VimpelCom reaches FCPA settlement over payments to Uzbek officials

We reported in December that VimpelCom, the Dutch telecommunications company, made $900 million accounting provision relating to bribery investigation in Uzbekistan. On February 18, 2016, it was announced that VimpelCom, together with its Uzbek subsidiary, reached global settlements with the US Department of Justice ("DOJ"), Securities and Exchange Commission ("SEC") and the Dutch authority. VimpelCom pleaded guilty under the Foreign Corrupt Practices Act ("FCPA") and admitted that it and its Uzbek subsidiary, through various executives and employees, paid bribes to an Uzbek government official, who was a close relative of a high-ranking government official and had influence over the Uzbek governmental body that regulated the telecom industry. VimpelCom structured and concealed the bribes through various payments to a shell company, and falsified its books and records and attempted to conceal and disguise the bribery scheme by classifying payments as equity transactions, consulting and repudiation agreements and reseller transactions. VimpelCom management also withheld crucial information from outside counsel performing an FCPA review of the proposed transaction.

The settlement requires VimpelCom to pay an approximately $230.1 million criminal penalty to the DOJ, $167.5 million in disgorgement and pre-judgment interest to the SEC, and $397.5 million to Dutch prosecutors. VimpelCom also agreed to implement rigorous internal controls, retain a compliance monitor for a term of three years and cooperate fully with the department’s ongoing investigation, including its investigation of individuals.

The DOJ also filed a civil forfeiture complaint seeking more than $550 million held in Swiss bank accounts, which constitute bribe payments made by VimpelCom and two separate telecommunications companies, or funds involved in the laundering of those payments, to the Uzbek official. The forfeiture complaint followed an earlier civil complaint filed on June 29, 2015, which sought forfeiture of more than $300 million in bank and investment accounts held in Belgium, Luxembourg and Ireland that also constitute funds traceable to bribes, or funds involved in the laundering of the bribes, paid by VimpelCom and another telecommunications company to the same Uzbek official.

Olympus settles FCPA and Anti-Kickback Statute charges

On March 1, 2016, it was announced that Olympus Corp. of the Americas ("Olympus"), a medical device distributor, agreed to pay $623.2 million to resolve criminal charges and civil claims relating to a scheme to pay kickbacks to doctors and hospitals. A subsidiary of Olympus will pay an additional $22.8 million to resolve criminal charges under the FCPA relating to its operations in Latin America. The charges were settled through two three-year deferred prosecution agreements.

In relation to the Anti-Kickback Statute violations, Olympus allegedly provided doctors and hospitals with kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants, and free medical devices to win new business and reward sales in the United States. Olympus also lacked training and compliance programs – it did not create the position of compliance officer until 2009 and did not hire an experienced compliance professional until August 2010. The deferred prosecution agreement requires Olympus to adopt several compliance measures to remedy its compliance problems.

Olympus's misconduct also resulted in federal and state False Claims Act ("FCA") liabilities under federal health care programs Medicare, Medicaid and TRICARE, for which Olympus agreed to settle. The civil claims were initially filed by John Slowik, the former chief compliance officer of Olympus, who will receive $51 million from the settlement amount.

In the separate FCPA action, it was alleged that Olympus's Miami-based subsidiary made improper payments to health officials in Central and South America. These payments included cash, money transfers, personal grants, personal travel and free or heavily discounted equipment. The primary method to deliver these illicit benefits was through “training centers,” nominally set up to educate and train doctors.

In addition to the two deferred prosecution agreements, Olympus executed a corporate integrity agreement (CIA) with the Department of Health and Human Services-Office of the Inspector General (HHS-OIG).

Pfizer announces proposed settlement agreement with DOJ in relation to FCA claims over Protonix

Pharmaceutical company Pfizer announced that its subsidiary Wyeth has reached an "agreement in principle" with the DOJ relating to the Medicaid rebates for its drug Protonix under the Federal Civil FCA. These actions were initiated in the federal court under the whistleblower provisions of the FCA, and the DOJ joined subsequently. It is alleged that Wyeth failed to offer the "best price" to Medicaid because hospitals were given discounts through a complex rebate program. Wyeth is expected to pay a fine of $784.6 million without admission of liability. The final settlement is subject to further negotiation and court approval. Pfizer emphasized that the alleged misconduct happened before it acquired Wyeth.

SEC settles FCPA charges with Qualcomm over hiring practice in China

On March 1, 2016, the SEC announced that Qualcomm Incorporated ("Qualcomm"), the global technology company, agreed to pay $7.5 million to settle charges that it violated the FCPA by hiring relatives of Chinese government officials in the telecommunications market. In addition, Qualcomm also provided gifts, travel, and entertainment to Chinese officials. Without admitting or denying the allegations, Qualcomm agreed to pay the penalty and report to the SEC for the next two years on its FCPA compliance.

SEC settles FCPA charges with Nordion and one of its employees

Nordion (Canda) Inc. ("Nordion"), a global health science company, has agreed to pay a US$375,000 civil monetary penalty to resolve an FCPA investigation conducted by the SEC. The investigation concerned Mikhail Gourevitch, a former engineer at Nordion, who also settled with the SEC for alleged violations of the FCPA. According to the SEC announcement, Gourevitch arranged improper payments from Nordion to a third-party agent so that a portion of the funds could be used to bribe Russian officials to approve the distribution of a liver cancer treatment. Gourevitch provided false documentation to Nordion to conceal the scheme, and received $100,000 in kickbacks from the third-party agent. Nordion's self-reporting, significant cooperation and remedial acts were taken into consideration for the SEC settlement.

District Court decision supports FCPA's inclusion of the EBRD

In an FCPA case against a defendant who allegedly bribed an official at the European Bank for Reconstruction and Development ("EBRD"), the US District Court for the Eastern District of Pennsylvania denied the defendant's motion challenging the FCPA's application to the EBRD. The decision stated that an official of the EBRD, a public international organization, will be considered "a foreign official" under the FCPA. The decision also rejected the defendant's constitutional challenge to the amendment of the FCPA in 1998 to include public international organizations unsuccessful, saying that there was proper delegation for this inclusion, and the term "public international organization" is not vague.

Halliburton settles with OFAC for alleged Cuban sanctions violations

OFAC announced that two Cayman Island subsidiaries of the US company Halliburton Energy Services, Inc ("Halliburton") have agreed to pay $304,706 to settle potential civil liability for alleged violations of the US sanctions against Cuba. These two subsidiaries allegedly exported goods and services in support of oil and gas exploration and drilling activities within an oil concession in Angola. A Cuban state-owned company held a five percent interest in the consortium and corresponding interests in the concession.

This case highlights the importance of conducting due diligence to determine the identity of all counterparties to a transaction, including their minority shareholders.

French oil service company settles with OFAC for alleged Cuban sanctions violations

OFAC announced that CGG Services S.A. ("CGG"), a French oil service company, and its affiliates, have agreed to pay $614,250 to settle potential civil liability for alleged violations of the US sanctions against Cuba. CGG and its US affiliate allegedly exported goods and services from the US to Cuba, and exported US-origin goods to vessels operating in Cuba's territorial waters.

This case demonstrates that non-US companies can still violate US sanctions if their actions have sufficient US nexus, such as the export to a sanctioned country of goods or services from the US, or export of US-origin goods from anywhere in the world.

BIS adds ZTE Corporation to its Entity List in relation to alleged export control violations

US Department of Commerce's Bureau of Industry and Security ("BIS") announced that it is adding China-based ZTE Corporation and related entities to its Entity List. The addition means that export, reexport or transfer of items subject to the Export Administration Regulations to these entities will be subject to specific license requirements.

According to BIS, ZTE Corporation developed a scheme to violate US export controls by establishing and using shell or front companies to export controlled items to sanctioned countries without BIS authorization.