UPDATES TO FCPA CORPORATE ENFORCEMENT POLICY PROVIDE FURTHER GUIDANCE FOR COMPANIES FACING ANTI-CORRUPTION CONCERNS OR INVESTIGATIONS
On March 8, in a keynote address to the American Bar Association (ABA) National Institute on White Collar Crime, Assistant Attorney General Brian Benczkowski previewed changes to the U.S. Department of Justice (DOJ) Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy (the Policy) that the DOJ released later that day. These changes are the first updates to the Policy since November 2017 when Deputy Attorney General Rod Rosenstein announced the Policy, which creates a presumption of a declination in an FCPA enforcement action if a company meets certain standards for voluntary self-disclosure, full cooperation and timely and appropriate remediation. The Policy--including the recent updates--also provides companies with guidance about the steps to take when evaluating anti-corruption concerns or pursuing a declination or cooperation credit in an ongoing investigation.
The revised Policy incorporates several of the changed practices that DOJ officials have previously announced or previewed. Specifically, the new Policy formalizes the following key changes.
To receive credit for voluntary self-disclosure, companies do not need to disclose all relevant facts about all individuals involved in the wrongdoing. Rather, the revised Policy clarifies that a company must only disclose relevant facts about "individuals substantially involved in or responsible for the violation of law."
This change is in line with Rosenstein's prior public comments. In November, Rosenstein stated that "investigations should not be delayed merely to collect information about individuals whose involvement was not substantial." Rather, the DOJ's focus is "on the individuals who play significant roles in setting a company on a course of criminal conduct."
The incentives and credits outlined in the Policy now explicitly apply in the merger and acquisition (M&A) context. As Benczkowski addressed in his keynote speech, over the past year, prosecutors have been starting to apply the Policy's principles where misconduct is discovered through due diligence in the M&A process. The Policy's application in the M&A context avoids chilling acquisition activity by law-abiding companies that might otherwise walk away from worthwhile investments due to the risk of FCPA enforcement. Under the revised Policy, a company that
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...in order to qualify for maximum credit for full cooperation, a company must de-conflict witness
interviews and other investigatory activities for
its internal investigation with the DOJ's
investigatory steps.
uncovers wrongdoing, voluntary self-discloses the misconduct and meets the other criteria in the Policy--including implementing an effective compliance program at the acquired entity--will receive a presumption of a declination.
The DOJ substantially updated its criteria for "timely and appropriate remediation" by changing its guidance on business communication and retention of business records. In the 2017 Policy, the DOJ required implementation of compliance programs that "prohibit[ed] employees from using software that generates but does not appropriately retain business records or communications." This provision was criticized by the white collar community because it essentially excluded any company that relied on ephemeral messaging apps such as WhatsApp and WeChat--which are commonly used in international business dealings--from receiving full cooperation credit.
T he DOJ relaxed this prohibition in the revised Policy. Rather than prohibiting use of ephemeral messaging systems, the Policy now requires companies to implement "appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company's ability to appropriately retain business records or communications or otherwise comply with the company's document retention policies or legal obligations."
The DOJ added a clarifying footnote to the Policy's de-confliction requirement, which provides that in order to qualify for maximum credit for full cooperation, a company must de-conflict witness interviews and other investigatory activities for its internal investigation with the DOJ's investigatory steps. In a new footnote, the DOJ clarified that although the DOJ may request the company delay an investigatory action for a limited period of time for de-confliction purposes, the DOJ "will not take any steps to affirmatively direct a company's internal investigation efforts."
The updates to the Policy reflect the continuation of DOJ's efforts to provide greater transparency in its FCPA enforcement practices. Companies should consult with legal counsel about the effect of these changes on their compliance efforts and any ongoing internal or government investigations.
DOJ OFFICIALS PROVIDE INSIGHTS ON FCPA ENFORCEMENT PRACTICES AT WHITE COLLAR CONFERENCES
Senior officials of the DOJ generally and the FCPA unit specifically spoke at several white collar conferences throughout March. Their remarks offered insights into the DOJ's current FCPA enforcement practices and policies and explain what companies should be considering when facing a potential enforcement action. Here are some takeaways from their various recent comments.
The DOJ is making transparency of its enforcement policies and practices a top priority.
As noted above, U.S. Assistant Attorney General Benczkowski gave the keynote address at the ABA National Institute on White Collar Crime on March 8. Benczkowski emphasized the DOJ's recent strides toward promoting transparency and efficiency in its FCPA enforcement. He also echoed past comments regarding the DOJ's commitment to reaching "equitable and just" outcomes for companies and their employees, executives and shareholders.
Benczkowski began by stating that DOJ officials are making a concerted effort to be "open books" about FCPA enforcement practices and policies. To further this goal, Benczkowski cited two main areas where DOJ has prioritized transparency: by updating, clarifying and distributing its enforcement policies to prosecutors and the public and by publishing information on case-specific resolutions. By improving enforcement transparency, Benczkowski explained that companies can have confidence that "they will get a fair shake
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Companies that have weak compliance
programs are much more likely to have
a compliance monitor imposed.
from the Department" and stated that companies will know precisely what steps they should take to qualify for a declination. In this area of growing transparency, it is critical for companies to consult with knowledgeable outside counsel regarding the DOJ's current enforcement practices.
Benczkowski also affirmed the DOJ's commitment to enforcement that is "equitable and just" for all parties involved. Highlighting two recent declination decisions, Benczkowski noted that both companies involved received favorable decisions notwithstanding aggravating factors such as the involvement of top executives in the misconduct. In both cases, the DOJ decided to pursue charges against the individuals responsible for the wrongdoing, but the companies themselves received declinations because their actions were "otherwise exemplary."
Compliance programs will be a "key factor" in determining whether a monitorship is imposed.
Daniel Kahn, the DOJ's FCPA Unit Chief, speaking on a panel at the ABA Institute on White Collar Crime on March 7, provided further insight into what DOJ looks for when deciding whether to impose a compliance monitor. According to Kahn, one of the most important factors is the state of the company's compliance program at the time of the misconduct. Companies that have weak compliance programs are much more likely to have a compliance monitor imposed. Kahn indicated that typically, if a company has not fully implemented a compliance program, the DOJ will impose a three-year monitorship. Companies that have a functional compliance program but have not tested it are more likely to have a two-year monitorship imposed. Kahn's comments highlight the importance of working with outside counsel to develop and maintain strong compliance programs.
...DOJ is seeking to improve its cooperation
efforts with foreign jurisdictions in order
to more effectively prosecute multinational
FCPA violations.
Individual enforcement is the most effective deterrent to corporate misconduct.
Presenting the keynote address at the 15th Annual TRACE Forum in Washington, D.C., Deputy Attorney General Rosenstein told attendees that the most effective deterrent to corporate criminal misconduct is identifying the people who commit the crimes and sending them to prison. He added that one of the central goals of the FCPA Corporate Enforcement Policy has been to incentivize companies to not only self-disclose FCPA violations but to cooperate with the DOJ to identify the individuals responsible for the company's misconduct. Rosenstein's remarks continue a trend that dates back a number of years of increased focus on enforcement actions against individuals.
Global cooperation in enforcement actions is on the rise.
Rosenstein also stated in his keynote address that the DOJ is seeking to improve its cooperation efforts with foreign jurisdictions in order to more effectively prosecute multinational FCPA violations. Though the formal process of requesting assistance is still a complicated and slow process, Rosenstein said that a better approach is often to just call up international enforcement agencies to obtain information more quickly. Rosenstein's remarks are consistent with the recent trend of the DOJ cooperating with foreign regulators in many of its FCPA enforcement actions.
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IN THE INTERIM
1/16/2019: A federal judge approved Och Ziff Capital Management's $28.8 million settlement with shareholders to resolve a class-action suit accusing Och Ziff of concealing a material fact from investors. Shareholders claimed that Och Ziff failed to inform them that the hedge fund was under investigation by U.S. authorities from 2012 to 2014 regarding the fund's activities in Libya and the Democratic Republic of the Congo. Och Ziff reached resolutions with the DOJ and the U.S. Securities and Exchange Commission (SEC) in 2016, paying combined penalties and disgorgement of approximately $412 million. Shareholders claimed that the fund's stock was overinflated due to a "series of untrue or materially misleading statements which omitted to disclose that OZM was under investigation...for possible violations of the Foreign Corrupt Practices Act." Och Ziff and shareholders agreed to the proposed settlement in October 2018 and have been waiting for court approval.
http://src.bna.com/ERl
1/29/2019: The World Bank debarred Construtora Noberto Odebrecht S.A., a Brazil-based construction and engineering company, for three years for the company's "fraudulent and collusive practices" in connection with a World Bank project in Columbia. According to the World Bank's press release, Odebrecht engaged in fraudulent conduct when it failed to disclose fees that it paid during the bidding process to agents who provided the company with confidential information. Odebrecht also engaged in collusive practices when--through one of the agents it paid with the undisclosed fees--it attempted to "improperly influence the tendering package that was part of the project." As part of the settlement agreement, Odebrecht acknowledged its wrongdoing and agreed to meet certain compliance conditions before being released from the debarment.
http://www.worldbank.org/en/news/press-release/2019/01/29/world-bank-group-announcessettlement-with-brazilian-subsidiary-of-odebrecht
2/6/2019: The World Bank announced a five-year debarment of two Nigeria-based companies and their owner for engaging in "fraudulent practices" when obtaining waste management contracts with the Nigerian government. According to the World Bank, the companies' owner, Robinson Ekenedilichukwu Ojoko, worked for the Nigerian government agency that was implementing a World Bank-financed waste management contract. When Ojoko's companies, Rojoke CNE Service Ltd. and CNE Environmental & Waste Services Ltd., submitted bids for the project, they fraudulently misrepresented Ojoko's ownership interest in the companies by submitting false documents to the World Bank. Under the terms of the settlement, Ojoko acknowledged responsibility for the misconduct.
http://www.worldbank.org/en/news/press-release/2019/02/06/world-bank-group-debarstwo-nigerian-waste-management-companies-and-their-owner-for-five-years
2/11/2019: The DOJ unsealed money laundering charges against Master Halbert, a government official in the Federated States of Micronesia Department of Transportation, Communications and Infrastructure. According to the criminal complaint, between 2006 and 2016, Halbert accepted bribes from an unnamed Hawaii-based engineering and consulting company, owned by Frank James Lyon, to help Lyon obtain and retain approximately $8 million worth of Micronesian government contracts. Lyon, who bribed Halbert, pleaded guilty on January 22, 2019, to one count of conspiracy to violate the FCPA and to commit federal program fraud.
Halbert criminal complaint: https://www.justice.gov/opa/press-release/file/1131276/download Lyon guilty plea: https://www.justice.gov/criminal-fraud/file/1141611/download
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2/15/2019: The DOJ and SEC each announced a resolution with Cognizant Technology Solutions Corporation in connection with alleged bribes the company paid to foreign officials in India in 2014. According to the agencies, the corporation's former president, Gordon Coburn, and former chief legal officer, Steven Schwartz, authorized a construction contractor to pay a $2 million bribe to officials to procure a construction permit for Cognizant's new office campus in India. Cognizant reimbursed the contractor for the bribe by paying more than $2 million in fake invoices to the builder. Cognizant entered into a cease-and-desist order with the SEC and agreed to pay approximately $25 million in civil penalties, disgorgement and pre-judgment interest. The DOJ declined to prosecute Cognizant due to Cognizant's prompt self-disclosure, cooperation and remedial efforts. But the DOJ ordered Cognizant to disgorge over $19 million, some of which will be credited because of Cognizant's concurrent disgorgement to the SEC for the same conduct. On the same day, the DOJ and SEC announced they are proceeding with individual charges against Coburn and Schwartz.
SEC: https://www.sec.gov/news/press-release/2019-12
DOJ: h ttps://www.justice.gov/opa/pr/former-president-and-former-chief-legal-officerpublicly-traded-fortune-200-technology
2/26/2019: The DOJ charged two more individuals in connection with its continued investigation into bribery at Venezuela's state-owned energy company, Petroleos de Venezuela S.A. (PDVSA). Franz Herman Muller Huber, the president of a Miami-based PDVSA supplier, and Rafael Enrique Pinto Franceschi, a sales representative for the company, were charged with conspiracy to violate the FCPA, along with wire fraud and money laundering charges. According to the DOJ's press release, Pinto and Muller conspired with others to bribe three PDVSA officials to obtain contracts, confidential information and payment on past-due invoices. Two of the three officials whom Pinto and Muller allegedly bribed have already pleaded guilty and are awaiting sentencing. Altogether, the DOJ has announced charges against 21 individuals, 15 of whom have pleaded guilty, in relation to the PDVSA investigation.
https://www.justice.gov/opa/pr/two-businessmen-charged-foreign-bribery-connectionvenezuela-bribery-scheme
3/6/2018: Mobile TeleSystems PJSC, Russia's largest mobile telecommunications company, will pay U.S. authorities $850 million in a settlement to resolve allegations that the company bribed government officials in Uzbekistan. According to the DOJ, between 2004 and 2012, Mobile TeleSystems made multiple payments to shell companies owned by an Uzbek official, Gulara Karimova, and charities connected with Karimova in exchange for entrance into and continued operation in the Uzbek telecom market. In addition to paying a criminal fine and disgorgement, as part of its deferred prosecution agreement with the DOJ, Mobile TeleSystems agreed to the imposition of an independent compliance monitor for three years, to implement new internal controls and to cooperate with DOJ investigations--including the investigation against Karimova, which is discussed immediately below. Mobile TeleSystems agreed to pay a civil fine in its SEC settlement.
SEC: https://www.sec.gov/news/press-release/2019-27
DOJ: https://www.justice.gov/opa/press-release/file/1141631/download
3/7/2019: The DOJ announced that it has charged Gulara Karimova, an Uzbek official who is also the daughter of the former president of Uzbekistan, with one count of conspiracy to commit money laundering. According to the DOJ, Karimova "allegedly had influence over the Uzbek governmental body that regulated the telecom industry" and used that influence to solicit and facilitate corrupt payments from telecommunications companies seeking to
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obtain and retain business opportunities in Uzbekistan. Altogether, the DOJ alleged Karimova solicited and accepted more than $865 million in bribes from three telecom companies and filtered those bribes through the U.S. financial system. As noted immediately above, one of the companies from which Karimova solicited bribes, Mobile TeleSystems, settled related charges with the DOJ and SEC one day earlier. These matters follow on the scheme to bribe Uzbek officials that led to the $795 million global resolution in 2016 with VimpelCom Limited, a Netherlands-based telecommunications company, and the $965 million resolution in 2017 with Telia Company AB, a telecommunications company based in Sweden. In the same indictment as Karimova, a former executive of one of Mobile TeleSystems' subsidiary was charged with FCPA violations and conspiracy to commit money laundering. https://www.justice.gov/opa/press-release/file/1141641/download
3/7/2019: The U.S. Court of Appeals for the Sixth Circuit rejected an Armenian businessman's appeal to force the U.S. District Court for the Southern District of Ohio to rule on his motion to dismiss criminal charges while a fugitive. Azat Martirossian was indicted on money laundering and conspiracy charges after prosecutors alleged that he participated in a scheme to bribe a Kazakh official on behalf of Rolls-Royce Energy Systems, Inc. Martirossian's attorneys filed a motion to dismiss the charges, arguing that his conduct did not fall under the statute under which he was indicted. The district court is holding the motion in abeyance until Martirossian, who resides in China, appears in court. The Sixth Circuit affirmed the district court's action, stating that "federal courts do not play `catch me if you can'" and that Martirossian has not "met the lofty bar" for the court to intervene in this case. https://cases.justia.com/federal/appellate-courts/ca6/18-4114/18-4114-2019-03-07. pdf?ts=1551970828
3/25/2019: Chi Ping Patrick Ho, Hong Kong's former secretary of home affairs, was sentenced to serve 36 months in prison after being convicted of eight counts of violating the FCPA, money laundering and conspiracy in 2018. While a Hong Kong cabinet member from 2002 to 2007, Ho allegedly offered bribes to the president of Chad and the foreign minister of Uganda to secure business advantages for CEFC China Energy. https://www.justice.gov/opa/pr/former-head-organization-backed-chinese-energyconglomerate-sentenced-three-years-prison
3/29/2019: German dialysis firm Fresenius Medical Care AG & Co. KGaA has agreed to pay $231 million to settle pending FCPA allegations with U.S. authorities. According to the DOJ, Fresenius paid bribes to "publicly employed health and/or government officials" from 2007 to 2016 to obtain and retain business opportunities in Angola and Saudi Arabia. Additionally, the SEC alleged that Fresenius "knowingly and willfully failed to implement" reasonable internal accounting controls and maintain accurate books and records of transactions for its business dealings in Angola, Saudi Arabia, Morocco, Spain, Turkey and countries in West Africa. After discovering the misconduct in 2012, Fresenius conducted an internal investigation, took remedial measures and self-disclosed to the DOJ and SEC. Fresenius entered into a nonprosecution agreement with the DOJ, agreeing to pay a criminal penalty of more than $84 million and to have a compliance monitor imposed for two years. In its resolution with the SEC, Fresenius will pay $147 million in disgorgement and pre-judgment interest. SEC: https://www.sec.gov/litigation/admin/2019/34-85468.pdf DOJ: https://www.justice.gov/opa/press-release/file/1148951/download
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FCPA GOVERNMENT INVESTIGATIONS AND CORPORATE SETTLEMENTS
FCPA-Related Cases*
49
DOJ
SEC
28
20 14
15
28
26 25
23
21 20 19
11 12
13 14 11 11
16 10
17 15
9 5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
* N ew criminal or civil cases (settled or contested) instituted by year ** Based upon public disclosures of investigations
Corporate FCPA-Related Penalties* (in U.S. millions)
1885.1
1569.7
2436.7
2225.5
1452.5
803 644.6
502.7
260.3
731.1
143.2
1109.1
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
* Includes disgorgement; does not include non-U.S. fines
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