Anti-Corruption Digest - September 2013

THE USA
PetroChina
Further evidence of the trend toward civil actions arising out of various governments’ anti-bribery investigations may be found in the case of PetroChina Co. Ltd., the Chinese state-owned oil and gas company. In August 2013, PetroChina announced that it was under investigation by the Chinese government for corruption, and that four of its senior executives had resigned, including a vice president, chief geologist, and two deputy general managers.
Shortly after that announcement, two investor groups filed in New York federal court complaints against PetroChina, whose stock is listed on the New York Stock Exchange, and four of its senior executives, including its current chairman and chief financial officer, and former chairman and chief financial officer.
The complaints allege that PetroChina issued materially false and misleading financial statements, a violation of U.S. securities laws. According to the complaints, those financial statements claimed that senior executives were in compliance with regulatory and internal governance rules, while in fact senior officials were not in compliance, which led to the Chinese government’s investigation.
GlaxoSmithKline
The U.S. Department of Justice is investigating possible violations of the Foreign Corrupt Practices Act (FCPA) by British drug company GlaxoSmithKline PLC (GSK) in China. As previously reported in the July 2013 edition of the Digest, the Chinese government began investigating GSK’s Chinese operations last summer.
The investigations relate to two main issues. First, it is alleged in the investigations that GSK devised a scheme to win the business of Chinese doctors by arranging to transfer to them illicit payments, payments which have totaled nearly $500 million since 2007. Second, GSK has acknowledged that it had very high sales growth targets and extreme financial penalties for sales staff who failed to meet
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those targets, such that, according to the such that, according to the DoJ, there was allegedly almost no way to achieve the sales targets without bribing doctors and other hospital officials. The accounts used to pay bribes are alleged to have been frequently referred to by sales teams as “public relations funds.”
Direct Access Partners
Three former Direct Access Partners (DAP) employees recently pled guilty for their involvement in a scheme to pay kickbacks to officials at two Venezuelan state banks. Miami-based Tomas Clarke, an executive vice president, Alejandro Hurtardo, a back-office employee, and Ernesto Lujan, a managing partner, will be sentenced early next year.
As reported in the May edition of the Digest, the government alleged that DAP traders bribed a top Venezuelan banking official, Maria de los Angeles Gonzalez de Hernandez, in order to secure the bond trading business of a state-owned bank and then carry out fraudulent markups and markdowns on riskless trades, resulting in over $66 million in revenue for DAP.
The SEC cited an example of its allegations: “in January 2010, the traders and Ms. Gonzalez arranged for two fraudulent roundtrip trades with [the bank] as both buyer and seller. These trades – which lacked any legitimate business purpose – caused [the bank] to pay DAP more than $10 million in fees, a portion of which was diverted to Ms. Gonzalez for authorizing the blatantly fraudulent trades.”
THE UNITED KINGDOM
Private Healthcare
The practices of private healthcare firms in persuading doctors to refer patients for treatment at their clinics have been highlighted in the provisional findings on a wider investigation into a perceived lack of competition in the private healthcare sector by Competition Commission (the “CC”). The findings highlight the existence of incentive schemes which encourage medical professionals in the National Health Service to choose particular private providers for diagnosis and treatment.
The report by the CC found that doctors have been offered various incentives in return for referrals. The chairman of the CC, Roger Witcomb, is reported to have said “[We have] seen the existence of a range of incentives which encourage medical professionals to choose facilities on grounds other than price and quality” adding that, “we struggle to believe these can be in the interests of patients.”
Reports indicate that payments of up to £50,000 (nearly $80,000) were offered in return for referrals, along with other incentives, including free receptionists and consulting rooms, all paid for by the private firms. It has also been alleged that previous reports show that such incentives have been offered to 15 per cent. of the 40,000 consultants in England by private firms.
The final report by the CC will be published by April 2014.
More Journalists Charged
As a result of the UK’s ongoing inquiry into bribery and corruption in the press, Graham Dudman, a former editorial director at The Sun newspaper, and Greig Turnbull, a former journalist at the Daily Mirror, have been charged with making illegal payments to public officials.
Mr. Dudman’s charges, arising as part of Scotland Yard’s Operation Elveden, are said to relate to requests for authorization of payments
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to police and public officials in exchange for information regarding ongoing police investigations, health cases and an incident relating to the armed forces. According to the Crown Prosecution Service, Mr. Turnbull faces separate charges of conspiracy to commit misconduct in public office for allegedly making payments to prison officers in return for information from which to generate news stories.
It has also been reported that The Sun’s former deputy news editor, Ben O'Driscoll, has appeared in court, charged with allegedly approving payments to police and officials at Broadmoor psychiatric hospital. Prosecutors have claimed that Mr. O'Driscoll authorized payments of at least £5,000 for "details about police incidents and crime, including information about high-profile individuals and those associated with them", along with information regarding the health and activities of Broadmoor patients. His lawyer reportedly told the court that he "wants this matter dealt with as soon as possible."
THE REST OF THE WORLD
Australia
Police in Australia have charged six individuals on suspicion of being involved with betting related corruption within the Victoria Premier League. In a statement released by Victoria Police, the matter is said to involve a “multi-million dollar match-fixing ring.” Those charged include two British nationals, Reiss Noel and Joe Wooley, both of the lower league side Southern Stars FC.
The Chief executive of Football Federation Australia said that “this highlights the fact that lower league games, which aren’t under the scrutiny of things like global television broadcast, are potentially more susceptible to this kind of activity.”
The club secretary reportedly said on the matter: “we had no idea this was going on … [the club is] co-operating with authorities with their investigation.”
Brazil
A vote has been narrowly passed by the Supreme Court to reopen what has been described as “the country’s biggest political corruption trial.” The decision means that 12 of the 25 convicted late last year for organizing a vote-buying arrangement, where public funds were used to pay parties for political support, could have appeals heard.
The controversy of the decision was visible from both the general public, via social media sites, and academics. “The move sets a troubling precedent by raising concerns over the domino effect in many other corruption cases involving powerful figures,” said a leading professor of law in Brazil.
Many held the 2012 convictions to signal a change in the courts attitude to corrupt officials, and this new decision is allegedly set to anger the public, who were said to expect the sentences to be upheld. Judge Celso de Mello, who broke the deadlock in votes, is reported as saying that justice should not succumb to popular pressure: “For them to be exempt and independent, the judges cannot yield to the popular will, to the masses.”
Lawyers for the defendants successfully argued that they have a constitutional right to appeal. The lawyer of Jose Roberto Salgado, stated, “We think [last year’s conviction] was a mistake … we will do everything possible to fix that mistake.” Going forward, given the delays that characterized the initial trial, the interim prosecutor general is said to have expressed his
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belief that the court’s discussions of the appeals could “drag on for years.”
China
The government’s recent drive to combat corruption against both “tigers and flies”, President Xi Jinping’s reference to high and low level figures, has continued with the trial of the former deputy chief engineer, Zhang Shuguang, of the now disbanded ministry of railways.
The ministry has been linked with widespread corruption, with another former minister, Liu Zhijun, recently receiving a suspended death sentence for taking 64.6 million RMB ($10.5 million) in bribes. Mr. Zhang pleaded guilty to charges of accepting 47.55 million RMB ($7.77 million) in bribe during his tenure at the ministry.
Prosecutors are reported to have said that the largest individual bribe that Mr. Zhang was allegedly paid was 18.5 million RMB ($3 million) from Wang Jianxin, the head of a company, after he “helped” Mr. Wang improve his company’s railway-related technology. Many of the companies reportedly involved in making payments to Mr. Zhang were said to be private companies that hoped to have their technology and services utilized by the transport bureau in the construction of China’s high-speed railways.
Despite accepting various bribes, Mr. Zhang allegedly told the court that he did not succeed in helping some of the companies “because such technology or equipment from them could not reach our standard, or might bring hazards to the high-speed railway network.” Reportedly showing “guilt” over taking the bribes, lawyers for Mr. Zhang said that he had a “good attitude about pleading guilty” and have asked the court to consider a lighter penalty as a result.
Germany
The chief executive of Volvo Cars, Håkan Samuelsson, has reportedly agreed to pay €500,000 ($668,000) to charity as part of a settlement to an investigation brought by German authorities. The investigation is related to Mr. Samuelsson’s alleged role in corrupt practices during his tenure as chief executive of MAN. It is also said that he has reached a separate agreement, worth €1.2 million ($1.58 million) with MAN over the truck-makers claim against him, “in recognition of his corporate-governance responsibility as the former CEO.”
MAN paid €150.6 million (nearly $200 million) to end an investigation, made by German prosecutors into alleged corruption between 2002 and 2009, which led to a number of indictments against managers of the company. An enquiry into Mr. Samuelsson began after the investigation highlighted that he may have been aware of possible corrupt practices by MAN in Slovenia.
Of the settlement, Mr. Samuelsson is reported to have said: “I would have preferred to go through with the trial as I don’t have any doubt about my innocence ... but this wouldn’t have been compatible with my role as Volvo CEO.” A spokesman for the prosecuting body reportedly confirmed the agreement with Mr. Samuelsson, noting that the settlement will only be final once the payment has been made.
Indonesia
The anti-corruption court has sentenced Inspector General Djoko Susilo to 10 years in prison along with a fine of 500 million rupiah (nearly $45,000), after finding him guilty of corruption and money laundering.
The trial of Mr. Susilo, who is reported to have accumulated $18 million by accepting unlawful assets, centered around a $13 million bribe
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received from a firm that supplied driving simulators during his tenure as a traffic police general. The money laundering charge was said to be invoked in order to enable the authorities to seize a number of Mr. Susilo’s assets.
Reports indicate that the trial involved an unusual delay when allegations were made that Mr. Susilo had attempted to bribe prosecutors inside the courtroom. It is said that after Mr. Susilo submitted his personal defense statement and biography to the prosecutors and panel of judges, the presiding judge delayed proceedings, stating “in one of the books that was submitted, I found a US$100 bill … I don’t know what this means.” After questioning by the court, Mr. Susilo reportedly denied any intention of bribing the judges or prosecutors and the court proceeded with the case, “rather than creating a new problem.” The KPK is said to be pressing for the incident to be investigated further, its deputy chairman is quoted as saying, “the action is not only contempt of court and insulting to the KPK prosecutors but also insults justice seekers and attempts at combating corruption.”
The case was said to have been followed by many, including anti-corruption activists and legal observers who viewed the trial as a litmus test for future corruption cases involving state officials, such as the on-going investigation reported in last month’s Digest into alleged corruption among officials in the country’s oil and gas regulator, SKK Migas.
Both sides are reported to be appealing the conviction, with the Corruption Eradication Commission (the “KPK”) pressing for the sentence to be “12 years at the minimum.”
Japan
The Securities and Exchange Surveillance Commission (the “SESC”), Japan’s securities market regulator, is investigating whether Deutsche Bank (“DB”) violated anti-bribery regulations in its provision of corporate entertainment to pension fund executives. The pension fund managers involved are deemed “public officials” under Japanese law, because they are responsible for part of the national pension scheme, and so are subject to anti-bribery statutes.
It is said that investigators are currently analyzing whether the entertainment provided by the DB employees was excessive and are looking into the expense reports in question. No further details of the alleged expenses have been released, but reports indicate that DB are “fully cooperating” with the SESC.
In a statement, DB said that it “is committed to meeting strict standards of compliance with bank policy and regulation … where improper conduct is found, we address it responsibly and take appropriate action.” In line with this protocol, it has been reported that DB had begun its own investigation into the matter prior to the SESC audit. This could be a mitigating factor when the SESC decides what action to take, if any.
The increasing levels of enforcement by regulators in Japan has prompted commentators to suggest that the “lavish entertainment of officials to win business”, which is said to have long been the social norm in Japan, may be nearing its conclusion as the SESC is catching up with stricter rules in the US and Europe on corporate hospitality and bribery.
Uganda
A private members’ bill, The Anti-Corruption (Amendment) Bill 2013 (the “Bill”), seeking to strengthen Uganda’s anti-corruption law, has been tabled to Parliament prior to debate. The Bill aims to amend the country’s current laws on corruption contained in the Anti-Corruption
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Act 2009, which are said to be insufficient, particularly in recovering the benefits derived from corruption.
The Bill, which was proposed by a backbench MP, Makindye East Member of Parliament John Ssimbwa, is reported to give the government binding powers to confiscate the property of those convicted of corruption. It is also said to further strengthen the current law by providing that property placed in the names of relatives and close associates will also be caught, so long as the court is satisfied that the property was derived from the offence or is a gift caught by the proposed legislation.
Aimed at those who participate in acts of corruption, Mr. Ssimbwa is reported to have said that if the Bill is enacted into law, “corruption is going to be a very risky venture because once you are convicted, the state will have powers to confiscate your properties and get back the money that was lost under your control.”
The proposals come amid a reported rise in the number of cases of corruption and instances of donor countries allegedly suspending aid to Uganda as a result of corruption in government departments. The Speaker of Parliament has reportedly sent the Bill to the Legal Affairs Committee for expeditious consideration.
Dorsey & Whitney also offers a UK/US corruption workshop featuring experts from both countries that can be tailored to individual organizations.
Corruption issues are also addressed in the Anti-Fraud Network’s newsletters: see www.antifraudnetwork.com for current and archived material; see also the Computer Fraud website at http://computerfraud.us and www.secactions.com.
For a video overview of the UK Bribery Act, see Nick Burkill’s interview video.
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Beth Forsythe
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Nick Akerman
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WASHINGTON DC
Thomas Gorman
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This update is provided for general informational purposes and is not intended to constitute advice. If you require advice on any of the matters raised in this update, please let us know and we will be delighted to assist.