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: Which company received a second declination letter from the Securities and Exchange Commission (SEC)? Which Latin American country introduced corporate criminal liability? Which corporate FCPA defendant resolved a follow-on prosecution in Israel? Who was the latest target of China’s continued crackdown on corruption? The answers to these questions and more are here in our January 2018 Top Ten list.
1. Indictment Unsealed Against Former Co-president of Maryland-based Transportation Company for Russia-related Bribery. On January 12, 2018, the U.S. Department of Justice (DOJ) announced that it had unsealed an indictment against Mark Lambert, a former co-president of a Maryland-based company that transports nuclear materials in the United States and abroad. The indictment, filed in the District of Maryland, includes seven counts of violating the FCPA, one count of conspiracy to violate the FCPA and to commit wire fraud, one count of international promotion money laundering, and two counts of wire fraud. Lambert was allegedly a part of a scheme to bribe Vadim Mikerin, an official at JSC Techsnabexport (TENEX), which is a subsidiary of Russia’s State Atomic Energy Corporation. TENEX is the only supplier and exporter of Russian uranium enrichment services and uranium to nuclear power companies around the world. The alleged scheme took place between 2009 and October 2014, and consisted of bribery and kickback payments to offshore bank accounts to benefit Mikerin under the guise of fake invoices. In August 2015, DOJ announced that Mikerin and Daren Condrey, Lambert’s former co-president, had pleaded guilty to related charges. In December 2015, Mikerin was sentenced to 48 months in prison.
2. Nephew of Former United Nations Secretary General Pleads Guilty to FCPA Violations. On January 5, 2018, DOJ announced that Joo Hyun (Dennis) Bahn had pleaded guilty in the Southern District of New York to one count of violating the FCPA and one count of conspiracy to violate the FCPA. According to the allegations, between February 2014 and May 2015, Bahn participated in a scheme with his father, Ban Ki Sang, to pay $500,000 in bribes to a Middle Eastern foreign official in order to aid a South Korean construction company in selling a Vietnamese skyscraper to the Middle Eastern Country’s sovereign wealth fund for $800 million. The $500,000 never made it to the official because Malcolm Harris, an arts and fashion consultant and blogger who held himself out as an agent for the foreign official, allegedly double crossed Bahn and Ban and stole the bribe money. Charges in the case were announced in January 2017. Harris pleaded guilty in June 2017 and was sentenced to 42 months in prison in October 2017. Bahn’s father is still awaiting trial. Bahn’s sentencing is scheduled for June 29, 2018.
3. SEC Ends Second FCPA Probe into Texas-based Energy Company. In January 2015, Cobalt International Energy, Inc. announced that it had received a termination letter from SEC advising that the agency did not intend to recommend an enforcement action regarding allegations that the company had bribed Angolan officials in connection with obtaining exploration rights to offshore mining blocks from Sonangol, Angola’s state-owned oil company. (In February 2017, the company announced a similar declination from DOJ.) In March 2017, SEC initiated a second investigation, this time into the company’s funding of the Sonangol Research and Technology Center. On January 30, 2018, Cobalt announced in a securities filing that SEC had similarly closed its second investigation without recommending any enforcement action.
4. SEC Begins 2018 with New FCPA Unit Deputy Chief. The SEC FCPA Unit began 2018 with a newly named deputy chief. Tracy Price was previously the assistant director of the FCPA unit but was promoted to deputy chief in early December 2017. Price received her law degree from Howard University and began working at SEC in 1996. Price has worked on many high profile cases at SEC, including the UN Oil-for-Food cases, Siemens AG’s $350 million settlement in 2008, Weatherford’s $140 million settlement in 2013, and LAN Airlines’ $22 million settlement in 2016. Price also regularly represented SEC at the Organization for Economic Cooperation and Development’s (OECD) Working Group on Bribery. Price reports to Charles Cain, who was announced as Chief of SEC’s FCPA Unit in November 2017.
5. Brazil’s State-Owned Oil Company Agrees to Record-Setting U.S. Securities Class Action Settlement. On January 3, 2018, Petrobras announced that it had agreed in principle to settle a class action filed in the Southern District of New York for $2.95 billion. The settlement still has to be approved by District Judge Jed S. Rakoff, who recently denied plaintiff’s counsel’s motion to file the opt-out threshold provisions and attorneys’ fees under seal. The lawsuit was filed by investors who claimed they lost money as a result of a corruption scandal involving $2 billion in bribes accepted by Petrobras executives over 10 years that was uncovered by the Lava Jato (Car Wash) investigation. If approved, the settlement would rank as the fifth-largest securities class action settlement in U.S. history and is said to be the biggest ever by a foreign entity. Nevertheless, Petrobras would deny liability as part of the settlement. The agreement in principle came mere days after Brazil’s securities regulator formally accused eight former Petrobras executives of corruption.
6. Update on Corruption Allegations Involving Brazil’s Former and Current Presidents.
- Corruption Conviction of Former Brazilian President Upheld. On January 24, 2018, an appeals court in Brazil upheld the corruption and money laundering conviction of former president Luiz Inácio Lula da Silva (Lula), which could prevent him from running in Brazil’s upcoming presidential election. Lula can appeal the decision, and an electoral court must make the final decision on any candidacy. Lula was found guilty of corruption and money laundering offenses last July 2017. Despite his legal troubles, Lula had reportedly been leading the polls for the October 2018 presidential election.
- Police Request to Question Brazilian President Michel Temer in Corruption Investigation. On January 5, 2018, a government spokesperson announced that Brazilian police had asked to question President Michel Temer in connection with a corruption investigation involving a May 2017 decree that extended the deadline for contracts governing the country’s port concessions. Temer is under investigation for corruptly designing the decree to benefit an operator at Port of Santos, Latin America’s busiest container port.
7. Israel-based Pharmaceutical Company Agrees to Resolve Foreign Bribery Charges with Israeli Authorities. On January 15, 2018, Israel’s Justice Ministry announced that Teva Pharmaceuticals Industries Ltd. had conditionally agreed to pay $22 million in fines to resolve allegations that the company had bribed government officials in Russia, Ukraine, and Mexico. The alleged conduct involved bribes paid to a high-ranking Russian official, as well as doctors employed by the Mexican government, to increase sales of a profitable drug and bribes paid to a senior Ukrainian official to influence the registration of its products in that country. Israeli authorities opened an investigation into the conduct following the company’s settlement with U.S. authorities in December 2016. According to the Justice Ministry, its settlement was based on a number of considerations, including the fines the company paid in the U.S., the company’s cooperation with the investigation and implementation of an extensive compliance program, and the termination of the employees involved in the misconduct. Israeli authorities also took into account the company’s recent financial hardships.
8. Peru Introduces Corporate Criminal Liability. On January 1, 2018, Peru’s Law 30424, which introduces corporate criminal liability for foreign and domestic bribery of public officials, came into effect. The law applies to all legal entities: foreign and domestic, public and private. Companies found guilty face a range of penalties, including fines, debarment from government contracting, suspension of or prohibition on company activities, and dissolution. Companies may also be subject to civil damages arising from offenses. Companies can mitigate responsibility through substantial cooperation, reparation, and the existence or implementation of an adequate compliance program. The new legislation is part of Peru’s anti-corruption efforts, as it intends to become an OECD member.
9. Saudi Arabia Ends “Corruption Purge.” On January 29, 2018, Saudi Arabia’s Attorney General Sheikh Saud al-Mojeb announced the end of a corruption probe that lasted three months and reportedly yielded nearly $107 billion in settlements. According to reports, as many as 325 people, including at least 11 princes, current and former government officials, and businesspeople, were detained at the Ritz Carlton in Riyadh, with 56 remaining in captivity after refusing to turn over their assets. The investigation was launched by King Salman and his son and heir, Mohammed bin Salman, who reportedly wanted to help the economy rebound and shake up a privileged society that has lacked scrutiny for decades. Mohammed has also been pushing for cultural reforms, including allowing women to drive cars, which will take effect this summer.
10. Former Chinese Military General Facing Prosecution for Bribery. On January 9, 2018, it was reported that a former senior general in China’s military, Fang Fenghui, will be prosecuted for allegedly taking and giving bribes. Fang previously served on China’s Central Military Commission (CMC) with a senior military officer who committed suicide last November while under investigation for corruption. Both were reportedly protégés of former CMC vice-chairmen Guo Boxiong and Xu Caihou, who were investigated for various forms of corruption, including buying and selling military ranks. Guo was jailed for life in 2016, and Zuo died of cancer in 2015 while under investigation. Dozens of Chinese military officers have been investigated and jailed as part of President Xi Jinping’s anti-corruption campaign launched five years ago.