCPA settlement can potentially be a substantial drain on cash resources and can have real economic implications for the settling company. However, it is also useful to note that in six of the nine settlements for which the ratio was meaningful, the settlement represented less than 10% of the defendant s cash resources. CONCLUSION With the escalation in FCPA enforcement activity and the larger fines being imposed on defendants, the interest in FCPA settlements has increased. In this article, we examined the largest 10 FCPA settlements and note the importance of the FCPA rules for both U.S. and foreign entities with eight of the 10 largest settlements occurring in cases where the defendants were foreign entities. Our review also highlights that the sizes of final FCPA settlements relative to the DOJ proposed Fine Ranges vary across settlements and are dependent on the facts and circumstances of the case in question. Moreover, FCPA settlements have substantial economic impacts on the settling companies. We evaluated the economic impact of the FCPA settlement with reference to the impact the settlement has on the company s cash resources and therefore, its ability to fund future investment and operations. We analyzed the largest 10 FCPA settlements relative to the cash resources of the company to provide an indication of the range of possibilities that a defendant faces. We find that the settlements can be substantial, but in a majority of cases the settlements were less than 10% of the defendant s cash resources. The authors are grateful for helpful comments on earlier drafts provided by Bernard Woolfley and Ian Winkler of Navigant s Disputes and Investigations Practice.

12 16 OCTOBER 2014, ISSUE 1 1 Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act, November 4, criminal/fraud/fcpa [ FCPA Guide 2012 ]. 2 OECD Working Group on Bribery, UNITED STATES: FOLLOW-UP TO THE PHASE 3 REPORT & RECOMMENDATIONS, December 2012 [ OECD December 2012 ], at page 3. 3 OECD December 2012, at page 3. 4 Fitch Ratings US and Canada, U.S. Foreign Corrupt Practices Act No Minor Matter, Special Report, June 1, 2010 [ Fitch Ratings 2010 ]. 5 See 6 Under a DPA, the DOJ files a charging document with the court, but it simultaneously requests that the prosecution be deferred, that is, postponed for the purpose of allowing the company to demonstrate its good conduct. FCPA Guide 2012, at page Under an NPA, the DOJ maintains the right to file charges but refrains from doing so to allow the company to demonstrate its good conduct during the term of the NPA. FCPA Guide 2012, at page Fitch Ratings U.S. Department of Justice Deferred Prosecution Agreement Re: United States v. Total S.A., May 13, 2013 [ Total S.A. DPA ]. 10 Alcoa World Alumina Agrees to Plead Guilty to Foreign Bribery and Pay $223 Million in Fines and Forfeiture, Department of Justice Press Release, January 9, 2014 [ DOJ Alcoa Press Release ]. 11 Plea Agreement, United States v. Alcoa World Alumina LLC, United States District Court for the Western District of Pennsylvania, January 9, 2014 [ Alcoa Plea Agreement ]. 12 Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine, Department of Justice Press Release, February 11, 2009 [ DOJ KBR Press Release ]. 13 Halliburton, KBR s parent company, had indemnified KBR against such fines and penalties in order to make possible the spinoff of KBR. Hence Halliburton paid $177 million in fines to the SEC and $382 million to the DOJ for violation of FCPA on KBR s behalf, or a total of $559 million while KBR paid $20 million to the DOJ subsequent to the settlement. 14 Technip S.A. Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $240 Million Criminal Penalty, Department of Justice Press Release, June 28, 2010 [ DOJ Technip Press Release ]. 15 The charges were related to alleged bribery and kickbacks paid in Iraq for the Oil for Food Program. See, Innospec Inc. Pleads Guilty to FCPA Charges and Defrauding the United Nations; Admits to Violating the U.S. Embargo Against Cuba, Department of Justice Press Release, March 18, 2010 [ DOJ Innospec Press Release ]. 16 Department s Sentencing Memorandum, United States of America v. Innospec Inc., United States District Court for the District of Columbia, March 18, 2010 [ Innospec Sentencing Memorandum ]. 17 Innospec Sentencing Memorandum. 18 Innospec Sentencing Memorandum. 19 Innospec Sentencing Memorandum. 20 Innospec 2009 and 2010 Annual Reports. 21 Innospec Sentencing Memorandum. 22 Fitch Ratings, Fitch Ratings, For example, the consensus analysts estimate for free cash flow in the following quarter and year could provide an indication of the company s expected cash flows. There are however a few potential issues with using such analysts estimates. One key issue is that it is not always clear that the estimates from various analysts are comparable as they may not take into account the same set of cash inflows or outflows. Additionally, in some cases the depth of analyst coverage may be limited, making the consensus forecast based on such estimates less reliable.

13 17 OCTOBER 2014, ISSUE I ABOUT THE AUTHORS DR. MUKESH BAJAJ Dr. Mukesh Bajaj is a Managing Director and Global Head of the Securities & Finance Practice of Navigant Economics. Mukesh is an expert in matters relating to securities fraud, valuation of intellectual property, intangible assets, transfer pricing, interests in closelyheld firms, warrants, restricted stock and other complex contingent securities, and purchase price allocation studies. Mukesh received his Ph.D. in business administration (finance) from The University of California Berkeley. DR. OOMMEN THOMAS Dr. Oommen Thomas is a Director at Navigant Economics. Oommen specializes in financial economics. He received his Ph.D. in economics from Temple University. DR. URMI MUKHERJEA Dr. Urmi Mukherjea is an Associate Director at Navigant Economics. Urmi specializes in managerial economics and strategy. She received her Ph.D. in economics from Northwestern University.