Legg Mason can finally close its books on the Gaddafi-era, Libyan bribery scandal.  In June 2018, Legg Mason entered into a non-prosecution agreement with the Justice Department and agreed to pay $32 million for its role in the bribery scheme.  Société Générale entered into a deferred prosecution agreement and paid $585 million for FCPA violations.

Société Générale and Legg Mason admitted to paying over $90 million in corrupt payments to the Gaddafi government in Libya.  The Gaddafi regime was in power until 2011 and suffered from significant corruption.

At the center of bribery scheme as an influential Libyan intermediary who assisted Société Générale and Legg Mason in securing 14 separate investments by various Libyan state-owned financial institutions.  The Libyan intermediary was extremely influential and resided in the United Kingdom and Dubai.  He had significant ties to high-level Libyan government officials.  The Libyan intermediary funneled the commission payments and bribes through a separate company he established in Panama.

Legg Mason assisted the bribery scheme through its subsidiary, Permal Group Ltd.  Legg Mason was involved in seven of the 14 transactions and earned profits of approximately $31.6 million.  Starting in 2006, two Permal employees agreed to continue to use the Libyan Intermediary knowing that he was paying bribes to Libyan officials.

Société Générale sold seven notes linked to Permal funds to several Libyan financial institutions. The total value of these notes was approximately $950 million. For each of the seven transactions, Société Générale, on behalf of itself and Permal, paid the Libyan Intermediary through a Panamanian company  a commission of between one and a half and three percent.  Permal earned net revenues of approximately $31.6 million from these transactions.

The Permal and Société Générale employees used coded language when discussing the Libyan Intermediary’s role in paying bribes to advance their illicit scheme.  They referred to Libyan government officials as “cooked” when the Libyan Intermediary had effectively gained control of the official through bribe payments or other means.

The SEC cited Legg Mason’s lack of appropriate accounting controls relating to use of brokers and other intermediaries in emerging markets.  In particular, the SEC noted that Legg Mason did not implement “appropriate risk-based due diligence and compliance requirements for the retention and oversight” of third-party agents and business partners.

The SEC cited Legg Mason’s “significant cooperation” throughout the investigation.  Additionally, the SEC cited Legg Mason’s remedial actions including: replacing the employees involved in the violation; increasing the number of staff to Legg Mason’s compliance department; creating a new anti-corruption officer position; and enhancing its internal accounting controls to prevent and detect the same kind of misconduct.