Executive Summary

2016 proved to be a record-setting year for US anti-corruption enforcement with the Department of Justice and Securities and Exchange Commission collecting a total of approximately US$2.5 billion in fines, disgorgement, and interest from 27 companies in connection with charges under the Foreign Corrupt Practices Act. Ten individuals pleaded guilty to criminal FCPA charges, while a number of others resolved civil FCPA charges with the SEC. The DOJ also issued five "declinations" under its new FCPA Pilot Program, which seeks to reward companies for their voluntary self-disclosure of potential violations, cooperation with authorities, and remediation of compliance program deficiencies.

2016 also was notable for the level of international cooperation on anti-corruption matters. In December, for example, US, Brazilian, and Swiss authorities announced a global settlement valued at US$3.5 billion with Brazil-based construction company Odebrecht S.A. and its petrochemical unit, Braskem S.A., to resolve charges related to the bribery of government officials in a variety of jurisdictions.

The announcement of large FCPA settlements continued through the final days of the Obama Administration in January 2017, with UK-based engineering company Rolls Royce plc agreeing to pay the US nearly US$170 million in criminal penalties as part of the company's US$800 million global settlement with US, UK, and Brazilian authorities.¹ Las Vegas Sands Corp., Orthofix International, Sociedad Química y Minera de Chile SA, Zimmer Biomet Holdings,and Mondelez International, Inc. also resolved FCPA charges this past month, as did two former executives from Och-Ziff Capital Management Group and two former energy company executives. And in FCPA-related private litigation, the former general counsel of Bio-Rad Laboratories, Inc., who alleges that he was fired for blowing the whistle on corruption in China, went to trial against his former employer in federal court in the Northern District of California.

In other anti-corruption news from around the world, South Korea, France, and Mexico recently took major steps to strengthen their own anti-corruption laws. Below we focus on these developments and more from the second half of 2016. For further information on anti-corruption developments from the first half of 2016, see our Global Anti-Corruption Insights: Summer 2016.²

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 Civil Litigation

V. 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

General Cable Corporation Agrees to US$75 Million Settlement with DOJ and SEC

On December 29, 2016, Kentucky-based General Cable Corporation (GCC), a manufacturer of telecommunications and energy cables, agreed to pay a total of US$75.75 million in fines, disgorgement, and interest to resolve alleged violations of the FCPA.³ GCC entered into a non-prosecution agreement (NPA) with the DOJ and consented to an administrative order by the SEC. According to the SEC order, between 2003 and 2015, GCC subsidiaries made US$19 million in improper payments to foreign officials in Angola, Thailand, China, Indonesia, Bangladesh, and Egypt, allowing the company to earn more than US$51 million in profits on sales to state-owned enterprises (SOEs).⁴ Some of the payments were made directly to government officials themselves, while others were made through third-party agents, who funneled proceeds from GCC commissions, rebates, and other fees to the officials. The SEC determined that GCC had failed to (a) undertake satisfactory due diligence on the third-party agents who were interacting with government officials on GCC's behalf, (b) provide adequate compliance training on the FCPA, and (c) institute sufficient internal accounting controls at its subsidiaries, even after discovering irregularities in the commissions paid to agents.⁵

As part of its NPA, GCC agreed to a criminal fine of over US$20 million, which reflects a 50% discount from the low end of the relevant US Sentencing Guidelines range.⁶ The SEC order required GCC to pay US$55.27 million in disgorgement and interest for ill-gotten profits but imposed no civil fine.⁷ In reaching resolutions with GCC, both the DOJ and the SEC credited the company's self-disclosure and cooperation.

Under a related cease-and-desist order, Karl J. Zimmer, GCC's then-senior vice president responsible for sales in Angola, agreed to pay a US$20,000 civil penalty without admitting or denying the SEC's allegations that he caused violations of the books and records and internal controls provisions of the FCPA and knowingly circumvented the company's internal controls.⁸

Teva Pharmaceutical Industries, Ltd. Agrees to US$519 Million Settlement with DOJ and SEC

On December 22, 2016, the DOJ and SEC announced one of the largest-ever FCPA settlements with Teva Pharmaceutical Industries, Ltd. (Teva), a global pharmaceutical company headquartered in Israel. Teva agreed to pay US$236 million in disgorgement and interest to the SEC and a US$283 million criminal penalty as part of a deferred prosecution agreement (DPA) with the DOJ, to resolve allegations that Teva paid bribes to foreign officials in Russia, Ukraine, and Mexico. Teva also agreed to retain an independent compliance monitor for three years.⁹ Teva's Russian subsidiary, Teva LLC (Russia), pleaded guilty to a one-count criminal information, filed in the US District Court for the Southern District of Florida.¹⁰

Teva admitted that certain of its "executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva's multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health." Teva entered into an agreement with a distribution and repackaging company owned by the Russian official, under which Teva, between 2010 and at least 2012, earned more than US$200 million in profits on Copaxone sales to the Russian government and the official earned approximately US$65 million in profits through inflated profit margins. Teva also admitted paying an official in the Ukrainian Ministry of Health US$200,000 in consultancy fees, travel, and other things of value between 2001 and 2011 as part of a scheme to influence approval of drug registrations, and to paying doctors employed by the government of Mexico to prescribe Copaxone. While Teva received a 20 percent discount off the low end of the US Sentencing Guidelines range for its substantial cooperation with the DOJ and remediation, it did not receive "full cooperation credit" because of purported difficulties that arose during the investigation, including "vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis."¹¹

The SEC's complaint alleged that Teva created false books and records to conceal the illegal payments and that Teva's internal controls were inadequate to prevent and detect the payments. Teva's common shares were registered with the SEC and traded on US exchanges in the form of American Depository Receipts during the relevant time period. The SEC also noted that, in furtherance of the bribery scheme, Teva sent emails through US servers and made payments through US correspondent bank accounts.¹²

Odebrecht and Braskem Agree to Largest-Ever Global Settlement of Foreign Bribery Charges for Total of US$3.5 Billion

Brazil-based construction company Odebrecht S.A. and its petrochemical unit, Braskem S.A., agreed to pay a total of US$3.5 billion in a global settlement with US, Brazilian, and Swiss authorities to resolve charges relating to the bribery of government officials around the world. As part of the settlement, on December 21, 2016, Odebrecht pleaded guilty to a one-count criminal information filed in the US District Court for the Eastern District of New York that charged the company with conspiracy to violate the anti-bribery provisions of the FCPA. Odebrecht admitted to engaging in a massive bribery and bid-rigging scheme for more than a decade, during which time it paid approximately US$788 million in bribes to government officials to win business in a number of countries. Odebrecht agreed that the appropriate criminal fine is US$4.5 billion, subject to the company's ability to pay, and that the United States will receive 10% of the principal of the total fine, while Brazil will received 80% and Switzerland 10%. Odebrecht is expected to pay at least US$260 million to the DOJ.¹³

For its part, Braskem pleaded guilty to a one-count criminal information filed in the US District Court for the Eastern District of New York that charged it with conspiracy to violate the FCPA. Braskem agreed to a total criminal penalty of US$632 million, with 15% (about US$94.8 million) going to US authorities, 70% to Brazilian authorities, and 15% to Swiss authorities. The DOJ noted that Odebrecht and Braskem used a secret Odebrecht business unit to carry out their bribery schemes. According to the DOJ, "the criminal penalty for Odebrecht reflects a 25 percent reduction off the bottom of the US Sentencing Guidelines fine range because of Odebrecht's full cooperation with the government's investigation, while the criminal penalty for Braskem reflects a 15 percent reduction off the bottom of the US Sentencing Guidelines as a result of its partial cooperation." Odebrecht and Braskem must retain independent corporate monitors for three years.¹⁴

Braskem, whose American Depositary Receipts trade on the New York Stock Exchange, also agreed to settle charges with the SEC. The SEC's complaint, filed in US District Court for the District of Columbia, alleges that Braskem made approximately US$325 million in profits through bribes paid via intermediaries and off-book accounts managed by a private company that was Braskem's largest shareholder. According to the SEC, bribes were paid to a government official at Brazil's state-controlled petroleum company as well as to Brazilian legislators and political party officials. Braskem agreed to pay US$65 million in disgorgement to the SEC, as well as US$260 million in disgorgement to Brazilian authorities.¹⁵

JPMorgan Chase Agrees to US$264 Million Settlement with DOJ, SEC, and Federal Reserve Related to Hiring Practices in China

On November 17, 2016, JPMorgan Chase & Co. (JPMorgan) and JPMorgan Securities (Asia Pacific) Limited (JPMorgan-APAC), a Hong Kong-based subsidiary, resolved charges that JPMorgan-APAC's hiring program violated the FCPA by corruptly awarding jobs and internships to the relatives and friends of Chinese government officials.¹⁶ Without admitting or denying the charges, JPMorgan agreed to pay US$130.5 million in disgorgement and interest to the SEC for alleged violations of the FCPA's anti-bribery, books and records, and internal controls provisions.¹⁷ The SEC claimed that JPMorgan-APAC circumvented JPMorgan's normal hiring processes to arrange for jobs and internships to be awarded to nearly 100 candidates referred by governmental officials from more than 20 Chinese SOEs. Between 2006 and 2013, these SOEs allegedly entered into transactions totaling more than US$100 million in revenue for JPMorgan-APAC or its affiliates.¹⁸

Pursuant to a related cease-and-desist order with the Board of Governors of the Federal Reserve System, the federal banking supervisor of JPMorgan and JPMorgan-APAC, JPMorgan also agreed to pay a US$61.9 million civil penalty for purportedly engaging in "unsafe or unsound practices" in connection with the hiring program in China.¹⁹ Under its NPA with the DOJ, JPMorgan-APAC admitted that it had violated the FCPA's anti-bribery provisions, agreed to pay a US$72 million criminal penalty, and agreed to report to the DOJ on the status of its enhanced compliance policies for a period of three years.²⁰ The amount of the criminal penalty reflected a discount of 25 percent off the bottom of the US Sentencing Guidelines range in recognition of the cooperation JPMorgan and JPMorgan-APAC provided during the DOJ's investigation.²¹

Embraer Agrees to US$205 Million Settlement with DOJ and SEC

On October 24, 2016, Brazilian aircraft manufacturer Embraer S.A. (Embraer) agreed to pay more than US$205 million to settle DOJ and SEC enforcement actions in connection with improper payments to government officials on three continents.²²

Between 2008 and 2010, Embraer executives set up various shell companies and used third-party agents to funnel bribes to government officials in the Dominican Republic, Saudi Arabia, and Mozambique in order to obtain aircraft purchase agreements.²³ Embraer also falsely recorded payments in India through a sham agency agreement relating to the sale of three aircraft to the Indian Air Force.²⁴ The DOJ estimated that Embraer earned over US$83 million in profits from aircraft sales stemming from unlawful conduct in those four countries.²⁵ Under its DPA, Embraer is required to pay a criminal fine of US$107 million, enhance its compliance program, implement more robust internal accounting controls, and retain an independent corporate compliance monitor for a term of three years.²⁶

In a related action brought by the SEC, Embraer, whose common shares traded in the form of American Depository Receipts on the New York Stock Exchange, agreed to pay US$97 million in disgorgement and interest for violations of the FCPA's accounting provisions. According to the SEC, "Embraer may receive up to a $20 million credit depending on the amount of disgorgement it will pay to Brazilian authorities."²⁷

DOJ Issues Second Declination in Four Years to Grifols

In an October 7, 2016, SEC filing, Barcelona-based pharmaceutical company Grifols S.A. (Grifols) announced that the DOJ had issued an official declination letter and had closed its investigation into possible FCPA violations related to the business practices of Talecris Biotherapeutics (Talecris), which Grifols acquired in 2010.²⁸ This is the second declination Grifols has received since the DOJ began investigating Talecris in July 2009.²⁹ In both SEC filings announcing the declinations, the company reported that the DOJ, in connection with its declination decision, had acknowledged the company's full cooperation with its investigation.³⁰

GlaxoSmithKline Pays US$20 Million to Resolve FCPA Charges Involving Chinese Subsidiaries

On September 30, 2016, UK-based GlaxoSmithKline (GSK) announced a US$20 million settlement with the SEC to resolve allegations that the drug company's Chinese subsidiaries spent millions of dollars in violation of the FCPA between 2010 and 2013.³¹ The SEC's administrative cease-and-desist order found that GSK had provided gifts, travel, entertainment, shopping excursions, cash, and other things of value to healthcare professionals and purchasing agents at China's state health institutions in order to boost the sales of GSK's pharmaceutical products. According to the SEC, these expenditures were falsely recorded in GSK's books and records, and the company's internal controls were inadequate to detect and prevent this improper activity.³² The SEC noted that internal audits identified falsified purchase orders, fake bank statements, and fake invoices for sales meeting activities.³³ GSK's stock is listed on the New York Stock Exchange. In resolving this action, GSK did not admit or deny the SEC's findings.³⁴

DOJ Issues Declination to HMT LLC Following Disgorgement

On September 29, 2016, the DOJ informed HMT LLC (HMT), a Texas-based tank manufacturer and service provider for the oil-and-gas industry, that it would not be pursuing an enforcement action against the company, despite a finding of FCPA violations. The DOJ's decision, made in accordance with the agency's new FCPA Pilot Program, came after HMT agreed to disgorge approximately US$2.7 million profits resulting from bribes allegedly paid to government officials in Venezuela and China to influence those officials' purchasing decisions. The DOJ found that, from roughly 2002 to 2011, a Venezuelan HMT sales agent paid bribes to induce the state-owned and -controlled energy company, Petróleos de Venezuela (PDVSA), to purchase HMT products, and that two Houston-based HMT regional managers approved the transfer of HMT funds to the Venezuelan agent that ultimately funded the bribes. The DOJ further found that an HMT Chinese distributor had paid bribes to Chinese government officials to influence purchases of HMT products by Chinese state-owned entities from approximately 1999 through 2011.³⁵

The DOJ stated that the decision to close its investigation "is based on a number of factors, including but not limited to" HMT's "timely, voluntary self-disclosure" based on a comprehensive global investigation into these issues; disclosure of "all known relevant facts about the individuals involved in or responsible for the misconduct"; agreement to continue to cooperate in any ongoing investigations; agreement to disgorge all ill-gained profits; enhancements to its compliance programs and internal controls; and full remediation, including termination of culpable employees.³⁶

Och-Ziff Capital Pays US$412 Million to Resolve FCPA Charges Involving African Officials

On September 29, 2016, the DOJ announced a US$412 million total settlement with Och-Ziff Capital Management Group LLC (Och-Ziff), a New York-based hedge fund, and its wholly owned subsidiary, OZ Africa Management GP LLC (OZ Africa), to resolve criminal FCPA charges stemming from allegations of improper payments to officials in the Democratic Republic of Congo (DRC) and Libya.³⁷ This is the first time a hedge fund has been charged with violating the FCPA.³⁸

Och-Ziff admitted that, between 2005 and 2015, it had paid more than US$100 million to a third-party agent to bribe high-ranking DRC officials in exchange for special access and preferential prices in the government-controlled mining sector.³⁹ Och-Ziff also admitted it had set up a sham consulting agreement to funnel money to Libyan officials to secure investments in that country.⁴⁰ Pursuant to its agreement with the DOJ, Och-Ziff will pay a US$213 million criminal penalty, implement rigorous internal controls, retain an independent compliance monitor for a period of three years, and cooperate with the Department's ongoing investigation.⁴¹

In related proceedings, the SEC filed a cease-and-desist order against Och-Ziff, OZ Africa, and two senior Och-Ziff executives.⁴² Under the order, Och-Ziff will pay US$199 million in disgorgement and interest to settle allegations that the company falsified books and failed to maintain adequate accounting controls in the DRC, Libya, Chad, and Niger.⁴³ Daniel S. Och, chief executive officer and chair of the board of Och-Ziff, who neither admitted nor denied the SEC's findings, agreed to pay nearly US$2.2 million in disgorgement and interest in connection with two of the allegedly corrupt transactions in the DRC. Penalties for Och-Ziff's chief financial officer, Joel M. Frank, who did not admit or deny the SEC's findings that he caused FCPA violations in connection with Och-Ziff transactions in the DRC and Libya, will be set at a future date.

Also in connection with the alleged schemes, Och-Ziff's subsidiary, OZ Africa, pleaded guilty to conspiring to violate the anti-bribery provisions of the FCPA. Sentencing has been scheduled for March 2017.⁴⁴ In addition, as described below, Samuel Mebiame, son of the former prime minister of Gabon, pleaded guilty to charges of conspiring to violate the FCPA while serving as a consultant for a mining company owned by an Och-Ziff joint venture.

NCH Receives Declination from DOJ

On September 29, 2016, the DOJ signed a letter agreement with Texas-based industrial supply and maintenance company NCH Corporation (NCH) providing that the DOJ would close its investigation into potential FCPA violations and that NCH would disgorge US$335,242 in profits from illegal obtained sales in China. According to the DOJ, between 2011 and 2013, NCH's subsidiary in China illegally provided approximately US$44,545 in cash, gifts, meals, entertainment and other things of value to Chinese government officials in connection with sales that generated profits of the disgorgement amount. The DOJ stated that, consistent with its FCPA Pilot Program, the decision to close the investigation was based on NCH's voluntary self-disclosure, internal investigation, full cooperation, remediation, and disgorgement.⁴⁵

Anheuser-Busch InBev Agrees to Pay SEC US$6 Million to Resolve FCPA and Whistleblower Protection Charges

On September 28, 2016, Belgium-based brewing company Anheuser-Busch InBev (AB InBev) agreed to pay the SEC a total of US$6 million in disgorgement, interest, and a civil penalty to resolve alleged violations of the FCPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) whistleblower protection provisions.⁴⁶ According to the SEC's charges, which AB InBev neither admitted nor denied, between 2009 and 2012, a joint venture in which AB InBev subsidiary Crown Beers India Private Limited (Crown) owned a 49 percent interest made improper payments to Indian government officials in order to increase Crown's market share and secure authorization to lengthen brewery hours. The SEC alleged that Crown recorded these improper payments as legitimate promotional costs and failed to maintain sufficient internal accounting controls, despite receiving internal complaints about the payments.⁴⁷

The SEC also found that AB InBev violated whistleblower protections under Dodd-Frank through an improper separation agreement with a former Crown employee who had been involved in the alleged FCPA violations. Specifically, the separation agreement threatened to impose US$250,000 in "liquidated damages" if the former employee, who had previously been cooperating with SEC staff, disclosed any "unique, confidential, and/or proprietary information [or] material belonging or relating to" Crown.⁴⁸ As part of its settlement with the SEC, AB InBev agreed to pay approximately US$3 million in disgorgement and interest and a US$3 million civil penalty, as well to cooperate with the SEC and report on FCPA compliance for a period of two years.

Nu Skin Settles FPCA Charges Stemming from Donation to Chinese Charity

On September 20, 2016, the SEC announced that Utah-based Nu Skin Enterprises, Inc. (Nu Skin US) agreed to pay nearly US$766,000 to settle charges that the company violated the FCPA's books and records and internal controls provisions in connection with a charitable contribution made by its Chinese subsidiary, Nu Skin (China) Daily Use & Health Products Co. Ltd. (Nu Skin China).⁴⁹ The charges, which Nu Skin US neither admitted nor denied, alleged that Nu Skin China had transferred one million RMB (US$154,000) to a Chinese charity in order to obtain the assistance of a high-ranking Communist party official with a provincial agency's ongoing investigation into potential violations of direct selling laws. The settlement requires Nu Skin US to pay US$431,088 in disgorgement, US$34,600 in interest, and a civil monetary penalty in the amount of US$300,000.⁵⁰

Cisco Receives Declination from DOJ and SEC Following Internal Investigation

In its September 8, 2016 annual report, Cisco Systems Inc. (Cisco), a California-based networking company, announced that both the SEC and DOJ have decided not to bring FCPA charges against the company in connection with its operations in Russia.⁵¹ After first disclosing the government inquiry into its dealings in Russia in 2013,⁵² Cisco disclosed in February 2014 that it had launched an internal investigation and was cooperating fully with authorities.⁵³

AstraZeneca Pays US$5.5 Million to Settle SEC FCPA Charges Relating to Its Russian and Chinese Subsidiaries

On August 30, 2016, the SEC announced that Astra Zeneca PLC (AZN), a UK-based biopharmaceutical company whose American Depositary Shares trade on the New York Stock Exchange, agreed to pay US$4.325 million in disgorgement, US$822,000 in interest, and a US$325,000 civil monetary penalty to settle charges under the FCPA's books and records and internal controls provisions.⁵⁴ According to an administrative cease-and-desist order, "[s]ales and marketing staff, along with multiple levels of management" at AZN's wholly owned subsidiaries in Russia and China, "designed and authorized several schemes to make improper payments of gifts, conference support, travel, cash, and other benefits" to healthcare providers at state-owned and state-controlled entities in those countries "to reward or influence their purchases of AZN pharmaceuticals." The order also states that employees of the Chinese subsidiary attempted to reduce and/or avoid proposed financial sanctions through cash payments to local officials. In consenting to the order, AZN neither admitted nor denied the SEC's findings.

The SEC credited AZN's cooperation and remedial efforts, which included "develop[ing] a centralized compliance program, revamp[ing] its internal controls and procedures, and plac[ing] key compliance personnel in high-risk local markets."⁵⁵

Key Energy Pays US$5 Million to Settle SEC FCPA Charges in Mexico

On August 11, 2016, Key Energy Services, Inc. (Key Energy), a Texas-based onshore energy production services provider, agreed to disgorge US$5 million to the SEC in order to settle FCPA charges related to payments that Key Energy's Mexican subsidiary (Key Mexico) allegedly made unlawfully to an employee of Mexican state-owned oil company, Petróleos Mexicanos (Pemex), in exchange for inside information and assistance with contracts. According to the SEC, from 2010 to 2014, Key Mexico made 58 payments totaling roughly US$561,000 to a "consulting" firm that acted as a conduit for payments to the Pemex employee. The SEC alleged that Key Mexico improperly recorded these transfers as legitimate business expenses and failed to maintain necessary internal controls. Key Energy consented to the entry of an SEC administrative order without admitting or denying the allegations. The administrative order, which imposed no civil fine, credited Key Energy's cooperation and remedial efforts.⁵⁶ Key Energy also cooperated with the DOJ, which declined to bring an enforcement action against the company in connection with these actions.⁵⁷

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II. Enforcement Actions Against Individuals

Four Individuals Plead Guilty to FCPA-Related Violations in Connection with Mexican Aviation Contracts

On December 27, 2016, the DOJ unsealed six guilty pleas related to a scheme to bribe Mexican government officials in exchange for aircraft maintenance and repair contracts.⁵⁸ Three Americans and one Mexican citizen pleaded guilty to conspiracy to violate the FCPA, while two of these defendants also pleaded guilty to conspiracy to commit wire fraud. According to the DOJ, the co-conspirators paid over US$2 million to multiple Mexican state government officials from 2007 to 2015 in order to win contracts for their Texas-based companies. Although the charging documents did not identify the companies allegedly involved, public source materials suggest that two of the four defendants are affiliated with Hunt Pan Am Aviation and Global Aviation Services.⁵⁹ Two Mexican officials who accepted bribes while they had authority over the maintenance of aircraft owned by a state government and a public university pleaded guilty to conspiracy to commit money laundering charges. The former Mexican public university official was sentenced on May 27, 2016, to 15 months imprisonment.⁶⁰ The remaining five defendants involved in the conspiracy have yet to be sentenced.

Former Guinean Mines Minister Charged with Taking US$8.5 Million in Bribes

On December 13, 2016, Mahmoud Thiam, a US citizen and the former Minister of Mines and Geology of the Republic of Guinea, was arrested on charges out of the US District Court for the Southern District of New York that he laundered US$8.5 million in bribes he received from a Chinese conglomerate.⁶¹ The complaint alleged that the Chinese conglomerate paid Thiam to use his position improperly to secure various investment opportunities and mining rights for the firm.⁶² The complaint also alleges that, between 2009 and 201l, Thiam laundered the funds by concealing both his identity as a government official and the source of the money to banks in Hong Kong, where he deposited the funds, and the United States, where the funds were ultimately transferred.⁶³ The magistrate judge ordered Thiam to be detained.⁶⁴

Mining Company "Fixer" Pleads Guilty in Connection with Och-Ziff African Bribery Scheme

On December 9, 2016, Samuel Mebiame, son of Gabon's former prime minister, pleaded guilty to conspiring to make corrupt payments to African government officials while working as a consultant to a mining company owned by a joint venture between New York-based hedge fund Och-Ziff and an entity based in Turks and Caicos.⁶⁵ Mebiame, a Gabonese national, admitted that, between 2007 and 2012, he served as a "fixer" for the joint venture, routinely paying bribes to government officials in Chad and Niger in exchange for mining rights and investment opportunities.⁶⁶ He further admitted paying bribes to high-level government officials in Guinea to secure business opportunities and mining rights for the Turks and Caicos entity.⁶⁷ The DOJ has recommended that Mebiame receive the maximum possible penalty—5 years imprisonment—when he is sentenced in April 2017.⁶⁸

As discussed above, in September 2016, Och-Ziff agreed to pay US$412 million to settle charges of criminal violations of the FCPA following a government investigation into the company's conduct in the Democratic Republic of Congo, Libya, Chad, and Niger.⁶⁹

DOJ Adds FCPA Charges Against Macau Developer and Associate in UN Bribery Case

On November 22, 2016, the Department of Justice filed a superseding indictment against Macau-based real estate developer Ng Lap Seng and his associate Jeff C. Yin, adding FCPA charges to the list of accusations they face in connection with an alleged US$1.3 million bribery and money laundering scheme involving John W. Ashe, the former President of the UN General Assembly, and Francis Lorenzo, the Deputy UN Ambassador for the Dominican Republic.⁷⁰ Ng and Yin, along with four others, including Ashe and Lorenzo, had been indicted in October 2015 on related charges.⁷¹ Both Ng and Yin pleaded not guilty at their arraignment on the superseding indictment.⁷²

SEC Settles with Executive of Harris Corporation's Chinese Subsidiary, Declines to Bring Action Against Harris Corporation

On September 13, 2016, Jun Ping Zhang (Ping), a US citizen and the former chief of the Chinese subsidiary of Harris Corporation (Harris), a Florida-based communications and information technology company, consented to the entry of an SEC administrative order requiring him to pay a US$46,000 civil penalty for alleged violations of the FCPA's anti-bribery, books and recordkeeping, and internal controls provisions. According to the order, Ping "facilitated a pattern and practice" at Hunan Carefx Information Technology, LLC (Carefx China) of giving gifts, such as meals, entertainment, travel, bonuses, and electronics, to officials at government hospitals from which Carefx China bid for work. The SEC estimated that, from April 2011 to April 2012, CareFx China employees working under Ping gave roughly US$200,000 to US$1 million in improper gifts to Chinese officials who ultimately awarded CareFx China over US$9.6 million in contracts. In consenting to the administrative order, Ping neither admitted nor denied the allegations.⁷³

The SEC declined to bring an enforcement action against Harris, stating that, "[a]lthough only able to perform limited pre-acquisition due diligence on the subsidiary, Harris took immediate and significant steps after the acquisition to train staff in China and integrate the subsidiary into Harris's system of internal accounting controls." The SEC also credited Harris's "prompt self-reporting … and exemplary cooperation with the SEC's Investigation."⁷⁴

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III. Other FCPA Investigation and Enforcement News

Rio Tinto Reports Potential Improper Payments in Connection with Simandou Project

On November 8, 2016, British-Australian mining giant Rio Tinto PLC (Rio Tinto) disclosed that it had uncovered US$10.5 million in potentially improper payments made to a consultant who helped the multinational corporation secure the rights to the massive Simandou iron ore project in Guinea in 2011.⁷⁵ Documents revealed during an internal investigation led by external counsel allegedly showed that top executives, including then-Chief Executive Tom Albanese, approved payments to a French consultant with close ties to senior Guinean officials.⁷⁶ The discovery in August 2016 prompted an internal investigation led by outside counsel and resulted in the suspension of one executive and the resignation of another.⁷⁷ Rio Tinto announced that it had notified authorities in the US and UK, was in the process of contacting the Australian authorities, and would cooperate fully with any subsequent inquiries from all relevant authorities.

Medical Device Manufacturer Misonix Discloses Possible FCPA Violations in China

On September 29, 2016, medical device manufacturer Misonix Inc. announced that it had voluntarily contacted the DOJ and SEC about potential FCPA violations by Misonix's China distributor.⁷⁸ In an SEC filing, Misonix disclosed that it had informed the DOJ and SEC that it "may have had knowledge" of the Chinese distributor's potentially illegal business practices.⁷⁹ The company said that the audit committee of its board of directors had engaged outside counsel to conduct an internal investigation, which is ongoing, and stated that it would cooperate fully with the DOJ and SEC as that investigation continues.

Telia Reserves US$1.45 Billion for Proposed Settlement of Foreign Bribery Probe by US, Dutch Officials

After previously announcing that US and Dutch authorities had proposed a US$1.4 billion settlement in connection with bribery allegations involving business practices in Uzbekistan,⁸⁰ Swedish telephone and mobile network operator Telia Company (Telia) reported in October that it had set aside US$1.45 billion to settle related charges in both the United States and the Netherlands.⁸¹ US and Dutch officials allege that the company distributed hundreds of millions of dollars in bribes to government officials to secure business in Uzbekistan.⁸² The proposed settlement would be almost twice the US$795 million that VimpelCom Ltd. agreed to pay to US and Dutch authorities as part of a similar case in February.⁸³

DOJ Officials Emphasize International Collaboration in FCPA Cases

In December, the Fraud Section of the DOJ's Criminal Division, which is responsible for criminal enforcement of the FCPA, announced the creation of a new attorney position dedicated to strengthening cooperation with authorities in the UK's Financial Conduct Authority (FCA) and Serious Fraud Office (SFO).⁸⁴ The attorney, who will spend two years working in London, the first year with the FCA and the second with the SFO, will then return to Washington, DC, for a third year to investigate and prosecute transnational economic crime in the US and to provide training to other Fraud Section prosecutors on best practices learned at the FCA and SFO.⁸⁵ The FCA and SFO, which support the establishment of the new position, have expressed interest in arranging reciprocal assignments for their own attorneys to have the opportunity to work in the DOJ Fraud Section in Washington.⁸⁶

Before leaving office, President Obama's Attorney General, Loretta Lynch, emphasized that "international cooperation is more important than ever in dismantling transnational schemes, thwarting attempts to hide ill-gotten assets, and bringing perpetrators to justice."⁸⁷ Similarly, in public remarks in November, Leslie Caldwell, then-assistant attorney general for the DOJ's Criminal Division, stressed coordination with foreign counterparts as a means of not only enhancing the US's FCPA enforcement efforts but also encouraging other countries to investigate and prosecute corruption.⁸⁸

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IV. FCPA-Related Civil Litigation

DOJ Sued by Reporter Seeking FCPA Monitor Records

On December 6, 2016, "Just Anti-Corruption" reporter Dylan Tokar filed suit against the DOJ asserting violations of the Freedom of Information Act.⁸⁹ The complaint alleges that the DOJ failed to release documents concerning the selection of corporate compliance monitors appointed as part of DPAs.⁹⁰ Tokar claims that these documents will demonstrate whether the DOJ-approved monitors have been "nominated and selected in a manner that adequately screens for conflicts of interest" in accordance with principles laid out in the DOJ's own "Morford Memorandum."⁹¹

Venezuelan Oil Company Seeks Restitution in FCPA Trial

On November 30, 2016, Bariven S.A. (Bariven), a subsidiary of PDVSA, Venezuela's state-owned oil company, filed motions seeking recognition of its rights as a victim and entitlement to restitution in a criminal case against individuals who allegedly engaged in a bribery scheme that cost the company a reported US$600 million.⁹² Roberto Enrique Rincon Fernandez and Abraham Jose Shiera Bastidas, the two targets of Bariven's motions for restitution under the Crime Victims' Rights Act of 2004⁹³ and the Mandatory Victims Restitution Act of 1996,⁹⁴ previously pleaded guilty to FCPA violations and related charges in connection with bribes that they admitted paying to PDVSA to win energy contracts and receive payment priority.⁹⁵

Investors File Securities Class Complaints Against Cognizant Technology Following Disclosure of Possible FCPA Violations in India

At least three groups of investors filed securities class action complaints in federal court in New Jersey against Cognizant Technology Solutions Corporation (Cognizant) after the company disclosed that it was conducting an internal investigation into potential FCPA violations relating to its facilities in India.⁹⁶ In an SEC filing dated September 30, 2016, Cognizant announced it had voluntarily notified the DOJ and SEC and was cooperating fully with both agencies.⁹⁷ The company also reported that Cognizant's President, Gordon Coburn, had resigned from his position on September 27, 2016.⁹⁸

In its November 2016 quarterly report to the SEC, Cognizant stated that it had identified approximately US$5 million in payments that may have been improper.⁹⁹ The company also admitted that, for the period between December 31, 2015 through parts of 2016, it "did not maintain an effective control environment"¹⁰⁰ and further reported that "certain members of senior management may have participated in or failed to take action to prevent the making of potentially improper payments," including overriding or failing to enforce controls established by the company.¹⁰¹

Investors' Class Certified in Bribery Lawsuit Against Wal-Mart

On September 20, 2016, an Arkansas federal judge certified a class of investors in a lawsuit against Wal-Mart Stores Inc. alleging that the company covered up suspected bribery in Mexico dating back to 2005.¹⁰² Wal-Mart subsequently petitioned the US Court of Appeals for the Eighth Circuit for permission to appeal the certification of the class, but the Eighth Circuit denied the petition in November.¹⁰³ The investors have claimed that Wal-Mart disclosed the bribery allegations only after learning of a New York Times investigation.¹⁰⁴ The certified class, represented by a Michigan-based pension fund, covers all persons or entities who acquired Wal-Mart stock between December 8, 2011, and April 20, 2012, and were damaged by the company's alleged securities fraud.¹⁰⁵ In early January 2017, Wal-Mart filed a motion to dismiss the class's claims for losses.¹⁰⁶ The class representative subsequently opposed that motion, which is currently pending in federal court in the Western District of Arkansas.¹⁰⁷

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V. Corruption-Related Legal Developments

US Supreme Court to Address Circuit Split on Application of Statute of Limitations to Disgorgement

On January 13, 2017, the US Supreme Court granted certiorari in Kokesh v. SEC on the question of whether the five-year statute of limitations for "any civil fine, penalty, or forfeiture" under 28 U.S.C. § 2462 applies to claims for disgorgement.¹⁰⁸ In Gabelli v. SEC,¹⁰⁹ the Supreme Court previously—and unanimously—held that claims by the SEC for monetary penalties constitute a "civil fine, penalty, or forfeiture" subject to the five-year statute of limitations, but the Court expressly reserved the question of whether Section 2462 applies to disgorgement.¹¹⁰ After Gabelli, the US Court of Appeals for the Eleventh Circuit held that disgorgement falls within the ordinary meaning of "forfeiture" and thus is subject to the five-year statute of limitations.¹¹¹ However, on August 23, 2016, the Tenth Circuit diverged from the Eleventh Circuit, finding that disgorgement is an equitable remedy rather than a "penalty" or "forfeiture," so Section 2462 does not apply¹¹² The Tenth Circuit's ruling in SEC v. Kokesh joined pre-Gabelli decisions from the First Circuit and DC Circuit also holding that disgorgement sought by the SEC is not subject to the five-year statute of limitations,¹¹³ and the Supreme Court granted certiorari to resolve this circuit split. As of the date of this publication, no date has been set for oral arguments.

Reach of FCPA to Foreign Individuals to Be Considered by Court of Appeals

In a rare appeal concerning the scope of the FCPA, the US Court of Appeals for the Second Circuit will review a lower court ruling that the criminal provisions of the FCPA reach a nonresident foreign national who does not commit any relevant act on US territory only if the individual is an agent of a "domestic concern," that is, a US company or US individual. The lower court ruling by US District Court Judge Janet Arterton rejected the accomplice theory of liability that the US government had asserted against Lawrence Hoskins, a British national and former senior vice president of French energy company Alstom Holdings SA (Alstom). Judge Arterton concluded that the US Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability under the FCPA.¹¹⁴

On appeal, the US government argues that standard principles of secondary liability apply to individuals who affiliate themselves with domestic conduct that violates the FCPA.¹¹⁵ Hoskins defends the District Court's ruling in his favor and contends that the Second Circuit lacks jurisdiction to hear this appeal while other charges are still pending in the District Court.¹¹⁶ Oral argument is scheduled for the week of February 27, 2017.¹¹⁷

"EDGAR" Filings Found Sufficient Nexus to Confer Jurisdiction in FCPA Trial

A court in the Southern District of New York ruled in the long-running SEC v. Straub FCPA case that filing public documents on the SEC's EDGAR website constitutes use of an instrumentality of interstate commerce for purposes of the FCPA's jurisdictional requirements.¹¹⁸ The case stems from allegations that three executives of a Hungarian telecommunications company offered or paid bribes to Macedonian government officials to help offset the effects of Macedonia's new telecommunications law.¹¹⁹ The individuals were allegedly seeking both to influence new regulations and to keep competitors out of the marketplace.¹²⁰

The District Court also found that these individuals' signatures on false certifications during the relevant time period—when they knew that internal auditors and the company would rely on those certifications in making representations to the SEC that the company was not engaging in illegal activities—constituted use of instruments of interstate commerce (i.e., the Internet).¹²¹ The case is scheduled for trial in May 2017.¹²²

More Individuals Plead Guilty and Corporate Defendants Enter Into Deferred Prosecution Agreements in FIFA Corruption Probe

Three more individual defendants pleaded guilty and one corporate defendant entered into a deferred prosecution agreement in connection with the ongoing probe into corruption at Fédération Internationale de Football Association (FIFA). On October 7, 2016, Eduardo Li, former President of Costa Rica's soccer association (FEDEDUT) and member of FIFA's Executive Committee, pleaded guilty to racketeering conspiracy, wire fraud conspiracy, and wire fraud.¹²³ Li admitted that he had accepted hundreds of thousands of dollars in bribes from Florida-based Traffic Sports USA, a Traffic Group subsidiary, in exchange for the granting of promotional rights and a uniform sponsorship for the Costa Rican national team. Li also admitted to embezzling funds transmitted by FIFA to FEDEDUT that were intended to be used for a women's youth World Cup tournament.

On October 20, 2016, Aaron Davidson, former Traffic Sports USA President, also pleaded guilty to racketeering and wire fraud conspiracy charges.¹²⁴ As part of his plea, Davidson admitted to providing over US$14 million in bribes to officials at FIFA and affiliated regional and national soccer associations in exchange for media and marketing rights for soccer matches and tournaments. Davidson will forfeit US$508,000 and faces up to 20 years' imprisonment on each count, according to the DOJ.

Furthermore, on November 10, 2016, former Venezuelan soccer federation President Rafael Esquivel pleaded guilty to racketeering conspiracy, three counts of wire fraud conspiracy, and three counts of money laundering conspiracy for accepting millions of dollars in bribes related to Esquivel's sale of marketing rights for South American soccer tournaments to Traffic Group entities. According to the DOJ, Esquivel faces a maximum sentence of 20 years' imprisonment for each count and has agreed to forfeit US$16 million in conjunction with his guilty plea.¹²⁵ Esquivel's guilty plea marked the 21st conviction resulting from the FIFA-related prosecution in federal court in Eastern District of New York. Cases against five individual defendants remain pending, with a trial set to begin November 6, 2017.¹²⁶

Moreover, on December 13, 2016, Argentinian sports-marketing firm Torneos y Competencias S.A. (Torneos) entered into a four-year deferred prosecution agreement with the DOJ to resolve a criminal information charging Torneos with wire fraud related to its acquisition of broadcast rights for the World Cup in 2018, 2022, 2026, and 2030.¹²⁷ Alejandro Burzaco, a Torneos principal, separately pleaded guilty to racketeering conspiracy, wire fraud conspiracy, and money laundering conspiracy last year under seal. As part of the deferred prosecution agreement, Torneos must cooperate with the US government's ongoing FIFA-corruption investigation and pay a US$89.1 million forfeiture of profits as well as a US$23.7 million penalty.

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GLOBAL ANTI-CORRUPTION UPDATE

I. United Kingdom

Defense Contract Corruption Referred to Law Enforcement by Ministry of Defence

According to records released to the UK Parliament by Defence Minister Harriett Baldwin, since 2011 the Ministry of Defence has referred to law enforcement agencies 44 cases of corruption relating to defense contracts, including four cases involving bribery of foreign public officials.¹²⁸

Destroying Evidence of Bribery Lands Former Sweett Group Executive in Prison

On December 21, 2016, Richard Kingston, the former Managing Director of Sweett Group PLC (Sweett), was sentenced to 12 months in prison for having destroyed two mobile phones containing evidence related to an SFO investigation into Sweett's dealings with an insurance company in the Middle East.¹²⁹ The conviction follows Sweett's being ordered to pay GB£2.25 million in February 2016 as a result of the company's guilty plea to Bribery Act offenses.¹³⁰

Soma Oil Investigation Dropped by SFO

On December 14, 2016, the SFO announced that it would cease its investigation of the Soma Oil & Gas Group. The investigation, which began in July 2015, related to allegations of corruption in Somalia. The SFO stated that, while there were reasonable grounds to open the investigation, "a detailed review of the available evidence led … to the conclusion that the alleged conduct, even if proven and taken at its highest, would not meet the evidential test required to mount a prosecution."¹³¹ The closing of the investigation comes two months after the UK High Court refused Soma's judicial review application to discontinue the SFO's investigation on the grounds of irrationality and disproportionality under Article 8 of the European Convention on Human Rights, and failure to make adequate disclosure. The High Court held that only in an "exceptional" case would such an application have succeeded.¹³²

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II. Other Countries

Major Reforms to Anti-Corruption Laws Around the World

South Korea

In September the landmark Improper Solicitation and Graft Act¹³³ came into effect, significantly extending both the reach and severity of Korea's domestic anti-corruption laws. The Act prohibits the solicitation of "public officials"—defined broadly to include civil servants as well as doctors, teachers, reporters, and their spouses—to violate their duties with respect to 14 categories of acts, including issuing permits and licenses, awarding government contracts and grants, imposing fines and penalties, and resolving legal matters.¹³⁴ The law also sets strict limits on the value of meals (30,000 won, approximately US$26) and gifts (50,000 won, US$43) that public officials may accept¹³⁵ and imposes hefty penalties for those who solicit or receive improper financial or other advantages.¹³⁶

France

On November 8, France's National Assembly brought the country's anti-corruption laws in closer alignment with US and UK enforcement practices by adopting the final version of the so-called "Sapin II" Law.¹³⁷ The Law introduces major reforms to France's corruption prevention and enforcement regime. Specifically, it (1) requires compliance programs for companies that meet certain size and profitability criteria;¹³⁸ (2) establishes a new French Anti-Corruption Agency (Agence Française Anticorruption) with investigative and supervisory powers over companies in connection with their compliance programs and activities;¹³⁹ (3) increases the legal protections for whistleblowers;¹⁴⁰ (4) introduces a deferred prosecution mechanism;¹⁴¹ and (5) extends the application of the country's anti-corruption laws extraterritorially to anyone who "carr[ies] on all or part of" his or her business in France.¹⁴² The majority of the Law's provisions took effect on November 10, 2016, but the compliance program requirement for certain companies (Article 17) will not enter into force until May 2017.

Mexico

On July 18, 2016, Mexican President Enrique Peña Nieto signed into law several statutes intended to overhaul the country's anti-corruption institutions. Among other reforms, the legislative package establishes a National Anti-Corruption System to coordinate the efforts of all federal, state, and municipal governmental bodies responsible for anti-corruption enforcement. The new General Law of Administrative Responsibilities (Ley General de Responsabilidades Administrativas), which takes effect in July 2017, creates entity liability for companies found to have engaged in corruption-related offenses, including bribing government officials, colluding with other private parties in connection with public procurement processes, and hiring former public officials within one year of their leaving office.¹⁴³ While the penalties for violations can be severe (e.g., fines of twice the amount of the benefit obtained, debarment, dissolution), the Law allows a company to mitigate damages and even avoid liability entirely if it proves that it had in place an adequate "integrity policy," i.e., an anticorruption and compliance policy, at the time of the offense.¹⁴⁴

New Global Standard for Anti-Corruption Compliance

On October 14, 2016, the International Organization for Standardization (ISO) issued ISO 37001, the first international standard for anti-bribery management systems.¹⁴⁵ ISO 37001's guidance for the establishment, implementation, maintenance, review, and improvement of anti-corruption compliance programs is considered largely consistent with the criteria previously articulated by the US DOJ and SEC,¹⁴⁶ as well as the UK Ministry of Justice.¹⁴⁷ In a statement accompanying the ISO's announcement, the chair of the project committee responsible for ISO 37001 emphasized that, rather than offering a one-size-fits-all model, the new standards are designed to provide flexibility to organizations depending on their individual size, location, and sector of business, and the "nature, scale, and complexity" of their operations.¹⁴⁸ As with other standards articulated by ISO, organizations will be able to seek third-party certification that their anti-corruption management systems meet ISO 37001 standards. While such external validation will not render companies immune from DOJ or SEC enforcement actions, ISO 37001 certification could streamline due diligence and risk assessment processes when dealing with partners, vendors, distributors, and other third-party agents.

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