The investigation of Wal-Mart’s potential FCPA violations has expanded beyond Mexican borders. In its third quarter earning report filed with the U.S. Securities and Exchange Commission (SEC) this month, Wal-Mart disclosed that “[i]nquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where we operate, including but not limited to Brazil, China, and India.” For its part, the Indian government, through Commerce Minister Anand Sharma, has indicated that it is not currently looking into allegations of bribery by Wal-Mart (although it is informally investigating potential violations of India’s foreign direct investment rules for debt Wal-Mart extended to Indian retailer Bharti in 2010, but which automatically converted to equity last month.) Neither Brazilian nor Chinese officials have commented publicly on whether they are looking at Wal- Mart’s activities in those countries.
Wal-Mart’s investigation began with a 2011 directive from its general counsel, Jeffrey J. Gearhart, to conduct a routine compliance audit of Wal-Mart’s operations in China, Brazil, and Mexico. That audit exposed serious controls violations, including failure to conduct background investigations of third party agents dealing with foreign officials, and caused Wal- Mart to expand its internal audit to all 26 of its foreign subsidiaries. At the same time, The New York Times began investigating rumors that executives at headquarters had stifled an investigation into allegations made by a lawyer for Wal-Mart de Mexico that Wal-Mart was involved in widespread bribery of Mexican officials in the mid-2000s, when Wal-Mart was expanding across Mexico.
Development and implementation of its compliance program has cost Wal-Mart approximately $35 million since 2011, and its current compliance audit and internal investigation has cost almost $100 million during 2012.
ANTI-MONEY LAUNDERING CRACKDOWN
JP Morgan & Chase Co.
It is expected that JP Morgan & Chase Co. will soon receive from the United States Office of the Comptroller of the Currency (OCC) a cease and desist order, to enhance and more closely monitor its anti-money laundering system, including an examination of past transactions for possible violations of anti-money laundering rules. The government probe began in September, and is part of OCC’s increased pressure on banks to improve processes to identify possible money laundering activity, through enforcement actions and fines.
This is just the latest in federal and state regulators’ anti-money laundering actions. In April, Citibank received a cease and desist order from OCC, which faulted Citibank for weaknesses in its controls designed to identify high-risk customers, and for failure to report to regulators related suspicious activity. In September, Standard Chartered Bank reached a $340 million settlement with the New York Department of Financial Services related to allegations that it had hidden transactions with Iran valued at approximately $250 billion.
Not to be left out, DOJ recently created a Money Laundering and Bank Integrity Unit, which is charged with investigating complex international financial crime, with a focus on financial institutions and the lawyers, accountants, and other advisers who assist them in developing the systems by which money is moved in violation of various money laundering, trade, and corruption rules.
These various agency initiatives all but ensure increased enforcement of the Bank Secrecy Act, which requires U.S. financial institutions to conduct enhanced due diligence on foreign private bank accounts held by or in favor of “senior foreign political figures,” a very broadly defined term. The lesson for financial institutions and their advisors is that regulators expect anti-money laundering compliance staff to be empowered to act independently, and to question account relationships and business plans, and to be involved in the planning of anti-money laundering controls.
DOJ Kleptocracy Asset Recovery Initiative
Even money initially laundered through U.S. accounts without being detected may be identified and ultimately forfeited by action of the DOJ’s Kleptocracy Asset Recovery Initiative, which targets proceeds from foreign corruption that are funneled into or through the U.S.
For example, the U.S. government recently forfeited a Manhattan condominium and a Virginia house, together worth approximately $2.1 million, which were allegedly purchased with proceeds of bribes paid to the wife of Shui-Bian Chen, the former president of Taiwan. According to the DOJ press release, Yuanta Securities Co. Ltd. allegedly paid bribes of approximately $6 million to former first lady Sue-Jen Wu to strengthen Yuanta’s bid to acquire a financial holding company. Through bank accounts in Hong Kong and Switzerland, and shell companies in British Virgin Islands and St. Kitts and Nevis, the former president and first lady allegedly used those funds to purchase, in their son’s name, the subject properties in the U.S. Both the former president and first lady were convicted in Taiwan on charges of bribery, embezzlement, and money laundering.
DOJ/SEC Release Desktop Guidance
The joint DOJ/SEC FCPA guidance released November 14 contains some useful hypotheticals, descriptions of declinations, and checklists for practitioners and in-house counsel. For example, one hypothetical describes a facilitating payment made to hasten routine, non-discretionary processing of paperwork by a foreign government official; the guidance indicates that the government does not view that act as a violation of the FCPA (the previous “guidance,” from Mark Mendelsohn when he was in charge of the FCPA unit, was that such payments would likely violate the FCPA).
The discussion of the elements of an effective compliance program is, on its face, very handy. However, DOJ Criminal Chief Lanny Breuer, in remarks made at a November 16 conference, surely dashed the hopes of compliance officers everywhere when he explicitly stated that there remains no compliance defense to allegations of FCPA violations, referring to such a defense as “dangerous and antithetical to the way [DOJ] pursues criminal justice cases.”
Military Purchasing Manager
James Lee Loman, a former manager responsible for purchasing replacement parts for military aircraft at Tinker Air Force Base in Oklahoma, has been indicted on allegations that he accepted large sums of cash from an individual associated with Florida-based Daytona Aerospace, Inc., in exchange for causing the U.S. military to purchase Boeing 707 replacement parts from Daytona Aerospace. In the indictment, the government alleges that Loman drove to Florida on several occasions to pick up cash. The U.S. Department of Justice (DOJ) indictment requests forfeiture of over $838,000.
THE UNITED KINGDOM
News International may face Corporate Corruption Charges in the UK
It has been reported that over 20 journalists at The Sun newspaper have been arrested as part of the UK police Operation, Elveden. Police working on Operation Elveden have been investigating allegations that journalists paid public officials for information. It was further reported that some of the journalists have been asked to identify senior personnel who may have known about or condoned such payments.
It is alleged that one of the journalists believes that police are looking for evidence that could implicate News International at a corporate level in the alleged corruption. The 1906 Prevention of Corruption Act in force at the relevant time (since replaced by the Bribery Act 2010) allows charges to be brought at a corporate level. It has been used previously in cases against Mabey & Johnson and Innospec.
The possibility that News International could face corporate charges in the UK puts further pressure on the company. There is also the risk that similar charges may be brought in the Unites States under the FCPA.
Bribery Risks abroad for UK film and TV companies
Fraud investigators at Ernst & Young have stated that UK film and TV companies need to be aware of corruption and bribery risks in financing and making films following a growing trend among studios to work in emerging markets.
Ernst & Young’s Fraud Investigation & Disputes Services have warned that the next front for enforcers could be the film industry.
The warning follows China’s relaxation on the number of foreign films that can be distributed in the country. At the same time UK filmmakers looking abroad for new film opportunities received extra funding this year.
Mr Mike Rudberg, Partner in Ernst & Young’s Media and Entertainment Group, stated:
“With recent regulatory changes, it is vital companies are aware of their potential risks. While in more regulated industries, such as oil and gas, aerospace and defence, employees have a mindset to fight corruption, it may not yet be ingrained in the entertainment industry, particularly among local operations”.
THE REST OF THE WORLD
It has been reported that Mr René Benko, head of Vienna-based developer and investor, Signa, has been sentenced to 12 months on probation for corruption over a bribe that he and tax advisor Mr Michael Passer are alleged to have offered the former Croatian Prime Minister, Mr Ivo Sanader.
It is alleged that Mr Benko’s Signa Group wanted to buy a property in Italy. The charges further allege that Mr Passer wanted Mr Sanader to use his influence with Italian Prime Minister Mr Silvio Berlusconi to influence the acquisition. It is alleged that Mr Passer and Mr Sanader made a written agreement that Mr Sanader would receive €150,000 if the tax situation was resolved. The money was to come from Mr Benko.
Mr Benko denied the charges.
It has been reported that Croatia’s anticorruption police have arrested the management of a local pharmaceutical firm and over 40 doctors on suspicion of bribery over the prescription of medicines.
The USKOK anti-graft agency said the police were investigating 26 employees of the pharmaceutical company, 49 doctors and one pharmacist suspected of bribery.
The country’s health minister, Mr Rajko Ostojic, said the actual number of those involved in the alleged bribery could be higher still.
Government officials have not named the company involved.
A report recently published by the Organisation for Economic Cooperation and Development (OECD) has stated that France must do more to deal with the bribery of foreign public officials by French companies. The report follows a major corruption scandal two years ago involving the French-based company, Alcatel.
Since the OECD anti-bribery convention came into force in 1999, France has managed to secure just five convictions. The report said France interpreted the convention too narrowly. It noted that the successful prosecutions had been for relatively minor offences and said it was “seriously concerned that despite the very significant role of French companies in the international economy, only 33 foreign bribery proceedings had been initiated”.
The report found the French authorities often did not pursue foreign bribery cases on the basis that the offences took place outside the jurisdiction. It recommended that France ensure companies cannot avoid criminal liability, increase the maximum fines and encourage French officials to report suspected bribery cases.
Furthermore, it urged France to continue judicial reforms to guarantee greater independence for prosecutors, to devote more funds to tackling bribery, and to ensure secrecy surrounding defence deals did not impede investigations.
It has been reported that several EADS offices in Germany were raided by German state prosecutors and police this month as part of an investigation into bribes alleged to have been paid between 2005 and 2008.
As previously reported in September’s edition of the Anti-Corruption Digest, the European aerospace group currently faces a criminal inquiry by the Serious Fraud Office (SFO) into whether its UK subsidiary, GPT Special Projects Management Limited, bribed Saudi Arabian officials to secure a US$3.3 billion communications and intranet services contract.
The Munich prosecutor's office said the investigation had been triggered by a larger one taking place in Austria about the possible payment of bribes to Austrian officials between 2005 and 2008. The prosecutor’s office said: “We are now looking into the question of whether German residents broke German law by bribing officials in Austria”.
It was reported that paper and electronic files had been confiscated during the raids. It said the probe focused on whether advisory contracts had been used to disguise bribes.
A spokesman for EADS said: “We can confirm that there are investigations. We are cooperating with the authorities.”
Last month Transparency International (TI) Ireland published a European Commissionfunded study on safeguards against corruption in Ireland. The 2012 report is an update of TI Ireland’s 2009 National Integrity Study which reported that Ireland was perceived to suffer high levels of ‘lawful’ or ‘legal’ corruption.
The 2012 report found that measures aimed at preventing undue influence over public policy and stopping corruption in local government have yet to be implemented. 39 recommendations were made in the 2009 report to address underlying governance issues, reform the political system and to strengthen legal and institutional safeguards against maladministration and corruption. Transparency International said that none of these reforms had been implemented in full.
The report did acknowledge that several key anti-bribery and white collar crime laws had been passed since the publication of the 2009 study. Ireland had also ratified the United Nations Convention Against Corruption.
Mr John Devitt, the Chief Executive of TI Ireland stated that the delays were potentially costing the Irish economy billions of Euros every year:
“In 2009 we estimated that the Irish economy was losing around €3 billion annually from white collar crime and corruption. However, too little has been done since then to detect and prevent a problem that has left the country bankrupt. Given the potential losses the country faces from future corruption, the Government needs to address this issue with the same urgency it has shown in bailing out our banks”.
Mr Devitt continued by stating: “increased transparency and accountability are required to stop corruption – and will help in the country’s economic recovery. The Government cannot afford to drag its heels on reforms any longer”.
A copy of the report is available to view at: http://transparency.ie/sites/default/files/TI% 20Country%20Study%20Addendum2012.pdf
It has been reported that the Israel Police fraud unit is investigating suspected bribery at the Israel Electric Corporation (IEC). Allegedly Mr Yaakov Gutmacher, a buyer in the IEC's procurement department, accepted bribes to fix tenders.
The police investigation began following a complaint against Mr Gutmacher by the IEC in 2011. Mr Gutmacher was suspended from his job at IEC two months ago. He appealed against the suspension and at the hearing the bribery suspicions were revealed.
It has been reported that the International Cycling Union (UCI) has opened an investigation into allegations that Kazakhstan Olympic road race gold medalist Mr Alexandre Vinokourov bribed a rival in order to win a 2010 race.
Mr Vinokourov allegedly paid the Russian rider Mr Alexandr Kolobnev €150,000 after arranging a fix during their two-man breakaway in the April 2010 Liege-Bastogne-Liege race.
It has been reported that an anti-bribery website in Kenya is proving a useful tool in the country’s fight against corruption and bribery.
The non-profit organisation, Wamani Trust, launched the “I Paid a Bribe” website -- www.ipaidabribe.or.ke -- last year to provide a platform for individuals to anonymously share their stories and track incidents of corruption in the country's 47 counties.
More than 1,000 cases were reported in which citizens paid more than 36 million shillings ($423,000) in bribes over the one year period, according to the website. In April, the initiative launched a mobile application to allow more Kenyans to report bribery incidences.
According to the website citizens reported the most incidents of corruption among the police at 265, followed by municipal councils at 109 incidents.
Mr Cyprian Nyamwamu, chief executive officer of the National Convention Executive Council (NCEC), stated that with rapidly increasing internet usage in the country, technology will be a potent weapon against graft.
Mr Nyamwamu said the government needs to utilise initiatives like the “I Paid a Bribe” website in the fight against corruption. He continued by stating that: “The worst scenario that can happen in any vice is to remain silent because it makes it a norm.” Furthermore, “speaking out [about corruption] create[d] general awareness”.
It has been reported that a former Kosovo government minister is one of seven individuals to be charged with corruption by a European Union prosecutor.
The charges against Mr Fatmir Limaj, come more than two years after the EU police and justice officers (EULEX) raided his ministry of transport and telecommunications (MTPT). EULEX said that those involved were accused “of manipulating tender procedures, giving and receiving bribes and obstructing evidence in relation to three tenders in the MTPT for personal and/or material benefit”.