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 was the first corporate FCPA resolution under the Trump administration? How has the Department of Justice’s (DOJ) FCPA Unit fared in three criminal jury trials this year? What did a Canadian appellate court have to say about that country’s first foreign bribery conviction? The answers to these questions and more are here in our July 2017 Top Ten list.
1. Texas-based Oil Field Services Company and Former Executive Resolve Angola FCPA Allegations. On July 27, 2017, the Securities and Exchange Commission (SEC) announced that the Halliburton Company had agreed to pay $29.2 million to resolve allegations that it had violated the FCPA’s accounting provisions when it retained a politically connected third-party supplier in Angola. According to the SEC order, the company chose the friend of an official from Sonangol, Angola’s national oil company, to provide services in response to Sonangol’s requirement that the company partner with more local Angolan-owned businesses to satisfy local content regulations for foreign firms operating in the country. SEC alleged that the company “backed into” the services to be provided by the friend, rather than first determining the services to be provided and then choosing an appropriate supplier. SEC also alleged that the company purposefully chose services that would not be subject to enhanced approval and due diligence requirements. According to SEC, the company eventually paid approximately $3.7 million to the friend, and Sonangol approved the award of seven subcontracts to the company. The resolution amount included $14 million in disgorgement, $1.2 million in prejudgment interest, and a $14 million civil penalty. In addition to the corporate resolution, Jeannot Lorenz, a former Halliburton executive alleged to have participated in the Angola conduct, agreed to pay a $75,000 penalty for causing the company’s violations, circumventing internal accounting controls, and falsifying books and records. Neither the company nor Lorenz admitted or denied the allegations. The company announced that DOJ had declined to bring an enforcement action regarding the Angola matter and that both agencies had declined to bring an action based on allegations involving Iraq. This is SEC’s first corporate resolution under the Trump administration and its second with the company.
2. Three Long-Standing Corporate FCPA Investigations End without Charges. In July 2017, three companies announced that DOJ and/or SEC had decided to end long-standing FCPA investigations without charges. Rather than signaling any change in FCPA enforcement under the Trump administration, these declinations are more likely the result of a “spring cleaning” by the agencies.
- U.S.-based Technology Company Announces DOJ and SEC Declination. In a July 2017 securities filing, IBM Corporation disclosed that, in June 2017, DOJ and SEC each informed the company that they had closed their investigations into FCPA allegations without pursuing an enforcement action against the company. In 2012, the company notified SEC of an investigation by Polish authorities in connection with sales to the Polish government. In 2013, DOJ informed the company that it was investigating the Poland matter, as well as allegations involving Argentina, Bangladesh, and Ukraine.
- South Africa-based Payment Processing Company Receives DOJ Declination. By letter dated July 26, 2017, DOJ’s FCPA Unit informed Net 1 UEPS Technologies, Inc., a South African company listed on the Nasdaq Global Select Market, that it had closed its FCPA investigation into the company. According to the company’s press release, the DOJ investigation began in November 2012, after a competitor referred DOJ to press articles alleging that the company had engaged in improper conduct in a South African public tender. The company announced in June 2015 that SEC had declined the matter. According to the company, South African authorities also closed their investigation in November 2015.
- U.S.-based Mining Company Announces DOJ Declination. In a July 2017 securities filing, Colorado-based Newmont Mining Corporation disclosed that, in June 2017, it had received a declination letter from DOJ. The company first disclosed that it was under investigation for possible FCPA violations in April 2016. Although no details regarding the locus of the investigation were made public, the company had active mining operations in Australia, Ghana, Indonesia, Peru, Suriname, and the United States at the time of the announcement. The company announced an SEC declination in April 2017.
3. Real Estate Executive Convicted of FCPA Violations Following Jury Trial. On July 27, 2017, following a four-week jury trial in the Southern District of New York, Ng Lap Seng, the chairman of a Macau real estate development company, was convicted of two counts of violating the FCPA, one count of paying bribes and gratuities, one count of money laundering, and two counts of conspiracy. According to DOJ’s press release, Seng conspired with and paid bribes to two former United Nations ambassadors in furtherance of a scheme to obtain UN support to build a conference center in Macau. Four other defendants, including one of the former ambassadors, pleaded guilty before Seng’s trial, while the second former ambassador passed away before the charges against him were resolved. (See our October 2015, August 2016, November 2016, and April 2017 Top Tens for prior coverage of this story.) No sentencing date has been set. This was the third trial victory of the year for DOJ’s FCPA Unit, following the May 2017 conviction of former Guinean official Mahmoud Thiam and the conviction of South Korean official Heon-Cheol Chi, discussed below.
4. South Korean Official Convicted of Money Laundering Following Jury Trial. On July 17, 2017, following a four-day jury trial in the Central District of California, Heon-Cheol Chi, the Director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources, was convicted of laundering bribes he received from two seismological companies in California and England. According to DOJ’s press release, between at least 2009 and 2015, Chi provided the companies unfair business advantages in the South Korean seismological market in exchange for over $1 million in bribes, which he directed be paid in cash or wired to his personal bank account in Southern California; from that account, Chi transferred half of the payments to an investment account in New York. Sentencing is scheduled for October 2, 2017.
5. Former Telecommunications Executive Pleads Guilty in Haiti Teleco Case. On July 19, 2017, DOJ announced that Amadeus Richers, the former general manager of a Miami-based telecommunications company, had pleaded guilty in the Southern District of Florida to conspiring to violate the FCPA in connection with a scheme to bribe Haitian officials in order to obtain a favorable contract and other benefits from Haiti Teleco, Haiti’s state-owned and state-controlled telecommunications company. Richers, a Brazilian national, was originally charged in 2011 but had been considered a fugitive until his arrest in Panama and eventual extradition to the United States in February 2017. Richers is the sixth defendant to have pleaded guilty in the “Haiti Teleco” case. Three other defendants—telecommunications executives Joel Esquenazi and Carlos Rodriguez and former Haiti Teleco official Jean Rene Duperval—were convicted following jury trials in August 2011 and March 2012.
6. Pennsylvania Executive Sentenced to Five Years’ Imprisonment for FCPA Violations. On July 18, 2017, DOJ announced that Dimitrij Harder, a Pennsylvania-based business executive, was sentenced to five years in prison by a Philadelphia federal judge for violating the FCPA when he bribed a senior official at the European Bank for Reconstruction and Development (EBRD) to secure millions of dollars of business in development projects in Eastern Europe. Harder pleaded guilty in April 2016 and, in June 2017, testified against the bribe recipient, former EBRD banker Andrey Ryjenko, who was sentenced to six years’ imprisonment.
7. Second Federal Appellate Court Holds that Federal Courts Have Limited Supervisory Oversight over DPAs. On July 12, 2017, the Second Circuit joined the D.C. Circuit in holding that federal courts have limited supervisory oversight over deferred prosecution agreements (DPA). The Second Circuit held that, “In the absence of a showing of impropriety, a district court has no authority to supervise the implementation of a DPA.” The court further held that the Speedy Trial Act’s requirement of court approval to toll the speedy trial clock for purposes of a DPA “does not imbue the judiciary with ongoing authority to oversee a DPA, but rather authorizes courts to determine that a DPA is genuine and not merely a means of circumventing the speedy trial clock.” Following from this principle, the court held that a monitor report required by the DPA was not “relevant to the performance of the judicial function” and was therefore not a judicial document that the court could order be disclosed. The Second Circuit’s opinion is similar to the D.C. Circuit’s April 2016 holding that a district court lacks authority to disapprove a DPA under the Speedy Trial Act on the ground that the DPA is too lenient and that “the court plays no role in monitoring the defendant’s compliance with the DPA’s conditions.” Indeed, the Second Circuit favorably cited the D.C. Circuit’s opinion throughout its opinion. In a concurring opinion, one of the Second Circuit judges said that Congress should review the law regarding a court’s role in overseeing DPAs, arguing that quarterly monitor reports to the court should be required. Although not FCPA cases, the Second Circuit and D.C. Circuit opinions are important because they squarely address the standard of review for one of the key tools used by DOJ to resolve FCPA cases.
8. Setback for International Law Enforcement Cooperation. On July 19, 2017, the Second Circuit overturned the convictions of two former bank traders charged with manipulating the London interbank offer rate (LIBOR), holding that their compelled testimony to the UK’s Financial Conduct Authority (FCA) was improperly used against them in a U.S. criminal trial. The defendant’s FCA testimony had been reviewed by a key government witness, who pleaded guilty and then testified at the U.S. trial. Because compelled testimony generally cannot be used in U.S. criminal cases, even if the testimony was legally compelled by a foreign government, the Second Circuit reversed the convictions. According to the court, “The Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony.” DOJ had argued that prohibiting the use of the testimony “could seriously hamper the prosecution of criminal conduct that crosses international borders.” Although not an FCPA case, the decision has the potential to impact the way that law enforcement agencies, particularly U.S. and UK law enforcement agencies, work together in international anti-corruption matters.
9. First Individual Conviction under Canada’s Foreign Bribery Law Upheld on Appeal. On July 6, 2017, the Court of Appeal for Ontario rejected an appeal from Nazir Karigar, a former agent of Cryptometrics Canada, who was convicted of violations of the Corruption of Foreign Public Officials Act (CFPOA) in 2013 for his role in a scheme to bribe Indian officials to secure a $100 million security software contract with Air India. (Notably, according to the appellate decision, one of the pieces of evidence entered against Karigar at trial was an anonymous email detailing the bribery scheme that was sent to the DOJ FCPA Unit’s whistleblower email address in August 2007. Karigar later admitted to the Royal Canadian Mounted Police that he was the author of the email.) Karigar was sentenced to three years in prison in 2014. The appeals court rejected Karigar’s argument that Canadian authorities did not have jurisdiction because most of the dealings took place in India, upholding the prosecutors’ use of nationality, residence, and Karigar’s relationship to Cryptometrics’ subsidiary in Ottawa to establish jurisdiction. The appeals court also rejected Karigar’s argument that the CFPOA only applies to agreements to directly bribe a foreign government official, finding that the CFPOA can apply to agreements to orchestrate a bribe. Karigar’s conviction was the first of an individual under the CFPOA, which has been in effect since 1999. (See our February 2017 Top Ten for more on Karigar and a more recent CFPOA trial.)
10. Former Brazilian President Found Guilty of Corruption. On July 12, 2017, Brazil’s former president Luiz Inacio Lula da Silva (Lula) was found guilty of corruption and money laundering offenses by a federal court in Brazil. Lula was sentenced to nine and a half years in prison for receiving bribes from a construction company in the form of a renovated beach front property outside of Sao Paulo. In exchange Lula allegedly helped the company obtain contracts with Petrobras, Brazil’s state-owned oil company, for two oil refineries. Lula, who is facing charges in four other cases, will remain free until his appeal has been heard. (See our September 2016, October 2016, and December 2016 Top Ten for coverage of the charges.) With his two immediate successors also facing charges, Lula is currently leading the polls for the 2018 presidential election in Brazil, but his conviction obviously calls his ability to run for office into question.