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Och-Ziff May Face Consequences Beyond Fine in Bribery Case
Defendants often point to the collateral consequences of a prosecution and civil enforcement action when arguing that they should not be punished too severely. The settlement by the hedge fund Och-Ziff Capital Management and its founder, Daniel S. Och, for paying bribes to obtain natural resource deals in Africa tests how much they will endure beyond the settlement’s fines and disgorged profits.
Och-Ziff entered into a deferred prosecution agreementwith the Justice Department for dispensing millions of dollars in bribes in Libya, the Democratic Republic of Congo, Chad and Niger in violation of the Foreign Corrupt Practices Act. That law prohibits giving anything of value to a foreign official to “obtain or retain business,” and has been used recently to police Wall Street firms seeking investment opportunities overseas. The firm will pay a fine of about $213 million to the Justice Department and must avoid any violations during the three-year term of the agreement.
Robert L. Capers, the United States attorney in Brooklyn, proclaimed that “despite knowing that bribes were being paid to senior government officials, Och-Ziff repeatedly funded corrupt transactions.” The source of those funds came at least in part from money that investors gave the firm to manage, putting them at risk when the deals soured.
As part of the settlement, OZ Africa Management GP, a Delaware limited liability company, pleaded guilty to a charge of conspiracy to violate the overseas bribery law. That will have little direct impact on Och-Ziff because it avoided having to admit guilt while its wholly owned subsidiary can simply cease operations – if it has not done so already.
Och-Ziff also agreed to retain a compliance monitor for three years to ensure it stays within the law and promised to strengthen its internal controls to guard against future violations. That means continuing costs for the firm as the monitor digs into its operations and makes demands that cannot be resisted, lest it appear to be uncooperative and put the settlement at risk.
The firm agreed to pay an additional $199 million in a parallel administrative action with the Securities and Exchange Commission, which shares oversight responsibility for F.C.P.A. violations with the Justice Department. Andrew J. Ceresney, head of the enforcement division, used strong language to describe the case, pointing out that “Och-Ziff engaged in complicated, far-reaching schemes to get special access and secure significant deals and profits through corruption.”
Despite the tough talk about corporate misconduct, the agreement followed the usual course by being made without an admission or denial of liability by Och-Ziff. In 2013, Mary Jo White, the chairwoman of the S.E.C.,announced that in certain cases, the regulator would extract an admission of wrongdoing from a defendant, such as “where a large number of investors have been harmed or the conduct was otherwise egregious.” Apparently the type of brazen bribery undertaken by Och-Ziff that resulted in criminal charges was not egregious enough to call for such an acknowledgment.
The firm may face collateral consequences for its future funding and investment activities because of the case. Och-Ziff will have to seek a waiver from the S.E.C. from the automatic “bad actor” bar that would disqualify it from offering securities without having to go through the full disclosure process, and could be ineligible for the “well-known seasoned issuer” status that lets a company register its securities for sale more easily. The Labor Department will have to clear the firm to continue managing certain pension and retirement funds.