Global Anti-Corruption Insights: Summer 2019
The US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) have announced over $1 billion in corporate settlements of Foreign Corrupt Practices Act (FCPA) matters so far this year. Most recently, the DOJ and SEC announced a $25 million settlement with Microsoft Corporation. In June, Walmart Inc. agreed to resolve the DOJ and SEC's long-running investigation for a total of $282 million, with the retention of an independent corporate compliance monitor for two years. Also in June, French oil and gas company TechnipFMC agreed to a coordinated settlement with the DOJ and Brazilian authorities for a total of $296 million, without the requirement of a monitor, despite being a repeat offender. Earlier in the year, the DOJ and SEC settled FCPA cases with Russia-based Mobile Telesystems Pjsc for a combined $850 million (with a monitor for three years) and with Germany-based Fresenius Medical Care for a combined $231 million (with a monitor for two years). The SEC has resolved FCPA enforcement actions against two other companies as well.
The DOJ also has pursued prosecutions of over a dozen individuals in cases related to enforcement of the FCPA this year. These include numerous prosecutions involving the alleged bribery of officials at state oil companies in Latin America. While these matters highlight continued corruption risks in the oil and gas industry and in Latin America generally, the DOJ's criminal enforcement record this year spans a variety of industries, such as banking, telecommunications, technology, and medical devices, and across continents from Asia to Europe to Africa.
The SEC, for its part, has resolved FCPA charges against two individuals in the technology services sector. And, in an example of another federal agency taking enforcement action with respect to foreign corruption, on February 21, 2019, the Federal Reserve Board announced that it had permanently barred a former investment banker from the banking industry for having "improperly administered a referral hiring program at [his former employer] by offering internships and other employment opportunities to individuals referred by foreign officials, clients, and prospective clients in order to obtain improper business advantages for the firm."
Table of Contents
- Enforcement Actions Against Companies
- Declinations with Disgorgement
- Enforcement Actions Against Individuals
US Policy Announcements
On April 30, 2019, the DOJ Criminal Division published new guidance titled Evaluation of Corporate Compliance Programs. The new guidance "is meant to assist prosecutors in making informed decisions as to whether, and to what extent, the corporation's compliance program was effective at the time of the offense, and is effective at the time of a charging decision or resolution, for purposes of determining the appropriate (1) form of any resolution or prosecution; (2) monetary penalty, if any; and (3) compliance obligations contained in any corporate criminal resolution (e.g., monitorship or reporting obligations)." The document organizes 12 topics under the three "fundamental questions" about compliance program effectiveness listed in Section 9-28.000 of the Justice Manual:
- Is the program well designed?
- Is the program being implemented effectively?
- Does the compliance program work in practice?
For more analysis, see our prior Advisory, DOJ Issues New Guidance on Evaluating the Effectiveness of Compliance Programs, as well as our recent webinar, (How) Should You Change Your Company's Compliance Program(s) in Response to the DOJ's Recent Guidance?
On March 6, 2019, the Commodity Futures Trading Commission (CFTC) Division of Enforcement announced the opening of a new front in the US government's battle against overseas bribery with an Enforcement Advisory on self-reporting and cooperation with respect to violations of the Commodity Exchange Act (CEA). In related remarks, the CFTC's Enforcement Director James McDonald declared that the CFTC has multiple open investigations into alleged foreign bribery and stated that "foreign corrupt practices," including bribery, "might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC." The CFTC's legal authority to pursue such enforcement actions has not yet been tested, and, to date, the CFTC has not brought any formal charges under the CEA based on allegations of foreign corrupt practices.
US Civil Litigation
There is no private right of action under the FCPA, but companies implicated in FCPA violations nevertheless often face costly collateral civil litigation. For example, on February 26, 2019, the US Court of Appeals for the Ninth Circuit affirmed most of an $11 million jury award obtained by the former General Counsel of Bio-Rad Laboratories, Inc. (Bio-Rad). The former in-house lawyer had claimed that Bio-Rad wrongfully terminated him after reporting concerns about foreign bribery. Although the Ninth Circuit found issues with the jury's verdict under Dodd-Frank and Sarbanes-Oxley, the court upheld the award of millions of dollars of damages under California law.
Public companies also sometimes find themselves facing shareholder class actions after they resolve FCPA enforcement actions. In one such case, a federal judge in the Eastern District of Kentucky on April 30, 2019 granted a motion to dismiss securities fraud claims brought against General Cable Corporation (GC) and two executives after the company settled FCPA charges with the DOJ and SEC. The plaintiff had alleged that the defendants made false and misleading statements about GC's compliance program, the risks GC faced in overseas markets, and the effectiveness of GC's internal accounting controls. In dismissing the complaint, the court concluded that GC's statement regarding its compliance program was not actionable since it made no assurances that the system was effective and merely stated that it had a program, which was not false or misleading. The court disagreed with plaintiff's allegation that GC should have disclosed that its overseas operations would fail if it could not rely on corrupt business practices, finding that plaintiff alleged no facts that GC knew this was the case and thus did not have a duty to disclose this as a risk. Finally, the court ruled that plaintiff failed to adequately plead that GC actually knew that its statements about the efficacy of its internal accounting controls were false.
Additional information on the SEC's and DOJ's 2019 FCPA enforcement actions is provided below.
SEC Enforcement of the FPCA
The SEC has announced the resolution of six FCPA enforcement actions against companies and two against individuals so far this year. On July 22, Microsoft (without admitting or denying the SEC's findings) consented to an administrative order settling FCPA charges for a total of nearly $16 million in connection with conduct of the company's subsidiaries in Hungary, Saudi Arabia, Thailand, and Turkey. On June 20, Walmart agreed to pay $144 million to settle the SEC's FCPA charges relating to the company's subsidiaries in Brazil, China, India, and Mexico. The SEC website lists and summarizes the following other FCPA enforcement actions in calendar year 2019 as quoted below:
- Telefônica Brasil S.A. – SEC charged telecommunications company Telefônica Brasil with violating the accounting provisions of the FCPA when it sponsored the attendance of government officials at the World Cup and Confederations Cup. Telefônica Brasil agreed to pay a $4,125,000 penalty to settle the case. (5/9/19)
- Fresenius Medical Care AG & Co. – the German-based provider of products and services for individuals with chronic kidney failure agreed to pay $231 million to the SEC and Department of Justice in a global settlement to resolve violations of the FCPA in multiple countries over the course of nearly a decade. (3/29/19)
- Mobile TeleSystems PJSC – the Russian-based telecommunications provider agreed to pay $850 million in a global settlement to resolve violations of the FCPA to win business in Uzbekistan. (3/6/19)
- Cognizant – The New Jersey-based technology company agreed to pay $25 million to settle violations of the anti-bribery, internal accounting controls, and recordkeeping provisions. (2/15/19)
- Gordon Coburn and Steven E. Schwartz – the former Cognizant officials were charged with authorizing $2.5 million in bribe payments to a government official in India. (2/15/19)
DOJ Enforcement of the FCPA
Enforcement Actions Against Companies
In calendar year 2019, the DOJ has announced five FCPA enforcement actions against companies, four of which involved parallel SEC actions. Here are links to the DOJ's press releases:
- Hungary Subsidiary of Microsoft Corporation Agrees to Pay $8.7 Million in Criminal Penalties to Resolve Foreign Bribery Case (7/22/19)
- TechnipFMC Plc and U.S.-Based Subsidiary Agree to Pay Over $296 Million in Global Penalties to Resolve Foreign Bribery Case; Guilty Plea by Former Consultant (6/25/19)
- Walmart Inc. and Brazil-Based Subsidiary Agree to Pay $137 Million to Resolve Foreign Corrupt Practices Act Case (6/20/19)
- Fresenius Medical Care Agrees to Pay $231 Million in Criminal Penalties and Disgorgement to Resolve Foreign Corrupt Practices Act Charges (3/29/19)
- Mobile Telesystems Pjsc and Its Uzbek Subsidiary Enter into Resolutions of $850 Million with the Department of Justice for Paying Bribes in Uzbekistan (3/7/19)
Declinations with Disgorgement
Pursuant to its FCPA Corporate Enforcement Policy, the DOJ announced that it was declining to prosecute Cognizant Technology Solutions.
Enforcement Actions Against Individuals
In a rare judicial decision involving the FCPA, on June 21, 2019, a federal judge in the Northern District of Illinois denied a motion to dismiss charges that Dmitry Firtash, a Ukrainian citizen, and Andras Knopp, a Hungarian citizen, conspired to violate the FCPA, among other federal criminal laws, in relation to a mining project in India. The court held that, even though these foreign defendants were not subject to liability under the substantive provisions of the FCPA for their conduct abroad because the indictment does not allege that they were agents of a domestic concern or committed a specified illegal act in the US, they nevertheless could face secondary liability for conspiring to violate, or for aiding and abetting, a substantive FCPA violation. The Illinois District Court expressly disagreed with the holding of the US Court of Appeals for the Second Circuit last year in United States v. Hoskins, 902 F.3d 69 (2018), setting up a potential circuit split if the case is affirmed on appeal by the Seventh Circuit. (For more on the Hoskins case, see our prior Advisory, Second Circuit Limits Government's Ability to Prosecute Foreign Nationals for Violations of the FCPA.) Following the district court's decision, on June 25, 2019, an Austrian court approved the extradition of Firtash to the United States.
Two Ecuadorian citizens living in Florida were charged in May with conspiracy to violate the FCPA, conspiracy to commit money laundering, and money laundering in connection with an alleged scheme to bribe officials at Ecuador's state oil company, PetroEcuador. At least four other defendants so far have pleaded guilty in this case.
Moreover, the DOJ has issued the following press releases with respect to developments in individual prosecutions relating to enforcement of the FCPA this year:
- Two Former Venezuelan Officials Charged and Two Businessmen Plead Guilty in Connection with Venezuela Bribery Scheme (announced 6/27/19)
- Guilty Plea by Former Consultant in TechnipFMC Case (announced 6/25/19)
- Two Businessmen Convicted of International Bribery Offenses:Schemed to Bribe High-Level Officials in Haiti (6/20/19)
- Business Executive Pleads Guilty to Foreign Bribery Charges in Connection with Venezuela Bribery Scheme (5/29/19)
- U.S. Executive Sentenced to Prison for Role in Conspiracy to Violate Foreign Corrupt Practices Act (announced 5/14/19)
- Former Banker Extradited from Malaysia to United States to Face Charges in Multi-Billion Dollar Money Laundering and Bribery Scheme Relating to the 1MDB Fund (announced 5/6/19)
- Patrick Ho, Former Head Of Organization Backed By Chinese Energy Conglomerate, Sentenced To 3 Years In Prison For International Bribery And Money Laundering Offenses (announced 3/25/19)
- Mozambique's Former Finance Minister Indicted Alongside Other Former Mozambican Officials, Business Executives, and Investment Bankers in Alleged $2 Billion Fraud and Money Laundering Scheme that Victimized U.S. Investors:More Than $200 Million in Alleged Bribes and Kickbacks Paid to Mozambican Government Officials and Investment Bankers in Corrupt Maritime Loans for Mozambique (announced 3/7/19)
- Former General Director of MTS's Uzbek Subsidiary and Former Uzbek Official Charged in Bribery and Money Laundering Scheme Totaling Almost $1 Billion (announced 3/7/19)
- Two Businessmen Charged with Foreign Bribery in Connection with Venezuela Bribery Scheme (announced 2/26/19)
- Former President and Former Chief Legal Officer of Publicly Traded Fortune 200 Technology Services Company Indicted in Connection with Alleged Multi-Million Dollar Foreign Bribery Scheme (announced 2/15/19)
- Micronesian Government Official Arrested in Money Laundering Scheme Involving Foreign Bribery; U.S. Executive Previously Pleaded Guilty (announced 2/12/19)
- Former Chief Executive Officer and Senior Vice President of Barbadian Insurance Company Charged with Laundering Bribes to Former Minister of Industry of Barbados (announced 1/28/19)
Selected International Developments
United Kingdom (UK)
- On July 15, 2019, Basil Al Jarah, one of the four individuals charged as part of the Serious Fraud Office (SFO)'s corruption investigation into Unaoil, a Monaco-based oil and gas company, pleaded guilty to five counts of conspiracy to pay bribes in connection with contract awards in Iraq. The three other individuals charged in the investigation are scheduled to face trial beginning in January 2020.
- On February 22, 2019, the SFO dropped its bribery investigations into drug company GlaxoSmithKline and individuals connected to Rolls-Royce.And on June 25, 2019, the SFO dropped its investigation into a trio of former Unaoil executives accused of paying multimillion-pound bribes for contracts in the energy industry. The SFO has since faced renewed criticism for closing corruption investigations.
- On February 12, 2019, the Crime (Overseas Production Orders) Bill received Royal Assent to become law. This legislation will allow law enforcement agencies to accelerate the process by which they can obtain disclosure of electronic data stored outside the United Kingdom for use in UK criminal and regulatory investigations. However, before the law can be enforced, the UK Secretary of State must ratify corresponding international cooperation arrangements with foreign governments, and as of publication, no such agreements have been concluded.
- On February 7, 2019, the SFO announced that David Lufkin, former Global Head of Sales for oil company Petrofac Limited (Petrofac), had pleaded guilty to 11 counts of bribery in violation of the UK Bribery Act 2010. According to his plea agreement, Lufkin offered bribes in order to influence contracts for Petrofac worth more than $730 million in Iraq and more than $3.5 billion in Saudi Arabia.
For additional analysis on recent anti-corruption, fraud, and bribery developments in the UK, please see Arnold & Porter's UK Economic Crime Group Update from June 2019.
- On March 7, 2019, after the second-ever trial under Canada's Corruption of Foreign Public Officials Act (CFPOA), a Canadian court sentenced a UK and US national to 30 months of imprisonment over a failed plot to bribe India's Minister of Civil Aviation and Air India employees to secure a biometrics contract for US-based technology company Cryptometrics Inc. and its Canadian subsidiary.
- On February 27, 2019, former Canadian Justice Minister Jody Wilson-Raybould alleged that Prime Minister Justin Trudeau and his top aides had pressured her to secure a deferred prosecution agreement for SNC-Lavalin, a multinational engineering and construction firm based in Quebec that is currently facing foreign bribery charges under the CFPOA. SNC-Lavalin, which has been accused of paying CAD 47.7 million in bribes to Libyan officials between 2001 and 2011 to secure lucrative contracts, and of defrauding the Libyan government of CAD 129.8 million over the same period, will stand trial on the corruption charges in September.
- On January 31, 2019, a new law introducing anti-corruption amendments to the Italian Criminal Code entered into force. The new law targets corruption involving public agencies and introduces additional penalties on political parties for corruption-related crimes, new transparency and disclosure obligations in electoral processes, and the expansion of the definition of corruption-related crimes to include influence peddling.
- On February 15, 2019, a Stockholm District Court acquitted three former executives of Telia Company AB (Telia) of bribery charges. The charges, filed in 2017, concern alleged bribery between 2007 and 2010 by an Uzbek local partner in connection with Telia's establishment in Uzbekistan. The court found that prosecutors had not proven that former Uzbek president Islam Karimov's daughter Gulnara Karimova, the purported recipient of the bribes, could be held liable even if she did receive such bribes.
- On June 17, 2019, Brazilian construction conglomerate Odebrecht SA filed for bankruptcy protection to restructure $13 billion in debt in what would be one of Latin America's largest-ever in-court debt restructurings. The bankruptcy filing comes amidst a massive corruption scandal that has been described as the largest foreign bribery case in history. Odebrecht has admitted to paying bribes to politicians and senior officials in more than half of the countries in Latin America, as well as in Angola and Mozambique in Africa in exchange for government contracts. However, a new investigation led by the International Consortium of Investigative Journalists suggests that the bribery scandal is even more sprawling than the company has acknowledged. Recently leaked records from Odebrecht's Division of Structured Operations, a division created primarily to manage the company's large-scale bribes, reveal that the bribery extended to many more prominent public figures and massive public works projects than have been mentioned in the investigation to date. Investigations into Odebrecht's bribery of foreign officials are ongoing throughout Latin America.
- On July 5, 2019, Mexican prosecutors issued arrest warrants for Emilio Lozoya, the former CEO of the state-owned oil and gas company Petroleos Mexicanos (Pemex), and five others on corruption charges linked to the Odebrecht scandal. These warrants are the latest in a series of high-profile investigations launched by the administration of President Andrés Manuel López Obrador in an effort to tackle corruption in Mexico. Lozoya is also wanted in another corruption case, along with Alonso Ancira, the CEO of Altos Hornos de Mexico (AHMSA), one of Mexico's largest multinational companies, on money laundering charges linked to AHMSA's nearly half a million-dollar sale of a defunct fertilizer plant to Pemex.
- On June 20, 2019, former Interpol Chief Meng Hongwei, the first Chinese citizen to head the organization, pleaded guilty in a Chinese court to accepting $2 million in bribes in connection with the alleged misuse of his official positions in the Chinese government between 2005 and 2017 to give improper benefits to entities and individuals.
- On January 28, 2019, Malaysian Prime Minister Mahathir Mohamad launched a five-year national anti-corruption plan which contains over 100 initiatives including new laws on political funding and lobbying, heightened regulation of the appointment process for top government positions, and an asset declaration system for lawmakers and ministers. The plan's announcement follows widespread public outrage over a multi-million-dollar corruption scandal involving former Malaysian Prime Minister Najib Razak, his wife, and several high-ranking officials of his former administration who face numerous criminal charges related to the theft of $4.5 billion from the state fund 1Malaysia Development Berhad (MDB).
*Dianne Lake, a student at Yale Law School, and Caroline Li, a student at Harvard Law School, contributed in the preparation of this newsletter.
© 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.