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 is ISO 37001 and why does it matter? Which one of the world’s largest airplane manufacturers resolved FCPA allegations? Why should companies expect more enforcement in Latin America, according to SEC’s FCPA Chief? Why is the OECD criticizing Ireland and Russia? And what is the latest in Brazil and the UK? The answers to these questions and more are here in our October 2016 Top Ten list.
1. International Organization for Standardization Issues ISO 37001, Anti-bribery Management Systems.
On October 15, 2016, the International Organization for Standardization (ISO) published ISO 37001, Anti-bribery management systems. ISO 37001 “specifies a series of measures to help organizations prevent, detect and address bribery,” including “adopting an anti-bribery policy, appointing a person to oversee anti-bribery compliance, training, risk assessments and due diligence on projects and business associates, implementing financial and commercial controls, and instituting reporting and investigation procedures.” According to its introduction, ISO 37001 “reflects international good practice[,] can be used in all jurisdictions[, and] is applicable to small, medium and large organizations in all sectors, including public, private and not-for-profit sectors.” Because it was developed as a “requirements standard,” instead of a series of recommendations, ISO 37001 is capable of independent certification and may prove a useful tool for making informed decisions about business partners and third parties, particularly in locations perceived to have a high corruption risk. Although some Department of Justice (DOJ) and Securities and Exchange Commission (SEC) officials have made generally positive statements about the new standard, it is unlikely that either enforcement agency will view ISO certification alone as proof that a company has implemented an “effective compliance program” or as a complete defense to an FCPA violation. As discussed in the FCPA Resource Guide, DOJ and SEC evaluate compliance programs against each company’s “specific needs, risks, and challenges,” which may require a more nuanced analysis than does ISO certification. Moreover, as set out in DOJ’s Principles of Federal Prosecution of Business Organizations, although a positive factor, “the existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal misconduct undertaken by its officers, directors, employees, or agents.” ISO certification may gain greater traction in jurisdictions that offer a “compliance defense,” but even those jurisdictions are likely to go beyond the mere fact of certification in determining whether a company has implemented adequate procedures to prevent bribery. In our opinion, ISO 37001 is a welcome addition to the body of best practices available to companies seeking to reduce their corruption risk, but companies should also be cautious not to put too much stock in ISO certification as a panacea to liability for violations of the FCPA or other foreign bribery laws.
2. Brazil-Based Aircraft Manufacturer Resolves Bribery Allegations with U.S. and Brazilian Authorities.
On October 24, 2016, DOJ and SEC announced that Embraer S.A. had agreed to pay a total of $205 million to settle charges that it violated the FCPA in connection with aircraft sales to foreign governments or state-owned entities in the Dominican Republic, Saudi Arabia, Mozambique, and India. (The resolutions did not allege any wrongdoing in Argentina, which was also reportedly under investigation.) Under the global settlement, which also includes Brazilian authorities, Embraer agreed to pay approximately $107 million as part of a three-year deferred prosecution agreement involving FCPA conspiracy and internal accounting controls charges with DOJ and approximately $98 million in combined disgorgement and prejudgment interest in connection with an SEC complaint alleging violations of the FCPA’s anti-bribery and accounting provisions. SEC agreed to credit up to $20 million in disgorgement that Embraer agreed to pay to Brazilian authorities in a parallel civil proceeding in Brazil. The company also agreed to retain an independent corporate monitor for three years; as part of its settlement in Brazil, the company agreed to share the monitor’s reports with Brazilian authorities. In their press releases, DOJ and SEC thanked a total of seven countries for their assistance in this investigation, which may be more notable for the amount of cooperation that U.S. authorities provided to other countries in building their own cases. In addition to the civil resolution in Brazil, the U.S. assisted Brazilian authorities in bringing charges against 11 individuals for their alleged misconduct in the Dominican Republic and assisted Saudi Arabian authorities in bringing charges against two individuals for their alleged misconduct there. On October 28, 2016, Saudi Arabia’s national oil company, Saudi Aramco, confirmed that one of its former employees “was involved in receiving a bribe in return for facilitating the purchase of three aircrafts from Embraer.” Aramco further stated that it had excluded the company from future business. Authorities in the Dominican Republic also reportedly arrested a former defense minister and three others in August 2016 for allegedly accepting a $3.5 million bribe from the company in exchange for an order of military aircraft. Indian authorities have also reportedly opened an investigation into its military’s purchase of three aircraft from the company and have expressed an intention to seek mutual legal assistance from the U.S. and Brazil.
3. Spain-Based Pharmaceutical Company Discloses Declination of FCPA Allegations.
In an October 7, 2016, securities filing, Grifols S.A. disclosed that DOJ had notified the company that DOJ had closed an inquiry into possible violations of the FCPA. The disclosure noted that DOJ had acknowledged “the full cooperation of Grifols in the investigation.” According to a May 2016 securities filing, the company had been conducting an internal investigation “focused on sales to certain Central and Eastern European countries, specifically Belarus and Russia, although trading practices in Brazil, China, Georgia, Iran and Turkey” were also being investigated. This is the second time since November 2012 that the company has disclosed a DOJ declination in a securities filing.
4. Switzerland Transfers $51 Million Linked to Venezuela Corruption Allegations to the U.S.
On October 25, 2016, Swiss authorities stated that they had transferred approximately $51 million in formerly frozen assets to the United States in connection with a U.S. investigation into alleged corruption at the Venezuelan state-owned and state-controlled oil company Petroleos de Venezuela S.A. (PDVSA). The Swiss Federal Office of Justice said the remaining approximately $67 million requested by the U.S. remain frozen. According to some reports, the assets were linked to allegations against Roberto Rincon and Abraham Shiera, the owners of several U.S.-based energy companies, who pleaded guilty earlier this year to charges alleging that they bribed PDVSA officials to help secure lucrative energy contracts with PDVSA and two of its purchasing and procurement subsidiaries. Other reports suggest that the assets may be linked to up to a dozen individuals, including current Venezuelan government officials. Whichever report is closer to the truth, this latest development demonstrates the continued importance of Switzerland in the international anti-corruption landscape and the generally cooperative relationship between Switzerland and the United States in anti-corruption matters.
5. During the Year of FCPA Enforcement Involving China, SEC FCPA Chief Forecasts Rise in Latin America FCPA Enforcement Actions.
As of October 2016, over half of SEC’s corporate FCPA enforcement actions and a third of DOJ’s corporate FCPA enforcement actions brought during this calendar year have involved China (see our February, March, April, June, July, August, and September 2016 Top Tens). But on October 13, 2016, at the annual Securities Enforcement Forum in Washington, D.C., SEC FCPA Unit Chief Kara Brockmeyer told the audience to expect a rise in FCPA enforcement actions involving Latin America. There have already been several corporate FCPA enforcement actions involving Argentina, Mexico, Panama, and other Central and South American countries (see our February, March, July, and August 2016 Top Tens), as well as the PDVSA case against several individuals discussed above, brought this year. According to Brockmeyer, SEC has “several [Latin American] cases in the pipeline.” At the time of her statement, that pipeline included the Embraer case. Brockmeyer was also likely alluding to potential corporate enforcement actions arising from Operation Car Wash, an investigation of alleged bribery involving Brazil’s state-owned oil company, Petrobras (see below). In June 2015, Brazilian prosecutors revealed that they had met with U.S. enforcement authorities to discuss the investigation. As we always say, no region has a monopoly on corruption, but the U.S. enforcement agencies seem to be particularly focused on China and Latin America at the moment.
6. California-Based Life Sciences Company Seeks to Preclude Testimony from Former General Counsel in Whistleblower Retaliation Lawsuit.
In June 2015, Sanford Wadler, the former general counsel of Bio-Rad Laboratories, Inc., filed suit in the Northern District of California against his former employer, alleging that he was fired after raising concerns about a suspected bribery scheme in China. In October 2015, Chief Magistrate Judge Joseph Spero denied Bio-Rad’s motion to dismiss, rejecting the company’s argument that Dodd-Frank’s anti-retaliation provisions did not protect internal whistleblowers. On October 21, 2016, the company moved to exclude evidence and testimony by Wadler on the grounds that his claims are “inextricably intertwined” with its privileged and confidential information. According to the motion, because Wadler is the company’s former general counsel and is suing his former client, “this case has presented problems arising from the attorney-client relationship since Day One.” During the discovery phase, the parties successfully addressed these issues by having an agreement in place under Federal Rule of Evidence 502 that allowed them to share information without risking waiver. “But with trial approaching, the parties and the Court now must confront how this case can be tried given Plaintiff’s ethical and statutory duties as a lawyer in California, and Bio-Rad’s right to both preserve the privileged and confidential status of its documents and information and fully defend itself in the litigation.” The company acknowledged that it “remains an open question as to whether Plaintiff would have a legally viable case” if the evidence were excluded but argued that its rights under the attorney-client privilege and the plaintiff’s obligations under applicable bar rules should take precedence. The outcome of this motion will be important for companies facing the prospect of in-house counsel, and those acting at the direction of counsel, who are involved in internal investigations and compliance matters becoming “whistleblowers.” In November 2014, Bio-Rad reached a $55 million resolution with both DOJ and SEC regarding allegations that its subsidiaries had made improper payments to public officials in Russia, Vietnam, and Thailand.
7. OECD Criticizes Ireland’s and Russia’s Compliance with Anti-Bribery Convention.
On October 11 and 13, 2016, respectively, the Organisation for Economic Co-operation and Development’s (OECD) Working Group on Bribery announced that Ireland’s and Russia’s laws for combating international bribery need “urgent” reform. The Working Group on Bribery is made up of the 34 OECD Member countries plus seven additional countries—including Russia—that have joined the OECD Anti-Bribery Convention. The parties to the Convention are subject to a rigorous peer review process. According to the OECD’s statements, the peer reviews for Ireland and Russia revealed that those countries have failed to make changes to their domestic criminal laws to bring them in line with the Convention. With respect to Ireland, the Working Group identified three major weaknesses in how foreign bribery is addressed by that country’s domestic criminal law. Ireland has failed to act on the Working Group’s recommendations by failing to (1) consolidate and harmonize its two foreign bribery offenses, (2) review its law on corporate criminal liability so that the law can be effectively applied to cases where senior managers use subordinate employees to make bribes, and (3) ensure that its money laundering offense applies to Irish companies and individuals that launder the proceeds of bribing foreign public officials. With respect to Russia, the Working Group identified several major weaknesses in how foreign bribery is addressed by that country’s domestic criminal law. Russia has failed to (1) criminalize the offer and promise of a bribe in cases of foreign bribery and bribes when they take the form of non-material advantages, (2) ensure that its definition of “public officials” is consistent with the Convention, (3) eliminate the defense of “effective regret” as it applies to foreign bribery, (4) strengthen its laws on corporate liability to ensure implementation of the Convention, and (5) amend its law in relation to seizure and confiscation to make these tools available to foreign bribery cases. Both countries are subject to enhanced reporting to the Working Group due to their failures to address these weaknesses. The Working Group also noted that since ratifying the Convention in 2003, Ireland has not prosecuted a single case of foreign bribery. Although not mentioned in the most recent announcement, the Working Group has previously criticized Russia for failing to detect, investigate, or prosecute any cases of foreign bribery.
8. Two More Guilty Pleas in FIFA Bribery Case.
In May 2015, DOJ unsealed a 47-count criminal indictment against 14 defendants alleging a 24-year scheme and over $150 million in bribe payments and kickbacks involving the Fédération Internationale de Football Association (FIFA). In December 2015, DOJ announced the unsealing of a 92-count superseding indictment that added an additional 16 defendants. In October 2016, DOJ announced that two of the defendants from the original indictment had pleaded guilty. On October 7, 2016, Eduardo Li, the former president of the Costa Rican soccer federation and a member-elect of the FIFA executive committee, pleaded guilty to racketeering conspiracy, wire fraud, and wire fraud conspiracy charges in connection with his receipt of bribes in exchange for, among other things, awarding contracts for media and marketing rights to FIFA World Cup qualifier matches. The bribes were allegedly transmitted to Li, a Costa Rican national, from U.S. bank accounts via intermediaries in the U.S. and Costa Rica. On October 20, 2016, Aaron Davidson, the president of Miami-based sports marketing company Traffic Sports USA, Inc., pleaded guilty to racketeering conspiracy and wire fraud conspiracy charges. Li and Davidson, who both face a maximum sentence of 20 years’ imprisonment for each count of conviction, also agreed to forfeit $668,000 and $507,906.84, respectively.
9. More Corruption Charges in Brazil.
The anti-corruption campaign sweeping across Brazil continued to gain steam in October 2016.
- Former House Speaker Arrested. On October 19, 2016, Brazil’s former house speaker, Eduardo Cunha, was arrested for allegedly taking $5 million in bribes from a company that won contracts from Petrobras, Brazil’s state-owned oil company. Cunha was charged with corruption and money laundering offenses in connection with the scheme in August 2016, while he was still in political office, which gave him special legal protections that made his prosecution more difficult. But Cunha, who led the impeachment proceedings that ousted Brazilian president Dilma Rousseff, was himself expelled from Congress in September 2016, stripping him of those protections and easing his arrest.
- More Charges Against Former President. On October 13, 2016, a judge found sufficient evidence for a third set of corruption charges against former Brazilian president Luiz Inacio Lula da Silva (“Lula”) to proceed. The charges stem from allegations that Lula was engaged in corruption, money laundering, and influence trafficking involving BNDES, the Brazilian state development bank. Lula was previously indicted on money laundering and corruption charges involving Petrobras in September 2016, when prosecutors alleged that Lula was the “commander-in-chief of the corruption scheme known as Carwash.”
10. New Anti-Corruption Efforts in the UK.
On October 13, 2016, the Criminal Finances Bill was introduced to the UK’s House of Commons. According to a press release from the UK government, the new legislation is designed to “tackle money laundering and corruption, recover the proceeds of crime and counter terrorist financing.” Described by the government as “one of the most significant changes to our anti-money laundering and terrorist finance regime in over a decade,” the bill would, among other things, enhance the UK’s ability to seize and forfeit the proceeds of crime and create unexplained wealth orders requiring those suspected of corruption to explain the sources of their wealth. On October 19, 2016, the Commons International Development Committee called on the UK government to lobby the country’s Overseas Territories and Crown Dependencies on anti-corruption measures. According to the Committee, “the continuing lack of transparency in the UK’s Overseas Territories and Crown Dependencies risks significantly hindering efforts to curb global corruption and damaging the UK’s reputation as a leader on anti-corruption.” The Committee stated that, although the May 2016 London Anti-Corruption Summit positioned the UK as a global leader on anti-corruption, the government nevertheless missed an opportunity to persuade the Overseas Territories and Crown Dependencies to create public registers of beneficial ownership—an issue that gained significant attention following the release of the “Panama Papers” in April 2016.