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: Why did a U.S. court reject an individual defendant’s attempt to limit the scope of corrupt conduct covered by the Foreign Corrupt Practices Act (FCPA)? How would a bill introduced in the U.S. Congress expand a U.S. domestic bribery law to foreign officials? What guidance did the UK Serious Fraud Office (SFO) provide to companies that are seeking cooperation credit? The answers to these questions and more are here in our August 2019 Top 10 list.
1. Federal Appellate Court Rejects “Official Act” Limitation to FCPA. On August 9, 2019, the U.S. Court of Appeals for the Second Circuit upheld Macao businessman Ng Lap Seng’s July 2017 conviction for violating and conspiring to violate the FCPA, as well as for federal program bribery and money laundering, in connection with an alleged scheme to bribe United Nations officials to help him build a conference center in Macao. The Court rejected Ng’s argument that the FCPA and the federal program bribery statute, 18 U.S.C. § 666, are limited to prohibiting bribes paid in exchange for “official acts.” Ng argued that the jury should have been instructed to use the definition for “official act” established by the Supreme Court in McDonnell v. United States in June 2016 for the domestic bribery statute, 18 U.S.C. § 201, in determining whether he violated § 666 and the FCPA. The Second Circuit held that § 201’s “official act” standard derives from the specific language of that statute and “does not necessarily delimit the quo components of other bribery statutes, such as § 666 or the FCPA,” which the court described as more “expansive” than § 201. (We predicted that a court might reach a similar conclusion in our coverage of the McDonnell decision.) The court cited several other appellate court decisions that declined to apply McDonnell to other bribery statutes, including § 666, honest services wire fraud and state bribery statutes, but this is the first time a court had considered its application to the FCPA. In addition to rejecting Ng’s McDonnell argument, the court rejected Ng’s arguments that the FCPA is unconstitutionally vague and violates federalism principles, as well as his challenges to the jury instructions on the FCPA’s “corruptly” and “business nexus” elements. The Ng decision is a must-read for any practitioner trying to grapple with the contours of the FCPA’s quid pro quo requirement and adds to the relatively small—but growing (see here, here, and here, for examples)—FCPA jurisprudence.
2. Proposed Legislation Would Expand the Reach of U.S. Anti-Bribery Law to Foreign Officials. A frequent complaint of the business community and others is that the FCPA focuses only on the bribe payer (also known as “supply side” or “active” bribery) and not on the bribe receiver (also known as “demand side” or “passive” bribery) and, therefore, does not do enough to combat foreign bribery. The U.S. Department of Justice (DOJ) has responded, in part, by using the general money laundering statutes and other laws to prosecute foreign officials whose conduct directly affects the United States. (See our February 2018 Top 10 for more on this prosecutorial response.) On August 2, 2019, a bill was introduced in the U.S. House of Representatives that would formally close this gap by criminalizing bribe-taking by foreign officials. If adopted, the Foreign Extortion Prevention Act (FEPA) would extend the domestic bribery statute, 18 U.S.C. § 201, to foreign officials. In particular, the FEPA would provide that “Whoever, being a foreign official or person selected to be a foreign official, otherwise than as provided by law for the proper discharge of official duty, directly or indirectly, corruptly demands, seeks, receives, accepts, or agrees to receive or accept anything of value personally or for any other person or entity, in return for (1) being influenced in the performance of any official act; or (2) being induced to do or omit to do any act in violation of the official duty of such official or person, shall be fined … or imprisoned for not more than two years or both.” Because it uses the term “official act,” the offense would be subject to the McDonnell limitation described above and would arguably be narrower than the FCPA in terms of the corrupt conduct it covers. Unlike the FCPA, the FEPA does not appear to have a U.S. nexus requirement, which would make its jurisdictional reach arguably broader than the FCPA (and which could subject it to legal challenges on this basis). This will be a key development to watch.
3. Financial Institution Resolves Hiring Allegations with SEC. On August 22, 2019, the U.S. Securities and Exchange Commission (SEC) announced that Deutsche Bank had agreed to pay approximately $16 million in disgorgement, prejudgment interest, and civil penalties in order to resolve allegations that it violated the FCPA’s accounting provisions by hiring relatives of Chinese and Russian public officials between 2006-2014 to improperly influence them to assist the bank in obtaining or retaining business. According to the SEC order, the bank failed to effectively implement its written hiring policies and other procedures designed to address corrupt hiring risks until 2015. The bank neither admitted nor denied SEC’s findings, and there was no parallel enforcement action by DOJ. As we noted in an earlier hiring case in November 2016, this resolution again highlights the apparent view of SEC (and DOJ) that H.R. policies constitute part of a company’s system of internal accounting controls.
4. U.S.-Based Networking and Cybersecurity Company Resolves Travel Allegations with SEC. On August 29, 2019, SEC announced that Juniper Networks had agreed to pay approximately $11.7 million in disgorgement, prejudgment interest, and civil penalties to resolve allegations that it violated the FCPA’s accounting provisions based on travel-related conduct funded by its Russian and Chinese subsidiaries. The company neither admitted nor denied SEC’s findings, and there was no parallel enforcement action by DOJ.
5. DOJ Ends FCPA Investigation into Medical Device Maker. On August 15, 2019, Misonix, Inc., announced in a securities filing that it had received a letter informing it that DOJ had closed its inquiry into the company’s China business. In June 2019, the company reported that SEC had concluded its related inquiry without recommending any enforcement action.The DOJ and SEC investigations were related to FCPA allegations raised by a former sales executive claiming that the company’s former distributor in China, Cicel Science & Technology, had channeled funds through third parties for doctors’ personal benefit. The company conducted an internal investigation into the allegations and voluntarily reported potential FCPA violations to U.S. authorities in 2016. The internal investigation took center stage in a civil dispute between the company and Cicel, resulting in a federal court ruling in April 2019 that documents created during the investigation were protected by the attorney-client privilege.
6. Manager of International Adoption Agency Pleads Guilty to FCPA Charges. On August 29, 2019, DOJ announced that Robin Longoria of Mansfield, Texas, had pleaded guilty in the Northern District of Ohio to one count of conspiracy to violate the FCPA, to commit wire fraud, and to commit visa fraud. Longoria, who managed aspects of an Ohio-based international adoption agency, allegedly bribed Ugandan officials to take steps to make children available for adoption in the United States. According to DOJ, Longoria admitted to agreeing with others to pay bribes to Ugandan probation officers for favorable reports recommending that children be placed in orphanages, to Ugandan court registrars to assign particular cases to “adoption-friendly” judges, and to Ugandan judges to influence their decisions in favor of the agency’s clients (who were unaware that bribes were being paid). International adoption has been a relatively frequent subject of FCPA opinion procedure releases (see, e.g., FCPA Op. Proc. Rel. 11-01 and 12-02), but the Longoria case appears to be the first enforcement action involving this subject.
7. PDVSA Investigation Continues. On August 21, 2019, Franz Muller Huber pleaded guilty in the Southern District of Texas to one count of conspiring to violate the FCPA and one count of conspiring to commit wire fraud. Huber was arrested in February 2019 for allegedly bribing three officials of Venezuela’s state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA), in exchange for helping his company, a PDVSA supplier, win business. Huber’s co-defendant, Rafael Enrique Pinto Francheschi, pleaded guilty to the same charges on July 31, 2019. On August 28, 2019, Moises Abraham Millan Escobar was sentenced in the Southern District of Texas to three years’ probation and a fine of $15,000 for his role in an alleged scheme to bribe PDVSA officials. Millan had pleaded guilty under seal in January 2016 to one count of conspiracy to violate the FCPA. DOJ has charged 21 individuals and obtained 18 guilty pleas in connection with alleged bribery involving PDVSA.
8. UK Publishes Corporate Cooperation Guidance. On August 6, 2019, the SFO published its “Corporate Co-operation Guidance,” a five-page document describing how the SFO assesses cooperation in the context of making corporate charging decisions. According to the SFO, cooperation means “providing assistance to the SFO that goes above and beyond what the law requires,” such as identifying and timely reporting suspected wrong-doing and the responsible individuals, and is “inconsistent with” protecting individuals, putting subjects on notice, and creating a danger of tampering with evidence or testimony, or withholding information. The guidance highlights “good general practices” to follow when preserving and providing material to the SFO, as well as more specific guidance on digital and hard-copy evidence and financial records and analysis. The SFO stated its expectation that companies will “consult in a timely way with the SFO before interviewing potential witnesses or suspects, taking personnel/HR actions or taking other overt steps.” The guidance also addresses privilege waivers over witness interviews, which has been a point of controversy in the UK. (See, for example, our May 2017 Top 10, which discusses the privilege fight between the SFO and the Eurasian Natural Resources Corporation in a foreign bribery investigation.) Among other things, the guidance states that a party claiming privilege must have that claim certified by independent counsel and may lose certain benefits when it comes to the charging decision. Finally, the SFO emphasized that full and robust cooperation will be considered as part of its charging calculus but “does not guarantee any particular outcome.” Companies seeking cooperation credit in the UK should be sure to analyze the SFO guidance closely to maximize the potential benefits of cooperation.
9. Hong Kong Agencies Join Forces Against Financial Crime. In August 2019, Hong Kong’s anti-corruption unit, the Independent Commission Against Corruption (ICAC), signed a Memorandum of Understanding (MoU) with the administrative region’s Securities and Futures Commission (SFC). Under the MoU, which took effect on August 19, 2019, the SFC and ICAC undertake to “actively consider” referring cases to each other and detail procedures for conducting joint investigations. The MoU outlines the conditions under which the agencies may share cases or refer them to each other, including, for instance, when one of the agencies is examining suspected misconduct that falls outside its purview but is within the function of the other agency, when one agency is “in a better position” to handle the case, or when doing so would help prevent redundant investigations by both agencies. Companies facing a foreign bribery investigation involving Hong Kong should consider how the new information-sharing MoU might affect their strategy for interacting with enforcement agencies in that region.
10. Anti-Corruption Developments in Latin America.
- Mexico Passes Law to Confiscate Illegally Obtained Assets. On August 9, 2019, Mexico passed the National Law for Dominion Extinction, which will allow the federal government to transfer ownership of any property presumptively derived from illegal activities, such as corruption and money laundering. Under the new law, the owner of the assets at issue has the burden of proof to show that the assets were not obtained illegally. The law is civil in nature but the agency empowered with enforcing it is part of the criminal justice system. Both individual and corporate assets can be seized and prosecutors can sell the assets before a final decision is reached. The government’s ability to seize and dispose of assets it deems to be the product of illegality without any prior judicial decision may be challenged on constitutional or due process grounds. In enacting this legislation, Mexico joins countries such as the UK that have taken similar measures. (See, for example, our discussion of the UK’s unexplained wealth orders in our October 2018 Top 10 and this Client Alert.) Depending on how these measures are deployed, this development might represent a further step in what appears to be Mexico’s increasing anti-corruption enforcement effort. (See, for example, our discussion of the OECD’s criticism of Mexico’s foreign bribery enforcement record in our October 2018 Top 10 and our discussion of Mexico’s emerging Pemex investigation in our May 2019 Top 10.)
- Guatemala’s International Anti-Corruption Commission to Cease Operations. On August 20, 2019, the International Commission Against Impunity in Guatemala (CICIG) announced that it would cease operations in September 2019. The CICIG began its work in 2007, following a call from then-President of Guatemala Alfonso Portillo for United Nations’ assistance in battling criminal networks. According to the CICIG’s final report, it identified 70 complex criminal structures and prosecuted more than 400 individuals in over 120 cases over its 12-year history. Among those cases, in 2015, the CICIG brought charges against former Guatemalan President Otto Perez Molina and his wife Roxanna Baldetti for their role in an alleged customs corruption scheme known as La Linea. The CICIG was viewed as one of the most successful anti-corruption bodies in Latin American history, but it did not enjoy the support of the current or incoming Guatemalan Presidents, Jimmy Morales and Alejandro Giammattei. Many have expressed concern regarding the future of anti-corruption enforcement in Guatemala, and companies doing business there should factor this latest development into their risk assessments.