Global Anti-Corruption Insights: Summer 2016

Executive Summary

2016 is shaping up to be one of the busiest years on record for enforcement of the Foreign Corrupt Practices Act (FCPA), with dozens of new enforcement actions resulting in hundreds of millions of dollars in sanctions and more enforcement actions on the horizon. So far this year, the Securities and Exchange Commission (SEC) has resolved FCPA charges against 13 companies and three individuals (all but one through administrative proceedings rather than in court). Meanwhile, the Department of Justice (DOJ) has resolved FCPA charges against five companies and three individuals. The DOJ also has issued three "declination" letters pursuant to its new FCPA Pilot Program, declining to bring criminal charges against companies that have voluntarily disclosed FCPA violations, cooperated with the DOJ's investigation, and implemented remedial measures.

Across the pond, the UK has continued to step up its enforcement of the UK Bribery Act, including through deferred prosecution agreements. We cover these developments and more below.

 

 

Table of Contents

Key Developments in the United States

I.   FCPA Enforcement Actions Against Companies

II.  Enforcement Actions Against Individuals

III. Other FCPA Investigation and Enforcement News

IV. FCPA-Related Developments at DOJ

V.  FCPA-Related Civil Litigation

VI. Corruption-Related Legal Developments

Global Anti-Corruption Update

I. United Kingdom

II. Other Countries

 

 

 

KEY DEVELOPMENTS IN THE UNITED STATES

 

 

 

I. FCPA Enforcement Actions Against Companies

Och-Ziff Reserves US$414.3 Million for Potential FCPA Settlement

On August 2, 2016, Och-Ziff Capital Management Group LLC (Och-Ziff), the United States' largest publicly traded hedge fund, announced that it had more than doubled its reserves to US$414.3 million to settle potential FCPA charges.¹ The DOJ and SEC have been examining whether the firm's London operation paid bribes to obtain an investment from Libya's sovereign-wealth fund and natural-resources deals in other African countries. Settlement talks are reportedly in advanced stages.² To date, US authorities have never brought an FCPA case against a hedge fund.

Och-Ziff is also facing a putative class-action lawsuit in federal court in Manhattan, in which investors who purchased Och-Ziff shares are alleging that the fund misled investors about the government's FCPA investigations.³ On February 17, 2016, the US District Court dismissed Cohen from the case, determining that there were insufficient allegations that he was a "control person" under § 20(a) of the Securities Exchange Act.⁴ However, the case is proceeding against Och-Ziff and two of its executives and is scheduled for a status conference before Judge Paul Oetken on January 20, 2017.⁵

Embraer Reserves US$200 Million for Potential FCPA Settlement

On July 29, 2016, Brazilian aircraft manufacturer Embraer S.A. (Embraer) disclosed that it had booked a US$200 million loss contingency related to the allegations that certain aircraft sales had violated the FCPA. Embraer has been under investigation by US authorities for nearly six years. According to the company, a final settlement with the DOJ and SEC is likely to include a DPA and the imposition of an independent compliance monitor. Embraer said that related investigations in other countries are ongoing.⁶

LATAM Airlines Pays US$22.2 Million to Resolve FCPA Charges Involving Argentine Union Officials

On July 25, 2016, Chilean commercial airline company LATAM Airlines Group S.A. (LATAM) agreed to pay a total of US$22.2 million to settle parallel civil and criminal FCPA enforcement actions in connection with allegedly improper payments to union officials in Argentina.⁷ According to admissions made in the company's deferred prosecution agreement (DPA) with the DOJ, in 2006 executives at LAN Airlines S.A. (LAN), LATAM's predecessor-in-interest, signed a fictitious US$1.15 million consulting agreement with a company owned and operated by an advisor to Argentina's Secretary of Transportation, in order to funnel bribes to labor union officials in exchange for resolving labor disputes.⁸ The DOJ estimates that, as a result of the improper payments to this third-party consultant in 2006 and 2007, LAN obtained a benefit of US$6.7 million.⁹ Under the terms of the DPA, LATAM will pay a US$12.75 million criminal penalty for violations of the FCPA's internal controls and books and records provisions, and maintain an independent compliance monitor for 27 months.¹⁰ In determining the penalty level, the DOJ negatively cited LATAM's failure to promptly disclose the alleged FCPA violations and its inadequate compliance program at the time of the purported misconduct but positively noted the company's full cooperation and significant remediation efforts.¹¹ In a related administrative action by the SEC, without admitting or denying the Commission's allegations, LAN agreed to pay US$9.4 million in disgorgement and prejudgment interest to settle charges that the company failed to keep accurate books and records and maintain adequate internal accounting controls.¹²

As described below, in February, Ignacio Cueto Plaza, CEO of LAN, agreed to pay US$75,000 to settle SEC charges under the FCPA's internal controls and books and records provisions in connection with the Argentine labor union scheme.

Johnson Controls Receives Declination from DOJ Under Pilot Program; Settles with SEC for US$14 Million

On July 11, 2016, Johnson Controls, Inc. (JCI), a Wisconsin-based provider of heating and air conditioning services whose shares trade on the New York Stock Exchange, settled, through an SEC administrative proceeding, FCPA books and records and internal controls charges based on a wholly owned subsidiary's alleged payments, from 2007 to 2013, to sham vendors that used the funds to make approximately US$4.9 million in improper payments to employees of Chinese government-owned shipyards and others. According to the SEC, "[t]he improper vendor payments were improperly recorded on JCI's books and records, and JCI failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments." Without admitting the SEC's allegations, JCI agreed to pay a total of US$14 million in sanctions, US$11.8 million in disgorgement, US$1.38 million in prejudgment interest, and a US$1.18 million civil penalty to resolve the charges.¹³

Also on July 11, the DOJ released a declination letter dated June 21 that it had sent to JCI's lawyers, saying "at this time and consistent with the FCPA Pilot Program, we have closed our inquiry into this matter despite the bribery by employees of JCI's subsidiary in China."¹⁴The DOJ's Pilot Program, discussed in more detail below and in A&P's Advisory,¹⁵ offers companies that self-report FCPA violations, cooperate with authorities, and engage in serious remediation efforts the opportunity to avoid criminal prosecution.¹⁶ In support of the declination, the DOJ cited, among other things, JCI's voluntary self-disclosure, cooperation, compliance program enhancements, separation from the company of the 16 individuals found to be responsible, disgorgement, and payment of the penalty to the SEC.¹⁷ JCI thus became the third company to receive such a letter since the DOJ instituted its FCPA Pilot Program in April.

Analogic Corporation and Danish Subsidiary Agree to Pay US$15 Million to SEC and DOJ

On June 21, 2016, the SEC and DOJ announced a nearly US$15 million settlement with Analogic Corporation, a Massachusetts-based imaging company, and its Danish subsidiary, BK Medical ApS, to resolve parallel civil and criminal FCPA charges.¹⁸ US authorities alleged that, between 2001 and 2011, BK Medical engaged in a scheme to funnel approximately US$20 million in improper payments to various third parties and to conceal those payments by creating fictitious invoices and causing its parent corporation to falsify its books and records.¹⁹ At least some of these payments went to doctors employed by Russian state-owned entities (SOEs). While the scheme involving its Russian distributor was the most extensive, BK Medical admitted that it had paid similar illegal payments to distributors in Ghana, Israel, Kazakhstan, Ukraine, and Vietnam.²⁰

Under a civil cease-and-desist order with the SEC, Analogic agreed to pay US$11.5 million in disgorgement plus interest for books and records and internal control violations.²¹ Under a non-prosecution agreement (NPA) with the DOJ, BK Medical agreed to pay a US$3.4 million fine to resolve criminal charges that the company willfully violated the FCPA's books and records provisions.²² Under the DOJ's FCPA Pilot Program, BK Medical received a 30% reduction in the potential fine as a result of its voluntary disclosure, eventual cooperation with authorities, and extensive remedial measures.²³ BK Medical's former chief financial officer was also ordered to pay a US$20,000 civil fine.²⁴

Nortek Settles with SEC; Receives Declination from DOJ Under Pilot Program

On June 7, 2016, the SEC announced it had entered into an NPA with Nortek Inc. (Nortek), a Rhode Island-based residential and commercial building products manufacturer, to resolve a case involving bribes paid to Chinese officials. As part of the agreement, Nortek agreed to pay US$291,403 in disgorgement plus US$30,655 in interest.²⁵

According to the SEC, from at least 2009 to 2014, employees and a managing director of Linear Electronics (Shenzhen) Co. Ltd. (Linear), an indirect wholly owned subsidiary of Nortek located in Shanghai, "made or approved improper payments and gifts to local Chinese officials" to secure "preferential treatment, relaxed regulatory oversight, and/or reduced customs duties, taxes, and fees."²⁶ These more than 400 improper payments totaled approximately US$290,000. The SEC concluded that Nortek maintained inadequate internal accounting controls and inaccurate books and records. Under the NPA, however, Nortek was not charged with any violations of the FCPA and did not pay any additional penalties.²⁷

After a routine internal audit revealed certain questionable hospitality, gift and payment practices, and other expenses at its subsidiary, Nordek launched an independent internal investigation into Linear's operations in 2014.²⁸ Upon finding evidence of improper payments, Nortek self-reported to the SEC and DOJ and cooperated with their investigations.²⁹

The DOJ separately issued a declination letter, stating that, consistent with its new FCPA Pilot Program, it had closed its inquiry in light of the company's cooperation, compliance enhancements, remediation, and disgorgement.³⁰

Akamai Settles with SEC and Receives Declination from DOJ Under Pilot Program

On June 7, 2016, the SEC announced it had entered into an NPA with Akamai Technologies (Akamai), a Massachusetts-based internet service provider, to resolve a case involving bribes paid to Chinese officials. As part of the agreement, Akamai agreed to pay US$652,452 in disgorgement plus US$19,433 in interest.³¹

According to the SEC, from at least 2013 through 2015, a Regional Sales Manager and a separate marketing and sales partner of wholly owned subsidiary Akamai (Beijing) Technologies, Co. Ltd. (Akamai-China) schemed to bribe end customers—two of which were Chinese SOEs—in order to procure and retain business. In total, the Regional Sales Manager made approximately US$155,500 in payments to end customers, US$38,500 of which was paid in cash to Chinese government officials. Employees of Akamai China also allegedly provided approximately US$32,000 in gifts and entertainment to Chinese government officials.³²

Akamai initially learned of the misconduct in December 2014 from an Akamai-China sales representative who alleged that the Regional Sales Manager was engaged in improper payment practices. Akamai subsequently self-reported the misconduct to the SEC Division of Enforcement and cooperated with the Commission Staff. The company also undertook remedial measures, such as placing on leave and accepting the resignation of the Regional Sales Manager, terminating its relationship with the marketing and sales partner, and bolstering its compliance program and procedures.³³ The SEC found that Akamai had failed to devise and maintain proper internal accounting controls and to maintain accurate books and records when Akamai and Akamai-China's books and records were consolidated. Under the NPA, however, Akamai was not charged with any violations of the FCPA and did not pay any additional penalties.³⁴

The DOJ separately issued a declination letter, stating that, consistent with its new FCPA Pilot Program, it had closed its inquiry in light of the company's cooperation, compliance enhancements, remediation, and disgorgement.³⁵

Biomet Breaches Deferred Prosecution Agreement, According to DOJ

On June 6, 2016, the DOJ reported to the US District Court for the District of Columbia that Zimmer Biomet (Biomet), an Indiana-based medical device manufacturer, had breached a DPA entered into in March 2012. The DOJ claimed that the breach was based on an alleged kickback scheme through which Biomet distributors made payments to publicly employed doctors in Brazil and Mexico, and on the company's "failure to implement and maintain a compliance program as required by the DPA." In July 2014, the company disclosed to US authorities an email from an anonymous whistleblower that revealed the kickback scheme.³⁶

The DOJ's report of a breach came after the DPA, as well as the appointment of the compliance monitor, had already been extended by a year as a result of the 2014 disclosures.³⁷ Under the DPA, Biomet had agreed to pay approximately US$22.8 million to settle FCPA charges stemming from the company's activities in Argentina, Brazil, and China during 2000-2008.³⁸ Biomet has stated that it is committed to cooperating with the DOJ and is currently in negotiations to avoid prosecution.³⁹

Las Vegas Sands Corp. Settles with SEC over Payments to Chinese Consultant

On April 7, 2016, the SEC announced a US$9 million settlement with Las Vegas Sands Corp. (LVSC) to resolve charges that, between 2006 and 2011, the casino giant failed to properly document or authorize more than US$62 million in payments to a consultant who facilitated its business activities in China and Macao.⁴⁰

According to the SEC, the consultant, who claimed to be a former Chinese government official, was hired to liaise with governmental bodies, provide advice and assistance with approval processes, and serve as an intermediary to conceal LVSC's role in certain transactions. The questionable transfers to the consultant purportedly included US$43 million to purchase portions of a Beijing building from a Chinese SOE without appropriate authorization; US$900,000 for property management fees for services that were never performed; and US$1.4 million for "arts and crafts," although no artwork was purchased for the building.⁴¹ In addition to noting the company's "inaccurate books and records," the SEC's cease-and-desist order further alleges that LVSC senior management was aware of the lack of controls which "impacted other transactions, such as gifts and entertainment for foreign officials, employee and vendor expense reimbursements, and customer comps."⁴² While LVSC consented to the cease-and-desist order, it neither admitted nor denied the charges contained therein.

Nordion and Former Employee Settle FCPA Charges over Activities in Russia

On March 3, 2016, Nordion (Canada) Inc. (Nordion),⁴³ a medical isotope and sterilization technology company, and one of its former employees settled FCPA charges in connection with their business activities in Russia.⁴⁴ Under the terms of the cease-and-desist order with the SEC, Nordion agreed to pay a US$375,000 civil penalty to resolve books and records and internal controls allegations,⁴⁵ while the employee, Mikhail Gourevitch, was ordered to pay US$112,950 in disgorgement and interest as well as a civil monetary penalty of US$66,000 for violations of the bribery, books and records, and internal controls provisions of the FCPA.⁴⁶

From at least 2004 through 2011, Gourevitch allegedly arranged bribes to Russian government officials through a Nordion third-party agent in Russia in order to obtain government approval to distribute TheraSphere, Nordion's liver cancer treatment, in Russia.⁴⁷ According to the SEC, Gourevitch knowingly provided false documentation to Nordion and circumvented the company's internal controls to conceal his scheme with the agent to bribe Russian officials and receive kickbacks himself.⁴⁸ Gourevitch's alleged conduct led Nordion to mischaracterize fees paid to the agent as legitimate business expenses when some or all of the fees may have been used to pay bribes to Russian officials or kickbacks to Gourevitch.⁴⁹ In addition, Nordion did not conduct proper due diligence on the agent nor did it follow its own internal controls procedures with regard to the more than US$235,000 it paid the agent.⁵⁰

The SEC took Nordion's significant cooperation, self-reporting, and remedial acts into consideration when determining the relatively modest settlement amount.⁵¹ Once Nordion discovered evidence of misconduct by Gourevitch, the company self-reported to the SEC as well as Canadian officials, cooperated extensively with the investigation, and enacted strict protocols for third-party risk assessments.⁵² Notably, TheraSphere never made it to the Russian market, so Nordion had no related profits it could be ordered to disgorge.⁵³

Qualcomm Pays US$7.5 Million Civil Fine to Resolve SEC's Bribery Allegations

On March 1, 2016, the SEC announced it had reached a US$7.5 million settlement with Qualcomm Incorporated (Qualcomm) to resolve charges that the company violated the FCPA by hiring relatives of Chinese government officials who were deciding whether to select the company's mobile technology products.⁵⁴ The SEC further alleged that Qualcomm provided gifts, travel, and entertainment in attempts to influence officials at Chinese state-owned telecom companies.

According to the SEC, Qualcomm offered and gave full-time positions and paid internships to Chinese officials' family members in attempts to obtain or retain business, despite concerns that the prospective employees and interns did not meet Qualcomm's hiring standards. The company also provided meals, gifts, and entertainment with no apparent business purpose to foreign officials in efforts to influence their decisions. For example, Qualcomm regularly gave government officials items such as airplane tickets for their children, event tickets for their spouses, and luxury goods.⁵⁵

The bribery allegations and subsequent SEC investigation started in 2012 after a whistleblower complaint to the Qualcomm board of director's audit committee and to the SEC.⁵⁶ In February 2016, shareholders brought a derivative suit against the company claiming it failed to implement proper controls to detect and prevent FCPA violations.⁵⁷

Olympus Latin America Agrees to Pay US$22.8 Million for Illegal Payments to Healthcare Providers and Hospitals in Latin America

On February 29, 2016, Olympus Latin America Inc. (OLA), a subsidiary of medical device company Olympus Corporation of the Americas (OCA), agreed to a three-year DPA with the DOJ to resolve charges that OLA paid US$3 million in bribes to medical practitioners at government-owned healthcare facilities in Argentina, Brazil, Bolivia, Chile, Colombia, Costa Rica, and Mexico.⁵⁸ OLA admitted that, between 2006 and 2011, its senior management designed and implemented a plan to increase medical equipment sales in Central and South America through illicit payments of personal benefits, including cash, money transfers, personal medical education, travel, free or heavily discounted equipment, and other items of value to healthcare professionals—including those employed at government-owned facilities—who could (i) authorize or influence those facilities' decisions to purchase OCA equipment and (ii) prevent local public institutions from switching to the technology of Olympus's competitors.

In addition to a US$22.8 million criminal fine, the DPA imposes broad corporate compliance requirements and enhancements to OLA’s existing internal controls, policies, and procedures, and requires the company to retain an independent compliance monitor for three years.⁵⁹ In parallel civil and criminal actions in connection with illegal payments and other remuneration made by OCA and its employees and officers to doctors, hospitals, and other healthcare professionals in the United States, OLA's parent company agreed to pay US$312.4 million in penalties to resolve criminal charges under the US Anti-Kickback Statute as well as US$310.8 million in civil claims under federal and state False Claims Acts.⁶⁰ The Olympus settlement is particularly significant because it is one of the few global settlements to allege kickback payments to physicians in the United States and overseas, as well as allegations of fraud on US healthcare programs, in a single resolution.

VimpelCom Reaches US$795 Million Settlement with US and Dutch Authorities

On February 18, 2016, the DOJ and SEC announced a global settlement with Amsterdam-based telecommunications company VimpelCom Ltd. (VimpelCom), requiring the company to pay more than US$795 million in criminal and civil penalties and disgorgement of profits to resolve FCPA violations relating to the payment of bribes to an Uzbek government official with influence over the telecommunications market in Uzbekistan, in order to retain and maintain business in that market.⁶¹

Under the DPA, VimpelCom accepted responsibility for violating the FCPA's internal controls provisions and conspiring to violate the FCPA’s anti-bribery and books and records provisions, and agreed to pay a US$190.1 million criminal penalty plus US$40 million in disgorgement to the DOJ.⁶² The DPA also orders the company to pay the Dutch Prosecution Service a US$230.1 million criminal penalty in connection with the settlement of VimpelCom’s potential prosecution in the Netherlands.⁶³ On the civil side, without admitting or denying allegations of FCPA anti-bribery, internal controls, and book and records violations, VimpelCom signed a civil consent order with the SEC requiring the company to disgorge an additional US$375 million, to be split evenly between the SEC and the Dutch government.⁶⁴ Further, under the DPA and consent order, VimpelCom must implement a compliance monitor for at least three years and cooperate with the government's ongoing investigation of individuals. Finally, the DOJ also has filed two related civil complaints seeking the forfeiture of US$850 million held in bank and investment accounts in Switzerland, Belgium, Luxembourg, and Ireland, which the government believes to be bribe payments and/or funds involved in the laundering of bribe payments.⁶⁵

Unitel LLC (Unitel), VimpelCom's wholly owned subsidiary, pleaded guilty to conspiring with its parent company and others to pay more than US$114 million in bribes, through a shell company, to an Uzbek government official between 2006 and 2012. The payments allegedly were made in exchange for that government official's influence over entry into and operations within the Uzbek telecommunications market, including access to government-issued licenses, frequencies, and channels.⁶⁶ Unitel also admitted to falsifying its books and records to conceal the bribes by characterizing them as, among other things, consulting fees and equity transactions.⁶⁷

PTC Inc., Two Subsidiaries, and Employee Settle FCPA Charges with the DOJ and SEC

On February 16, 2016, Massachusetts software company PTC Inc. (PTC) agreed to pay a US$28 million settlement to resolve parallel civil and criminal actions based on allegations that PTC subsidiaries provided improper payments to Chinese government officials in an effort to win business.⁶⁸ PTC agreed to pay US$11.86 million in disgorgement and US$1.76 million in prejudgment interest to settle the SEC’s charges under the anti-bribery, internal controls, and books and records provisions of the FCPA.⁶⁹ PTC's two Chinese subsidiaries, Parametric Technology (Shanghai) Software Co. Ltd. and Parametric Technology (Hong Kong) Limited (together, PTC-China) agreed to pay an additional US$14.54 million fine in connection with an NPA with the DOJ.⁷⁰

According to the SEC's charges, which PTC neither admitted nor denied, between 2008 and 2011, PTC-China provided over US$1.5 million in non-business foreign travel, gifts, and entertainment to Chinese government officials in order to win or retain business. PTC earned approximately US$11.85 million in profits from sales contracts with SOEs whose officials received the improper payments.⁷¹ Notably, PTC-China did not receive voluntary disclosure credit or full cooperation credit in the DOJ investigation because, in the subsidiaries' initial disclosures to authorities, they failed to reveal relevant facts that they had learned in connection with a prior internal investigation.⁷²

This settlement also marks the SEC’s first DPA with an individual in an FCPA case. The SEC will defer FCPA charges against Yu Kai Yuan, a former employee at one of PTC's Chinese subsidiaries, for three years as a result of the "significant cooperation he [ ] provided during the SEC's investigation."⁷³

SciClone Pharmaceuticals Agrees to Pay US$12.8 Million to Settle FCPA Charges with the SEC

On February 4, 2016, California-based SciClone Pharmaceuticals Inc. (SciClone) agreed to a cease-and-desist order with the SEC to resolve books and records and internal controls charges stemming from allegations that its China-based subsidiaries made improper payments to employees of state health institutions.⁷⁴ According to the SEC, from at least 2007 to 2012, employees of SciClone’s China-based subsidiaries provided items of value such as money and gifts to foreign officials employed by state-owned hospitals in order to promote sales of SciClone pharmaceutical products. The cease-and-desist order alleges that various managers within SciClone's China-based corporate structure were aware of and condoned these improper transactions, which were then falsely recorded in the subsidiaries' books and records as legitimate business expenses.⁷⁵

Without admitting or denying the SEC's charges that it had failed to devise and maintain a sufficient system of internal accounting controls and that the company lacked an effective anti-corruption compliance program, SciClone agreed to pay US$10.3 million in disgorgement plus interest and a US$2.5 million civil penalty.⁷⁶ SciClone further agreed to implement anti-corruption compliance measures and provide status reports to the SEC for the next three years regarding its implementation and remediation efforts.⁷⁷

SAP SE Settles SEC Charges of Bribing Panamanian Officials

On February 1, 2016, the SEC announced that software manufacturer SAP SE (SAP) agreed to settle charges that it violated the books and records and internal controls provisions of the FCPA when procuring business in Panama. Without admitting or denying the allegations, the company will disgorge US$3.7 million in profits and pay prejudgment interest of US$188,896.⁷⁸

The SEC's investigation found that a former SAP executive, Vicente E. Garcia, paid US$145,000 in bribes to a senior Panamanian government official and offered bribes to others in exchange for US$3.7 million in government sales contracts for software.⁷⁹ Garcia concealed his scheme from others at SAP, circumvented the company's internal controls, and falsified financial records that were subsequently consolidated into SAP's financial statements. In limiting the corporate financial penalty to disgorgement of ill-gotten revenues plus interest, the SEC noted SAP’s extensive cooperation with the investigation as well as its prompt remedial action.⁸⁰

In related proceedings in 2015, the SEC issued a cease-and-desist order against Garcia, ordering him to disgorge more than US$90,000 in kickbacks and interest. That same year, Garcia pleaded guilty to one criminal bribery charge under the FCPA and was sentenced to 22 months in prison.⁸¹

Return to Table of Contents

 

 

 

II. Enforcement Actions Against Individuals

Two Former Louis Berger Executives Sentenced

In July 2016, a US District Court judge in New Jersey sentenced two former executives of Louis Berger International (LBI), a New Jersey-based construction company, for conspiring to violate and violating the FCPA. James McClung—the senior vice president responsible for Louis Berger's operations in Indonesia, Thailand, Philippines and Vietnam—received a sentence of one year plus one day in prison, while Robert Hirsch—the senior vice president responsible for operations in India and Vietnam—received a sentence of two years' probation and a US$10,000 fine.⁸²

Last July, the DOJ announced that McClung and Hirsch had pleaded guilty and that LBI had entered into a DPA in connection with charges that the company and its employees had violated the FCPA by paying US$3.9 million in bribes from 1998 through 2010 to government officials in various countries in order to win construction-management contracts.⁸³

Two More Individuals Plead Guilty in Connection with Venezuela Bribery Scheme

On June 16, 2016, the owner of multiple US-based oil and gas companies, Roberto Enrique Rincon Fernandez (Rincon), pleaded guilty to FCPA violations and making false statements on his tax returns for his role in a bribery scheme related to contracts with Venezuela's state-owned energy company, Petroleos de Venezuela S.A. (PDVSA).⁸⁴ Rincon is the sixth individual to plead guilty as part of an ongoing PDVSA bribery investigation.⁸⁵ On March 23, 2016, Rincon's co-conspirator, Abraham Jose Shiera Bastidas (Shiera), pleaded guilty to related FCPA and wire fraud charges.⁸⁶ Rincon and Shiera admitted that they agreed in 2009 to pay bribes to PDVSA to enable their companies to win PDVSA energy contracts.⁸⁷ Rincon and Shiera also admitted to paying bribes to PDVSA officials to guarantee that their companies appeared on approved vendor lists and were given payment priority.⁸⁸ Additionally, Rincon admitted that he willfully failed to report more than US$6 million on his 2010 federal tax return. In December 2015 and January 2016, four other individuals charged in connection with the scheme, including a former employee of Shiera and three PDVSA officials, pleaded guilty to criminal conspiracy charges. As part of their guilty pleas, all six individuals agreed to forfeit all proceeds from the bribery scheme.⁸⁹

Pennsylvania Consultant Pleads Guilty to Bribing EBRD Official

On April 20, 2016, the former owner and president of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co. (together, the Chestnut Group), Dmitrij Harder, pleaded guilty to two counts of FCPA violations for bribing an official at the European Bank for Reconstruction and Development (EBRD), a London-based multilateral development bank owned by more than 60 countries.⁹⁰ Harder, a Russian national and US permanent resident, admitted to paying approximately US$3.5 million in bribes between 2007 and 2009 to influence the EBRD in connection with his clients' applications for financing.⁹¹ The EBRD approved applications from two of Harder's clients, resulting in an US$85 million investment and a €90 million loan, as well as a US$40 million investment and a US$60 million convertible loan.⁹² Harder also admitted that the Chestnut Group received approximately US$8 million in "success fees" as a result of the EBRD approving his clients' applications.⁹³ Harder's original July sentencing date has been postponed until November 3, 2016.⁹⁴

Individuals Settle with SEC; Sentenced in Connection with Direct Access Partners Bribery Scheme

The SEC announced on April 8, 2016, that it had reached a settlement with seven individuals from now defunct broker-dealer Direct Access Partners (DAP) related to bribery allegations involving a former official of a Venezuelan state-owned bank.⁹⁵ The settlement permanently enjoins all defendants from violating US securities laws and orders five of the defendants—Benito Chinea, Tomas Alberto Clarke Bethancourt, Joseph DeMeneses, Jose Alejandro Hurtado, and Ernesto Lujan—to pay more than US$42 million in total in disgorgement and prejudgment interest, which the court deemed satisfied by forfeiture orders in parallel criminal cases against those defendants.⁹⁶ As we previously reported,⁹⁷ five officers and employees of DAP, including Chinea, Clarke, DeMeneses, Hurtado, and Lujan, pleaded guilty to criminal FCPA charges and were sentenced between two and four years in prison for bribing a Venezuelan banking official to receive lucrative bond-trading business.⁹⁸

On January 15, 2016, Maria de Los Angeles Gonzalez de Hernandez, the former senior Venezuelan state banking official who cooperated with US authorities, was sentenced to time served after spending 17 months in prison and ordered to forfeit more than US$8 million. In November 2014, she pled guilty to conspiracy, money laundering, and Travel Act charges related to the DAP bribery scheme.⁹⁹

FIFA Case Results in More Convictions

On March 28, 2016, former Honduran President Rafael Callejas pleaded guilty to wire fraud conspiracy and racketeering conspiracy before US Magistrate Judge Robert M. Levy of the United States District Court for the Eastern District of New York. Callejas admitted that between 2002 and 2015, while president of the Honduran soccer federation, FENAFUTH, he solicited and accepted bribes from marketing firms Media World and Traffic Sports in exchange for influencing the awarding of contracts for the 2014, 2018, and 2022 World Cup tournaments.¹⁰⁰ Callejas agreed to forfeit US$650,000 and his sentencing is set for August 5, 2016.

In a related case, on April 11, 2016, Alfredo Hawit, whose past roles include FIFA vice president and executive committee member, president of CONCACAF, and president and general secretary of FENAFUTH, pleaded guilty to one count of racketeering conspiracy, two counts of wire fraud conspiracy, and one count of conspiracy to obstruct justice. He faces a sentence of up to 20 years' imprisonment for each count.¹⁰¹ According to the DOJ, beginning in 2008, Hawit took bribes from Media World in exchange for awarding media and marketing rights for the Honduran national team's qualifier matches for the 2014, 2018, and 2022 World Cup tournaments.¹⁰² Hawit agreed to forfeit US$950,000 and is awaiting sentencing.

Callejas and Hawit are two of the 17 defendants who have been convicted of corruption as part of the DOJ's FIFA corruption investigation. Forty-two defendants have been charged overall.

LAN Airlines CEO Settles SEC Charges Related to Suspected Union Payments in Argentina

On February 4, 2016, the SEC announced that Ignacio Cueto Plaza (Cueto), the CEO of South America-based LAN Airlines, agreed to settle charges that he violated the books and records and internal controls provisions of the FCPA.¹⁰³ The SEC alleged that Cueto authorized improper payments to a third-party consultant—a government official in Argentina's federal planning unit—who may have passed money to Argentine labor union officials during a dispute between the airline and its unionized employees.¹⁰⁴ Cueto will pay a US$75,000 penalty, attend anti-corruption training, and certify compliance with the airline's policies and procedures.¹⁰⁵ As discussed above, in July 2016, LATAM, the successor-in-interest to LAN, agreed to pay US$22.2 million to resolve criminal and civil violations of the FCPA's books and records and internal controls provisions in connection with the scheme.

Return to Table of Contents

 

 

 

III. Other FCPA Investigation and Enforcement News

Ericsson, the Swedish telecom equipment manufacturer, stated in a June 17, 2016 press release that it had received a request from the US government to voluntarily answer questions pertaining to the company's activities abroad and its anti-corruption program.¹⁰⁶ Both the DOJ and SEC are reportedly investigating Ericsson's activity in China.¹⁰⁷ Moreover, on June 19, 2016, Ericsson issued another press release disclosing an ongoing investigation by Greek authorities into a former subsidiary's 1999 sale of an airborne radar system to the Greek government. As of June 19, seven current and former Ericsson employees had been served with summonses by a Greek prosecutor.¹⁰⁸

On June 13, 2016, Frank's International N.V. (Frank's), a Netherlands-based tube-making company, disclosed in a Form 8-K filing with the SEC that it was investigating whether its subsidiaries in West Africa had possibly violated the FCPA and other applicable laws. Earlier in June, Frank’s voluntarily disclosed the existence of its internal review to the SEC and DOJ. Frank's stated that it intends to "fully cooperate with these agencies and any other applicable authorities."¹⁰⁹

On April 28, 2016, Key Energy Services (Key Energy), a Houston-based energy service company, disclosed in an SEC filing that the DOJ has decided not to prosecute the company for alleged FCPA violations in Mexico. The company also stated that it is currently negotiating a settlement agreement with the SEC relating to the same allegations. According to Key Energy, this settlement will likely be finalized in the second quarter of 2016, and the company has accrued US$5 million to pay for it.¹¹⁰ The DOJ's decision not to prosecute came two years after Key Energy disclosed in an 8-K filing that it had become aware of alleged FCPA violations and was conducting an internal investigation with respect to its Mexican operations.¹¹¹

In an April 20, 2016 filing with the SEC, Colorado-based gold producer Newmont Mining Corp. (Newmont) disclosed that it is conducting an investigation into the company's compliance with the FCPA and other regulatory requirements. The company entered into separate one-year agreements with both the SEC and the DOJ to delay the statute of limitations from running with respect to the ongoing investigations. The company also indicated in its filing that it was working with both agencies and could not predict the outcome of either investigation.¹¹²

Chemical and Mining Company of Chile Inc. has shared with US and Chilean authorities the factual findings of an internal investigation, first announced in 2015, into potential violations of the FCPA and various Chilean laws between the years 2009 and 2015.¹¹³

Israeli holding company Elbit Imaging Ltd. disclosed that it has become aware of certain agreements related to a real estate development project in Bucharest, Romania, that may have violated the FCPA. The company is conducting an investigation and "intends to fully cooperate with the relevant governmental agencies in this matter."¹¹⁴

Alere Inc., a Massachusetts-based diagnostic services company, disclosed on March 15, 2016, that it had received a grand jury subpoena from the DOJ "requiring the production of documents relating to, among other things, sales, sales practices and dealings with third-parties (including distributors and foreign governmental officials) in Africa, Asia and Latin America and other matters related to the [FCPA]."¹¹⁵

On March 11, 2016, Platform Specialty Products Corporation (Platform), a Florida-based chemical maker, reported that "[i]n connection with the implementation of internal controls at Arysta, a newly acquired subsidiary, [it] discovered certain payments made to third-party agents in connection with Arysta's government tender business in West Africa which may be illegal or otherwise inappropriate," including under the FCPA. Platform further reported that it voluntarily disclosed this information to the SEC and DOJ, and is cooperating with these agencies as it conducts an internal investigation.¹¹⁶

In its 2015 Annual Report released on March 1, 2016, Barclays PLC revealed that it was cooperating with the SEC and DOJ in an "investigation into certain of its hiring practices in Asia."¹¹⁷ The investigation is part of a broader US government probe into banks' recruitment of friends and family members of government officials; several other banks have similarly disclosed that US agencies are investigating them over aspects of their foreign recruiting.¹¹⁸ Barclays's Annual Report also noted that it was keeping regulators in other jurisdictions apprised of the investigation.¹¹⁹ This probe is in addition to an ongoing FCPA investigation by the DOJ and SEC into the Barclays Bank Group's relationships with third-party firms that assisted the Group in obtaining or retaining business.¹²⁰

On February 22, 2016, HSBC Holdings plc (HSBC) disclosed that the SEC is investigating the banking and financial institution for its hiring practices in the Asia-Pacific region.¹²¹ Specifically, the SEC is investigating HSBC's practice of hiring candidates referred by or related to government officials or employees of SOEs. HSBC said in its disclosure that it had received requests for information and was cooperating with the SEC. According to Chief Executive Stuart Gulliver, the SEC's requests were part of a broader investigation into hiring practices across banks.¹²² As of the February disclosure, however, HSBC said that it was too early to predict the resolution or impact of the investigation.

Mondelēz International, Inc. (Mondelēz), an international food conglomerate based in Illinois, disclosed that on February 11, 2016, it received a Wells notice from the SEC that a preliminary determination to file an enforcement action had been made. The SEC's determination was based on alleged violations of the FCPA's books and records and internal control provisions in connection with payments funneled to Indian officials through a consultant. The payments were reportedly made in exchange for approvals and permits related to the expansion of a factory in Baddi, India, that was previously owned by Cadbury, a British confectionery company acquired by Mondelēz in 2010. Cadbury allegedly sought to receive a special tax exemption worth roughly US$90 million over ten years for the facility expansion, even though the exemption was supposed to apply to the construction of new facilities.¹²³ Although Mondelēz discovered this information through its own internal investigations, the company did not report it to US authorities. The DOJ and SEC eventually became aware of it through a whistleblower. Mondelēz received a subpoena from the SEC in 2011.¹²⁴

On February 10, 2016, SBM Offshore, a Dutch-based entity in the oil industry, issued a press release announcing that the DOJ had reopened its investigation into SBM's alleged bribery of government officials in Angola, Brazil, and Equatorial Guinea between 2007 and 2011.¹²⁵ SBM has not confirmed the scope of the DOJ's investigation. This inquiry follows a 2014 settlement with the Dutch Public Prosecutor and a 2015 settlement with Brazilian authorities that a judge confirmed in 2016.¹²⁶

On February 10, 2016, General Cable Corporation, a Kentucky-based manufacturer of copper and fiber-optic cables, disclosed that it had increased to US$33 million its FCPA-related accrual after substantially completing an internal investigation into potential violations across its operations in Angola, Thailand, India, China, and Egypt.¹²⁷ The US$33 million accrual represents the estimated profit that the company anticipates it may need to disgorge in the case of an FCPA settlement with the government. The company's Form 8-K attributed the increased accrual to the identification of potentially improper transactions, including payments and gifts made or offered to public utility company employees, directly or through intermediaries.¹²⁸ The accrual does not include possible fines, civil, or criminal penalties or other payments that may be levied against General Cable in a settlement with the government. The company stated that it continues to cooperate with the DOJ and SEC in the matter.

Return to Table of Contents

 

 

 

IV. FCPA-Related Developments at DOJ

Daniel Kahn Named DOJ's New FCPA Chief

On June 1, 2016, the DOJ announced that Daniel S. Kahn would lead its FCPA unit. Mr. Kahn has been the temporary head of the FCPA unit since March and an assistant chief in the unit since 2013. Mr. Kahn previously received the Assistant Attorney General's Award for Distinguished Service for his part in prosecuting a bribery scheme involving the state-owned and state-controlled Haitian telecommunications company—a case that resulted in the first conviction at trial of a foreign government official for laundering proceeds of FCPA violations. Mr. Kahn also served as DOJ's liaison to the ABA Standards Task Force on Monitors.¹²⁹

New DOJ Pilot Program Encourages Voluntary Corporate FCPA Disclosures

As discussed in further detail in A&P's Advisory,¹³⁰ on April 5, 2016, the DOJ Criminal Division's Fraud Section launched a one-year pilot program offering companies that self-report FCPA violations the opportunity to receive substantially reduced penalties or perhaps even avoid criminal prosecution.¹³¹ The standards that the Fraud Section has set forth to determine whether and how much credit a company should receive for disclosing FCPA violations are consistent with the DOJ's existing policies and practices, but they do provide additional transparency about the requirements for a company to receive leniency for FCPA violations as well as the tangible benefits a business might secure by self-disclosing potential FCPA-related misconduct. Specifically, the program requires (1) prompt, comprehensive, voluntary disclosure of potential FCPA violations; (2) full cooperation, including disclosure of facts relevant to potential criminal conduct by individuals; and (3) remediation in the form of enhanced internal controls and compliance programs, disgorgement of ill-gotten profits, and appropriate disciplinary action against individual wrongdoers.¹³²

A company that satisfies all three requirements of the pilot program may receive up to a 50% reduction off the bottom end of the fine range set under the US Sentencing Guidelines. A business that does not self-report FCPA misconduct may not receive more than a 25% reduction, even if it fully meets the cooperation and remediation requirements.¹³³

Return to Table of Contents

 

 

 

V. FCPA-Related Civil Litigation

DOJ Continues to Pursue Civil Forfeiture Actions

On July 20, 2016, the DOJ filed a civil forfeiture complaint in federal court in Los Angeles against assets allegedly bought with money misappropriated from Malaysia's sovereign wealth fund, 1Malaysia Development Berhad (1MDB). The forfeiture action targeted approximately US$1 billion in assets located in the United States, the United Kingdom, and Switzerland, including real estate, an executive jet, and artwork.¹³⁴

On July 7, 2016, the DOJ announced that it was returning to Taiwan approximately US$1.5 million from the proceeds of the sale of a forfeited New York condominium and a Virginia residence that the United States had alleged in a civil forfeiture complaint were purchased with the proceeds of bribes paid to the family of Taiwan's former President Chen Shui-Bian.¹³⁵

Wal-Mart Secures Victories in Continued Fight Against Shareholder Suits

As Wal-Mart Stores Inc. (Wal-Mart) remains under federal investigation into alleged FCPA violations, the past several months have seen movement in related private civil actions against the retailer. On July 22, 2016, the US Court of Appeals for the Eighth Circuit affirmed the dismissal of a shareholder derivative suit brought against Wal-Mart officers and directors who were accused of permitting and covering up bribery committed on behalf of Wal-Mart's Mexican subsidiary, Wal-Mart de Mexico (Wal-Mex). The Eighth Circuit agreed with an Arkansas District Court Judge that the shareholder-plaintiffs had failed to explain adequately why they did not first ask the board of directors to cause the corporation to pursue the suit itself.¹³⁶

In May, the Delaware Court of Chancery dismissed a shareholder derivative suit alleging that Wal-Mart's directors failed to conduct a proper investigation into suspected bribery in Mexico.¹³⁷ Finding that the Delaware plaintiffs' suit was premised on the same facts as the federal case in Arkansas that had been dismissed, Chancellor Andre G. Bouchard held that the court was obligated to dismiss the Delaware complaint.¹³⁸

In March, a federal court in the Middle District of Tennessee ruled that the SEC would not have to turn over to plaintiffs' lawyers documents relating to its investigation of Wal-Mart's alleged FCPA violations in Mexico and other countries.¹³⁹ Attorneys at Robbins, Geller, Rudman & Dowd, LLP, on behalf of the shareholders they represent in a class-action lawsuit, had submitted a Freedom of Information Act (FOIA) request to the SEC for all of the materials provided to the agency by Wal-Mart in connection with the SEC's investigation. The SEC refused, citing FOIA Exemption 7(A), which allows the withholding of records if they were "compiled for law enforcement purposes" and if their release "could reasonably be expected to interfere with enforcement activities."¹⁴⁰ The District Court agreed and granted the SEC's motion for summary judgment.¹⁴¹

Hyperdynamics Sues Drilling Partners for Breach of Contract Following FCPA Settlement

On January 8, 2016, SCS Corporation Ltd. (SCS), a subsidiary of Texas-based oil-and-gas exploration and production company Hyperdynamics Corporation (Hyperdynamics), filed a lawsuit in the US District Court for the Southern District of Texas and commenced an arbitration against Tullow Guinea Ltd. (Tullow) and Dana Petroleum (Dana), two of its drilling partners in Guinea. SCS claims that both of these drilling partners breached contracts while Hyperdynamics resolved FCPA enforcement actions related to its operations in Guinea. SCS seeks specific performance, among other remedies.¹⁴²

Return to Table of Contents

 

 

 

VI. Corruption-Related Legal Developments

McDonnell v. United States: Supreme Court Overturns Corruption Conviction and Narrowly Defines "Official Act"

On June 27, 2016, the US Supreme Court issued a unanimous decision in McDonnell v. United States. In an opinion authored by Chief Justice John Roberts, the Court overturned former Virginia Governor Robert F. McDonnell's conviction on 11 bribery-related charges of honest services fraud and Hobbs Act extortion. The Court did so because the trial judge incorrectly instructed the jury with an overbroad definition of the term "official act," as used in the federal bribery statute and adopted by the parties at trial, such that the jury might have convicted Gov. McDonnell for lawful conduct.¹⁴³

The Court's narrowed definition of "official act" reinforces its unanimous 1999 decision in United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999), cements a distinction between routine political favors and the corruption of official decision-making, and significantly limits the type of conduct that could support a bribery charge. Ultimately, McDonnell reflects the Court's continued skepticism of white collar prosecutors' aggressive interpretations of criminal statutes.

RJR Nabisco, Inc. v. The European Community: Supreme Court Limits RICO's Extraterritorial Reach

On June 20, 2016, the US Supreme Court decided RJR Nabisco, Inc. v. The European Community (RJR), holding that the Racketeer Influenced and Corrupt Organizations Act (RICO) can prohibit alleged "racketeering activity" in foreign countries, but only if the activity involves a "predicate offense" that Congress clearly intended to apply overseas. The Court also held that private plaintiffs who have not suffered a domestic injury cannot sue under RICO at all.¹⁴⁴

These holdings rested on the Court's conclusion that some, but not all, of RICO's provisions overcome the statutory "presumption against extraterritoriality." RJR thus makes it difficult for foreign plaintiffs to sue under RICO, limits the types of foreign conduct that RICO can reach, and confirms that the presumption against extraterritoriality is a canon of statutory interpretation that applies to all statutes, whether criminal or civil, regardless of their subject matter.

SEC v. Graham: Eleventh Circuit Declares SEC's Ability to Impose Disgorgement Is Subject to Five-Year Statute of Limitations

On May 26, 2016, the US Court of Appeals for the Eleventh Circuit held that the five-year statute of limitations in 28 U.S.C. § 2462 applies to SEC claims for disgorgement of ill-gotten gains and declaratory relief. While the court's ruling in SEC v. Graham¹⁴⁵ is binding only on courts in the Eleventh Circuit, the decision is notable given the frequency with which the SEC relies upon disgorgement when resolving civil FCPA cases. Since the SEC first ordered disgorgement as part of its FCPA resolution with ABB Ltd. in 2004,¹⁴⁶ nearly 80 companies and individuals have agreed or been ordered to disgorge to the SEC all or part of the profits received through violations or alleged violations of the FCPA.

With few exceptions, 28 U.S.C. § 2462 prevents the government from bringing suit to enforce "any civil fine, penalty, or forfeiture" after five years from the time the claim first accrued. In Graham, the SEC had argued that disgorgement is not subject to Section 2462 because it is a form of equitable relief, not a "fine, penalty, or forfeiture." Affirming the district court's opinion, the Eleventh Circuit found "no meaningful difference in the definitions of disgorgement and forfeiture," or, in the alternative, that disgorgement—which includes only direct proceeds from wrongdoing—falls within the meaning of forfeiture, which, the SEC argued, refers to direct proceeds as well as any additional profit earned on those ill-gotten gains.¹⁴⁷

The Eleventh Circuit's ruling in Graham follows the Supreme Court's unanimous 2013 decision in Gabelli v. Securities and Exchange Commission,¹⁴⁸ which held that Section 2462's limitations period runs from the date that the misconduct occurs, not the date that the SEC discovers that misconduct. However, while Gabelli clarified when the SEC and other federal agencies must commence an action for penalties, it did not directly address what constitutes a "penalty" subject to Section 2462, nor did it decide whether claims for so-called equitable relief (including injunctions, declaratory judgments, and disgorgement) fall under the statute of limitations. Prior to the Supreme Court's decision in Gabelli, courts in both the DC and Ninth Circuits had determined that the statute of limitations did not apply to SEC actions ordering disgorgement,¹⁴⁹ so the Graham decision creates a circuit split. As a practical matter, Graham may increase the pressure on the SEC to take steps to resolve enforcement actions more quickly, at least in the Eleventh Circuit.

United States v. Fokker Services, B.V.: DC Circuit Overturns District Court’s Rejection of a DPA; Affirms Prosecutorial Discretion over Charging Decisions

On April 5, 2016, the DC Circuit Court of Appeals vacated an order by the DC District Court for the District of Columbia rejecting a DPA between the DOJ and Fokker Services B.V. to resolve charges involving sanctions violations. Calling the terms of the DPA "grossly disproportionate to the gravity of Fokker Services' conduct,"¹⁵⁰ the District Court had refused to approve the settlement under which the Dutch aerospace services company had agreed to forfeit US$10.5 million and pay a US$10.5 million civil fine after admitting it made more than 1,100 illegal shipments of aircraft parts, technology, and services worth US$21 million to Iran, Sudan, and Burma. The District Court's decision called into question the scope of judicial review of DPAs, which the DOJ frequently uses to resolve corporate FCPA cases. The Circuit Court opinion, written by Judge Sri Srinivasan, affirmed the "[e]xecutive's primacy in criminal charging decisions" and held that a district court cannot "disapprove [a] DPA based on the court's view that the prosecution had been too lenient."¹⁵¹

United States v. Harder: FCPA "Plainly" Applies to Public International Organizations

In denying a defendant's motion to dismiss an indictment involving allegations of bribery and conspiracy to commit bribery under the FCPA, on March 2, 2016, a federal judge in the Eastern District of Pennsylvania ruled that the FCPA "[p]lainly" applies to "unlawful conduct in connection with a public international organization—itself an association of foreign governments."¹⁵² The DOJ had accused Dmitrij Harder, a Russian national and US resident, of paying bribes to an official at the ERBD to secure EBRD financing for two clients. Harder argued that the FCPA charges should be dismissed because the government substituted "public international organization" for "foreign government or instrumentality" in its pleadings. In the court's opinion, Judge Paul Diamond emphasized that FCPA's definition of "foreign official" includes "any officer or employee of . . . a public international organization"¹⁵³ and added that the issue of whether the EBRD constitutes an instrumentality was a "'fact-bound question[]' properly decided by a jury."¹⁵⁴ Judge Diamond similarly dismissed Harder's argument that the extension of the FCPA's prohibitions to international organizations was unconstitutional.¹⁵⁵

As discussed previously in this Newsletter,¹⁵⁶ on April 20, Harder pleaded guilty to two counts of violating the FCPA. His sentencing is scheduled for November 3, 2016.¹⁵⁷

Return to Table of Contents

Global Anti-Corruption Update

 

 

 

I. United Kingdom

Serious Fraud Office Brings Bribery Charges Against F.H. Bertling & Seven Individuals

On July 13, 2016, the United Kingdom's Serious Fraud Office (SFO) announced that it had charged F.H. Bertling Ltd. (F.H. Bertling) and seven current or former company executives with one count of making corrupt payments in violation of Section 1 of the Prevention of Corruption Act of 1906 in connection with the logistics and freight operations company's business activities in Angola. According to the SFO, between January 2005 and December 2006, Peter Ferdinand, Marc Schweiger, Stephen Emler, Joerg Blumberg, Dirk Juergensen, Giuseppe Morreale, Ralf Peterson, and F.H. Bertling conspired together and with others to bribe an agent of the Angolan state oil company, Sonangol, to further F.H. Bertling's business operations in that country. The case, which the SFO accepted for investigation in September 2014, had not been previously announced.¹⁵⁸ F.H. Bertling is a UK-based subsidiary of the German-headquartered Bertling Group.

SFO Enters Second DPA in a Bribery Case

On July 8, 2016, a UK judge approved the SFO's second application for a DPA in a bribery case. Citing "ongoing, related legal proceedings," the SFO declined to name the company that had agreed to the DPA but indicated that it was a UK.-based small-to-medium enterprise (SME). In addition to a £352,000 financial penalty, the SME agreed to disgorge £6.2 million in gross profits, of which the SME's US parent company will pay £1.95 million as repayment of dividends it received from the SME during the period of alleged misconduct. The SME also agreed to continue to cooperate with the SFO and to report regularly on its compliance efforts. The DPA defers the indictment against the company for a minimum of two and a half years and a maximum of five years, depending upon when the financial penalty is paid in full; at the end of this period, subject to the SME's compliance with the terms of the DPA, the SFO will discontinue the proceedings.¹⁵⁹

According to the judgment issued by the Crown Court at Southwark, between June 2004 and June 2012, a "small but important" group of the SME's employees and agents engaged in the systematic offer and/or payment of bribes to obtain or retain business in foreign jurisdictions.¹⁶⁰ The SME launched an independent internal investigation after its new compliance program uncovered contracting irregularities in August 2012. The company then disclosed the findings of that investigation to the SFO in January 2013, triggering the SFO's own investigation. In accepting the terms of the financial settlement as "fair, reasonable, and proportionate," Lord Justice Brian Leveson cited the SME's modest resources, the parent company's lack of knowledge of the bribery scheme, and the SME's prompt self-reporting.¹⁶¹ Citing his own statement in the preliminary judgment, he further emphasized that:

it is important to send a clear message, reflecting a policy choice in bringing DPAs into the law of England and Wales, that a company's shareholders, customers and employees (as well as all those with whom it deals) are far better served by self-reporting and putting in place effective compliance structures. When it does so, that openness must be rewarded and be seen to be worthwhile.¹⁶²

 

Sweett Group Sentenced on UK Bribery Act Charges

Following its December 2015 guilty plea to charges under the UK Bribery Act in connection with its activities in the Middle East,¹⁶³ Sweett Group Plc (Sweett Group) was sentenced on February 19, 2016, at Southwark Crown Court and ordered to pay approximately £2.35 million—a £1.4 million fine, £851,152 to disgorge ill-gotten gross profits, and £95,000 in costs to the SFO.¹⁶⁴

As previously reported in A&P's UK Economic Crime Group's February Enforcement Update and Mid-Year Round-Up in Economic Crime, this was the first guilty plea to a so-called Section 7 offense under the UK's anti-bribery statute, which makes it a crime to fail to take steps to prevent bribery. Sweett Group admitted that it failed to prevent an act of bribery intended to secure and retain a contract, in violation of Section 7(1)(b) of the Bribery Act. The SFO's investigation found that Sweett Group's subsidiary, Cyril Sweett International Limited, had made corrupt payments to an individual to secure and retain a contract with an insurance company for project management and cost-consulting services in relation to a hotel construction project in Abu Dhabi.

Seventh Individual Charged in SFO's Alstom Investigation

On March 29, 2016, the SFO charged Terence Watson, Alstom Country President for the UK and Managing Director for Alstom Transport UK & Ireland, with two counts of corruption-related offenses as part of the ongoing investigation into Alstom Network U.K. Ltd.¹⁶⁵ To date, seven individuals and two Alstom companies have been charged with corruption offenses under the Prevention of Corruption Act 1906 and offenses of conspiracy to corrupt under the Criminal Law Act 1977.¹⁶⁶ The charges concern allegations of bribery by Alstom in connection with projects in Hungary, India, Lithuania, Poland, and Tunisia at various times between August 2000 and March 2010, before the UK Bribery Act came into effect in July 2011.

Watson's alleged offenses involve the paying of bribes to win contracts for the supply of trains to the Budapest Metro. He is to be joined to the case against Alstom Network U.K. Ltd, Michael John Anderson, and Jean-Daniel Lainé, who have already been charged with corruption offenses relating to the Budapest Metro. The trial date has been fixed for May 2017.

Return to Table of Contents

 

 

 

II. Other Countries

Brazil Grapples with Bribery Scandals

Brazil continues to experience political and economic turmoil as the government deals with a number of corruption-related scandals, most notably a wide-ranging inquiry into corruption at majority state-owned energy company Petroleo Brasileiro S.A. (Petrobras). The Petrobras scandal—often referred to as Operation "Lava Jato" (Operation Car Wash)—has sent numerous corporate executives to prison, resulted in the blacklisting of various companies for state contracts, and implicated high-ranking politicians.

On July 15, 2016, Brazilian prosecutors announced that they had reached a leniency deal with Dutch oil company SBM Offshore NV (SBM) to end an investigation into bribes paid to Petrobras officials. As part of the deal, SBM agreed to pay a total of US$341.8 million to Petrobras and the Brazilian government, continue cooperating with authorities, implement improvements to its internal compliance program for Brazil, and make periodic reports to Brazilian authorities about its progress.¹⁶⁷

In May, Brazil's acting president replaced the country's principal anti-corruption agency, the Comptroller General, with a new Ministry of Transparency and Oversight, which will reportedly be handling corporate anti-corruption enforcement efforts.¹⁶⁸

Siemens Pays Fine in Israel

On May 2, 2016, Israel's Justice Ministry announced that Germany-based Siemens AG (Siemens), Europe's largest engineering firm, would pay a US$43 million fine to Israeli authorities to resolve charges that Siemens bribed executives at a state-owned utility, Israel Electric Corp. (IEC) to win contracts worth more than €540 million from 1999 to 2005.¹⁶⁹ The settlement also requires that Siemens appoint an independent compliance monitor for its Israeli operations.¹⁷⁰ This resolution comes years after the United States and Germany settled bribery-related charges with Siemens in exchange for Siemens, among other things, paying approximately US$1.6 billion in penalties to various authorities and establishing a more rigorous compliance program.¹⁷¹

Meanwhile, the Tel Aviv District Attorney has filed indictments against six former IEC executives for bribery, money laundering, fraud, and breach of trust for allegedly accepting hundreds of thousands of dollars in bribes and transferring the funds to accounts in Swiss banks or smuggling cash abroad in suitcases.¹⁷² No Siemens employees have been charged in Israel.

"Panama Papers" Likely to Prove Fruitful for Anti-Corruption Officials

The "Panama Papers"—an unprecedented leak of 11.5 million files from the database of the world's fourth biggest offshore law firm, Mossack Fonseca—have created an unrivaled source of information for anti-corruption officials. First announced by the International Consortium of Investigative Journalists in April 2016, these documents provide information on over 200,000 offshore entities and hidden bank accounts linked to companies and individuals around the world. The files expose offshore holdings of 140 politicians and public officials across the globe and provide new details about ongoing bribery scandals, including those involving FIFA and the Brazilian energy company Petrobras.¹⁷³

The "Panama Papers" leak comes at a time of increasingly global responses to corrupt practices. The DOJ is enhancing its coordination with foreign counterparts to hold corrupt individuals and companies accountable.¹⁷⁴ The European Union (EU) also recently created a 65-member "Panama Papers" inquiry committee and gave it 12 months to investigate and report on whether the European Commission and member states have failed to enforce EU laws on money laundering and tax evasion.¹⁷⁵ It seems reasonable to anticipate that the "Panama Papers" will play a prominent role in FCPA and other international anti-corruption enforcement efforts for the foreseeable future.

Return to Table of Contents