THE USA

INVESTIGATION

Eli Lilly

Eli Lilly has reached a $29 million settlement with the SEC related to allegations that Lilly subsidiaries in Russia, China, Brazil, and Poland made improper payments to government officials and government-employed physicians in those countries, through offshore vehicles.

The SEC was particularly focused on Lilly’s perceived failure to conduct due diligence on third parties, and to investigate signs of possible FCPA violations in Russia. For example, Lilly’s Russian subsidiary was alleged to have paid millions of dollars to offshore third parties that had been recommended by Russian government customers as good candidates for “marketing agreements.” The SEC alleged that Lilly became aware of possible FCPA violations in Russia through the use of these “marketing agreements,” but waited more than five years before limiting its Russian subsidiary’s use of the agreements. As the SEC stated in its press release regarding the settlement, “We strongly caution company officials from averting their eyes from what they do not wish to see.” (http://www.sec.gov/news/press/2012/2012- 273.htm.)

Wal-Mart

The New York Times on December 17, 2012, published a new article detailing payments it says Wal-Mart de Mexico made to Mexican officials to obtain benefits otherwise prohibited by law. (Article: http://www.nytimes.com/2012/12/18/busines s/walmart-bribes-teotihuacan.html?hp&_r=0) Activities described in the article include an alleged payoff of a zoning official to change a zoning map to allow construction of a Wal- Mart in a particular location in Teotihuacan, and alleged corrupt payments to allow construction of a refrigerated distribution center in a flood basin where electricity was extremely scarce. The Times asserts that it identified “19 store sites across Mexico that were the target of Wal-Mart de Mexico’s bribes.”

In response to the article, Wal-Mart’s spokesperson, David Tovar, stated that Wal- Mart officials did not “recall any mention of bribery allegations related to [the Teotihuacan] store.”

United States Congressmen Elijah E. Cummings and Henry A. Waxman, who are investigating Wal-Mart’s activities in Mexico, sent a letter on January 11, 2013, to Wal-Mart CEO Michael Duke describing internal Wal- Mart documents they say show Mr Duke and other executives knew as early as 2005 about the bribery allegations related to the Teotihuacan store. (Letter: http://democrats.energycommerce.house.gov/i ndex.php?q=news/reps-cummings-andwaxman- release-documents-showing-that-walmart- s-ceo-was-informed-of-mexican-).

The congressmen’s letter focuses on internal Wal-Mart emails from 2005, which describe allegations made by Sergio Cicero Zapata, former in-house counsel for Wal-Mart de Mexico, who was responsible for obtaining building permits throughout Mexico.

The earlier email, from Wal-Mart General Counsel Thomas Mars to Mike Duke and Tom Hyde, Wal-Mart Stores, Inc. Executive Vice President, is dated October 15, 2005. Attached to the email are notes from an internal interview of Mr. Zapata, in which he described payments of bribes to obtain permits for the Teotihuacan store.

In a second email, dated November 1, 2005, Maritza Munich, then General Counsel of Wal- Mart International, forwarded to Mr Duke and other senior executives a summary of an interview with Mr Zapata. The summary stated that payments totaling 1.2 million pesos had been made to a majority of the Municipal Council members, such that the Teotihuacan project could go forward. It also stated that “the National Institute of Anthropology and History (“INAH”) required an official donation of [500,000] pesos and also a personal irregular gift of $400,000.00 [sic] for the INAH’s Director.”

In the letter, the congressmen request that, by January 24, 2013, Mr Duke explain his “knowledge of the Teotihuacan bribery allegations” and authorize Ms. Munich to meet with Congressional investigators.

Ray Nagin

The mayor of New Orleans from 2002-2010, Ray Nagin, has been indicted for corruption. It is alleged that he took payments, travel and other gratuities in exchange for city contracts and other favors following Hurricane Katrina. The indictment alleges that Mr Nagin accepted more than $160,000 in bribes from a local businessman Frank Fradella in return city contracts including construction at the airport and sidewalk repairs. It further alleges that Mr Nagin accepted bribes worth at least $60,000 from another local businessman, Rodney Williams, in return for consulting and construction contracts. Both Mr Fradella and Mr Williams have already pleaded guilty and are reportedly expected to testify against Mr Nagin.

Other

Kevin Wirth Jannell, a former Virginia Railway Express (VRE) facilities manager, was sentenced to 24 months in prison and ordered to forfeit the $357,000 he accepted in bribes from a VRE subcontractor. In exchange for the bribes, Jannell gave the subcontractor positive performance evaluations, which ensured the subcontractor’s continued retention by VRE, a recipient of federal funds.

Last December, Mr Jannell’s wife, Angela, pled guilty to misprision of a felon for concealing Kevin’s illegal acts. In 2003, Angela created and became the president of a nominee company, which she knew Kevin used to conceal the bribes by sending monthly $4,000 invoices from the nominee company to the subcontractor for services not rendered. Angela has not been sentenced.

THE UNITED KINGDOM

Self-Reporting on the Rise

The SFO has stated that the number of companies self-reporting themselves to the SFO in relation to bribery has risen to 12 in the fiscal year ending on 31 March 2012. In 2011 it was seven and just two in 2010.

Rolls Royce faces Allegations it Bribed Chinese Airline Executive

It has been reported this month that Rolls Royce made payments in return for a 2005 contract with Air China and a deal with China Eastern Airlines in 2010. Both transactions allegedly included executive Chen Xin, who worked for the two airlines and was reportedly arrested by Chinese authorities in 2011 on suspicion of accepting payments from intermediaries acting for western companies.

The deals with the two airlines were reportedly worth £1.25bn. These allegations follow on from Rolls Royce revealing last month that the Serious Fraud Office (SFO) had approached it over claims of corruption and bribery in Indonesia and China. This information has also been provided to the United States Department of Justice.

Roughly Half of UK Businesses Aware of the Bribery Act

Research published by Ernst & Young has found that just 56% of firms were aware of the Bribery Act (the Act). The research found that 76% of organisations with a turnover of more than £50 million were aware of the Act.

The research looked at 50 procurement managers and directors from UK organisations. The results relating to mid-market firms highlighted that they were less likely to have processes and systems in place to deal with bribery.

Mr John Smart, a partner at Ernst & Young, stated:

“The Bribery Act has been with us for more than a year and it’s a concern that so may firms still don’t know what it is and what it means for them. We shouldn’t need to wait for a company to be fined under the Act before we are spurred into taking the appropriate precautions to manage bribery risk.

The mid-market and the manufacturers really need to get to grips with their bribery risks without delay. Based on our findings, it seems firms are either underestimating bribery risk, don’t feel sufficiently educated to give their staff adequate guidance, or are failing to see the urgency in ensuring that their organisations and their suppliers are Bribery Act compliant.”

He went on to say: “In any case, these results should serve as a stark warning to firms that they should ramp up their compliance procedures to ensure that clear anti-bribery policies are in place right across the business and the supply chain, and that relevant staff receive sufficient training.”

The research also highlighted the following:

  • Of the firms that were aware of the Bribery Act, just 52% investigated their suppliers to see if they complied with the Act;
  • 78% of firms in the North of England are still unaware of the Act;
  • 53% of UK manufacturing firms have not heard of the Act;
  • 67% of Scottish firms and 72% of firms in the South of England have heard of the Bribery Act; and
  • 53% of UK manufacturing firms and 75% of automotive firms have still not heard of the Act.

THE REST OF THE WORLD

Afghanistan

According to the United Nations Office on Drugs and Crime, Afghans are now paying bribes at twice the level of two years ago. It has been reported that Afghans often have to pay bribes for services that they are already entitled to such as access to medical care, education and justice in court. The current level of $158 per bribe is equivalent to 37% of the average annual Afghan income.

Austria

The OECD Working Group on Bribery completed its Phase 3: Report on Implementation of the OECD Anti-Bribery Convention on Austria’s application of the Convention on Combating Bribery of Foreign Public Officials and related instruments.

Despite the fact that Austria has not secured a conviction of bribing foreign officials in the 13 years since ratifying the OECD Anti-Bribery Convention, enforcement appears to be picking up. One case is currently being tried, with two cases due to be tried soon, and four ongoing investigations.

The report also highlighted potential problems involving Austria’s framework for making companies responsible for bribing foreign public officials and obstacles to effective investigations.

The report recommendations include the following:

  • Austria is to report in one year how effectively its laws cover the bribery of foreign public officials through foreign agents abroad;
  • Increase fines for companies convicted of foreign bribery, which currently cannot exceed EUR 1.3 million; and
  • Improve foreign bribery investigations by reducing impediments to accessing bank records, and by increasing the use of tax information.

The report also notes positive aspects of Austria’s attempts to reduce foreign bribery. The country recently amended its foreign bribery offences and made it easier to prosecute Austrians that bribe foreign public officials. It also increased sanctions for individuals and strengthened its law enforcement framework.

The new amendments are due to take effect this month. The report invites Austria to report back in writing in one year on progress enforcing its foreign bribery offences. The OECD report is available at: www.oecd.org/daf/corruption.

Austrian Interior Minister sentenced to four years in jail for Bribery

It has been reported that Austria’s former Interior Minister, Mr Ernst Strasser, has been sentenced to four years in jail for bribery. Mr Strasser was caught on camera in 2011 offering to propose amendments to European legislation in return for 100,000 Euros a year.

“There has been few people in the … republic who have damaged Austria’s image as much as you have”, Judge Georg Olschak told Mr Strasser. The Judge continued by stating that it was necessary to impose a penalty that would have a deterrent impact on possible copycats.

China

It has been reported that a Foxconn manager has been detained by police in Shenzhen, China over allegations that the manager solicited bribes in return for placing contracts with local suppliers.

A spokesman for the company said: “We can confirm that we are working with law enforcement officials who we brought in to work with our own internal audit team as part of an investigation into allegations against a number of Foxconn employees related to illegal payments from supply chain partners.”

Furthermore, the company has stated it will review countermeasures to amend acquisition procedures and stop similar incidents from happening again.

Foxconn makes products for firms such as Apple, Panasonic, Samsung and Sony.

Hong Kong

It has been reported that the bribery and money laundering trial against Mr Joseph Lau, the chairman of Hong Kong-listed Chinese Estates Holdings Ltd. has been delayed for a second time. Mr Lau’s lawyer informed the court that Mr Lau was ill.

Prosecutors have accused Mr Lau of alleged bribery and money-laundering in relation to the acquisition of land in Macau last year. Mr Lau has denied allegations that he or his company gave bribes to Ao Man-Long, Macau’s former secretary of transportation and public works.

The case is being heard in Macau’s Court of First Instance.

The Netherlands

According to a report published by the OECD, the Netherlands is failing to pursue foreign bribery allegations and must do more to enforce its foreign bribery laws. It has been reported that 14 out of 22 foreign bribery allegations have failed to trigger the opening of an investigation by the Dutch authorities.

The OECD Working Group on Bribery completed its report earlier this month on the Netherlands’ implementation of the Convention on Combating Bribery of Foreign Officials in International Business Transactions and related instruments.

The Working Group has stated in the report that they will monitor the country’s efforts to strengthen its enforcement of foreign bribery. They will also monitor the investigation and prosecution of ‘mailbox companies’ – these are companies incorporated in the Netherlands but pursuing their activities entirely from abroad - which have been the subject of a number of foreign bribery allegations.

The report also highlighted a number of recommendations designed to strengthen the Netherlands’ fight against bribery. These include providing adequate resources to Dutch law enforcement authorities to more effectively investigate and prosecute foreign bribery as well as increasing the level of financial sanctions.

The report commends the Netherlands for raising awareness of the foreign bribery offence within the private and public sectors and putting in place a system to facilitate the reporting of foreign bribery.

The report is available to view at: www.oecd.org/daf/corruption.

Russia

It has been reported that Russian authorities have charged a former director at the European Bank for Reconstruction and Development (EBRD) with conspiracy to take a $1.4-million bribe from an unnamed Canadian oil and gas company.

The Interior Ministry is reported to have said in a statement that Ms Elena Kotova and a top manager of a major Russian bank worked together to negotiate the bribe from the Canadian firm in return for facilitating a $95- million loan.

Spain

The OECD Working Group on Bribery has published its report on Spain’s implementation of the Convention of Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. In the 13 years since joining the OECD Anti- Bribery Convention, Spain has not brought a single prosecution and has conducted only seven investigations.

The report recommends that Spain:

  • “Pursue its stated commitment to further amend its Penal Code to bring it into line with the Convention;
  • Harmonise the scope of its foreign bribery offence, the level of sanctions and the period of limitations for the bribery of all foreign officials, whether European or not;
  • Clarify that the introduction of due diligence controls by a company cannot be used to escape corporate liability;
  • Improve co-ordination and case referral among the Special Public Prosecutor’s Office against Corruption (ACPO), the State Prosecution Service, the Courts and other law enforcement authorities;
  • Ensure that cases are not prematurely closed;
  • Ensure explicit prohibition of the tax deductibility of bribes in the autonomous tax regions of the Basque Country and Navarra; and
  • Introduce legislative protection for public and private sector whistleblowers.”

The report also commended Spain on the 2010 reform of its Penal Code, which introduced the country’s first corporate liability regime and an improved offence for the bribery of non- European officials.

A full copy of the report is available to view at: www.oecd.org/daf/corruption.