Societe Generale: The Bank Wrote the Broker’s Invoice

In the Societe Generale FCPA case, the bank admitted under its deferred prosecution agreement that it paid more than $90 million to a Libyan intermediary, who used portions to bribe officials and secure state investment business. The scheme earned the bank approximately $523 million in profits. We see the bargain: commissions for the middleman, far larger profits for the bank. In one transaction described by the Securities and Exchange Commission, the bank even prepared the intermediary’s invoice for him to send back.

The Justice Department announced the Paris-based bank’s foreign-bribery resolution on June 4, 2018. It described this as its first coordinated foreign-bribery resolution with French authorities. The FBI and IRS Criminal Investigation investigated the case.

A separate SEC order concerning Legg Mason supplies the detailed account of the investment partnership, recorded conversations and missing controls. The bank’s admissions and the SEC’s findings about its asset-management partner show how public investment money became business bought through private influence.

The same deferred prosecution agreement also included Société Générale’s admission that it manipulated LIBOR, the benchmark interest rate. In that separate scheme, senior executives directed Treasury staff to submit falsely low U.S. dollar borrowing rates to make the bank appear stronger and more creditworthy.

What the Libyan Investment Business Bought

According to the admissions accompanying its deferred prosecution agreement, Société Générale paid bribes through the intermediary between 2004 and 2009. It obtained thirteen investments and one restructuring worth approximately $3.66 billion. The intermediary’s commission ran from one and a half to three percent of the nominal investment amount.

The commercial opportunity was access to state-controlled capital. The Securities and Exchange Commission’s Legg Mason order describes Libyan financial institutions seeking investments as the country emerged from international economic sanctions, with financial firms competing for their business. Société Générale acted as the structuring bank: it received investment money in exchange for structured notes, or debt securities. Some assets went into funds managed by Permal, then a Legg Mason subsidiary, which earned fees on the assets it managed.

That arrangement put different parts of the transaction in different hands. The bank structured the investment product, the asset manager earned management fees, and an intermediary collected a commission for access to the customer. In the public-capital bribery pattern, the official deciding where the money goes becomes the person the seller pays to influence. Honest competitors are left bidding for business whose decision-maker is already being bought.

An Invoice From the Bank to the Broker

The Securities and Exchange Commission’s order describes a transaction in which the intermediary earned a fee despite playing no role in negotiating or structuring the deal. Permal employees had originally pitched it without his assistance. Yet the term sheet said his Panamanian company had collaborated with Société Générale and received compensation for its services.

The investment was $300 million in structured notes linked to Permal-managed funds, purchased in November 2007. The following January, according to the order, Société Générale prepared a $9 million invoice for the intermediary to send to the bank. In February, the bank paid the Panamanian company’s account at Société Générale in Zurich.

We have the customer writing the service provider’s bill. The investment paperwork credited the intermediary with work the SEC said he had not done. An accounts-payable file would show an invoice. The deal team’s correspondence would show who created it and what the intermediary actually contributed.

The Securities and Exchange Commission identified both the intermediary’s control of the Panamanian company and its bank account in Zurich. Those are different pieces of the payment trail: who stood behind the company, where the commission landed, and how money reached the officials whose decisions brought in the investment.

What the Recorded Calls Said

The Securities and Exchange Commission found that two Permal employees knew the intermediary was paying bribes and agreed to keep using him. Employees of Permal and Société Générale discussed payments and benefits for Libyan officials, including travel and entertainment. Their recorded conversations gave a much plainer account of the relationship than the term sheets did.

The order describes a call in which the intermediary spoke to a Société Générale employee about controlling a Libyan official:

The order explained that this language referred to gaining control through bribery or other means, including threats and intimidation. The same account describes a later proposal to the official and an email expressing confidence that Permal would be included in upcoming deals. Influence had a commercial destination: the investment mandate.

A proposed disclosure requirement exposed the same problem from the customer’s side. In April 2008, Société Générale learned that a Libyan financial institution would require firms soliciting investments to disclose their use of intermediaries. During a recorded call the following day, the order said, a bank employee called the requirement a “Libyan bomb.” The Permal employee answered:

That reaction tells an insider why the customer’s version of a deal matters alongside the internal file. The Commission also found that a Permal employee knew bank employees were taking steps to conceal the intermediary’s payments from the Libyan institutions. A commission approved inside the seller could still be hidden from the public investor whose money made the transaction possible.

The Commission’s account also places the investment pitch and hospitality in the United States. In May 2008, a Société Générale employee and the intermediary met a Libyan government official in New York to discuss prospective investments. The bank employee provided upscale hotel stays, extravagant meals, nightlife entertainment and luxury gifts. For an insider, the expense records and the investment proposal describe different sides of the same sales effort.

Legg Mason’s Controls Were Its Own Responsibility

The Securities and Exchange Commission’s findings concerned Legg Mason’s inadequate internal accounting controls over introducing brokers and other intermediaries. The order described delayed due diligence and inadequate oversight, and found that Legg Mason failed to address the bribery risks of its middlemen.

According to that order, the Permal-linked business comprised seven structured notes worth approximately $950 million and generated approximately $31.6 million in net revenues for Permal. The Commission ordered Legg Mason to pay $34,502,494 in disgorgement and interest.

The companies had jointly decided that Société Générale would make the commission payments, the order found. Permal therefore never paid the intermediary directly under their arrangement, even as its employees knew about the bribes and its funds benefited from the investments. For someone inside an investment partnership, the payment instruction and the benefit can sit in different companies’ files.

Another Libyan Mandate, Another Hidden Fee

Och-Ziff admitted in its deferred prosecution agreement that it promised a finder’s fee to secure a Libyan Investment Authority investment while knowing some or all of the fee would pay officials. Its consultant had no employees or relevant expertise. The company’s claimed notice to the authority was false and went unchecked.

The SEC’s separate Och-Ziff order found that the company removed a requirement for proof that the agent had disclosed his involvement and fee to the authority. That is the useful parallel with the Société Générale and Permal calls: the public investor’s knowledge of the intermediary was an obstacle to be managed. The commercial story presented to the customer left out the private arrangement for winning its business.

What a Bank Insider Can See

The transaction joins records that may look ordinary in isolation: an investment term sheet, a commission invoice, an account beneficiary and the conversation about an official’s decision. We examine how those records fit together with the intermediary’s stated role and actual work. Here, the bank’s preparation of the invoice and the employees’ reaction to disclosure gave the paperwork a very different meaning.

The 2022 Journal of Forensic and Investigative Accounting paper How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad identifies abnormal credit terms and unusual payment installments as warning signs that reviews can uncover. That general observation adds a useful question to commission review: whether the way the money moves fits the service described. An insider who knows why a payment was scheduled, who approved it or who supplied the invoice can explain something the accounting entry alone leaves out.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery reporting has its own whistleblower programs, and our whistleblower experts help you build the case around what you know and the program that fits it.

You Know What the Commission Bought

If you know who wrote the invoice, why an intermediary stayed in a deal or what the public investor was never told, speak to one of our Whistleblower Experts about how the commission was paid. We work beside you to develop the case and bring in FCPA whistleblower lawyers who understand investment mandates, banking records and cross-border payments. Your knowledge of how the deal actually worked is where we start building your strongest foreign-bribery whistleblower case.