In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: What corporate foreign bribery enforcement actions were announced by U.S., Canadian, and UK authorities? Which East Asian country passed legislation to establish a new anti-corruption agency? How many corruption investigations did Chinese investigative agencies pursue in 2019? The answers to these questions and more are here in our December 2019 Top 10 list.
1. Sweden-Based Global Networking and Telecom Company Resolves FCPA Allegations Involving Multiple Countries. On December 6, 2019, the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) announced that Telefonaktiebolaget LM Ericsson (Ericsson) had agreed to pay a total of approximately $1.06 billion to resolve FCPA allegations involving China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam. The alleged misconduct included, among other things, the improper use and retention of third parties, gifts, travel, and entertainment issues, and the procurement of inside information about a government tender. The Swedish parent company entered into a Deferred Prosecution Agreement (DPA) filed in the Southern District of New York, under which it agreed to pay a criminal penalty of over $520 million and accept an independent compliance monitor. An Egyptian subsidiary pleaded guilty to criminal charges in the Southern District of New York. Separately, the parent company resolved SEC’s civil charges by agreeing to pay about $540 million in disgorgement and prejudgment interest. The combined resolution is the largest U.S.-only resolution in the history of FCPA enforcement.
2. Canada-Based Construction and Engineering Company Resolves Libya Bribery Allegations with Canadian Authorities. On December 18, 2019, SNC-Lavalin Group Inc. (SNC) announced that its Libyan construction subsidiary had pleaded guilty in Quebec to a single fraud charge and that charges against the parent and its international marketing arm had been withdrawn by Canadian authorities. The charges related to allegations that between 2001 and 2011, SNC paid about C$48 million to Libyan officials, including Muammar Gaddafi’s son, in order to secure construction contracts. The parent and two subsidiaries were previously charged with six counts, including one count each of a violation of paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act (CFPOA) and one count each of fraud under paragraph 380(1)(a) of the Criminal Code. As part of the plea, the Libyan subsidiary agreed to pay a fine of C$280 million over a five-year period. A few days before the corporate resolution, on December 15, 2019, a Quebec jury found Sami Bebawi, the former Executive Vice President at SNC between 2000 and 2006, guilty on all five criminal charges against him, including fraud, bribing a foreign public official (Gaddafi’s son), and laundering and possessing proceeds of crime. As this Top 10 was going to print, Bebawi was sentenced to 8.5 years’ imprisonment. In February 2017, two other former SNC executives were acquitted in Ontario of allegations of foreign bribery in Bangladesh. The corporate case was at the center of a 2019 controversy amid allegations that Justin Trudeau, Canada’s prime minister, had pressured the country’s justice minister and attorney general to pursue a civil settlement with the company for fear that a criminal conviction would harm the Canadian economy.
3. Former Executives of UK-Based Engineering Company Acquitted for Alleged Bribery in Korea, Corporate DPA Revealed. On December 20, 2019, the UK Serious Fraud Office (SFO) announced that three former executives, including the founder and the managing director, of Güralp Systems Ltd (Güralp) were all found not guilty of conspiracy to make corrupt payments to Heon-Cheol Chi, the director of the Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources. Also on December 20, 2019, the SFO revealed it had entered into a DPA with the company in a private hearing in October 2019. As part of the DPA, the company agreed to pay a total of £2,069,861 for disgorgement of gross profits. The DPA imposed no additional financial penalty, set no timetable for the disgorgement to be paid, and left room for its terms to be amended if the company cannot make the payments. According to the Approved Judgment, these features were included in light of the company’s financial position and self-disclosure of misconduct to both the SFO and DOJ. In August 2018, DOJ declined prosecution against the company based in part on the SFO’s parallel investigation. In July 2017, Chi was convicted in the Central District of California of laundering bribes he received from Güralp and another company, and his conviction was later affirmed by the Ninth Circuit.
4. SEC Charges Former Finance Executive with Civil FCPA Violations in Connection with 1MDB. On December 16, 2019, SEC announced that Tim Leissner, the former Southeast Asia Chairman of a U.S.-headquartered financial institution, had agreed to resolve allegations that he had violated the FCPA’s anti-bribery and accounting provisions in connection with a scheme to bribe government officials in Malaysia and the Emirate of Abu Dhabi. According to SEC, the bribes resulted in lucrative business from 1Malaysia Development Berhad (1MDB), Malaysia’s sovereign wealth fund. Leissner pleaded guilty in November 2018 to conspiracy to launder money and to violate the anti-bribery and accounting provisions of the FCPA and was ordered to forfeit $43.7 million. Pursuant to SEC’s cease‑and‑desist order, Leissner will receive credit for the amount he forfeited to DOJ but will also be permanently banned from the securities industry. (See our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, November 2018, and May 2019 Top 10s for more on 1MDB.)
5. Miami-Based Financial Adviser Sentenced to 42 Months’ Imprisonment for Money Laundering in Connection with Petroecuador Bribery Scheme. On December 18, 2019, Frank Roberto Chatburn Ripalda, a Miami-based financial advisor, was sentenced to 42 months’ imprisonment following his October 2019 guilty plea to one count of conspiracy to commit money laundering in connection with a scheme to disguise bribe payments to officials at Petroecuador, Ecuador’s national oil company. Chatburn’s sentence also included three years’ supervised release and a criminal fine of $40,000. In April 2018, Chatburn was charged with nine counts, including money laundering and FCPA violations. Chatburn was the 10th individual to plead guilty in connection with the Petroecuador bribery and money‑laundering investigation and the fourth to be sentenced. (For more on the Petroecuador prosecutions, read our April 2018, September 2018, November 2018, April 2019, and October 2019 Top 10s.)
6. Assistant Attorney General Addresses Use of Agency Law in FCPA Cases. In a December 4, 2019, speech, Assistant Attorney General of DOJ’s Criminal Division, Brian A. Benczkowski, addressed DOJ’s approach to the use of agency theory in FCPA enforcement actions. AAG Benczkowski’s comments came shortly after DOJ, in November 2019, successfully persuaded a Connecticut jury that Lawrence Hoskins was an agent of a U.S. subsidiary of French power giant Alstom S.A. in order to secure an FCPA conviction. Some observers (including us) have noted that DOJ may be extending this agency theory beyond the unique facts in Hoskins to hold parent companies liable for the conduct of their subsidiaries. In his remarks, AAG Benczkowski attempted to “dispel” some of the concerns about DOJ’s use of agency theory and “provide a window into the Department’s thinking and approach[,]” noting that “the Criminal Division will not suddenly be taking the position that every subsidiary, joint venture, or affiliate is an ‘agent’ of the parent company simply by virtue of ownership status”; instead, “the law requires more.” According to the AAG, “a person or entity may be an agent for some business purposes” as long as the government can prove the agency relationship “in connection with the specific events related to the project at issue.” Furthermore, “if the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the Department likely would strongly favor prosecution in those instances.” Overall, AAG Benczkowski’s remarks signal that DOJ will continue to deploy agency theory in holding parent companies responsible for actions for the conduct of their foreign subsidiaries, but that certain arguments might help persuade DOJ not to do so in specific cases.
7. SEC Proposes New Rules to Require Resource Extraction Issuers to Disclose Certain Payments Made to Foreign Governments. On December 18, 2019, SEC announced that it had voted to propose new rules, mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals. The new rules clarify key definitions and are designed to be less burdensome than the previous version of the rules, which was vacated in February 2017. For example, smaller reporting companies and emerging growth companies are exempted; issuers are permitted to aggregate payments by type made at a level below the major subnational government level; and there is relief for issuers that have recently completed initial public offerings. SEC Chairman Jay Clayton explained that the new proposed rules are “designed to address the statutory mandate in a manner that does not result in undue compliance burdens or competitive harm.”
8. World Bank Sanctions Board Issues Long-waited 2019 Law Digest. On December 23, 2019, the World Bank Group (WBG) Sanctions Board announced that it had published the 2019 WBG Sanctions Board Law Digest, which reviews more than 100 decisions by the Sanctions Board since 2007. This is the second edition of the Law Digest; the first was published in December 2011. The WBG had previously stated its intention to release the second edition of the Law Digest in the WBG Sanctions System’s FY19 Annual Report. The 2019 Law Digest will be an important resource for companies facing investigations and threats of sanctions by the WBG Sanctions System and, more generally, a compliance guidance for companies that receive funding from WBG.
9. South Korea Passes Bill to Establish New Anti-Corruption Agency. On December 30, 2019, South Korea’s National Assembly passed a bill to establish a new anti‑corruption agency to investigate allegations of corruption against high-ranking public officials. South Korean president Moon Jae-in will select the agency head from a pool of candidates recommended by a seven-member committee, and the selection will be subject to parliamentary confirmation. Some opposition lawmakers have expressed concern about Moon’s potential influence over the new agency, which will not be subject to the control of public prosecutors. The new agency is expected to be established in July 2020. Over the last several years, South Korea has been roiled by high-profile corruption cases, including the indictment of key business leaders and politicians. (See, for example, the coverage of Korean corruption cases in our August 2017, February 2018, and March 2018 Top 10s.)
10. Chinese Anti-Corruption Agencies Release Statistics for 2019. In March 2018, the Chinese legislature created a new anti-corruption agency, the National Supervision Commission (NSC), and gave it extremely broad powers to investigate criminal, ethical, and professional violations committed by “state functionaries who exercise public powers,” even if the functionaries are not CCP members. We predicted that the creation of the NSC had the potential to significantly impact anti-corruption enforcement in China. On December 30, 2019, Xinhua News (China’s official state-run news agency) reported that the NSC and the Communist Party of China Central Commission for Discipline Inspection had released statistics showing that, from January to November 2019, disciplinary inspection and supervisory organs across China filed and investigated over 550,000 cases, resulting in disciplinary measures against 485,000 people and 19,000 criminal investigations. According to Xinhua, these statistics demonstrated that “China has consolidated its sweeping victory against corruption in 2019.”