US legal action against investment fund Och-Ziff

At the end of September 2016, the investment fund Och-Ziff and its management were forced to reach an agreement with the American authorities, the SEC (Securities and Exchange Commission) and the DOJ (Department of Justice) on allegations of corruption of public authorities and officials of several African states committed in 2007 and 2008.

As part of the criminal proceedings, Och-Ziff entered into a settlement agreement with the DOJ (deferred prosecution agreement) undertaking to:
• pay a fine of 213 million dollars,
• implement an effective internal monitoring system,
• delegate this monitoring to an external auditing firm for a three year period, and
• cooperate with the DOJ while the investigation continues.

For the SEC to cease its legal action, Och-Ziff accepted to pay almost 200 million dollars as part of a settlement agreement. The investment Fund’s CEO and CFO accepted to settle for an amount of 2.2 million dollars.

The total amount of the financial penalties imposed was around 415 million dollars.

In this case, the aforementioned transactions resulted from illicit payments made by the subsidiary of Och-Ziff operating in Africa. The latter used intermediaries to make the illicit payments which were twofold:
• On the one hand, they sought to encourage a Libyan sovereign wealth fund to invest in Och-Ziff.
• On the other hand, granted to senior officials of Libya, Chad, Guinea, Niger and the DRC, they were to guarantee the obtaining of mining rights.

The American authorities accused the management of Och-Ziff of having ignored the warnings and the corruption risks, of having permitted the pursuit of litigious practices, notably by falsifying the accounts, and de facto, of not having implemented effectively their internal compliance policy.

As an additional sanction, and further to these proceedings, the clients of Och-Ziff withdrew 2.5 billion dollars of assets in October 2016.

As with any other enterprise the extraterritorial application of the FCPA has enabled the anticipation of illicit transactions carried out abroad through foreign operators, towards foreign public officials.

European investment funds are not immune to the FCPA.

The said funds must step up their vigilance while the Sapin 2 Law is about to be voted. As part of the combat against corruption, this law will in particular render mandatory the implementation of an effective compliance policy. The latter policy will require regular due diligence procedures to be conducted, especially in the context of investments made, following the example of what is happening in competition law.
*In practice the investment funds must understand how vulnerable they are with respect to investments received upstream and envisaged downstream.
*The risks incurred upstream are such when they seek sovereign wealth funds. The risks incurred downstream are such when they invest in enterprises engaged in bribery and corruption. There too, as with competition law, an investment fund should ensure that the liability of illicit practices is not being transferred to it.

Though no more vulnerable than enterprises, the funds should implement a compliance policy in the face of these risks. This approach is even more essential with respect to cooperation which is becoming more and more effective at international level between the national anti-corruption authorities. We know just how effective this collaboration has been over the last 20 years as regards the fight against anti-competitive practices.