Global Anti-Corruption Insights: Winter 2019
Enforcement of global anti-corruption laws remained active in 2018. US authorities reached some eye-popping corporate settlements and pursued dozens of individual prosecutions related to violations of the Foreign Corrupt Practices Act (FCPA). Meanwhile, authorities in other countries continued a recent trend and stepped up enforcement of their own anti-corruption laws, both in coordination with counterparts in the United States and on their own. Jump below to see what to expect in 2019.
FCPA Enforcement Against Companies
Sixteen companies agreed to pay a total of nearly $3 billion in sanctions to resolve FCPA enforcement actions in 2018. Most dramatically, in September, Brazilian oil giant Petrobras agreed to pay a total of $1.78 billion to settle enforcement actions by the Department of Justice and Securities and Exchange Commission (with credits for amounts already paid to resolve private shareholder litigation in the United States and additional amounts to be paid to Brazilian authorities). Other blockbuster FCPA settlements in 2018 included Société Générale's $585 million deal with the DOJ and French authorities (the first-ever coordinated enforcement action with France), and Panasonic's $280 million deal with the DOJ and the SEC, which also involved the imposition of a compliance monitor. Overall, the SEC resolved 14 enforcement actions against companies, while the DOJ resolved six.1
FCPA Enforcement Against Individuals
Consistent with its stated policy of holding individuals accountable for corporate wrongdoing, the DOJ actively pursued individual prosecutions, charging 31 individuals, securing 18 guilty pleas, and obtaining one conviction at trial in FCPA-related cases.2
Sentences ranged from 10 years in prison for a former Venezuelan official who conspired to launder more than $1 billion in bribes,3 to no jail time for a cooperating former aircraft sales executive who pleaded guilty to FCPA violations and other crimes, yet provided timely and substantial assistance to the DOJ's investigation of his employer, Embraer S.A.4 Meanwhile, last November, in a rare appellate decision, the US Court of Appeals for the Third Circuit affirmed a 60-month sentence for Dmitrij Harder, a Pennsylvania-based consultant who had pleaded guilty to violating the FCPA by bribing an officer at the European Bank for Reconstruction and Development for loan approvals for two energy projects in the former Soviet Union.5 The Third Circuit rejected (among other arguments) Harder's contention that the district court erred in refusing to hear or consider his counsel's argument that he was less culpable because his bribes did not cause monetary loss and instead created positive economic results.
The DOJ did face a notable setback, however, in the US Court of Appeals for the Second Circuit. As we reported earlier, United States v. Hoskins concerned an appeal of a conviction by a foreign national who worked for a non-US company that does not issue securities in the United States, and never stepped foot on US soil, in connection with an alleged bribery scheme. On August 24, the Second Circuit reversed Hoskins' conviction, ruling that such a defendant may not be convicted of conspiracy to violate the FCPA or aiding and abetting a violation of the FCPA.6 As the court explained, "the FCPA does not impose liability on a foreign national who is not an agent, employee, officer, director, or shareholder of an American issuer or domestic concern—unless that person commits a crime within the territory of the United States."
DOJ Policy Announcements
In 2018, the DOJ announced several changes to policies and procedures that are relevant to enforcement of anti-corruption laws. A number of these changes could have significant implications for both corporate entities and individuals involved in FCPA enforcement actions.
- In May 2018, Deputy Attorney General Rod Rosenstein announced the DOJ's "Policy on Coordination of Corporate Resolution Penalties," aimed at avoiding the imposition of duplicative and punitive penalties by multiple enforcement agencies and regulators in corporate enforcement actions.The policy, which has been incorporated into the Justice Manual (previously known as the US Attorneys' Manual), encourages prosecutors to "coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct,"7 in order to avoid "piling on" penalties that could be cumulatively excessive.8
- In October 2018, Brian A. Benczkowski, Assistant Attorney General for the DOJ's Criminal Division, issued a memorandum providing new guidance to Criminal Division staff on the standards, policy, and procedures for the selection and imposition of monitors in negotiated corporate settlements, including non-prosecution agreements, deferred prosecution agreements, and plea agreements.9 Several of the changes outlined in the "Selection of Monitors in Criminal Division Matters" memorandum appear to signal an intent to rein in the use of corporate monitors. The new guidance emphasizes the significant financial expenses and operational burdens that a monitorship may impose on a corporation and states that prosecutors should "favor the imposition of a monitor only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens." It instructs Criminal Division attorneys to consider four factors when evaluating the potential benefits of a monitor: (1) whether the underlying misconduct involved manipulation of the company's books and records or the exploitation of an inadequate compliance program or internal controls systems; (2) whether the misconduct was pervasive or approved or facilitated by senior management; (3) whether the company has made significant investments in, and improvements to, its compliance program and internal controls; and (4) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future.In addition, it directs prosecutors who are contemplating imposing a monitorship to assess the status and effectiveness of a corporation's compliance program and controls as they exist at the time of the resolution, rather than during the period when the alleged misconduct occurred.The memorandum also imposes new internal consultation, concurrence, and approval requirements before a monitorship can be included as part of a corporate resolution.Specifically, all monitorships must be approved by the Assistant Attorney General of the Criminal Division as well as the Deputy Attorney General.
- The DOJ's new "China Initiative" announced by then-Attorney General Jeff Sessions in November 2018 includes as one of its ten priorities the identification of FCPA cases that involve "Chinese companies that compete with American businesses."10 The initiative, which targets the perceived national security threats that Chinese "economic espionage" presents to the United States, will be led by the DOJ's National Security Division, with participation from other DOJ offices, including the Criminal Division.11
- As we reported here, in a November 2018 speech, Rosenstein announced changes to the DOJ policy on individual accountability in corporate enforcement actions, softening somewhat the position articulated in a 2015 memorandum issued by then-Deputy Attorney General Sally Yates (Yates Memo).Under the revised approach, to secure full credit for cooperating with the DOJ in an investigation, a corporation no longer must identify and "report to the government every person involved in alleged misconduct in any way, regardless of their role," but instead must disclose information on "all individuals substantially involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the [DOJ] all relevant facts relating to that misconduct."12
Although there is no private right of action under the FCPA, companies implicated in FCPA violations often face costly collateral civil litigation. This past year saw large settlements of private securities class action suits stemming from alleged FCPA violations. Petrobras agreed to a $2.95 billion settlement with shareholders that received court approval in June. In October, Walmart Stores, Inc. agreed to pay $160 million to settle a class action that had been pending in the Western District of Arkansas since 2012, following a stock price drop that occurred in the wake of a New York Times article about possible bribe payments to Mexican officials.13 Other FCPA-related class actions remain pending.
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Additional information on the SEC and DOJ's 2018 FCPA enforcement actions is provided below.
The SEC announced the resolution of 18 FCPA enforcement actions in calendar year 2018, including 14 against companies and four against individuals.
December 2018 was an active month for FCPA enforcement at the SEC:
- On December 26, the SEC announced that Polycom, Inc., a California based provider of communications products agreed to pay more than $16 million to settle charges that it violated the FCPA in connection with its Chinese subsidiary using local distributors and resellers to make improper payments to government officials to secure deals for Polycom products.
- On December 26, the SEC charged Brazil-based Centrais Elétricas Brasileiras S.A. with violating the FCPA's books and records and internal accounting controls provisions when former officers engaged in an illicit bid rigging and bribery scheme among certain private Brazilian construction companies involved in the construction of a nuclear plant.Without admitting or denying the findings, Eletrobras agreed to the entry of a cease-and-desist order and to pay a $2.5 million civil money penalty.
- On December 18, the SEC charged two former senior executives of the US subsidiary of Panasonic Corp. with knowingly violating the books and records and internal accounting controls provisions of the federal securities laws and causing similar violations by the parent company. Without admitting or denying the findings, Paul Margis, the former CEO of and President of Panasonic Avionics Corp., agreed to pay a penalty of $75,000, and Takeshi Uonaga, the former CFO of Panasonic Avionics, agreed to pay a penalty of $50,000 and to a suspension from practicing or appearing before the SEC as an accountant.
The SEC website lists and summarizes the following other FCPA enforcement actions in calendar year 2018 as quoted below:
- Vantage Drilling International—The Houston-based offshore drilling company agreed to pay $5 million in disgorgement to settle charges that its predecessor, Vantage Drilling Company (VDC), failed to devise a system of internal accounting controls with regard to VDC's transactions with its former outside director, largest shareholder, and only supplier of drilling assets, and failed to properly implement internal accounting controls related to its use of third-party marketing agents. (11/19/18)
- Stryker Corp.—The Michigan-based medical device company agreed to pay a $7.8 million penalty for insufficient internal accounting controls and inaccurate books and records. (9/28/18)
- Petróleo Brasileiro S.A.—The Brazil-based oil-and-gas company agreed to pay $1.78 billion in a global resolution arising out of a massive bribery and bid-rigging scheme. (9/27/18)
- Patricio Contesse González—Agreed to pay $125,000 to resolve charges that he violated the FCPA while serving as CEO of Chilean-based chemical and mining company Sociedad Química y Minera de Chile, S.A. (9/25/18)
- United Technologies—The Connecticut-based company agreed to pay nearly $14 million to settle charges that it made illicit payments to facilitate sales of elevators and aircraft engines. (9/12/18)
- Joohyun Bahn—A New Jersey-based real estate broker agreed to settle charges that he attempted to bribe a foreign official while brokering the sale of a high-rise commercial building on behalf of a foreign private issuer. (9/6/18)
- Sanofi—The Paris-based pharmaceutical company agreed to pay more than $25 million to resolve charges related to corrupt payments to win business in Kazakhstan and the Middle East. (9/4/18)
- Legg Mason—The US investment management firm agreed to pay more than $34 million to settle charges related to a scheme to bribe Libyan government officials. (8/27/18)
- Credit Suisse Group AG—The Swiss multinational investment bank and financial services company agreed to pay more than $30 million to the SEC and a $47 million criminal penalty to resolve charges that the firm obtained investment banking business in the Asia-Pacific region by corruptly influencing foreign officials in violation of the FCPA. (7/5/18)
- Beam Suntory Inc.—The distilled beverage producer agreed to pay more than $8 million to resolve charges that its Indian subsidiary violated the FCPA by using third-party distributors to make illicit payments to increase sales orders, process licensing registrations, and acquire non-public data. (7/2/2018)
- Panasonic Corp.—The Japan-based company agreed to pay more than $143 million to resolve FCPA charges involving a lucrative consulting position it offered to a government official at a state-owned airline to induce the official to help its US subsidiary in obtaining and retaining business from the airline. (4/30/18)
- The Dun & Bradstreet Corp.—The company agreed to pay more than $9 million in disgorgement, interest and a civil penalty to resolve FCPA violations stemming from improper payments made by two Chinese subsidiaries. (4/23/18)
- Kinross Gold—The Canada-based gold mining company agreed to pay a $950,000 penalty to resolve FCPA violations arising from its repeated failure to implement adequate accounting controls of two subsidiaries in Africa. (3/26/18)
- Elbit Imaging—The Israel-based company agreed to pay a $500,000 penalty to resolve FCPA violations stemming from payments to consultants for purported services related to a real estate development project in Romania. (3/9/18)
Enforcement Actions Against Companies
In calendar year 2018, the DOJ announced six FCPA enforcement actions against companies, four of which involved parallel SEC actions. Here are links to the DOJ's press releases:
- Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations (announced 9/27/18)
- Credit Suisse's Investment Bank in Hong Kong Agrees to Pay $47 Million Criminal Penalty for Corrupt Hiring Scheme that Violated the FCPA (announced 7/5/18)
- Legg Mason Inc. Agrees to Pay $64 Million in Criminal Penalties and Disgorgement to Resolve FCPA Charges Related to Bribery of Gaddafi-Era Libyan Officials (announced 6/4/18)
- Société Générale S.A. Agrees to Pay $860 Million in Criminal Penalties for Bribing Gaddafi-Era Libyan Officials and Manipulating LIBOR Rate (announced 6/4/18)
- Panasonic Avionics Corporation Agrees to Pay $137 Million to Resolve Foreign Corrupt Practices Act Charges (announced 4/30/18)
- Transport Logistics International Inc. Agrees to Pay $2 Million Penalty to Resolve Foreign Bribery Case (announced 3/13/18)
Declinations with Disgorgement
Consistent with its FCPA Corporate Enforcement Policy, the DOJ announced four declinations, three of which were conditioned on disgorgement of profits to US authorities:
- Polycom, Inc.: The California-based communications technology company agreed to disgorge nearly $31 million in profits. (12/20/18)
- Insurance Corporation of Barbados Limited: The Barbardos-based insurance company agreed to disgorge $93,940 in profits. (8/23/18)
- Güralp Systems Limited: The UK-based engineering firm did not disgorge profits, and the DOJ closed its investigation of the company, despite finding evidence of FCPA violations. The DOJ noted that the company is under investigation in the United Kingdom and has committed to accepting responsibility for that conduct with the Serious Fraud Office (SFO). (8/20/18)
- Dun & Bradstreet Corporation: The New Jersey-based company agreed to disgorge the full amount of profits to be determined by the SEC. (4/23/18)
Enforcement Actions Against Individuals
The DOJ announced the following developments in FCPA-related enforcement actions against individuals:
- Patrick Ho, Former Head Of Organization Backed By Chinese Energy Conglomerate, Convicted Of International Bribery, Money Laundering Offenses. (12/5/18)
- Petróleos de Venezuela, S.A. (PDVSA): 15 individuals have pleaded guilty in the Southern District of Texas in connection with an ongoing investigation by the US government into bribery at PDVSA. (10/30/18)
- Former Venezuelan National Treasurer Sentenced to 10 Years in Prison for Money Laundering Conspiracy Involving Over $1 Billion in Bribes (11/27/18)
- Texas Businessman Pleads Guilty to Money Laundering Charges in Connection with Venezuela Bribery Scheme (10/30/18)
- Business Executive Pleads Guilty to Foreign Bribery Charge in Connection With Venezuelan Bribery Scheme (9/13/18)
- Venezuelan Billionaire News Network Owner, Former Venezuelan National Treasurer and Former Owner of Dominican Republic Bank Charged in Money Laundering Conspiracy Involving Over $1 Billion in Bribes (11/20/18)
- Businessman Indicted for Conspiring to Bribe Senior Government Officials of the Republic of Haiti (10/30/18)
- Former Owner of Dominican Republic Bank Sentenced to Three Years in Prison for Money Laundering Conspiracy (11/29/18)
- Malaysian Financier Low Taek Jho, Also Known As "Jho Low," and Former Banker Ng Chong Hwa, Also Known As "Roger Ng," Indicted for Conspiring to Launder Billions of Dollars in Illegal Proceeds and to Pay Hundreds of Millions of Dollars in Bribes; Former Banker Tim Leissner Pleaded Guilty to Conspiring to Launder Money and to Violate the Foreign Corrupt Practices Act Related to 1MDB (11/1/18)
- Aruban Telecommunications Purchasing Official Sentenced to Prison in Money Laundering Conspiracy Involving Violations of the Foreign Corrupt Practices Act (6/27/18)
- Former Armenian Ambassador and a Russian National Charged in Foreign Bribery and Money Laundering Scheme (5/24/18)
- Former Siemens Executive Pleads Guilty To Role in $100 Million Foreign Bribery Scheme (3/15/18)
- Former President of Maryland-Based Transportation Company Indicted on 11 Counts Related to Foreign Bribery, Fraud and Money Laundering Scheme (1/12/18)
- New Jersey Real Estate Broker Pleads Guilty to Role in Foreign Bribery Scheme Involving $800 Million International Real Estate Deal (1/5/18) (S.D.N.Y.); Ex-UN chief Ban's Nephew Sentenced to Prison in US for Bribe Scheme.(9/6/18)
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United Kingdom (UK)
- On December 19, 2018, the UK's Serious Fraud Office (SFO) announced that an English court found a former Alstom Power Ltd. executive guilty of conspiracy to corrupt for his role in a scheme to bribe officials in a Lithuanian power station and senior Lithuanian politicians in order to win two contracts worth €240 million.
- On November 27, 2018, the SFO announced that two more individuals were convicted as part of its ongoing investigation into corrupt payments that FH Bertling Group and its employees made to government officials to secure freight forwarding contracts in Angola and the North Sea.Since 2016, the SFO has charged 13 individuals, as well as FH Bertling Group, in connection with the bribery scheme, resulting in convictions of nine individuals and the corporation and acquittal of four individuals.14
- As we reported here, on September 5, 2018, the UK's Court of Appeal Civil Division delivered its judgment in the much-anticipated appeal of Director of the Serious Fraud Office v Eurasian Natural Resources Corporation  EWCA Civ 2006.The appeals court reversed a May 2017 High Court judgment that had held that the litigation privilege did not protect documents created during a company's internal investigation into whistleblowing or in the early stages of an SFO investigation because the High Court found that a criminal prosecution was not "reasonably in prospect" after the company began investigating a whistleblower's corruption allegations, or even after the SFO had written the company explaining that it should consider whether to self-report.The Court of Appeal decision restored the protection of litigation privilege for companies undertaking investigations into potential criminality, finding that there was a real likelihood of a criminal prosecution once the SFO sent its letter to ENRC and began investigating the company, even though it was not known what the investigation would uncover or whether the SFO would initiate a criminal prosecution.15
- On August 17, 2018, the SFO announced its decision to charge both the founder and the former managing director of Güralp Systems Limited, an engineering company that produces seismology testing equipment, with conspiracy to make corrupt payments to a South Korean public official at the Korea Institute of Geoscience and Mineral Resources. Further charges were announced on September 28, 2018, when Güralp Systems' former head of sales was charged with conspiracy to make corrupt payments.
Other Notable International Developments
- The Netherlands: On September 4, 2018, the Dutch financial firm ING Group NV agreed to pay authorities in the Netherlands a fine of €675 million ($782 million) and €100 million ($115 million) in disgorgement to resolve criminal investigations into lax business practices.16 The penalties are the largest ever imposed by the Dutch Public Prosecution Service.Dutch authorities alleged that millions of dollars passed through ING accounts without appropriate scrutiny between 2010 and 2016, including $55 million to Gulnara Karimova, daughter of the then-President of Uzbekistan, who has been implicated in numerous enforcement actions in several countries.The SEC closed its investigation into ING Group NV one day after the company reached the settlement with Dutch authorities.
- Argentina: In the latter half of 2018, Argentina was captivated by a bribery scandal reaching to the highest levels of Argentina's political and business communities.The so-called "Notebooks" scandal erupted after copies of notebooks belonging to the chauffeur of a high-ranking official in the administration of former President Cristina Fernández de Kirchner were disclosed by the media and to authorities.These notebooks describe deliveries of tens of millions of dollars in bribes from public works contractors and others seeking favorable treatment to Fernández, her husband and former President Néstor Kirchner, and other high-ranking officials.Fernández was indicted on September 17, 2018 and a federal appeals court in December determined that she should stand trial, but, as a sitting senator in Argentina's legislature, she is immune from imprisonment.
- Brazil: Brazil's Operation Car Wash Task Force launched several new phases in 2018.In a related enforcement action, SBM Offshore N.V., concluded two agreements in July and September 2018 to pay a total of $347 million to Brazilian authorities and Petrobras in order to resolve allegations that the Dutch oil and gas services provider paid bribes to secure contracts with Brazil's state-owned oil company.17
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What to Expect in 2019
In 2019, look for the DOJ, and to a lesser extent the SEC, to implement the new policy changes announced in 2018. We expect both agencies to seek to demonstrate that they are trying to be thoughtful about coordinating with each other and with other law enforcement bodies both domestically and abroad in resolving matters against companies. This would further the goal of encouraging companies to voluntarily disclose potential FCPA violations and cooperate with authorities, which they will be more likely to do if the DOJ in particular makes good on its policy change to avoid "piling on" with duplicative penalties. Overall, however, we expect the total recoveries by US and foreign authorities in corruption cases to stay strong.
We expect to see fewer instances in which the DOJ requires a corporate monitor. And when the DOJ does require a monitor, we would not be surprised to see the DOJ explain why it determined that there was a clear benefit to doing so, given the significant expenses and burdens associated with a monitor.
In terms of geographic focus, we expect an increase in scrutiny in China, given then-Attorney General Sessions's announcement of the Department's China Initiative in November 2018. We also expect that regulators will continue to focus on Latin America, though not to the exclusion of other parts of the world.
Finally, we expect the DOJ to continue to focus on bringing cases against individuals. While the DOJ no longer requires a cooperating company to disclose information about low-level employees involved in the improper conduct—again as part of an effort to encourage voluntary disclosure and cooperation—DOJ's tweak to the Yates Memo notably still requires any company seeking cooperation credit to identify every individual who was substantially involved in or responsible for the criminal conduct. Deputy Attorney General Rosenstein made clear that the Department continues to be focused on individuals when he announced the revised policy in November and said: "the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions…. The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes."
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. 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.
For more information on FCPA enforcement actions against companies, see below.
See DOJ Criminal Division, Fraud Section Year in Review 2018. For more information on the DOJ's prosecutions of individuals, see below.
Press Release, DOJ, Former Venezuelan National Treasurer Sentenced to 10 Years in Prison for Money Laundering Conspiracy Involving Over $1 Billion in Bribes (Nov. 27, 2018).
Pete Brush, Key Witness In Embraer Case Avoids Prison For Saudi Bribe, Law360 (Dec. 12, 2018). The defendant, Colin Steven, was represented by Arnold & Porter.
United States v. Harder, No. 17-2698 (3d Cir. Nov. 8, 2018).
United States v. Hoskins, Docket No. 16-1010-cr, 2018 WL 4038192 (2d Cir. Aug. 24, 2018).
U.S. Attorneys' Manual, Title 1-12.100 - Coordination of Corporate Resolution Penalties in Parallel and/or Joint Investigations and Proceedings Arising from the Same Misconduct.
See Rod Rosenstein, Deputy Att'y Gen., Deputy Attorney General Rod Rosenstein Delivers Remarks to the New York City Bar White Collar Crime Institute (May 9, 2018).
This October 2018 memorandum supplements DOJ's "Morford Memorandum" on the selection and use of monitors from 2008 and supersedes the 2009 memorandum that DOJ issued to provide more detail on the monitor selection process.
Press Release, DOJ, Attorney General Jeff Sessions's China Initiative Fact Sheet (Nov. 1, 2018).
Press Release, DOJ, Attorney General Jeff Sessions Announces New Initiative to Combat Chinese Economic Espionage (Nov. 1, 2018).
Press Release, DOJ, Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute's 35th International Conference on the Foreign Corrupt Practices Act(Nov. 29, 2018).
Stipulation of Settlement, City of Pontiac General Empls.' Reitrement Sys. V. Wal-Mart Stores, Inc., No. 5:12-cv-05162-SOH (W.D. Ark. Oct. 26, 2018).
News Release, SFO, Four more sentenced in FH Bertling trial (Jan. 11, 2019).
For additional analysis, see Arnold & Porter, UK Economic Crime Group: Enforcement Update (Oct. 4, 2018).
Openbaar Ministerie, ING pays 775 million due to serious shortcomings in money laundering prevention (Sept. 4, 2018).
Press Release, SBM Offshore, Leniency Agreement Signed Between SBM Offshore, Brazilian Authorities and Petrobras (July 26, 2018); Press Release, SBM Offshore, Agreement Signed Between SBM Offshore and Brazilian Public Prosecutor (Sept. 1, 2018).