Revisions to the FCPA Resource Guide

The Resource Guide to the Foreign Corrupt Practices Act (the "Guide") was jointly published by the Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC") in November 2012 to provide guidance to businesses on compliance with the FCPA.  The Guide has recently been revised for the first time, although these changes were not publicly announced.

The changes themselves are relatively minor and affect two chapters: Chapter 3 on the FCPA's accounting provisions and Chapter 6 on penalties sanctions and remedies.  The changes are summarized below.  

  • The reference to an issuer's liability for the books and records of its joint venture partners has been removed; the Guide now only refers to joint ventures under the issuer's control.
  • The original version of the Guide required issuers to use "best efforts" to cause minority-owned affiliates to implement and maintain appropriate accounting controls.  This has now been revised to a "good faith efforts" standard, in line with the wording of the FCPA itself.
  • The definition of "minority-owned" has also been updated in this context to refer to subsidiaries owned as to "50% or less" by an issuer, rather than "less than 50%".  Again, this change tracks the wording of the FCPA.
  • The maximum fine applicable to individuals who violate the FCPA has been increased to US$250,000.  The previous version of the Guide referred to a US$100,000 maximum.  This remains the maximum fine set by the FCPA itself but the higher penalty may be imposed under the Alternative Fines Act.
  • Finally, the Guide now notes that, when calculating pecuniary gain for the purposes of determining the applicable penalty, a fine of up to twice the benefit that the defendant obtained may be imposed.  This replaces the previous reference to twice the benefit the defendant sought to obtain.

Whilst these changes are not substantial, the fact that they were introduced without warning or announcement is a reminder to companies to continue to monitor available guidance to ensure that their compliance programs meet the required standards.

Mead Johnson Nutrition Company pays US$12 million in FCPA settlement with SEC

On July 28, the SEC announced that Mead Johnson Nutrition Company (Mead) had agreed to pay US$12 million to settle allegations that its Chinese subsidiary made improper payments to healthcare officials at state-owned hospitals to recommend the company's infant formula. 

The SEC said that the payments were funded by "distributor allowances" paid to third parties responsible for distributing and marketing Mead products.  Mead failed to accurately reflect US$2 million in payments and incentives in its books and records.

BNY Mellon agrees to pay US$14.8 million to settle SEC FCPA charges

On August 18, the SEC announced an FCPA settlement with Bank of New York Mellon Corp (BNY Mellon) following an investigation into the provision of student internships to family members of foreign public officials associated with a Middle Eastern sovereign wealth fund.  According to the SEC's order, the internships were not processed through the bank's existing programs which include minimum academic standards and multiple interviews.  Instead, the SEC state that the family members were hired in order to corruptly influence the officials and to win or retain contracts to manage and service the assets of the sovereign wealth fund. 

Without admitting or denying the SEC's finding that it lacked sufficient internal controls to prevent and detect these improper hiring practices, BNY Mellon agreed to pay a total of US$14.8 million, comprising disgorgement, prejudgment interest and a US$5 million penalty.

This settlement represents the first FCPA enforcement action involving the provision of an internship (as opposed to cash or travel/entertainment etc.) as the "thing of value" provided to influence a foreign public official.

Former SAP executive pleads guilty to FCPA charges

On August 12, the DOJ announced that Vicente E Garcia, a former regional director of SAP International Inc. (SAP) had pleaded guilty to violate the FCPA by participating in a scheme to bribe Panamanian government officials.  Garcia admitted that he conspired with others to pay bribes to two officials, and to the agent of a third official in an attempt to secure a contract for SAP to provide a Panamanian state agency with a technology upgrade package.  The payments were reportedly made using sham contracts and false invoices. 

The SEC also announced a settlement with Garcia under which he has agreed to pay disgorgement of US$85,965 (representing the total amount of kickbacks he received under the scheme), plus interest.

Following his guilty plea, Garcia is due to be sentenced in December 2015.

Navigators Insurance Company reaches settlement with OFAC regarding alleged sanctions violations

On 6 August, the Office of Foreign Assets Control (OFAC) announced a civil settlement with Navigators Insurance Company (Navigators) under which Navigators agreed to pay US$271,815 to settle various alleged sanctions violations.

OFAC stated that, between 2008 and 2011, Navigators and its London branch issued global insurance policies (a) providing coverage to North Korean vessels, and (b) covering incidents occurring in or involving Iran, Sudan or Cuba, in violation of applicable sanctions rules.  Among the aggravating factors applied by OFAC in calculating the applicable penalty in this case was the fact that Navigators did not have a formal OFAC compliance program in place at the time of the violations.  However, Navigators self-disclosed the issue to OFAC and cooperated with its investigation.

OFAC issues Finding of Violation to Schlumberger Oilfield Holdings in relation to violations of sanctions against Iran and Sudan

In a second OFAC case, OFAC announced that it had issued a Finding of Violation (FOV) to Schlumberger Oilfield Holdings Ltd (Schlumberger) in respect of violations of the Iranian Transactions and Sanctions Regulations and the Sudanese Sanctions Regulations.  This relates to the same conduct covered by Schlumberger's March 2015 plea agreement with the DOJ (see our previous briefing for more details).

OFAC's Enforcement Guidelines provide that it may issue an FOV in lieu of a civil monetary penalty where this is the most appropriate response.  In this case, although OFAC found that Schlumberger willfully violated the relevant sanctions and failed to effectively enforce its compliance program, the parallel criminal case and substantial fine already imposed on Schlumberger (among other factors) weighed against the imposition of a further monetary penalty. 

Solicitor General seeks Supreme Court review of Newman decision

On July 30, the US Solicitor General filed a petition for certiorari over the Second Circuit’s Newman decision (further details of which can be found in our previous briefings).  The Solicitor General has argued that the Second Circuit’s decision to require that prosecutors show that a tipper received a significant benefit of a pecuniary or similarly valuable nature, rather than a personal benefit through friendship etc. in exchange for inside information does not accord with the 1983 decision in Dirks v SEC and the more recent Ninth Circuit decision in US v Salman.  The Solicitor General also states that the Newman decision will result in "continuing and serious harm" since "by raising and altering the standard for personal benefit, the Second Circuit's decision isolates from liability deceptive acts that undermine the integrity of the markets."

In related cases, Matthew Martoma, a former manager at SAC Capital Advisors LP is seeking to delay his appeal against his February 2014 conviction for insider trading until the Supreme Court decision.  Martoma was sentenced to nine years’ imprisonment in September 2014 but has argued against his conviction on the basis that his source was not compensated for the meetings at which he is said to have provided inside information to Martoma.

SEC and DOJ charge former investment bank analyst with insider trading

On August 25 the SEC announced charges against a former investment bank analyst, alleging that he illegally tipped his close friend with confidential information about clients who were pursuing M&A transactions.  The friend has also been charged with trading on the inside information, as has another individual.  According to the SEC's complaint, these two individuals made over US$672,000 in combined profits from their insider trading.

The DOJ announced criminal charges against the three individuals on the same day.  All three have been taken into custody.

SEC charges 32 defendants in connection with insider trading hacking scheme

The SEC announced on August 11 that it had brought fraud charges against 32 defendants for taking part in a scheme to profit from stolen nonpublic information about corporate earnings announcements.  The defendants comprise two Ukrainian men who allegedly hacked into newswire services to obtain the information and 30 others who allegedly traded on the information, reportedly generating over US$100 million in profits.

The US Attorney's Offices for the District of New Jersey and the Eastern District of New York have also announced criminal charges against nine of the individuals.   At the time of writing this update, five individuals had been arrested in New York and New Jersey.  The other four defendants are reportedly in Ukraine.

Citigroup Global Markets settles with SEC in relation to compliance and surveillance failings

Citigroup Global Markets (Citigroup) has reportedly agreed to pay a US$15 million penalty to the SEC in order to settle charges that it failed to enforce policies and procedures to prevent and detect transactions that could involve the misuse of material nonpublic information.  Following an investigation, the SEC determined that technological errors resulted in thousands of trades being omitted from automated surveillance reports, with the result that these trades were then not reviewed by compliance personnel.   The SEC also alleges that Citigroup also failed to adopt and implement policies and procedures to prevent and detect principal transactions conducted by an affiliate, again due to the omission of certain trades from automated surveillance reports.

In addition to the financial penalty, Citigroup has agreed to retain a consultant to review and recommend improvements to its trade surveillance and advisory account order handling and routing.

FINCEN money laundering ruling in relation to FBME Bank

The US Department of Treasury's Financial Crimes Enforcement Network (FinCEN) announced that it had passed a rule imposing a "special measure five" against FBME Bank Ltd (FBME) on July 23, 2015 prohibiting domestic financial institutions from opening correspondent bank accounts with FBME and effectively cutting it off from the US financial system.  Such measures can be imposed where an institution is found to be of "primary money laundering concern" and thus poses a threat to US national security.  In the case of FBME, FinCEN's rule raised concerns over anti-money laundering compliance failings.

FinCEN's rule was due to take effect on August 28.  However, on August 27, the US District Court for the District of Columbia granted FBME's motion for a preliminary judgment to delay enforcement, pending a final judgment.  The judge found that FinCEN had failed to follow its due process obligations by failing to provide FBME with all the publicly available information used to reach its enforcement decision.  FinCEN also failed to explain why it chose to impose a special measure, rather than taking less serious action such as a fine.

The judge ordered the parties to meet and confer as to an expedited briefing schedule on the merits of FBME's complaint.

US Senate resolution disapproving of JCPOA fails

As mentioned in our previous briefing, following the July 14, 2015 agreement between the P5+1/EU3+3 and Iran on the Joint Comprehensive Plan of Action regarding Iran's nuclear program (JCPOA), Congress had a 60 day review period to pass a resolution of disapproval, which could block President Obama from suspending or relaxing Iran sanctions as part of the implementation of the JCPOA.

The House of Representatives has passed two resolutions disapproving the deal, but by less than a veto-proof majority, the vote on the second such resolution taking place on 15 September. It is therefore likely that the review period will conclude today (17 September) without a Congressional resolution of disapproval having been passed.