Magyar Telekom Executives
U.S. District Judge Richard J. Sullivan of the Southern District of New York denied a motion to dismiss the SEC’s charges against three foreign nationals and former Magyar Telekom executives related to their alleged role in a bribery scheme in Macedonia. Judge Sullivan denied the defendants’ statute of limitations argument, concluding that under the plain language of the FCPA, the limitations period does not begin until a defendant is physically present in the United States.
Likewise, Judge Sullivan rejected the defendants’ claim that the court lacked jurisdiction over them. The defendants claimed that the court lacked jurisdiction because they are foreign nationals whose only contact with the U.S. was the fact that their emails were routed through and/or stored on network servers located in the U.S. The court, however, relied on the FCPA’s legislative history in concluding that the jurisdictional element was sufficiently pled where defendants had routed or stored emails in the U.S., despite that they may not have had personal knowledge of where their emails were routed or stored.
Nordion Inc. has announced in an SEC filing that it stopped payments to and terminated contractual agreements with an unnamed foreign supplier suspected of violating the FCPA and the Canadian Corruption of Foreign Public Officials Act. It also announced that it had developed new FCPA compliance procedures. Nordion is a health science company based in Ottawa whose stock is traded on the New York Stock Exchange. After identifying financial irregularities, it notified Canadian and U.S. officials that it was conducting an internal investigation, which reportedly cost $9.8 million in 2012.
Tyco and IBM Settlements
If U.S. District Judge Richard J. Leon in Washington, D.C. is representative of a trend, companies may face increasing difficulty obtaining judicial approval of settlements of FCPA enforcement actions with the SEC where they are already operating under a permanent injunction against FCPA violations.
On January 31, U.S. District Judge Richard J. Leon held a status conference regarding his review of the pending September 2012 FCPA settlement between the U.S. Securities and Exchange Commission (SEC) and Tyco International Ltd. (Tyco). In the settlement, Tyco agreed to pay the SEC $13.1 million but neither admitted nor denied that it paid fake commissions and used third party agents in 12 separate alleged bribery schemes across Europe, Asia and the Middle East. At the time of the settlement, Tyco was under a permanent injunction prohibiting any violation of the FCPA, an injunction it agreed to in a 2006 consent decree involving alleged FCPA violations. Over objections from reporters in the courtroom, Judge Leon held the status conference in his chambers, so no information is available regarding the substance of the hearing or the status of the case. Judge Leon has not yet approved the settlement.
On February 4, Judge Leon held a hearing regarding his review of the March 2011 FCPA settlement between the SEC and International Business Machines Corp. (IBM). In the settlement, IBM agreed to pay the SEC over $10 million in disgorgement and penalties but neither admitted nor denied that it bribed Chinese and South Korean officials to win government contracts worth over $50 million. Like Tyco, IBM had previously been the subject of an SEC action involving alleged FCPA violations, and had agreed in the consent decree to operate under a permanent injunction which prohibited IBM from violating the FCPA. In his first public hearing on the matter, Judge Leon in December 2012 cited IBM’s “history of FCPA books and records violations” in suggesting that he would approve the settlement only if IBM agreed to numerous additional court-imposed conditions. IBM claimed that those conditions, which included notifying the court any time it became aware of a reasonably likely accounting violation, were too burdensome. Judge Leon ordered IBM to support its burdensome claim with data at the February 4 hearing. At the February hearing, Judge Leon agreed to narrow his proposed conditions to reporting reasonably likely violations of the anti-bribery provisions or evidence of fraudulent books and records, but refused to relent on his requirement that IBM report to the court any open investigation by any federal government agency. No resolution was reached.
DOJ Officials’ FCPA Statements
Recent statements by U.S. Department of Justice (DOJ) officials may give companies with robust, effectively maintained FCPA compliance programs renewed hope that they will avoid prosecution, fines or penalties for
FCPA violations they uncover and promptly report.
Jeffrey Knox, principal deputy chief of DOJ’s Fraud section, in a public appearance on February 12, said companies that report FCPA violations and have strong compliance programs “often walk out the door with declinations.” He defined a strong compliance program as one that not only appears strong on paper but is effectively executed, supported by management, and not disregarded or circumvented by the company’s sales team: “If you fail to comply through the end, you would get as much credit for [your compliance efforts]. And you shouldn’t.”
The next day in Seattle, Assistant Attorney General Lanny Breuer made his final official speech as Chief of the Department of Justice’s Criminal Division (he will resign effective March 1). As he did last November following the release of the DOJ/SEC FCPA Resource Guide, Breuer addressed questions about a compliance defense by citing the example of DOJ’s prosecution last year of a Morgan Stanley managing director, Garth Peterson, who circumvented the company’s FCPA internal controls and transferred a multimillion dollar ownership interest in a Shanghai building to himself and a Chinese public official. DOJ announced that it had declined to take any enforcement action against Morgan Stanley, which had a robust compliance program that had exposed the employee’s actions. In the area of successor liability, Breuer said an acquiring company that completes a serious investigation which results in the discovery of one or more FCPA violations at the acquired company and reports the violation should not fear prosecution so long as the company has plans to implement an effective compliance program. He was careful to note that individual bad actors from the acquired company may be prosecuted.
Breuer has previously rejected the idea, pushed by the U.S. Chamber of Commerce and others, of an absolute compliance defense to FCPA violations. In explaining his opposition last November, he stated that compliance programs are just one of nine factors DOJ attorneys consider in making a charging decision, that an absolute compliance defense would likely result in companies limiting their compliance programs to the minimum measures necessary to establish the defense, and that the government could find itself litigating the existence and effectiveness of a compliance program rather than the corrupt conduct.
THE UNITED KINGDOM
UK Crime Agencies to Fight Overseas Corruption
Ms Justine Greening, the International Development Secretary who heads the Department for International Development (DFID), has announced new support for specialist units in the Metropolitan police, City of London police, the Crown Prosecution Service and the Serious Organised Crime Agency (SOCA).
This new support will enable these agencies to continue to stop foreign and UK criminals profiting from corrupt practices in developing countries.
Ms Greening stated:
“When corruption happens in developing countries, it is the very poorest people in our world who foot the bill. Corruption is a deadweight which is holding countries and their people back.
The UK government will not only work in countries to prevent public funds from being siphoned off or stolen – we will step up our efforts to combat corruption that uses our shores as a host.” Detective Chief Superintendent Oliver Shaw, the Head of Economic Crime at the city of London Police, said:
“DFID’s ongoing support is enabling the City of London Police’s Overseas Anti-Corruption Unit (OACU) to investigate and prosecute some of the most complex and significant cases of overseas bribery and corruption.
OACU is combating criminality originating from UK entities that transcends national boundaries and international borders and damages the distribution and application of development aid to some of the world’s poorest and most vulnerable communities. Proposals for further expansion of the units proactive resources is evidence of just how seriously the Government is taking this threat.”
News Corp. Bribery Suspect will not be charged
It has been reported that UK prosecutors will not charge a public official suspected of taking bribes from journalists at New Corp.
The unnamed individual was arrested last year as part of Operation Elveden – the investigation into corrupt payments by reporters and editors at New Corp. The individual was arrested along with three others, including Ms Rebekah Brooks, the former CEO of the company’s U.K. division, Ms Bettina Jordan Barber, a defence ministry employee and Mr Andy Coulson, editor of News of the World.
THE REST OF THE WORLD
Corruption in the Defence Sector
Transparency International UK (TI UK) has carried out the first index measuring how governments counter corruption in defence. According to the report, out of the 82 countries surveyed, Germany and Australia were the only countries with strong anti-corruption mechanisms.
Approximately 70 percent of the countries surveyed had poor controls in place. The criteria used looked at the strength of parliamentary oversight of defence policy and the standards expected of defence firms. The countries surveyed accounted for 94 percent of global military expenditure in 2011.
Mr Mark Pyman, the director of TI UK’s Defence and Security Programme stated that he hoped the survey would encourage governments to improve anti-corruption policies.
In particular, China, Russia and Israel, which are all leading arms exporters, were considered to be at high risk of corruption in their defence sectors. India, the UAE, Singapore, Thailand and Turkey, who are among the top arms importers were also in the high-risk category.
“Very high risk” countries included Afghanistan, Bahrain, Iran, Philippines, Qatar, Saudi Arabia and Sri Lanka. Countries considered to be at low risk included the United States, Britain, Sweden and South Korea.
The survey revealed that only 12 percent of the countries surveyed had “highly effective” parliamentary scrutiny of defence policy and only a small number provided protections for whistleblowers who reported defence corruption.
A full copy of the report is available to view at: http://government.defenceindex.org/
It has been reported that Bangladesh has informed the World Bank that it is withdrawing its request for assistance for construction of the Padma Bridge while it investigates allegations of corruption in the project.
Last year the World Bank cancelled a $1.2 billion credit for construction of the Padma bridge after it found evidence of high-level corruption among Bangladeshi officials. The World Bank said in a statement:
“The World Bank has taken note of the Government’s decision of not seeking renewed World Bank financing for the Padma Bridge, and it encourages the Anti-Corruption Commission to complete a full and fair investigation of the corruption allegations.”
The exploration and development company, Griffiths Energy International Inc. (Griffiths Energy) announced last month that it had reached a settlement and resolution with respect to a charge under Canada’s Corruption of Foreign Public Officials Act (CFPOA). A due diligence exercise by the company identified irregularities in the company’s contracts in Chad.
The matter involved certain consulting contracts entered into by the previous management and Board of Directors of Griffiths Energy during August 2009 and February 2011. These consulting contracts were entered into with two entities owned and controlled by a foreign public official and his spouse.
Mr Gary Guidry, President and Chief Executive Officer stated:
“Griffiths Energy regrets the actions of the prior management and Board. When we discovered the contracts we blew the whistle and cooperated with the authorities because this is how Griffiths Energy’s current management and board conduct business”.
In 2011 the company voluntarily disclosed to the authorities that it had commenced an investigation into the contracts after discovering evidence suggesting the company had paid $2 million in bribes to officials in Chad to gain an advantage in two exploration blocks. The internal investigation was concluded in May 2012 and at that time Griffiths Energy handed its findings over to the authorities.
The decision by the company to plead guilty will see it pay prosecutors a fine of C$10.35 million.
Griffiths Energy has stated that since the appointment of the current management and Board, the company has enhanced its compliance programme and related internal controls in order to ensure that it remains compliant with the applicable anti-bribery laws.
The fallout from the Griffiths Energy bribery case has spread to Chad where it has been reported that the country’s president, President Idriss Deby Itno, has dismissed Mr Mahamoud Adam Bechir from his current diplomatic post in South Africa following his alleged role in the Canadian bribery case.
It was reported last month that the three Finnish suspects accused of offering bribes to Costa Rican officials have refuted all criminal accusations. They also denied providing the Ministry for Foreign Affairs of Finland with erroneous information regarding the transaction.
The three suspects conducted the sale of hospital equipment to the state of Costa Rica for approximately $40 million between 2001 and 2004. It is alleged that the three executives used bribes to encourage these negotiations and provided the Ministry of Foreign Affairs with incorrect information in order to receive a subsidy for development assistance projects.
The state prosecutor is demanding sentences of 18-24 months’ imprisonment for aggravated bribery and aggravated subsidy fraud.
It has been reported that Georgia’s former Defence Minister, Mr David Kezerashvili, has been charged with accepting a $12 million bribe.
According to the Finance Ministry, Mr Kezerashvili assisted a group of criminals in their dealings when he was head of the country’s financial police in 2007. The Finance Ministry also stated that Mr Kezerashvili demanded larger bribes from the criminals at the time when he was Georgia’s Defence Minister.
It has been reported that Italian prosecutors are investigating the former management of the country’s third-largest bank, Monte dei Paschi, for alleged bribery and fraud.
Milan prosecutors have transferred an investigation into allegations that Monte dei Paschi executives took bribes to buy toxic derivatives from Dresdner Bank to the magistrates investigating the main corruption case.
It has been reported that the chief executive of Italian aerospace and defence firm Finmeccanica has been arrested on corruption charges.
Prosecutors have alleged that Mr Giuseppe Orsi paid bribes to ensure the sale of 12 helicopters to the Indian government. Arrest warrants have also been issued for two people living in Switzerland. The head of Finmeccanica’s AgustaWestland business, Mr Bruno Spagnolini, has also been placed under house arrest.
The company made a statement saying: “Finmeccanica confirms that management activity and the initiatives it has undertaken are continuing in an orderly fashion.”
It has been reported that the Indian defence ministry has now ordered its own investigation.
It has been reported that Latvia’s Prosecutor General’s Office has charged five individuals with committing several crimes during a tender for the second stage of the reconstruction of Riga 2nd Cogeneration Plant.
Three of those involved have been charged with abusing their authority and accepting bribes pursuant to a prior agreement. One person has been charged with abusing office and giving bribes, and one more person with aiding and abetting.
The alleged crimes were committed between June 2007 and June 2010. According to the Corruption Prevention Bureau, Latvenergo officials and employees accepted bribes and in return they ensured that the company made decisions in favour of several foreign companies in several public procurement and reconstruction contracts.
A website has been launched in Lebanon with the aim of eradicating corruption and bribery. Mr Rabih Sfeir created the website – www.rashwe.com – to encourage citizens to stand up to corruption.
Mr Sfeir has stated that the website’s purpose is to collect data and expose the most corrupt departments as well as showing how such crimes can affect the economy.
It has been reported that Myanmar’s former telecommunications minister and other officials are under investigation for graft. The investigation by the Home Ministry and auditor general covers approximately 50 individuals and civil servants connected to the telecommunications ministry.
It has been reported that the Nigerian MP who chaired the House of Representative Committee’s inquiry which found that a fuel subsidy scam had cost Nigeria $6.8 billion (£4.2 billion) has been charged with corruption.
Mr Farouk Lawan is alleged to have received $500,000 of a $3 million bribe from the oil billionaire, Mr Femi Otedola, to have his company, Zenon, removed from a list of those involved in the alleged scam.
Another member of Mr Lawan’s parliamentary committee investigating the scandal, Mr Emenalo Boniface, was also charged with corruption for accepting $120,000 of the $3 million bribe from Mr Otedola.
The Spanish Prime Minister, Mr Mariano Rajoy, has ordered an internal investigation into the finances of the centre-right Popular Party . It has been reported by a Spanish newspaper that senior members of the party received undeclared salaries mainly from private companies over a 20-year period.
The party Secretary General, Ms Maria Dolores de Cospedal stated:
“To dispel any doubts he has ordered a deep and exhaustive internal investigation regarding the party's finances and the way that Popular Party staff are remunerated.”
The results of the internal investigation are to be submitted to an external audit.