Following a flurry of corporate settlements in the final days of the Obama Administration, enforcement of the US Foreign Corrupt Practices Act (FCPA) has been relatively quiet. In the first six months of the Trump Administration, neither the US Department of Justice (DOJ) nor the US Securities and Exchange Commission (SEC) announced new charges against any company or entered into any deferred-prosecution or non-prosecution agreements with respect to FCPA violations. We suspected that the lull in enforcement actions would be short lived, however, as Trump Administration officials were quite open in expressing their commitment to vigorous enforcement of the FCPA. Our suspicions were confirmed in late July, when the SEC announced that it had resolved FCPA charges against Halliburton Company.

New DOJ officials also have extended the FCPA Pilot Program that was unveiled last year. In June, the DOJ announced two new "declinations" under the Program, which rewards companies for voluntary disclosure, cooperation, and remediation. Both declinations were contingent, however, on the companies disgorging profits from the conduct under question.

Meanwhile, criminal FCPA cases against individuals are proceeding apace. Judges recently have imposed prison sentences on defendants who have pleaded guilty to FCPA charges, and a Chinese developer accused of bribing United Nations officials was convicted by a Manhattan federal jury.

On the civil enforcement side, in June the US Supreme Court issued a significant decision in Kokesh v. SEC, holding that a five-year limitations period applies to disgorgement claims brought by the SEC. This ruling is likely to lead the SEC to expedite investigations and expand the use of tolling agreements, among other things.

Outside the United States, other countries are enforcing their own anti-corruption laws, as well as cooperating with US-led investigations. For example, the United Kingdom's Serious Fraud Office (SFO) has announced new charges and expanded investigations under the UK Bribery Act. In addition, Brazil, with its massive "Operation Car Wash" investigation into corruption involving the state-controlled oil company, continues to be a hotbed of enforcement activity. Mexico, for its part, recently implemented new anti-corruption legislation.

Table of Contents

Key Developments in the United States

I. Corporate Enforcement Actions

II. Individual Enforcement Actions

III. FCPA-Related Civil Litigation

IV. Other Noteable Developments

Global Anti-Corruption Update

I. United Kingdom

II. Europe

III. Latin America

KEY DEVELOPMENTS IN THE UNITED STATES

I. CORPORATE ENFORCEMENT ACTIONS

SEC Settles FCPA Charges with Halliburton, Former Executive for $29.2 Million

On July 27, 2017, the SEC charged Texas-based Halliburton Company (Halliburton) with violating the books and records and internal accounting controls provisions of the FCPA in connection with winning lucrative oilfield services contracts from Angola's state oil company, Sonangol. According to the SEC, Halliburton made millions of dollars in payments to a local Angolan company owned by a former Halliburton employee who was a friend and neighbor of the Sonangol official responsible for awarding the contracts to Halliburton. Halliburton's contracts with the local Angolan company allegedly were intended to meet local content requirements rather than for the stated scope of work, and Halliburton's selection of and payments to the company allegedly circumvented internal accounting controls.

Without admitting or denying the charges, Halliburton agreed to an order requiring a settlement payment of approximately $29.2 million, including $14 million in disgorgement, $1.2 million in interest, and $14 million in penalties. Halliburton also agreed to the retention of an independent compliance consultant to oversee its anti-corruption policies and procedures in Africa. Without admitting or denying the SEC's claims, Halliburton's former vice president Jeannot Lorenz also agreed to pay a $75,000 penalty to settle charges that he caused the company's violations, circumvented internal accounting controls, and falsified books and records.¹

Declinations Continue Under FCPA Pilot Program

On April 5, 2016, the DOJ launched a one-year pilot program in an effort to provide more transparency and consistency to the process of evaluating voluntary self-disclosure, cooperation, and remediation of FCPA violations. Following speculation about whether the DOJ would extend the pilot program under the new administration, Kenneth Blanco, acting assistant attorney general for the DOJ's Criminal Division, confirmed in March 2017 that the pilot program would "continue in full force" while the DOJ evaluates its utility and efficacy.²

The DOJ has issued two declinations under the pilot program so far this year:

• CDM Smith Inc. (June 21, 2017) – The DOJ issued a declination letter to CDM, a privately held engineering and construction firm. The DOJ alleged that CDM and its wholly owned Indian subsidiary paid approximately $1.18 million in bribes to officials in India's state-owned highway management agency in exchange for highway construction supervision and design and a water project contract resulting in approximately $4 million in net profits. The declination was based on (1) CDM's timely, voluntary self-disclosure of the bribery scheme; (2) CDM's thorough and comprehensive investigation; (3) CDM's full cooperation; (4) CDM's agreement to disgorge to the DOJ all profits from the scheme; (5) CDM's enhancement of its compliance program and controls; and (6) CDM's remediation, including terminating employees involved in the scheme.³
• Linde North America Inc. (June 16, 2017) – The DOJ issued a declination letter to Linde, an industrial gas supplier. The letter alleged that Linde, through a company it had acquired, paid bribes in the form of shared profits to officials at a Georgian state-owned technology company in exchange for being selected to purchase certain income-producing assets and equipment from the state-owned company. The scheme allegedly resulted in profits to Linde of approximately $1,430,000. The DOJ nevertheless declined to take enforcement action based on (1) Linde's timely, voluntary self-disclosure of the matter; (2) Linde's thorough and comprehensive investigation; (3) Linde's full cooperation; (4) Linde's agreement to disgorge all profits from the scheme; (5) Linde's enhancement of its compliance program and controls; and (6) Linde's remediation, including terminating employees involved in the scheme.⁴

Additional Declinations Announced This Year

In the first two quarters of 2017, the DOJ and SEC also declined to prosecute or pursue charges in a substantial number of cases not officially linked to the FCPA Pilot Program:

• IBM Corp. (July 25, 2017) – IBM disclosed in a periodic report filed with the SEC for the second quarter of 2017 that in June 2017 it received letters from the DOJ and SEC closing FCPA investigations without any enforcement action. IBM had notified the SEC in early 2012 that the Polish Central Anti-Corruption Bureau was investigating allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM later learned in 2013 that the DOJ was also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh, and Ukraine.⁵
• Newmont Mining (July 25, 2017) – Newmont, a gold mining company, disclosed that in June 2017 the DOJ issued a declination letter advising the company that it did not intend to recommend an enforcement action in connection with an FCPA investigation involving activities outside the United States. Earlier this year, the company disclosed that in February 2017 it received a declination letter from the SEC.⁶
• Platform Specialty Products (May 9, 2017) – Platform Specialty, a chemicals production company, announced the conclusion of an investigation into Arysta, a company Platform Specialty had acquired. Platform Specialty disclosed in SEC filings that the DOJ and SEC had closed their investigations into certain payments Arysta had made to third-party agents related to Arysta's government tender business in West Africa.⁷
• Harris Corporation (May 3, 2017) – Harris, a global communications company, disclosed in a quarterly filing that the DOJ declined to take action against the company related to an FCPA investigation arising from Harris' acquisition of CareFx Corp. in 2011. The SEC previously issued a declination to Harris in September 2016, though it brought charges against the former head of CareFx's Chinese subsidiary for giving gifts to Chinese government officials in exchange for $9.6 million in contracts.⁸
• Innodata Inc. (March 8, 2017) – In its annual report, Innodata, a global digital services company, disclosed that both the SEC and DOJ had closed investigations into potentially improper payments made by a foreign subsidiary in connection with the inspection of the subsidiary's compliance with local employment-related tax requirements.⁹
• Merck & Co., Inc. (February 28, 2017) – In its annual report, Merck disclosed that the SEC recently had closed an FCPA investigation involving, broadly, "activities in a number of countries." The DOJ previously had closed a parallel inquiry.¹⁰
• Crawford & Co. (February 27, 2017) – Crawford, a claims management company, disclosed in its annual report that after having voluntarily self-reported a potential FCPA violation to the SEC and DOJ in 2015, it learned in the first quarter of 2017 that the SEC had concluded its investigation and did not intend to recommend an enforcement action against Crawford.¹¹
• Cobalt Int'l Energy, Inc. (February 9, 2017) – Having previously received a declination from the SEC in January 2015, Cobalt announced in a press release that the DOJ had closed an FCPA investigation into an alleged connection between senior Angolan government officials and an Angolan company with which Cobalt had partnered.¹²

Odebrecht S.A. Sentenced to Pay $2.6 Billion Fine by Federal Judge Following Reduction Based on Analysis of Ability to Pay

On April 17, 2017, Judge Raymond Dearie of the United States District Court for the Eastern District of New York sentenced Brazil-based construction company Odebrecht S.A. (Odebrecht) to pay a criminal fine totaling $2.6 billion for conspiring to violate the anti-bribery provisions of the FCPA, with $93 million of that amount going to the United States, $2.39 billion going to Brazil, and $116 million going to Switzerland.¹³

In December 2016, both Odebrecht and its US-based petrochemical unit, Braskem S.A., pled guilty to conspiracy to violate the anti-bribery provisions of the FCPA.¹⁴ According to the DOJ, Odebrecht paid approximately $788 million in bribes to government officials in 12 countries through a network of shell companies, off-book transactions, and off-shore bank accounts to win business during a period of more than 15 years.¹⁵ To resolve the charges, Braskem entered into a plea agreement in which the company agreed to a total criminal penalty of $632 million,¹⁶ while Odebrecht agreed to a $4.5 billion global settlement with US, Brazilian, and Swiss authorities. Odebrecht represented, however, that it was only able to pay approximately $2.6 billion in criminal fines. As part of the settlement agreement, the DOJ and Brazilian authorities were required to analyze Odebrecht's ability to pay and report to the court. Following this analysis, the DOJ requested that Judge Dearie reduce Odebrecht's criminal penalty.¹⁷

Odebrecht and Braskem both settled with the Ministerio Publico Federal in Brazil and the Office of the Attorney General in Switzerland. Braskem, whose American Depositary Receipts (ADRs) are publicly traded on the New York Stock Exchange, settled with the SEC as well.¹⁸

Six Companies Reach Settlements in January 2017 Before New Administration Took Office

Rolls-Royce Enters Settlement with US, UK, and Brazilian Authorities to Resolve Global Bribery Probe

In January 2017, UK-based engineering company Rolls-Royce plc (Rolls-Royce) agreed to pay the DOJ $169.9 million in criminal penalties as part of the company's $800 million global settlement with US, UK, and Brazilian authorities.¹⁹ The global settlement resolved allegations of criminal conduct connected with a three-decade long, worldwide scheme to bribe government officials in exchange for government contracts in multiple jurisdictions that involved three Rolls-Royce business sectors. Rolls-Royce also agreed to pay more than $600 million to the UK's Serious Fraud Office (SFO), making this the UK's most significant criminal enforcement action against a company; Rolls-Royce further agreed to pay more than $25 million to Brazil's Ministério Público Federal (MPF).²⁰

Under the terms of its DPA with DOJ, which was filed under seal on December 20, 2016, but not made public until January 17, 2017, Rolls-Royce agreed to pay the criminal penalties and continue to cooperate fully with the department's ongoing investigation, including DOJ's investigation of individuals.²¹ As part of its DPA, Rolls-Royce admitted that, between 2000 and 2013, it conspired to violate the FCPA by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for those officials' assistance in providing confidential information and awarding contracts to Rolls-Royce and affiliated entities.²² In connection with its resolution with SFO, Rolls-Royce also admitted to paying other bribes or failing to prevent bribery in multiple jurisdictions from 1989 to 2013. Rolls-Royce's improper conduct transpired in Azerbaijan, Angola, Brazil, China, Kazakhstan, India, Indonesia, Iraq, Malaysia, Nigeria, Russia, and Thailand.²³

Las Vegas Sands Pays $7 Million in Criminal Penalties to the DOJ

On January 19, 2017, the DOJ announced that Las Vegas Sands Corporation (LVSC) agreed to an NPA requiring the payment of nearly $7 million in criminal penalties to resolve FCPA charges.²⁴ LVSC admitted that, between 2006 and 2009, its Macao- and China-based subsidiaries paid approximately $60 million to a Chinese consultant, more than $5 million of which was allegedly without any discernible legitimate business purpose.²⁵ Senior executives were repeatedly warned about the consultant's dubious business practices and the high-risk nature of the transactions by an employee and LVSC's outside auditor, yet continued to engage the consultant without conducting enhanced due diligence or taking other risk-appropriate precautions.²⁶

According to the NPA, LVSC received a 25-percent reduction off the bottom of the applicable US Sentencing Guidelines fine range in light of its thorough internal investigation, full cooperation, and extensive remedial measures.²⁷ This DOJ settlement follows LSVC's payment of approximately $9 million in April 2016 to resolve related charges in an SEC administrative proceeding.²⁸

Orthofix Self-Reports, Resolves FCPA Violations with the SEC

On January 18, 2017, Texas-headquartered medical device company Orthofix International N.V. (Orthofix) agreed to pay more than $6 million in disgorgement, prejudgment interest, and civil penalties to resolve FCPA books and records and internal control charges through an SEC administrative proceeding.²⁹ The SEC alleged that, from at least 2011 to 2013, Orthofix's Brazilian subsidiary made improper payments to doctors employed by government hospitals through third-party commercial representatives and distributors by paying false invoices and providing high discounts to induce the doctors to use Orthofix's products.³⁰ As a part of its settlement, Orthofix also agreed to comply with certain undertakings, including retaining an independent FCPA consultant for a period of one year.³¹

Orthofix self-reported the misconduct at its Brazilian subsidiary as a part of its obligations under its prior $5.2 million SEC settlement in 2012 relating to FCPA violations at its Mexican subsidiary,³² and for which it also paid the DOJ $2.2 million to settle related charges.³³

Chilean Chemicals and Mining Company Settles with DOJ and SEC for Total of $30 Million

On January 13, 2017, chemicals and mining company Sociedad Química y Minera de Chile, S.A. (SQM) agreed to pay a $15.5 million criminal fine and to be subject to independent corporate compliance monitoring for two years as part of a three-year DPA that it entered into with DOJ.³⁴ From 2008 to 2015, SQM made donations to dozens of foundations controlled by or closely tied to Chilean politicians, including an official with influence over the government's mining plans in Chile, a key segment of SQM's business.

The company admitted that it knowingly failed to implement internal controls to ensure that payments from a fund under the control of one of its officers were made for services that SQM received.³⁵ SQM also admitted to falsifying its books and records to conceal payments to vendors associated with Chilean politicians. These payments were fraudulently logged as payments for consulting and professional services. In total, SQM paid vendors close to $15 million "despite having no evidence any goods or services were actually received."³⁶ In a related matter, SQM also reached a settlement with the SEC on January 13, 2017, pursuant to which it consented to a cease-and-desist order requiring it to pay a $15 million civil penalty for alleged violations of the FCPA's books and records and internal controls provisions.³⁷

Zimmer Biomet Breaches 2012 Deferred Prosecution Agreement, Agrees to Pay $30 Million

On January 12, 2017, medical device company Zimmer Biomet Holdings Inc. (Zimmer Biomet) agreed to pay more than $30 million to resolve DOJ and SEC investigations into the company's repeated violations of the FCPA. Zimmer Biomet paid a criminal fine of $17.4 million and civil penalties and disgorgement of $13 million for violating the FCPA's internal control provisions with respect to the company's operations in Mexico and Brazil between 2010 and 2013.³⁸ According to the DOJ, even after the 2012 DPA, the company knowingly and willfully continued to use a third-party distributor in Brazil known to have previously paid bribes to government officials on Zimmer Biomet's behalf. Zimmer Biomet "also failed to implement an adequate system of internal accounting controls at the company's subsidiary in Mexico, despite employees and executives having been made aware of red flags suggesting that bribes were being paid."³⁹ The DOJ and the SEC determined that this misconduct breached a 2012 DPA with DOJ "resolving an earlier investigation into FCPA violations committed by Biomet, Inc., which became part of Zimmer Biomet in 2015."⁴⁰ Zimmer Biomet previously resolved these FCPA offenses by, among other things, paying DOJ and the SEC a total of close to $23 million in monetary sanctions.

Mondelēz Pays $13 Million to Resolve FCPA Charges Relating to Indian Subsidiary

On January 6, 2017, US-based food and beverage manufacturer Mondelēz International Inc. (Mondelēz), along with its subsidiary Cadbury Limited (Cadbury), entered into an administrative cease-and-desist order with the SEC, agreeing to pay $13 million in sanctions to resolve internal controls and books and records charges relating to the conduct of Cadbury's Indian subsidiary, Cadbury India Limited (Cadbury India).⁴¹

The SEC alleged that in 2010, Cadbury India failed to conduct appropriate due diligence on, and monitor the activities of, an agent who was retained to obtain licenses and approvals for a chocolate factory in Baddi, India. The agent allegedly submitted invoices and was paid in cash for, among other things, preparing licenses that Cadbury India employees had prepared. Thus, according to the SEC, Cadbury India's books and records did not accurately reflect the nature of services rendered by the agent, and that Cadbury failed to implement adequate FCPA controls at Cadbury India. Mondelēz and Cadbury neither admitted nor denied the SEC's findings.⁴²

While the SEC noted that Mondelēz failed to identify the relationship between the agent and Cadbury India in connection with its acquisition of Cadbury in 2010, the SEC also noted that Mondelēz conducted an internal investigation and terminated the relationship with the agent, cooperated with the SEC's investigation, and undertook extensive remedial actions with respect to Cadbury and Cadbury India.⁴³

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II. INDIVIDUAL ENFORCEMENT ACTIONS

Macau Billionaire Found Guilty of Bribing United Nations Officials

On July 27, 2017, a Manhattan federal jury found Ng Lap Seng, a real estate mogul from Macau, guilty of bribing two United Nations (UN) officials in exchange for help promoting the development of a luxury conference center in Macau. Following a month-long trial, Ng was convicted on all six counts that he faced: two counts of violating the FCPA, one count of conspiracy to commit bribery and to violate the FCPA, one count of paying illegal bribes and gratuities (domestic bribery), one count of conspiracy to commit money laundering, and one count of money laundering. Ng now faces up to 20 years in prison.⁴⁴

The DOJ accused Ng of paying more than $1.3 million in bribes between 2011 and 2015 to Francis Lorenzo, a former deputy ambassador from the Dominican Republic, and John Ashe, a former UN General Assembly president and ambassador from Antigua and Barbuda. Through these payments, Ng attempted to win the support of Lorenzo and Ashe to bypass normal UN procedures to approve the development of the conference center.⁴⁵ Lorenzo, who pleaded guilty to bribery and money laundering charges, testified for the prosecution in Ng's trial and is currently waiting to be sentenced. Ashe, who was also charged with taking bribes, died in 2016. In addition to Lorenzo, three other individuals—Heidi Hong Piao, Shiwei Yan, and Jeff Yin—have pleaded guilty to crimes relating to their involvement in the scheme.⁴⁶ While Piao and Yin await sentencing, Yan has been sentenced to 20 months in prison.⁴⁷

Pennsylvania Consultant Sentenced to 60 Months in Prison for Bribing EBRD Official

On July 18, 2017, Dmitrij Harder, the former owner and president of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co. (together, the Chestnut Group), was sentenced to 60 months in prison and ordered to forfeit $1.9 million for violating the FCPA.⁴⁸ In April 2016, Harder pleaded guilty to two counts of violating the FCPA in connection with the bribery of an official at the European Bank for Reconstruction and Development (EBRD), a London-based multilateral development bank owned by more than 60 countries. Harder, a Russian national and US permanent resident, admitted to making approximately $3.5 million in improper payments between 2007 and 2009 to influence the EBRD's official's actions on his clients' applications for financing and to influence the official to direct business to the Chestnut Group.⁴⁹

More Guilty Pleas in FIFA Case

Federal prosecutors in the Eastern District of New York have continued to obtain more convictions in connection with wide-ranging bribery and kickback schemes involving Fédération Internationale de Football Association (FIFA). On June 15, 2017, Jorge Luis Arzuaga, an Argentine citizen and former Swiss private banker, pleaded guilty to money laundering charges for his role in facilitating bribes to soccer officials, including the former head of the Argentinian soccer federation.⁵⁰ On June 2, 2017, Hector Trujillo, a former judge in Guatemala and general secretary of the Guatemalan soccer federation, pleaded guilty to wire fraud charges for his role in awarding marketing and media rights related to the Guatemalan national soccer team in exchange for improper payments.⁵¹ On April 27, 2017, Richard K. Lai, a United States citizen who served as president of the Guam Football Association as well as on the FIFA Audit and Compliance Committee, pleaded guilty to wire fraud conspiracy charges for his participation in various schemes to accept and pay bribes to soccer officials.⁵² The government did suffer a setback, however, when a key cooperating witness, Chuck Blazer, passed away on July 12, 2017. Blazer was a former member of FIFA's executive committee and reportedly the first individual to plead guilty and cooperate with US authorities.⁵³

Individuals Charged and Sentenced for Roles in Och-Ziff Capital Bribery Scheme

On May 31, 2017, US District Judge Nicholas G. Garaufis of the Eastern District of New York sentenced Samuel Mebiame, son of the late Gabonese Prime Minister Leon Mebiame, to 24 months in prison after his guilty plea to conspiring to violate the FCPA.⁵⁴ According to the DOJ, Mebiame worked as a "fixer" on behalf of New York-based hedge fund Och-Ziff Capital Management Group LLC (Och-Ziff) and, in this role, traveled across Africa and the United States to make bribe payments to senior African government officials.⁵⁵ In September 2016, Och-Ziff agreed to pay a $213 million criminal fine to resolve criminal FCPA charges relating to the company's involvement in a widespread bribery scheme in the Democratic Republic of Congo, Libya, Chad, and Niger.⁵⁶ No Och-Ziff executives were criminally charged in connection with the conspiracy. At Mebiame's sentencing, Judge Garaufis noted his concern with the "lack of balance" between the sentence imposed on Mebiane and the government's failure to bring criminal charges against any Och-Ziff executives involved in the conspiracy.⁵⁷

In January 2017, the SEC brought a civil case against two former Och-Ziff executives, Michael L. Cohen and Vanja Baros, in connection with the alleged scheme. The SEC's complaint alleges that Cohen and Baros violated the anti-bribery and recordkeeping provisions of the FCPA, aided and abetted Och-Ziff's violations of the FCPA, and "directed, caused and arranged for Och-Ziff Capital to pay tens of millions of dollars in bribes to government officials on the continent of Africa . . . to secure . . . preferential treatment for Och-Ziff" in violation of the Investment Advisers Act of 1940. Cohen was also charged with one count of violating Section 206(1) of the Investment Advisers Act, which makes it unlawful for any investment advisor to "employ any device, scheme, or artifice to defraud any client or prospective client." In all, the SEC alleged that Cohen and Baros played roles in illegal transactions worth $435 million.⁵⁸ The SEC seeks disgorgement of the "ill-gotten gains"by Cohen and Baros, as well as civil penalties. The defendants filed a renewed motion to dismiss in June of this year and the parties are currently briefing the motion.⁵⁹

SEC Bars Former PetroTiger GC Convicted of FCPA Violations

On Mary 25, 2017, the SEC barred former general counsel Gregory Weisman of British Virgin Islands-based oil and gas company PetroTiger Ltd. (PetroTiger) from practicing before the SEC as a result of his conviction for criminal violations of the FCPA and wire fraud statutes.⁶⁰ DOJ previously alleged that Weisman and two other former PetroTiger executives conspired to pay bribes to a Colombian government official in exchange for assistance in securing a $45 million oil services contract for PetroTiger.⁶¹ On November 8, 2013, Weisman pled guilty to one count of conspiracy to violate the FCPA and to commit wire fraud in connection with the illegal payments to the Colombian official.⁶² Weisman, who cooperated with prosecutors by wearing a wire to record conversations with PetroTiger's CEO and testifying against the CEO at trial, was sentenced in September 2015 to two years' probation and a $30,000 fine for his role in the conspiracy.⁶³

As a result of his criminal conviction, Weisman was disbarred by New York on November 20, 2014, and Pennsylvania on April 7, 2015.⁶⁴ Rule 102(e)(2) of the SEC's Rules of Practice provides, in pertinent part, that "[a]ny attorney who has been suspended or disbarred by a court of the United States or any State . . . or any person who has been convicted of a felony . . . shall be forthwith suspended from appearing or practicing before the Commission."⁶⁵

Three Former Magyar Telekom Executives Settle FCPA Civil Suit Prior to Trial

On April 24, 2017, the SEC announced that two former senior executives of Hungarian-based telecommunications provider Magyar Telekom, Plc. (Magyar Telekom) settled FCPA charges shortly before trial, without admitting or denying the SEC's allegations.⁶⁶ The matter had been brought in the Southern District of New York in 2011. Elek Straub, a former Chief Executive Officer of Magyar Telekom, agreed to pay $250,000 and to a five-year officer-and-director bar to resolve the charges.⁶⁷ Andras Balogh, a former Chief Strategy Officer, paid $150,000 and agreed to the same bar.⁶⁸ A third former Magyar Telekom executive, Tamas Morvai, agreed to pay $60,000 in a settlement of FCPA charges approved by the court in February of this year.⁶⁹

The SEC alleged that these three individuals had paid €4.875 million in bribes in 2005 and 2006 to officials in Macedonia to promote Magyar Telekom's business and to block the entry of its competitors under the guise of fictitious consulting and marketing contracts. The SEC also alleged that the individuals had paid €7.35 million to officials in Montenegro in 2005 to facilitate Magyar Telekom's acquisition of a state-owned telecommunications company; however, the charges relating to bribing the Montenegrin officials were later dropped.⁷⁰ In December 2011, Magyar Telekom paid $95 million to settle parallel civil and criminal charges relating to these FCPA violations.⁷¹

Four Individuals Sentenced in Bribery Scheme Involving Mexican Aviation Contracts

In February and March of this year, four businessmen were sentenced for their involvement in schemes to bribe two former Mexican state government officials in exchange for aircraft maintenance and repair contracts.⁷² On March 30, 2017, Douglas Ray, owner and president of Global Aviation Services, a Texas-based aviation company, was sentenced in the Southern District of Texas to 18 months in prison.⁷³ On February 2, 2017, Victor Hugo Valdez Pinon, a Texas-based aviation sales agent at Global Aviation Services and a Mexican citizen, was sentenced to, among other things, a year and a day in federal prison and ordered to pay $90,000 restitution for his involvement in the scheme.⁷⁴ Ray and Pinon pled guilty in October 2016 to conspiracy to violate the FCPA and conspiracy to commit wire fraud, admitting to paying more than $2 million in bribes to Mexican state officials in order to secure parts and servicing contracts with Mexican government-owned entities.⁷⁵ Two other codefendants, American businessmen Daniel Perez and Kamta Ramnarine, were sentenced to three years' probation in February of this year after they also admitted to conspiring to violate the FCPA.⁷⁶

Two former Mexican government officials, Ramiro Ascencio Nevarez and Ernesto Hernandez Montemayor, also both pled guilty to one count of conspiracy to commit money laundering. They admitted that while employed by a Mexican state government entity, they accepted bribes from their codefendants.⁷⁷ Nevarez was sentenced in the Southern District of Texas to 15 months in prison on May 27, 2016.⁷⁸ Montemayor is still awaiting sentencing.

Two More Individuals Plead Guilty in Connection with Venezuela Bribery Scheme

On January 10, 2017, two executives from US-based energy companies pleaded guilty in the Southern District of Texas to foreign bribery charges involving payments to officials at Venezuela's state-owned energy company, Petroleos de Venezuela S.A. (PDVSA).⁷⁹ Juan Jose Hernandez Comerma―a former general manager and part owner of a Florida-based company―pleaded guilty to charges that he violated and conspired to violate the FCPA through a conspiracy with US-based businessmen Abraham Jose Shiera Bastidas and Roberto Enrique Rincon Fernandez to pay PDVSA purchasing analysts bribes, including travel, entertainment, and cash.⁸⁰ Meanwhile, Charles Quintard Beech III―an owner of several Texas-based energy companies―pleaded guilty to one count of conspiracy to violate the FCPA for payments to officials at PDVSA. From 2011 to 2012, Beech bribed several PDVSA officials in exchange for helping put his companies on PDVSA bidding panels and get paid for previously awarded PDVSA contracts.⁸¹ Both Hernandez and Beech are scheduled to be sentenced on August 30, 2017. DOJ had previously announced the guilty pleas of six other individuals as part of a larger, ongoing investigation by the US government into bribery at PDVSA.⁸²

Four Individuals Charged in Bribery Scheme Involving $800 Million International Real Estate Deal for South Korean Company

On January 10, 2017, charges in the Southern District of New York were unsealed against four individuals involved in a bribery scheme to pay $2.5 million in bribes to a Qatari foreign official in charge of the country's sovereign wealth fund in order to facilitate the sale by Keangnam Enterprises Co., Ltd., a South Korean construction company, of a 72-story commercial building known as Landmark 72 in Hanoi, Vietnam. The defendants were charged with, among other things, violations of the FCPA, money laundering, and wire fraud.⁸³ One of the defendants—Malcolm Harris—pleaded guilty to FCPA and other charges on June 21, 2017. His sentencing is set for September 27, 2017.⁸⁴ Another defendant—Joo Hyun Bahn, a New York real estate broker who advertised his connection to his uncle, United Nations Secretary-General Ban Ki-moon—is scheduled to go to trial in February 2018.⁸⁵

Fugitive Executive in Haiti Teleco Case Arrested and Is Expected to Plead Guilty

Amadeus Richers—a former director of Cinergy Telecommunications, Inc. (Cinergy) and Uniplex Telecom Technologies, Inc. (Uniplex), two US-based companies that allegedly paid more than $1.4 million in bribes from 2001 to 2006 to officials at state-owned Telecommunications D'Haiti S.A.M. (Haiti Teleco)—was arrested and extradited from Panama to the Southern District of Florida in February 2017.⁸⁶ Richers was originally charged in July 2011 with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering, and 19 counts of money laundering.⁸⁷ He plead guilty in July 2017.⁸⁸ Eight individuals involved in the scheme have been convicted or pled guilty so far.⁸⁹ The appeal of one of these convictions led the Eleventh Circuit to issue a seminal ruling on the definition of an "instrumentality" of a foreign government, a ruling that took an expansive view of who may qualify as a "foreign official" for the purposes of the FCPA.⁹⁰

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III. FCPA-RELATED CIVIL LITIGATION

Qualcomm Board Obtains Dismissal of Stockholder Complaint Based on FCPA Allegations

On June 16, 2017, the Delaware Court of Chancery dismissed a stockholder lawsuit alleging that Qualcomm Inc.'s board of directors breached their fiduciary duties by failing to prevent or remedy alleged FCPA violations, which resulted in a $7.5 million penalty and periodic reporting to the SEC pursuant to a March 1, 2016, Cease-and-Desist Order. Although stockholders who wish to assert claims derivatively on behalf of a company are generally required to make a demand on the board of directors before they can proceed, the plaintiff argued that a demand would have been futile because the directors were aware of "red flags" of potential FCPA violations—including presentations made to the board and the audit committee concerning purported anti-bribery compliance lapses—and consciously disregarded them. However, the Chancery Court disagreed, citing the board's efforts to address and remediate each of those lapses as they were reported, which demonstrated that the board did not act in bad faith. The Chancery Court emphasized that "[a] corporation's violation of the FCPA alone is not enough for director liability" under Delaware law.⁹¹

Wal-Mart Secures Dismissal of SDNY Securities Class Action Relating to Mexican Subsidiary

On February 27, 2017, a Manhattan federal judge dismissed with prejudice a second amended class action complaint filed on behalf of stockholders against Wal-Mart de México SAB de CV (Wal-Mex); certain former officers and directors; and its parent entity, Wal-Mart Stores Inc. (Wal-Mart). The putative class action suit alleged that the defendants made material misrepresentations to investors between 2004 to 2011 by concealing Wal-Mex's FCPA violations from the public and by touting Wal-Mex's ethical standards, compliance with applicable laws, and the integrity of its financial reporting.⁹² In granting the defendants' motion to dismiss, the court found that certain of the claims were untimely⁹³ and that the remaining claims were not adequately plead.⁹⁴

Meanwhile, a securities class action based on the same underlying allegations is moving forward against Wal-Mart and its former CEO in federal court in Arkansas. On May 5, 2017, the court granted plaintiff's motion to compel additional testimony and documents, rejecting Wal-Mart's argument that a former internal investigator's communications with his superior regarding the Wal-Mex investigation were privileged and that his reports were protected by the work product doctrine.⁹⁵

Former Bio-Rad General Counsel Wins $10.9 Million FCPA Whistleblower Case

On February 6, 2017, a California federal jury issued a multi-million dollar award to former Bio-Rad Laboratories Inc. (Bio-Rad) general counsel Sanford Wadler after finding that Bio-Rad violated the whistleblower protections of the Sarbanes-Oxley Act when it fired Wadler in 2013 for reporting suspected FCPA violations by Bio-Rad's Chinese sales team to the company's audit committee.⁹⁶ Wadler had filed suit against his former employer in 2015 under the Sarbanes-Oxley Act, which includes an anti-retaliation provision that gives legal protections to corporate whistleblowers. On May 11, 2017, a California federal magistrate judge rejected Bio-Rad's motion to undo the jury's award. Accordingly, Wadler stands to receive $2.96 million in back pay, which will be doubled under the Dodd-Frank Act, as well as $5 million in punitive damages.⁹⁷

While Bio-Rad was never charged with any FCPA violations relating to its business in China, in 2014 the company agreed to pay a total of $55 million to settle DOJ and SEC charges that it falsified its books and records and failed to implement adequate internal controls in connection with certain business activities in Russia, Thailand, and Vietnam.⁹⁸

Second Circuit Rules on Class Certification Issues in Petrobras Securities Litigation

On July 7, 2017, the US Court of Appeals for the Second Circuit issued a decision on class certification in a private securities suit alleging that majority state-owned Brazilian oil-and-gas company Petróleo Brasileiro SA (Petrobras)—as well as certain of its directors, officers, auditors, and underwriters—had made false and misleading statements in connection with a wide-ranging scheme through which Petrobras officials and corrupt executives had received billions of dollars in bribes and kickbacks. The Second Circuit decertified two classes of investors under Federal Rule of Civil Procedure 23(b)(3): one asserting claims under the Securities Exchange Act of 1934 and the second asserting claims under the Securities Act of 1933. Specifically, the Second Circuit determined that, in certifying the classes, the District Court had failed to address the need for an analysis of whether putative class members acquired their securities in "domestic transactions" falling under the jurisdiction of US securities laws. Thus, in the Second Circuit, courts must now consider whether questions of extraterritoriality are "susceptible to generalized class-wide proof."⁹⁹

While the Second Circuit decertified the classes for further proceedings on the extraterritoriality issue, the court found that the plaintiffs had satisfied the requirements of ascertainability and the presumption of reliance for class certification purposes. The court declined defendants' invitation to adopt a heightened standard for ascertainbility that would require "administrative feasibility" in addition to requiring that a proposed class be "definite" and "defined by objective criteria."¹⁰⁰

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IV. OTHER NOTABLE LEGAL DEVELOPMENTS

Supreme Court Unanimously Holds That Five-Year Limitations Period Applies to SEC Civil Disgorgement Claims

On June 5, 2017, the United States Supreme Court unanimously held in Kokesh v. SEC that a five-year limitations period applies to disgorgement claims brought by the SEC in enforcement proceedings. In particular, the Court held that "SEC disgorgement constitutes a penalty" within the meaning of 28 U.S.C. § 2462, which provides that government actions seeking a "civil fine, penalty, or forfeiture" are subject to a five-year limitations period.¹⁰¹

While the SEC has acknowledged the applicability of Section 2462 to civil penalties, it long has taken the position that disgorgement of ill-gotten gains is not subject to any limitations period because disgorgement is a remedial measure that prevents unjust enrichment by violators of the securities laws. The Supreme Court has now squarely rejected this position, resolving a circuit split on the applicability of the five-year limitations period to SEC disgorgement claims.

The Supreme Court's decision in Kokesh may have significant implications for parties being investigated by the SEC, including for FCPA violations, as it is now clear the SEC lacks legal authority to seek disgorgement for conduct occurring more than five years prior to the commencement of an enforcement action. This decision, along with the Court's 2013 decision in Gabelli v. SEC¹⁰² (which held that the five-year limitations period accrues when a fraud is complete, not upon its discovery by the Government) likely will lead to the SEC increasing efforts to expedite investigations, expanding the use of tolling agreements earlier and more frequently during investigations, and seeking higher penalty and disgorgement amounts for conduct occurring within the limitations period.

In addition, the Court's reasoning in Kokesh for why the five-year limitations period of Section 2462 applies to disgorgement claims provides additional support for the application of the statute to certain non-monetary SEC remedies. For example, Kokesh may encourage additional litigation regarding civil injunctions and officer and director bars when sought with respect to older conduct falling outside the statute. While the SEC likely will continue to assert that such remedies are equitable (and not subject to the statute), the litigation risk may impact the SEC's views of which remedies to pursue in certain cases.

Congressional Disapproval of Dodd-Frank Extractive Industry Rule

On February 3, 2017, the US Senate passed a resolution under the Congressional Review Act (CRA) that disapproved SEC Rule 13q-1,¹⁰³ which would have required resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas, or minerals as part of the issuers' annual disclosures.¹⁰⁴ Because the US House of Representatives previously had passed the resolution on February 1, 2017, Rule 13q-1, which was mandated by Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is no longer in effect. Under the CRA, Congress may disapprove a rule by simple majority in each house of Congress, subject to presidential veto.¹⁰⁵ Once a rule is disapproved, the rule may not be reissued in substantially the same form unless the reissuance is specifically authorized by a law enacted after the date of disapproval.¹⁰⁶

DOJ Compliance Counsel Resigns

In June 2017, Hui Chen, a compliance specialist retained by the DOJ Fraud Section in November 2015 to advise on corporate compliance and remediation, announced her resignation, citing ethical concerns about the new presidential administration.¹⁰⁷ Earlier this year, Chen oversaw the release of guidance on how the DOJ evaluates corporate compliance programs. The guidance provides, among other things, "sample questions" that the DOJ has found relevant in determining whether to bring charges or negotiate plea and other agreements.¹⁰⁸

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GLOBAL UPDATE

I. UNITED KINGDOM

On May 2, 2017, the UK Serious Fraud Office (SFO) filed charges against F.H. Bertling Ltd, a logistics and freight company based in the United Kingdom, and six individuals for conspiracy, between 2010 and 2013, to give or accept corrupt payments in connection with a North Sea oil exploration project called "Jasmine."¹⁰⁹ F.H. Bertling and seven individuals, including two charged in relation to the Jasmine project, are also facing charges related to the alleged bribery of officials at the Angolan state oil company, Sonangol.¹¹⁰ A trial of those charges is set to begin on September 12, 2017.¹¹¹

The SFO continues the investigation it launched last year into allegations of bribery involving Monaco-based Unaoil and various multinational companies.¹¹² While the full details of the SFO's investigation are not yet public, the press has reported allegations that Unaoil engaged in bribery across the Middle East and North Africa on behalf its clients in order to secure oil contracts.¹¹³ The SFO has confirmed that in relation to Unaoil it is investigating KBR, Inc., an engineering, procurement and construction company; ABB Ltd., a Swiss incorporated engineering company; and Petrofac PLC, an oil and gas production service provider.¹¹⁴ Moreover, the UK's High Court of Justice has upheld the SFO's letter of request to the Monegasque authorities which resulted in a seizure of Unaoil documents.¹¹⁵

The UK's National Crime Agency will host the International Anti-Corruption Coordination Centre (IACCC), which launched on July 5, 2017. This newly formed organization will coordinate anti-corruption enforcement efforts among agencies in Australia, Canada, New Zealand, Singapore, the UK, and the US, as well as Interpol.¹¹⁶

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II. EUROPE

Other European countries have been conducting criminal investigations of foreign bribery in recent months. For example, Netherlands-based ING Bank announced in an annual report released in March that it is "the subject of criminal investigations by Dutch authorities regarding various requirements related to the on-boarding of clients, money laundering, and corrupt practices" and has also received "related information requests" from US authorities.¹¹⁷ These investigations reportedly relate to transactions involving VimpelCom and Uzbek officials.¹¹⁸ Also in March 2017, Swedish prosecutors announced the arrest of an employee of Canadian train and aircraft maker Bombardier on suspicion of bribing officials in Azerbaijan with respect to a rail equipment procurement deal in Azerbaijan worth $340 million.¹¹⁹ Bombardier has denied wrongdoing and said it is cooperating with Swedish officials.¹²⁰

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III. LATIN AMERICA

On July 19, 2017, new anti-corruption legislation went into effect in Mexico. The General Law of Administrative Responsibility establishes penalties for individuals and corporations found to commit bribery of government officials (including foreign government officials). Among other things, it also allows companies with strong compliance programs to mitigate their liability.¹²¹

Brazil remains a hotbed of anti-corruption enforcement activity as a wide-ranging inquiry into corruption at majority state-owned energy company Petrobras continues. 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.

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*Danielle Pingue contributed to this newsletter. She is a Harvard Law School graduate employed at Arnold & Porter Kaye Scholer LLP and is not admitted to the District of Columbia Bar.

© 2017 Arnold & Porter Kaye Scholer LLP. This Newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.