Designed for busy in-house counsel, compliance professionals, and anti-corruption lawyers, this newsletter summarizes some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: What company resolved Foreign Corrupt Practices Act (FCPA) allegations with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC)? What did a federal court have to say about the scope of the FCPA’s internal accounting controls provision? What did the United Nations Human Rights Committee find about the fairness of the corruption investigation and prosecution of a former Brazilian president? The answers to these questions and more are here in our April Top 10 list.
1. Waste Management Company Resolves Latin American Bribery Allegations
On April 20, 2022, DOJ and the SEC announced a coordinated foreign bribery resolution with Stericycle, Inc. related to alleged bribery of foreign officials in Brazil, Mexico, and Argentina. As part of the DOJ resolution, the company agreed to a three-year deferred prosecution agreement (DPA), which imposes an independent compliance monitor for two years and a $52.5 million monetary penalty, with up to a $9.3 million credit for fines paid to Brazilian authorities. Under the SEC order, the company will pay approximately $28.2 million in disgorgement and prejudgment interest, with a $4.2 million offset for disgorgement paid to Brazilian authorities. Both resolutions allege that the company violated the FCPA’s anti-bribery and accounting provisions. Between 2011 and 2016, the company allegedly paid approximately $10.5 million in bribes to officials in Brazil, Mexico, and Argentina to obtain and retain government contracts in those countries for various waste management services, which resulted in approximately $21.5 million in profits. Company executives allegedly directed cash to be distributed to employees, often using fake invoices and fake accounting entries (for items such as debt collection expenses and first aid training), and the employees allegedly used the money to make bribe payments, often through the use of third-party intermediaries. Employees allegedly created spreadsheets to track bribe payments using code words and euphemisms, such as “CP” or “commission payment,” “IP” or “incentive payment,” “little pieces of chocolates,” and “alfajores” (a popular Argentinian cookie). The Stericycle DPA is particularly notable because it is the first DOJ FCPA resolution since Deputy Attorney General (DAG) Lisa Monaco’s October 2021 announcement that prosecutors would be considering the “full criminal, civil, and regulatory record[s]” of companies that are targets of criminal investigations. According to the DPA, DOJ took into consideration that “the Company has some history of prior civil and regulatory settlements, but no prior criminal history.” This suggests that, under the Monaco Memo analysis, DOJ might place greater weight on criminal resolutions than other types of resolutions when determining an appropriate resolution.
2. Investment Bank Executive Convicted for Bribery in Malaysia and Abu Dhabi
On April 8, 2022, DOJ announced that, after an eight-week trial that began in February 2022, a jury in the Eastern District of New York had returned a guilty verdict against Ng Chong Hwa, also known as Roger Ng, on foreign bribery-related charges. Ng was convicted on all eight counts of a superseding indictment alleging that he had conspired to launder billions of dollars embezzled from Malaysia’s sovereign wealth fund 1Malaysia Development Berhad (1MDB), conspired to violate the FCPA’s anti-bribery provisions by paying more than $1 billion in bribes to a dozen government officials in Malaysia and Abu Dhabi, and conspired to violate the FCPA’s accounting provisions by circumventing the internal accounting controls of his employers’ parent company, an investment bank whose shares trade on a U.S. stock exchange. Among other things, DOJ argued at trial that Ng and others at the investment bank paid bribes and kickbacks to secure $6.5 billion worth of bond deals with 1MDB, which the investment bank underwrote. Ng and his former boss, Tim Leissner, allegedly pocketed tens of millions of dollars as part of the scheme. Leissner pleaded guilty in October 2018 and testified for the prosecution in Ng’s trial. Ng’s sentencing is scheduled for September 13, 2022. He still faces criminal charges in Malaysia. (For more on the 1MDB case, see our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, October 2018, February 2019, May 2019, April 2020, August 2021, September 2021, and February 2022 Top 10s.)
3. Federal Court Examines the Limits of the FCPA’s Internal Accounting Controls Provision
As noted above, Ng was convicted of, among other things, circumventing the internal controls of an issuer. On April 8, 2022, following Ng’s conviction, Eastern District of New York Judge Margo Brodie issued a written opinion denying Ng’s motion for acquittal on that charge that is a must-read for FCPA practitioners seeking to understand the contours of the FCPA’s internal accounting controls provision. According to the opinion, DOJ presented evidence at trial showing that Ng and others conspired to conceal information from the groups at the issuer that were responsible for enforcing the issuer’s internal accounting controls and that, had the concealed information been revealed, the groups would not have authorized the bond transactions at issue. Ng argued that the government’s theory “read the word ‘accounting’ out of the [FCPA’s] ‘internal accounting controls’ provision[.]” According to Ng, accounting controls “are ‘a limited and defined set of controls’ that are ‘only one aspect of a company’s total control system’ and that are to be distinguished from legal, risk-management, compliance, and other controls.” DOJ responded that the FCPA’s internal accounting controls provision plainly includes controls related to management authorization of transactions and access to company assets and that, by conspiring to withhold information from management, Ng circumvented the issuer’s controls related to these two objectives. The court sided with DOJ. According to the opinion, “while the Court could read the words [‘internal accounting controls’] in isolation and interpret the statute to apply only to a limited subset of controls specifically related to accounting, a literal reading of the statute, in its entirety, would be inconsistent with such a narrow reading.” According to the court, “The statute defines an adequate system of internal accounting controls by reference to the objectives of such a system, and the plain language of the statute indicates that such systems are intended not only to provide reasonable assurances of accurate internal accounting for purposes of external financial reports, as addressed by [two subparts of the internal accounting controls provision], but also to provide reasonable assurances that the company is adequately controlled, as addressed by” the two subparts Ng was alleged to have circumvented that require issuers to implement controls designed to “reliably ensure that transactions are executed, and access to assets is permitted, in accordance ‘with management’s general or specific authorization.’” The court further held that this circumvention does not require the falsification of a book or record, which is addressed by the books-and-records part of the FCPA’s accounting provisions. Under this construction of the statute, the court found that there was sufficient evidence to sustain Ng’s conviction. The court also rejected Ng’s argument that the FCPA’s internal accounting control provision is unconstitutionally vague. Although there are still situations where aspects of an issuer’s compliance program could fall outside of the term “internal accounting controls” (see, e.g., our discussion of this issue in our client alert on the July 2020 revisions to the FCPA Resource Guide), the court makes a persuasive argument as to why the Ng case does not present such a situation.
4. FinCEN Urges Financial Institutions to Focus on Kleptocracy
On April 14, 2022, the Financial Crimes Enforcement Network (FinCEN) issued an advisory urging financial institutions to focus efforts on detecting the proceeds of foreign public corruption. The advisory defines typologies of kleptocracy and foreign public corruption, including wealth extraction (through bribery and other means) and the laundering of illicit proceeds. The advisory also highlights red flags that can assist financial institutions in preventing, detecting, and reporting suspicious transactions associated with kleptocracy and foreign public corruption. The red flags include, for example, transactions involving long-term government contracts awarded through an opaque selection process to repeat or related players, high-value assets not commensurate with foreign public official salaries, funds moving to and from countries to which a foreign public official has no ties, and the use of third parties to shield the identity and ownership interests of foreign public officials. The advisory names Russia as an area of “particular concern as a kleptocracy.” In remarks accompanying the release of the advisory, FinCEN Acting Director Himamauli Das stated, “Russia’s further invasion of Ukraine is a yet another example of how a kleptocracy like Russia—a country whose government has been characterized for years by corruption, money laundering, malign influence, sanctions evasions and armed interventions abroad—harms not only its own citizens, but those living beyond its borders.”
5. UK SFO Recovers Over £550,000 Linked to Middle Eastern Bribery Scheme
On April 29, 2022, the UK Serious Fraud Office (SFO) announced that it had recovered £567,466.53 from personal bank accounts linked to Basim Al Shaikh, who worked as an agent for Petrofac, Limited, one of the world’s largest providers of oilfield services to oil and gas producers. In October 2021, SFO announced that Petrofac had pleaded guilty to failing to prevent bribery in violation of the UK Bribery Act (UKBA) and had agreed to pay approximately $104.6 million in total penalties to resolve allegations of bribery in Iraq, Saudi Arabia, and the United Arab Emirates. Al Shaikh, who is now deceased, worked as an agent for Petrofac and allegedly paid bribes to secure contracts for the company, using two companies in the United Arab Emirates to launder the bribes.
6. World Bank Debars Hydropower Companies for Improper Practices in Pakistan and the Democratic Republic of Congo
On April 14, 2022, the World Bank announced that it had debarred two hydropower equipment manufacturers that are part of a German family‑owned conglomerate, Voith Group, for collusive and corrupt practices related to projects in Pakistan and the Democratic Republic of Congo. In Pakistan, the manufacturers, using a commercial agent, allegedly obtained advance access to confidential information from public officials and paid bribes to public officials to obtain favorable decisions while contracting. The parent company was found to have insufficiently supervised its subsidiaries. In the Democratic Republic of Congo, the German-based subsidiary failed to disclose an intent to pay a commercial agent in its bid. The two subsidiaries are Voith Hydro GmbH & Co. KG, which is based in Germany and was sanctioned for 21 months, the last six months of which will be structured as conditional non-debarment, and Voith Hydro Shanghai Ltd, which is based in China and has been debarred for 34 months followed by a six-month conditional non-debarment period. During these debarment period, the companies are ineligible to participate in projects and operations financed by the World Bank Group. The parent company, Voith Hydro Holding GmbH & Co. KG, is subject to conditional non-debarment for 21 months, during which time the parent or other subsidiaries that are not themselves debarred remain eligible to participate in projects financed by the World Bank Group so long as the parent complies with its obligations under the settlement agreement. As part of the settlement, the companies also agreed to pay restitution of €1.77 million to Pakistan and the Democratic Republic of Congo and to develop an integrity compliance program. The debarments of the subsidiaries qualify for cross-debarment by other multilateral development banks.
7. UEFA and Europol Team Up to Fight Corruption in European Soccer
On April 26, 2022, Europe’s law enforcement agency (Europol) announced that it had joined forces with the Union of European Football Associations (UEFA) to combat corruption and match‑fixing in European football. As part of this effort, 109 senior officials from law enforcement, judicial authorities, and national football associations met at Europol’s headquarters in The Hague, Netherlands, to analyze the most pressing current and future threats to the integrity of football, methods of fighting organized crime groups, operational collaboration between law enforcement bodies and UEFA Integrity Officers, the early detection of suspicious betting patterns, and ways in which newly adopted legal frameworks and tools can prevent match-fixing and facilitate information sharing. In recent years, corruption is international soccer has been a major law enforcement focus in the Europe and the United States. (For more on this focus, see our December 2017, November 2017, February 2018, February 2020, April 2020 , May 2020, June 2020, February 2021, May 2021, August 2021, and January 2022 Top 10s.)
8. Predictive Corruption Management Tool Released
On April 12, 2022, the European Centre for Anti-Corruption and State-Building and the Center for International Private Enterprise launched the Corruption Risk Forecast (CRF), a dashboard with data from over 120 countries designed to assist users in managing corruption. The stated goal of the CRF is to use “a vast array of granular public data” to allow users to analyze corruption from multiple dimensions, such as public transparency, judicial independence, and press freedom. The dashboard rates countries based on a continuum of “More or Less Corruption Risk” and forecasts whether that risk is “Declining, Stationary, or Improving.” It also provides links to country profiles that provide the data used for the forecast, as well as basic background facts regarding each country. The CRF should join the Transparency International Corruption Perceptions Index (TI-CPI), the TRACE International Bribery Risk Matrix, and others as a useful tool for assessing anti-corruption risk in international business.
9. UN Human Rights Committee Finds Former Brazilian President’s Rights Were Violated in Corruption Investigation and Prosecution
On April 28, 2022, the United Nations Human Rights Committee announced that it had found that former Brazilian President Luiz Inacio Lula da Silva’s rights had been violated during Operation Lava Jato (also known as Operation Car Wash), a sweeping investigation of alleged corruption involving Brazil’s national oil company, Petróleo Brasileiro S.A. (“Petrobras”). Lula was found guilty of corruption and money laundering by a federal court in Brazil in July 2017, sentenced to nine and a half years’ imprisonment, and subsequently barred from running for president of Brazil. In March 2021, Lula’s conviction was annulled on jurisdictional grounds. Lula filed a complaint with the Human Rights Committee regarding how he was brought to trial. The Human Rights Committee found that several pretrial moves by the trial court, including, for example, the issuance of a bench warrant and the public disclosure of wiretapped conversations, had violated Lula’s right to be tried by an impartial tribunal, right to privacy, and political rights to run for office. The Human Rights Committee urged Brazil “to ensure that any further criminal proceedings against Lula comply with due process guarantees and to prevent similar violations in the future.” They also gave the Brazilian government 180 days to announce and communicate to the Brazilian public how they will remedy the violations of Lula’s rights. Lula is running in the current presidential race. (See our August 2016, June 2017, July 2017, September 2017, January 2018, September 2020, and March 2021 Top 10s for previous discussions of charges against Lula.)
10. China’s Internal Crackdown on Corruption in the Financial Sector Accelerates
China’s crackdown on corruption in its financial sector continued in April 2022 with inquiries into numerous high-level finance officials. At least 17 officials reportedly faced probes or were penalized in April. Among those being investigated are former China Merchants Bank Co. President, Tian Huiyu, a former official at the nation’s market regulator, Zeng Changhong, the ex-chairman of Chongqing Three Gorges Bank, Ding Shilu, and a former Chinese justice minister, Fu Zhenghua, known for his self-described “heavy fist” approach to law enforcement. April’s actions follow a February rebuke from the Central Commission for Discipline Inspection (CCDI), in which more than two dozen financial regulators and state banks were criticized for common problems in meeting the objectives of the Communist Party’s leadership. The problems identified by the CCDI included gaps in implementing the Party’s major strategy, insufficient awareness and mechanisms to prevent financial risks, and slow progress in making financial reforms. Although the crackdown mainly focuses on Chinese officials and citizens, companies engaged in the Chinese financial sector should be mindful of this latest development.