Och-Ziff: The Consultant Had No Employees

The Och Ziff FCPA case required Och-Ziff to pay $199,045,167 in the Securities and Exchange Commission’s civil resolution over African bribery and misuse of investor funds. The transactions carried familiar investment labels: a finder’s fee, a convertible loan, a share purchase. Behind them were a consultant with no employees, money placed beyond the fund’s oversight, and warnings that survived only until someone edited the report.

Och-Ziff was a New York investment manager earning management fees and incentive income from the funds it managed. In its September 29, 2016 order, the commission described transactions that largely used money entrusted by investors. That makes this one of the Foreign Corrupt Practices Act cases where the investment documents themselves explain the fraud: who approved the money, who could spend it, and what the investor was told.

The Libyan Investment Authority and the Finder’s Fee

The Libyan Investment Authority invested $300 million in Och-Ziff funds in 2007. Libya had created the sovereign wealth fund to manage its oil and other assets, and Och-Ziff’s European office wanted an investment mandate. The capital belonged to the investor. Och-Ziff’s business was managing it for fees and incentive income.

Under its deferred prosecution agreement with the Justice Department, Och-Ziff admitted engaging an agent while knowing he would need to bribe Libyan officials to secure the investment. The company also admitted concealing the fee through a sham consulting agreement, as the Justice Department’s account of the admissions explains. The SEC order describes the agent as a London-based middleman whose value lay in government connections and a network of offshore entities.

The commission found that Och-Ziff signed agreements with the agent’s Guernsey-based company in January 2008 and dated them December 2007. The consultancy agreement described technical and commercial expertise in Libya, including information gathering, negotiations and project implementation. The company had no employees and no interactions in Libya. The agent’s actual role was introducing Och-Ziff to the investment authority and paying bribes.

We find the contrast hard to miss: a contract promising project implementation from a company with nobody to implement anything. The commission found that Och-Ziff performed no separate due diligence on the company receiving the money, while the agreements placed no restrictions on the agent personally. The company paid for a description of services that its own agreement could not substantiate.

Proof of Disclosure Became a Promise

The order describes a disclosure requirement that Och-Ziff weakened when the agent resisted it. The company initially wanted proof that the investment authority knew about the agent’s role and fee. When he refused, Och-Ziff accepted his company’s representation that notice had been given, without requiring evidence.

According to the commission, the head of Och-Ziff’s European office and the agent discussed requiring notice that the agent would then fail to deliver. The representation letter said the investment authority had been informed in writing, but that statement was false. Och-Ziff neither obtained the supposed notice nor told the investment authority about the agent’s role.

The commission traced $3.75 million in payments to the shell company in January and October 2008. The agent routed money through an intermediary and offshore companies to benefit investment-authority officials and his patron in Libya’s state security services. Och-Ziff recorded the fee as professional services.

A Property Loan With Its Own Bribe Fee

The same agent also controlled a hotel and office development project in Libya. The commission found that Och-Ziff provided a $40 million convertible loan in October 2007 and agreed to a separate $400,000 deal fee for sourcing the transaction. Part of that fee went toward bribes benefiting the development, with the knowledge of the head of Och-Ziff Europe.

The development fee bought a different benefit from the investment-authority introduction. Here, investor money financed a property project and the payments needed to keep it operating. According to the commission, Och-Ziff paid the fee before entering into a contract with the agent or the offshore company receiving it, and without separate due diligence on that recipient.

Mining Investments With Permission to Spend

Och-Ziff formed African Global Capital to invest in African natural resources, providing capital, investment expertise and compliance support. The Securities and Exchange Commission found that its first fund used existing Och-Ziff investor money and relied on a South African business partner to acquire assets. Loans funded acquisitions, and the acquired assets later became the basis for an equity interest in the fund.

The commission’s account exposes a narrow kind of diligence: Och-Ziff checked the partner’s ownership of assets, but failed to investigate how he had spent the loans or acquired those assets. The head of Och-Ziff Europe acknowledged the arrangement to the partners:

The commission found that funds intended for mining assets in Chad and Niger paid bribes through proxies for government officials. The books described those payments as consulting, legal payments, house rentals and charitable contributions. In another transaction, Och-Ziff approved reimbursement for supposed uranium-rights purchases without verifying the claimed spending, then sent the money to its partner’s entity.

For someone in finance or accounting, that distinction matters: proof that a partner owns an asset says little about the payments used to obtain it. In this case, the commission found that Och-Ziff failed to audit or review how its partner spent the money. The employee’s message makes the reason more revealing than the phrase control failure ever could: management knew approvals were being bypassed and accepted it.

The DRC Loan Gave Away the Control the Advice Required

The Democratic Republic of the Congo transactions paired Och-Ziff’s financing with a partner’s access to mining assets and senior officials. The Securities and Exchange Commission found that the partner told the European office’s head and an investment professional that he paid bribes to maintain those relationships. They continued to champion new business with him.

The warnings reached beyond those employees. A due diligence report described compliance watch-list entries, opaque companies, corruption allegations and influence over disputes with mining rivals. According to the commission, the chief financial officer and a senior legal officer urged the chief executive to avoid any transaction with the partner because of the corruption risk. The chief executive instructed them to proceed unless new information emerged.

The commission also described a mining company that announced a Zimbabwe acquisition after receiving an Och-Ziff investment intended for its DRC operations. Och-Ziff’s European employees later received accusations about the use of that money but did not tell others at the firm or investigate whether the accusations were true. The announced purpose of an investment and the business funded afterward were different.

The Loan Terms Changed the Answer

Och-Ziff arranged an approximately $124 million convertible loan through African Global Capital in 2008. The order describes advice that depended on the partner having no discretion over the proceeds. If he could choose how to spend the money, the advice would change and further discussion was needed.

The final arrangement gave the partner complete discretion over approximately $24 million. Och-Ziff obtained anti-corruption promises from the borrowing company, but not from the partner himself. According to the commission, the European employees knew some funds would pay bribes and did not share that knowledge with others at Och-Ziff or the outside advisers.

The commission traced the first transfer to a client account at the partner’s legal firm in Gibraltar. From there, Och-Ziff could neither control the spending nor trace where it went. The partner used the funds to bribe officials, including judges, to obtain a judgment that helped him secure control of a Canadian mining company.

A later advance also changed purpose. Originally intended for mining expenses, it became compensation for past spending, again leaving the partner discretion over the money. The commission found that this payment went through the same Gibraltar account and funded continuing bribes.

The Report Changed Before the Relationship Did

A review of past expenses uncovered travel payments, questionable charges and gratuities benefiting DRC officials. The order says an employee’s draft called for an investigation and flagged the issue as a compliance concern. The investment professional had others remove the corruption reference and the call for investigation.

The Justice Department’s account of the parent’s deferred prosecution agreement and the subsidiary’s guilty plea separately confirms the instruction to remove references to payments to officials from the final audit report. That makes the draft and final versions valuable whistleblower evidence. The difference shows both what surfaced inside the business and what someone decided others should see.

The commission found that Och-Ziff later provided a margin loan to the same partner. It examined the publicly traded stock securing the loan but failed to investigate the corruption risk or intended use of proceeds sufficiently. Money again passed through the Gibraltar client account, and part funded bribes. Checking the collateral protected the lender’s position. It did not answer how the borrower would spend the cash.

The Books Hid Who Benefited

The books and internal controls were central to the commission’s case. Its order describes authorizations recorded as investments, loans, deal fees and professional services even when the underlying money paid officials or served undisclosed personal interests. It also found that Och-Ziff failed to exercise available audit and cancellation rights after problems emerged.

The later fund, African Global Capital II, supplied another route. In a share transaction connected to Guinea, the Securities and Exchange Commission found that the South African partner bought shares and immediately resold fewer shares to the fund at a higher price. The transaction left him $52 million in cash and additional shares. The investor was not told about that cash benefit, and money flowed onward to an agent associated with a senior Guinean official.

A separate share purchase concealed the European office head’s personal interest. The commission found that he had lent the Libyan agent money to build a yacht, then arranged for the fund to buy shares from the agent when repayment became a problem. The agent transferred $4 million from the proceeds into the employee’s personal account. The investor had approved the purchase without being told about the employee’s interest.

The employee and agent later created a letter, backdated to before the purchase, purporting to rule out that repayment:

The commission found the letter was false and created to hinder the investigation into the employee’s conduct. We see the same problem as in the consultancy agreements: paperwork supplied a reassuring story after the money had already moved. The transfer records told the story the letter tried to erase.

What the Bribery Bought

In the plea agreement of Och-Ziff’s subsidiary, OZ Africa, as described by the Justice Department, the DRC partner’s bribes secured investment opportunities that generated more than $90 million in profits for Och-Ziff. We see the incentive plainly: the firm earned money from deals its partner obtained through bribery, while employees stripped the warnings out of an audit report. The decision chain and payment trail explain what the company admitted in its criminal resolution and what the commission found in its civil order.

What an Investment Insider Would Recognize

The Och-Ziff FCPA case shows how an intermediary could turn investment funds into bribe money. Deal teams, finance staff and compliance employees encounter the records behind those decisions in their ordinary work. The consultant’s claimed qualifications, the recipient of the wire, the final loan terms and the draft expense report each exposed a different part of the arrangement. An investment memorandum could look complete while leaving out the person who would ultimately benefit.

We connect the transaction a company approved with the money it actually released and the explanation given to investors. A removed condition, an unverified disclosure or an altered expense report can explain decisions that the final ledger alone conceals. Your knowledge of why those records differ is where our work with you begins.

The False Claims Act requires a separate connection to false claims against U.S. government money. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For qualifying SEC actions, whistleblower rewards range from 10% to 30% of the money collected. We assess which whistleblower program fits your information and work through it with you.

You Know What the Investment Papers Leave Out

If you saw a consultant paid for work nobody performed, loan restrictions disappear or an expense report rewritten, speak with our whistleblower experts. We work with you to build the case around the investment decisions and payment trail, and bring in FCPA whistleblower lawyers who understand fund managers and cross-border transactions. We stay beside you through the case, from the first conversation to the decisions that follow.