Corporate Liability for Terrorist Financing

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Terrorist financing comes at a price – and in the case of a global building supplies manufacturer that has pleaded guilty in a US court to making payments to terrorist organisations, that price is USD 778 million in fines and forfeiture1. This article looks at this case in more detail, and considers some of the issues that emerge from it.

The Facts

Lafarge S.A. ("Lafarge"), incorporated and based in France, was the parent of a Syrian company (the "Subsidiary") which operated a cement plant in Syria, in close proximity to the border with Turkey, between 2011 and 2015. At this time, Syria was in a state of civil war, which had precipitated the rise of jihadist groups including the Al-Nusra Front and the Islamic State of Iraq and the Levant ("ISIL" or, as it will be referred to in this article ,"ISIS"). At the time the Al-Nusra Front and ISIS controlled large parts of the region, and by 2014 both organisations were designated as Foreign Terrorist Organisations under United States Law.

The difficulties of operating in Syria during this time led to many multi-national organisations ending their operations in the region. The Subsidiary, however, decided to remain, and entered into an arrangement with ISIS and other terrorist groups which saw it pay large amounts of money in return for the safety of its property and employees. This arrangement evolved over time into one of revenue sharing, allowing ISIS to receive money from Lafarge that was proportionate to the amount of cement sold. In essence, ISIS was receiving "taxes" from Lafarge2

This was done with the knowledge and approval of senior executives of Lafarge, including its Executive Vice President of Operations and a member of its Security Committee (a citizen of the United States), who were party to the arrangement. A Lafarge in-house lawyer, the Regional Senior Counsel for Africa and Middle East, was also in the know. All of these individuals were based in Paris, but several senior executives of the Subsidiary were also involved. 

The arrangement was made despite the knowledge that it contravened US and EU laws against the funding and support of terrorist organisations. Armed with this knowledge, the executives involved went to great lengths to conceal the arrangement and anything linking it to Lafarge. The senior company employees concerned in the deal did not use their company email addresses, instead resorting to the use of personal internet-based email accounts. In return for the payments, ISIS issued the drivers of Lafarge trucks with permits providing them with safe passage through ISIS-controlled areas, and Lafarge was at pains to ensure that these permits did not mention the company by name. At one point, it had to specifically raise this issue with ISIS when permits were issued which identified the company. Lafarge also designed a system of invoices that was designed to hide from its external auditors the nature of the payments to the intermediaries.

Lafarge faced competition in the region from another company which imported cement into Syria from Turkey. Not content with securing the safety of its employees and property, Lafarge sought to obtain a competitive advantage through its arrangement with ISIS and similar organisations. In return for the sums paid to the terrorist groups, Lafarge encouraged them to hinder the importation of cement from Turkey by extracting from the other supplier sums larger than those voluntarily paid by Lafarge. 

It is estimated that from August 2013 to October 2014, Lafarge paid approximately USD 5.92 million to ISIS3. At around this time, the United Nations Security Council had issued a resolution condemning ISIS and other such organisations4. US President Barack Obama stated that ISIS had "no vision other than the slaughter of all who stand in its way"5.

In a further measure to distance itself from the arrangement, Lafarge required its key intermediary in the deal to sign a back-dated agreement which purported to terminate his services prior to this period. At the same time, Lafarge encouraged this intermediary to set up a new account. It then wired USD 210,000 from its Paris bank, via a New York-based financial institution, to the intermediary’s new bank account.

Around 2015, a competitor of Lafarge entered into negotiations to buy the latter. The purchaser did not make any due diligence enquiries into Lafarge’s Syrian activities, which had by now ceased. At a meeting to discuss with Lafarge any ongoing public litigation or antitrust issues, the purchaser did ask if there was anything it should know about. Lafarge did not disclose its activities in Syria. It should be noted that at a time when other businesses had been forced to terminate their operations in the region, the subsidiary had enjoyed sales revenues of USD 70 million6.

But the cover-up could only last so long. Subsequent to the successful purchase of Lafarge, an article linking Lafarge to payments to ISIS appeared on the internet. The new owners of the company engaged lawyers to conduct an investigation, the results of which led to the investigation and subsequent prosecution of Lafarge and the Subsidiary by the US Department of Justice. 
Upon entering guilty pleas, Lafarge and the Subsidiary were ordered to pay a criminal penalty of USD 90.78 million and forfeiture of USD 687 million. Lafarge is also required to report annually to the US Department of Justice on remediation efforts and the implementation of agreed compliance measures at the company.

Analysis 

A number of interesting aspects arise from these facts, which are relevant to corporate investigations more generally:

  • Companies often conduct due diligence in relation to bribery and corruption issues at acquisition targets.  In recent times, money laundering has become more of a focus, and while there can be overlap, terrorist financing is its own distinct issue.  While money laundering is concerned with the past, and criminal conduct which has generated the proceeds of crime, terrorist financing is more forward looking – clean funds can be used to fund terrorist organisations (though criminality like drug trafficking, human trafficking or arms dealing can be used to fund terrorism). Corporates may want to include a terrorist financing component to their due diligence and expressly address the issue in any share purchase agreement.
  • Potential purchasers are not the only parties that face being misled.  The indictment makes it clear that the rationale for the payments to the subsidiaries was also concealed from the auditors.
  • Corporates will often assess bribery and corruption risks as part of a documented risk assessment, consistent with US, UK or French government guidance.  Corporates may want to broaden this exercise to cover other financial crime issues, including terrorist financing.
  • A robust compliance programme will involve due diligence being conducted on third parties. Due diligence is not a fool-proof way to prevent issues like those that arose at Lafarge if executives and employees set out to deliberately circumvent compliance processes, but such steps make investigation easier and would inform any remedial actions taken.  A robust compliance programme should also include a whistleblowing mechanism, which allows diligent employees and third parties to raise concerns of unlawful or unethical behaviour.
  • This was the first time that the US had charged a corporation with providing material support and resources to foreign terrorist organisations. We expect US law enforcement to aggressively enforce the law in this area given the high priority placed on anti-terrorism efforts generally.
  • We also expect that US law enforcement will aggressively assert jurisdiction in such cases. Here, it was enough that payments had been made via the US banking system and that one of the parties to the charged conspiracy was a national of the United States7.  More generally, US law enforcement tends to be aggressive in asserting jurisdiction including over events occurring primarily overseas, particularly in priority enforcement areas such as anti-terrorism.
  • In France, the scope of third party due diligence is generally limited to business offenses (undeclared work, money laundering, terrorist financing and corruption). However, in the last decade, corporates have been investigated for having business relations with criminal groups or governments perpetrating criminal acts.8  The French part of the Lafarge case is now also the most emblematic within that trend in France. 
  • In this case, the French Court of Cassation ruled that, by paying a certain amount to ISIS, Lafarge could be charged as an accomplice to a crime against humanity. More specifically, the Court ruled that "it is sufficient to have the knowledge that ISIS committed or would commit this crime and that the help provided (by paying the fee) would help to commit it to be charged of accomplice".9
  • This precedent may lead companies to revise their third party due diligence policies, revisit existing relationships (including with government entities) and improve their audits of all third parties when risks of criminal behaviour are present. On that note, as part of its US plea agreement Lafarge is obliged to improve its compliance policy in order to avoid such issues.10
  • The US agreement also contains clauses that could affect the French procedure. In particular, defendants agreed not to make any public statement, in litigation or otherwise, contradicting the acceptance of their responsibility11, which may limit their defence before French courts.
  • If this clause covers the French procedure, Lafarge’s defence may focus on specific legal issues such as liability of parent companies for acts perpetrated at / by their subsidiaries. Under French criminal law, two conditions must be fulfilled to convict legal persons: (i) the offence must be committed for the interest of the legal person and (ii) the offence must be committed by someone who represents the legal person or corporate body12. In this case, the payment was made by one of Lafarge's subsidiaries and sentencing the parent company would require proving the involvement of the parent company. 

Conclusion

This case contains important lessons. It highlights the importance of careful due diligence and a commitment to compliance. 

1 The Statement of facts attached to the plea agreement is available on the DOJ’s website: https://www.justice.gov/usao-edny/press-release/file/1545016/download
2 Statement of Facts, page 5
3 Statement of Facts, page 7
4 Statement of Facts, page 39
5 Statement of Facts, page 42
6 Statement of Facts, page 7
7 https://www.justice.gov/usao-edny/press-release/file/1545276/download
8 A technology company for providing electronic surveillance systems to the Egyptian and Libyan governments and a French bank for providing financial support to criminal conduct in Sudan and Rwanda.
9 Cour de cassation – Chambre criminelle – 7 September 2021 – n°19-87.367 at §67
10 Guilty plea agreement §12(h)
11 Guilty plea agreement §35
12 Article 121-2 of the French criminal code

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© 2022 White & Case LLP

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