Lafarge Terrorism Pleas Highlight Importance of Due Diligence in High-Risk Regions

Last month, Lafarge, a multinational building materials manufacturer headquartered in Paris, and its Syrian subsidiary pleaded guilty to conspiring to provide material support to foreign terrorist organizations — namely ISIS and the al-Nusrah Front (ANF). These violations of 18 U.S.C. § 2339B represent the first case in which the DOJ has brought such a material support charge against a corporation regarding this specific statute.

According to the DOJ and as set forth in court filings, Lafarge and its subsidiary schemed to pay ISIS and ANF in exchange for permission to operate a cement plant in Syria from 2013 to 2014, which enabled Lafarge Cement Syria, the subsidiary company, to realize more than $70 million in revenue. In 2015, Lafarge was acquired by the Swiss multinational Holcim Ltd., which, according to the DOJ, failed to conduct appropriate pre- or post-acquisition due diligence of Lafarge’s actions in Syria or to self-report the misconduct to the DOJ once it was discovered.

U.S. District Judge William F. Kuntz II sentenced Lafarge and LCS probation and financial penalties, including criminal fines and forfeiture, totaling nearly $778 million. Acknowledging the defendants’ efforts to remediate compliance programs after the misconduct was discovered, as well as various commitments to ensure compliance in the future, the DOJ determined that the appointment of an independent compliance monitor was unnecessary.

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Practice points

As Monaco stated in announcing the guilty pleas, this case “sends the clear message to all companies, but especially those operating in high-risk environments, to invest in robust compliance programs, pay vigilant attention to national security compliance risks and conduct careful due diligence in mergers and acquisitions.” 

Companies that do business in countries subject to, or where individuals or entities are subject to, various U.S. sanctions should redouble their efforts to make sure sanctions are at the forefront of their approach to compliance all along their supply chains. This is true not just for companies that traditionally focus on compliance with U.S. sanctions and anti-money laundering laws and regulations, such as financial institutions, but for companies in all industries that do business internationally. 

Although the facts of the Lafarge case are egregious, the case is “instructive of the department’s corporate crime priorities,” Monaco observed in announcing the resolution. Those priorities include aggressively prosecuting corporate crime and corruption and taking a harder line about when to bring charges against corporations, as opposed to resolving potential criminal liability through deferred prosecution agreements. Finally, Monaco explained that another top priority for the DOJ is individual accountability, and that, although the DOJ did not itself charge individuals involved in the Lafarge misconduct, “French authorities have arrested many of the senior executives implicated in the scheme.” 

The resolution of the case, which did not include an independent compliance monitor, provides some evidence about the way in which the DOJ will determine whether to seek an independent compliance monitor as part of a corporate resolution in a case involving this type of misconduct. Here, although the misconduct went undetected for years and was not voluntarily reported to the DOJ, the plea agreement stated that the DOJ decided not to seek a monitor based on the defendants’ remediation, including “particularly the wholesale replacement of legacy Lafarge’s compliance program and internal controls with Holcim’s and the enhancements to Holcim’s compliance program and internal controls following Holcim’s discovery of the misconduct,” as well as the DOJ’s “assessment of the current state of Lafarge’s compliance program and internal controls,” among other considerations. Thus, even after egregious misconduct, a company’s genuine and serious efforts to strengthen compliance policies and internal controls may help to avoid imposition of an independent compliance monitor.

Sanctions and other national security-related crimes really are, as Monaco has said, “the new FCPA.” Specifically, she has said that, just like the FCPA, sanctions-related charges are “relevant to an expanding number of industries,” have grown from a “unilateral effort by the United States to a worldwide movement to combat international corruption,” and “incentivize companies to come forward and voluntarily disclose discovered misconduct.” 

Monaco also emphasized that any multinational corporation or business with an international supply chain “needs to be pressure-testing its sanctions compliance program,” which should be at the forefront of its overall approach to compliance. The novel use of the material support terrorism charge — which allows for broad extraterritorial jurisdiction and can lead to extensive asset forfeiture — against a multi-national building materials corporation to address its payments to a foreign entity, here designated foreign terrorist organizations, illustrates how the DOJ is using sanctions-related charges as a key tool to combat corporate corruption, along with the FCPA. 

The charges and the guilty pleas

Lafarge and LCS pleaded guilty to a violation of 18 U.S.C. § 2339B, which prohibits persons from knowingly providing material support or resources to a foreign terrorist organization and from attempting or conspiring to do so. “Material support” includes any tangible or intangible property, such as currency, financial services and other monetary instruments. The violator must know the organization receiving material support is a designated terrorist organization, such as ISIS or the ANF, but does not need to share the goals or beliefs of that organization. A violation of Section 2339B exposes the defendant to, among other penalties, extensive asset forfeiture, including forfeiture of “all assets, foreign or domestic,” of an entity “engaged in planning or perpetrating any Federal crime of terrorism” against the United States, citizens or residents of the United States or their property.

As set forth in the statements of facts that accompanied the guilty pleas, from approximately May 2010 to September 2014, Lafarge, through LCS, operated a cement plant in Northern Syria. After the start of the Syrian civil war in 2011, Lafarge and LCS negotiated to pay armed factions in the civil war to protect LCS employees, to ensure continued operation of the plant and to help give Lafarge and LCS a competitive advantage in the Syrian cement market. Among other things, LCS executives paid fixed monthly donations to groups, including ISIS and ANF, so that employees, customers and suppliers could travel through checkpoints near the LCS plant. The executives eventually agreed to make payments to ISIS based on the volume of cement that LCS sold to its customers, effectively creating a revenue-sharing agreement. Lafarge and LCS executives analogized these payments as paying taxes. Lafarge and LCS executives conditioned some payments on ISIS’s assistance in imposing higher costs on, or even stopping the sale of, other cement imported into northern Syria.

Between August 2013 and October 2014, Lafarge and LCS used intermediaries to pay ISIS and ANF the equivalent of nearly $6 million. As a result of the scheme, LCS obtained approximately $70 million in total sales revenue from August 2013 through October 2014, and the total gains to all participants in the conspiracy, including LCS and ISIS, totaled nearly $81 million.

Lafarge and LCS executives took steps to conceal their activities, including by using personal email accounts and by requiring intermediaries to use false descriptions of services rendered to submit for payment to LCS. In addition, as Lafarge was being acquired by Holcim, Lafarge executives did not disclose the payments to ISIS and ANF during pre-acquisition diligence meetings. According to the DOJ, Holcim “conducted neither pre- nor post-acquisition due diligence of LCS’s operations in Syria,” which had ceased by the time the transaction closed. Lafarge, LCS and Holcim also did not self-report the conduct, and the DOJ determined that it did not receive timely and full cooperation with its investigation, although Holcim did conduct an internal investigation following media reports in 2016 and publicly disclosed its principal investigative findings in 2017.

Although the aforementioned conduct occurred principally outside the United States, the papers reflect that the DOJ established jurisdiction under the material support statute’s broad provision for “extraterritorial jurisdiction” in several ways. These included that the offense occurred in part within the United States, that the offense affected interstate commerce, and that the defendants conspired with a U.S. national. Although the DOJ did not specify the exact facts it relied upon to establish jurisdiction under each of these bases, the statement of facts noted, among other things, that Lafarge employees used U.S. email accounts, that Lafarge sent a wire transfer in furtherance of the scheme through a financial institution in New York, and that one Lafarge executive involved in the conduct was a U.S. citizen. The DOJ also alleged, as an additional basis for extraterritorial jurisdiction, that the defendants were “brought into” and “found in” the United States after the offense conduct had occurred.

In announcing the guilty plea, Monaco emphasized again that “companies who identify misconduct should voluntarily self-report and cooperate with the department in a timely and proactive fashion.” According to Monaco, Lafarge “did neither.” Additionally, Lafarge failed to retain and produce communications sent over third-party messaging systems or have policies to enable such retention. She also criticized Holcim for “not perform[ing] due diligence of Lafarge’s operations in Syria, despite the clear compliance risks posed by operations in the region” and not doing anything to “investigate or address Lafarge’s illegal activities until they were publicly exposed.” 

The plea agreement stated that the DOJ decided that the appointment of an independent compliance monitor as part of the resolution was unnecessary based on the defendants’ remediation, including:

• Wholesale replacement of legacy Lafarge’s compliance program and internal controls with Holcim’s.
• Enhancements to Holcim’s compliance program and internal controls following Holcim’s discovery of the misconduct.
• DOJ’s assessment of the current state of Lafarge’s compliance program and internal controls, including ensuring that its compliance programs will satisfy the minimum elements set forth in an addendum to the plea agreement, and the defendants’ risk profile, including Lafarge’s agreement to report to the DOJ about its remediation and compliance efforts on a periodic basis. 

That addendum to the plea agreement described a range of compliance and ethics policies related to anti-terrorism and sanctions laws, including “policies and procedures for mergers and acquisitions requiring that Lafarge conduct appropriate risk-based due diligence on potential new business entities, including appropriate anti-terrorism and sanctions due diligence by legal, accounting and compliance personnel.”

The conduct underlying these charges and guilty pleas had been investigated not just in the United States but in France, and Lafarge is already facing charges in France for aiding and abetting crimes against humanity. In announcing the charges, the DOJ thanked French authorities for their significant assistance in the U.S. case.

Key implications of the Lafarge guilty pleas

Compliance and disclosure are critical: DOJ’s growing focus on corporate crime related to U.S. sanctions, as well as DOJ’s new efforts to incentivize a corporation’s speedy and complete disclosure of misconduct, combine to make it more important than ever for companies to have policies, programs, and training in place to identify potential misconduct and, where appropriate, to bring that misconduct to DOJ’s attention. Monaco has previously emphasized that, just as with the FCPA, corporations evaluating sanctions and other national-security-related misconduct should consider prompt, voluntary disclosure, including through the National Security Division’s voluntary disclosure program, to receive cooperation credit from the DOJ. Here, although the misconduct was not voluntarily disclosed, the DOJ did credit Holcim’s efforts to address the misconduct and enhance its own compliance program in deciding not to seek the imposition of a compliance monitor.   

Corporate crime as national security crime: DOJ’s efforts to use national security tools outside of the most traditional sanctions charges, such as the terrorism charge to which Lafarge pleaded guilty, against corporations show that corporations face growing legal risk from activities inside and outside the United States that relate to activities perceived as national security threats. That trend has been most evident in relation to the People’s Republic of China, but this case shows the scope is far broader. Monaco made exactly this point in announcing the Lafarge guilty pleas: “In today’s world, corporate crime regularly intersects with national security in areas like terrorist financing, sanctions evasion and cybercrime.”

U.S. sanctions enforcement gets increasingly global: DOJ’s efforts to enforce U.S. sanctions will likely involve a growing number of international partners, such as the French authorities involved in the Lafarge matter. As Monaco previewed in June, “the months and years ahead will see the department’s sanctions teams work hand-in-glove with civil and law enforcement agencies across the world. The multilateralization of our sanctions work follows the same trajectory as our FCPA history, which grew from a largely unilateral effort by the United States to a worldwide movement to combat international corruption.”

John P. Carlin is co-head of Paul Weiss’s Cybersecurity and Data Protection practice and a deeply accomplished litigator who advises industry-leading organizations on matters involving privacy and cybersecurity, crisis management, Committee on Foreign Investment in the United States (CFIUS), sanctions and export control, white collar defense and internal investigations.

Roberto Gonzalez draws on his experience in senior legal positions in the Obama White House Counsel’s Office, the CFPB and the Treasury Department to help U.S. and non-U.S. clients navigate franchise-threatening government regulatory issues, criminal, civil, and congressional investigations, sensitive internal inquiries, and crisis management situations. Roberto has advised the world’s largest banks, investment companies and technology companies across a range of issues.

A counsel in the litigation department, David Kessler is a former federal prosecutor and experienced trial and appellate lawyer. He focuses on a variety of litigation and regulatory matters, including white collar matters, cybersecurity matters, complex business litigation, internal investigations and regulatory enforcement proceedings.

This article originally appeared on PaulWeiss.com. It is republished here with permission.