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: What Brazilian state-owned enterprise entered into an FCPA resolution with the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC)? What banks entered into anti-money laundering resolutions with Dutch and Swiss authorities based in part on major foreign bribery investigation in the United States and elsewhere? What changes can be expected in foreign bribery enforcement following legislative changes in Canada and leadership changes at the UK Serious Fraud Office (SFO)? The answers to these questions and more are here in our September 2018 Top 10 list.
1. Brazilian National Oil Company Reaches FCPA Resolutions With DOJ and SEC Totaling Over $1.78 Billion. On September 27, 2018, DOJ and SEC announced simultaneous resolutions with Petroleo Brasiliero S.A. (“Petrobras”) related to the company’s alleged participation in a long-running bribery scheme in Brazil. According to the resolution papers, from approximately 2004 to 2012 Petrobras engaged in a massive scheme with its largest contractors and suppliers to inflate the costs of Petrobras’s infrastructure projects by billions of dollars in exchange for those contractors and suppliers paying billions of dollars in kickbacks to Brazilian government officials and political parties. These reported inflated assets allegedly affected the company’s financial statements, including its $10 billion stock offering in 2010. According to SEC, Petrobras misled U.S. investors by filing false financial statements in addition to violating the books and records and internal accounting controls provisions of the FCPA. DOJ’s Non-Prosecution Agreement (“NPA”) with Petrobras included a criminal penalty of $853.2 million. According to DOJ, this amount reflected a 25% discount off the low end of the Sentencing Guideline range due to Petrobras’s “full cooperation and remediation.” Under the NPA, DOJ also agreed to credit the amount that Petrobras pays to the SEC and the Ministerio Publico Federal (“MPF”) in Brazil under their respective agreements, with DOJ and SEC each receiving 10% ($85,320,000) and Brazil receiving the remaining 80% ($682,560,000). According to SEC’s order, Petrobras agreed to pay $933 million in disgorgement and prejudgment interest—all of which will be offset by payments that Petrobras has already made to a settlement fund for a U.S. class action. Given these modifications and offsets, Petrobras will pay DOJ and SEC a combined total of $170.6 million out of the total combined penalty of almost $1.787 billion. Petrobras is not the first primarily state-owned oil company to enter into an FCPA resolution (see, e.g., the Statoil case from 2006), but the crediting back of 80% of the DOJ penalty to the state that owns the majority of Petrobras is a notable development, and the SEC’s crediting of amounts paid as part of a class action settlement is infrequent in an FCPA case. In many ways, the Petrobras resolution is a culmination of Brazil’s Operation Lava Jato (Car Wash), a sprawling investigation into alleged corruption involving Petrobras that launched in March 2014 and has resulted in numerous domestic and international enforcement actions. With this major cornerstone resolved, it will be interesting to watch how much is left in the Car Wash investigation.
2. Netherlands-based Financial Services Company Reaches $900 Million Resolution with Dutch Prosecutors, Based in Part on Uzbekistan Bribery Allegations. On September 4, 2018, it was announced that ING Groep NV had agreed to pay a combined total of $900 million in penalties and disgorgement as part of a settlement agreement with the Dutch Public Prosecution Service (“DPPS”) for its allegedly lax anti-money laundering controls. According to Dutch prosecutors, such lax controls made it possible for, among other things, Dutch telecom company VimpelCom Ltd. to pay $55 million via an ING bank account to the daughter of the former president of Uzebikstan in furtherance of a foreign bribery scheme involving telecom rights in that country. (VimpelCom entered into related resolutions with U.S. and Dutch enforcement authorities in February 2016.) According to Dutch prosecutors, the bank failed to disclose or delayed their reporting to authorities of the unusual transactions. On September 5, 2018, the bank announced in a public filing that it had received formal notification that the SEC Enforcement Division had concluded its investigation and did not intend to recommend an SEC enforcement action against the company. This case illustrates the active role of Dutch enforcement authorities, as well as international coordination between enforcement authorities, in foreign bribery investigations.
3. Switzerland-based Bank Reaches Resolution with Swiss Financial Regulator Based in Part on Foreign Bribery Allegations. We have highlighted previously how international anti-corruption enforcement actions in one country can have follow-on effects in other countries. (See, e.g., our discussion of the international ramifications of FCPA enforcement actions in our August 2015 Top 10.) This point was underscored on September 17, 2018, when the Swiss Financial Market Supervisory Authority (“FINMA”), announced that it had concluded two enforcement procedures against Credit Suisse AG that relate to several wide-ranging international corruption investigations. In the first action, FINMA identified deficiencies in the bank’s adherence to anti-money laundering due diligence obligations in relation to suspected corruption involving FIFA (see, e.g., our May 2015 Top 10), Petrobras (see, e.g., number 1 above), and Petroleos de Venezuela, S.A (see, e.g., number 6 below). In the second action, which related to a significant banking relationship on the part of the bank with a politically exposed person, FINMA identified deficiencies in the anti-money laundering process, as well as shortcomings in the bank’s control mechanisms and risk management. In connection with these enforcement actions, FINMA has decreed measures to further improve and to accelerate the implementation of steps already initiated by the bank. Furthermore, FINMA commissioned an independent third party to monitor the implementation and effectiveness of those measures.
4. SEC Resolves Several Corporate FCPA Investigations as Its Fiscal Year Ends. As it has done in the past, SEC concluded a number of corporate FCPA investigations in September 2018, which is the last month of its fiscal year. (See our September 2016 Top 10, which also illustrates this trend.) As discussed below, several of the investigations resulted in SEC-only resolutions, while another resulted in a declination by both SEC and DOJ.
- France-based Pharmaceutical Company Resolves Middle East and Central Asia FCPA Allegations. On September 4, 2018, SEC announced that Sanofi agreed to pay $25 million in combined disgorgement, interest, and civil penalty to resolve allegations that it violated the books and records and internal accounting controls provisions of the federal securities laws. According to the SEC order, between 2007 and 2011, officials at the company’s subsidiaries in Kazakhstan engaged in a scheme to bribe foreign officials in exchange for their influence over tenders at public institutions. The order also alleges that from 2011 to 2013, the company’s agents and employees in the Levant region (Jordan, Lebanon, Syria, and the region of Palestine) engaged in a scheme to pay foreign officials to boost sales of the company’s products through increased prescriptions. The order also alleges that the company’s sales managers and medical representatives in the Gulf region engaged in a scheme to submit false travel and entertainment reimbursement claims in order to increase prescriptions of Sanofi products.
- UK-based Oil Drilling Company Discloses DOJ and SEC Declinations in Petrobras-related FCPA Investigation. In a September 4, 2018 securities filing, Ensco plc disclosed that DOJ and SEC had informed the company that they had closed their investigations into potential FCPA violations without bringing enforcement actions. According to the filing, in 2015, Ensco voluntarily disclosed an internal investigation into alleged irregularities related to a drilling services agreement between an acquired subsidiary, Pride International LLC, and Petrobras that was executed in 2008. Ensco stated it continued to cooperate with DOJ and SEC over the course of the investigation, and did not identify any evidence that Pride or Ensco—or any of their current or former employees—were aware of or involved in any wrongdoing.
- U.S.-based Technology Company Resolves FCPA Allegations in Asia and the Middle East. On September 12, 2018, SEC announced that United Technologies Corporation had agreed to pay $13.9 million in combined disgorgement, interest, and civil penalty to resolve allegations that it violated the FCPA’s accounting provisions in connection with its elevator and aircraft engine businesses. The SEC order alleges four different schemes: (1) improper payments made to Azerbaijan officials, through its wholly-owned subsidiary Otis Elevator Company, to facilitate the sales of elevator equipment; (2) improper payments made in 2012 in connection with a kickback scheme in China; (3) unsupported payments to an agent in China through a joint venture from 2009 through 2013, and (4) improper trips and gifts to various foreign officials from 2009 through 2015 in China, Indonesia, Kuwait, Pakistan, South Korea, and Thailand. The company neither admitted nor denied the allegations.
- U.S.-based Medical Technology Firm Resolves FCPA Allegations for a Second Time. On September 28, 2018, SEC announced that Stryker Corporation had agreed to pay a $7.8 million civil penalty and to retain an independent compliance consultant to resolve allegations that it violated the FCPA’s accounting provisions in connection with conduct in China, India, and Kuwait. According to the SEC order, the company’s internal accounting controls were insufficient to detect the risk of improper payments related to sales of its products in China, India, and Kuwait. The order also alleges that the company’s Indian subsidiary failed to maintain complete and accurate books and records. The company neither admitted nor denied the allegations. This is the second FCPA-accounting-provision related resolution between the company and SEC. In October 2013, SEC announced that the company agreed to pay $13.2 million to resolve allegations that it made illicit payments in Argentina, Greece, Mexico, Poland, and Romania.
5. SEC Resolves Individual FCPA Allegations. SEC also resolved FCPA allegations against two individuals in September 2018.
- New Jersey-based Real Estate Broker Resolves FCPA Allegations in Vietnam Skyscraper Case. On September 6, 2018, SEC announced that Joohyn Bahn, a New Jersey real estate broker, had agreed to pay $225,000 in disgorgement to resolve allegations that he violated the FCPA’s anti-bribery and accounting provisions when he attempted to bribe a foreign official of a country in the Middle East as part of an effort to broker the sale of Landmark 72, a high-rise commercial building in Vietnam. Bahn was alleging acting as a broker for Colliers International Group, Inc., during the bribery scheme. According to SEC’s order, Bahn’s disgorgement will be deemed satisfied by the forfeiture and restitution ordered at his September 6, 2018 sentencing in a related criminal proceeding. For more on the Vietnam Skyscraper case, see our January 2017, June 2017, and January 2018 Top 10s.
- Former CEO of Chile-based Chemical and Mining Company Resolves FCPA Allegations. On September 25, 2018, SEC announced that Patricio Contesse Gonzalez, the former CEO of Sociedad Quimica y Minera de Chile, S.A. (“SQM”), had agreed to pay $125,000 to resolve allegations that he violated the FCPA. According to SEC’s order, Gonzalez, over the course of seven years, caused his company to make nearly $15 million in improper payments to Chilean political figures and others. SEC alleged that Gonzalez directed and authorized the improper payments through a discretionary CEO account. According to SEC, the payments were supported by fake documentation and submitted to the company by individuals and entities posing as legitimate vendors. SEC alleged that Gonzalez also caused false accounting entries in the company’s books and records, lied to its independent auditor, and signed false certifications. The company reached resolutions with SEC and DOJ in January 2017.
6. Update on PDVSA and PetroEcuador Cases. In September 2018, more defendants pleaded guilty in connection with DOJ’s foreign bribery investigations involving two Latin American national oil companies.
- Two More Individuals Plead Guilty in PDVSA Case. On September 13, 2018, DOJ announced that Juan Carlos Castillo Rincon, a manager at a Houston-based logistics and freight forwarding company, had pleaded guilty in the Southern District of Texas to one count of conspiring to violate the FCPA. Rincon admitted to bribing an official at Venezuela’s state energy company, Petroleos de Venezuela, S.A. (“PDVSA”), in exchange for assistance in obtaining PDVSA contracts, contract extensions, and favorable contract terms. Also on September 13, 2018, Magistrate Judge Nancy Johnson (presiding over both cases), unsealed the guilty plea of Jose Orlando Camacho, the PDVSA official whom Rincon allegedly bribed. To date, DOJ has charged 18 defendants in the PDVSA bribery case, 14 of whom have pleaded guilty. (For more information on the PDVSA investigation, see our February 2018, April 2018, and July 2018 Top 10s.)
- Guilty Pleas Continue in PetroEcuador Bribery Scheme. On September 11, 2018, DOJ announced that Jose Larrea had pleaded guilty in the Southern District of Florida to one count of conspiring to commit money laundering. Larrea admitted to participating in a money laundering scheme by wiring more than $1 million from his U.S.-based bank account to several U.S.-based bank accounts, to conceal a bribery scheme involving an oil services contractor who made payments to PetroEcuador officials in an effort to retain and win new business with the company. On September 12, 2018, Juan Andres Baquerizo Escobar, an Ecuadorian citizen and owner of an Ecuadorian oil services company, pleaded guilty in the Southern District of Florida to charges of conspiracy to commit money laundering. Baquerizo admitted that he paid approximately $1.7 million in bribes to PetroEcuador officials to secure improper business advantages for his company.
7. DOJ Dismisses Charges Against Senegal’s Former Foreign Minister. In November 2017, DOJ unsealed a criminal complaint charging Chi Ping Patrick Ho, the former Hong Kong home secretary and head of a Hong Kong and Virginia-based NGO, and Cheikh Gadio, the former foreign minister of Senegal, with violating, and conspiring to violate, the FCPA and money laundering statutes. The complaint alleged that Ho, with Gadio’s help, assisted an unnamed Chinese energy conglomerate win business by bribing officials in Chad and Uganda. On September 14, 2018, DOJ moved to dismiss the charges against Gadio without explanation. Gadio is expected to testify at Ho’s trial, which starts in November.
8. Argentina’s Ex-President Indicted on Bribery Charges. Continuing a recent trend of current and former world leaders facing anti-corruption scrutiny (see, e.g., our March 2018 Top 10), on September 17, 2018, Argentina’s former President Cristina Fernandez de Kirchner was indicted on charges that she and her administration accepted bribes from construction companies in exchange for public works contracts from 2007 to 2015. Fernandez is currently a senator, which gives her immunity from arrest, but not from prosecution. Federal Judge Claudio Bonadio is leading the investigation. Fernandez has denied any wrongdoing.
9. Canadian Remediation Agreement Regime Takes Effect. As we noted last year, Canada has been working on a public consultation process to consider the possibility of introducing Deferred Prosecution Agreements (“DPAs”) as a potential vehicle for corporate resolutions. After receiving results from that consultation process in February 2018, Canada announced that it would enhance the government’s corporate crime toolkit by introducing a DPA regime known as the “Remediation Agreement Regime.” The Remediation Agreement Regime took effect on September 19, 2018, through amendments made to the Criminal Code through the Budget Implementation Act. The Act defines “Remediation Agreement” as “an agreement, between an organization accused of having committed [certain economic] offence[s] and a prosecutor, to stay any proceedings related to that offence if the organization complies with the terms of the agreement.” The Act provides that, in order to be eligible for remediation, the prosecutor must believe that (a) there is a reasonable prospect for conviction, (b) the act or omission that forms the basis of the offense did not cause bodily harm or death, and (c) negotiating the agreement is in the public interest; the Attorney General must also consent to the negotiation of the agreement. In considering whether a remediation agreement is warranted, the Act provides that the following factors will be considered: (1) the circumstances in which the conduct was brought to the attention of authorities; (2) the nature and gravity of the act or omission; (3) the degree of involvement of senior officials; (4) the disciplinary action taken by the organization; (5) whether the organization had made reparations; (6) whether the organization expressed a willingness to identify individuals involved in wrongdoing; (7) whether the organization was convicted of an offense or sanctioned by a regulatory body or previously entered into a remediation agreement; (8) whether the organization is alleged to have committed other offenses; and (9) any other factor that the prosecutor considers relevant. Much like the UK deferred prosecution system (see, e.g., number 5 of our July 2015 Top 10), a Canadian prosecutor must notify a company of the offer to enter into negotiations. Although not limited to foreign bribery offenses, based on the experiences of countries such as the United States, the UK (see, e.g., number 10 below), and France (see, e.g., number 9 of our November 2017 Top 10), the introduction of Remediation Agreements in Canada could increase the ability of Canadian prosecutors to resolve foreign bribery investigations.
10. New Director of UK Serious Fraud Office Vows to “Be a Different Kind of Director.” In June 2018, the UK Attorney General announced that Lisa Osofsky had been appointed as the new Director of the Serious Fraud Office (“SFO”). On September 3, 2018, in her first major speech as SFO Director, Osofsky gave an outline for her vision for the next five years. Citing her secondment to the SFO 25 years earlier while working as a federal prosecutor in Chicago, Ososfky remarked, “The SFO I find in 2018 is a different animal from the SFO of my DOJ days. And I will be a different kind of Director.” Osofsky observed that the SFO’s “cases are becoming increasingly multijurisdictional and complex, so cooperation to achieve global settlements . . . are ever more important. Strengthening and deepening the relationships that make this happen is going to be a major focus for me.” Osofsky noted the rising use of DPAs in the UK, as well as the fact that DPAs “are spreading across the globe,” and discussed several of the factors that the SFO will consider when determining whether a DPA would be an appropriate means to resolve a case. Osofsky vowed to work closely with other law enforcement agencies, regulators, Non-Governmental Organizations, and the private sector in her work as SFO Director and discussed her plans to address technological challenges and improve the SFO’s intelligence function. The speech provided valuable insight into Osofsky’s vision for her five-year term as SFO Director, and we will continue to monitor her public statements for more.