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 resolved a foreign bribery case in Scotland? What was the outcome of a three-year foreign bribery trial in Italy? Why is Brazil’s former president free to run for office again, despite multiple corruption convictions? The answers to these questions and more are here in our March 2021 Top 10 list.
1. Scottish Oil and Gas Company Resolves Kazakhstan Bribery Allegations in Scotland. On March 16, 2021, Scotland’s Crown Office & Procurator Fiscal Service announced that WGPSN, a subsidiary of John Wood Group PLC, had agreed to pay £6.46 million to the Service’s Civil Recovery Unit in connection with allegations that one its subsidiaries, PSNA Limited, had made payments to Unaoil to secure contracts in Kazakhstan in 2008 and 2010. The £6.46 million payment represents the dividends and retained profits from those two contracts. According to the press release, the contracts were secured before Wood acquired the PSN business, and the potential misconduct came to light in March 2016 when media reports indicated widespread corruption by Unaoil. (For more on the Unaoil investigation, see our November 2017, May 2018, June 2018, December 2018, July 2019, March 2020, May 2020, July 2020, August 2020 , and February 2021 Top 10s. See also below.)
2. UK Serious Fraud Office Ends Foreign Bribery Investigation into U.S.-Based Engineering Company. On March 18, 2021, the UK’s Serious Fraud Office (SFO) announced that it had closed its four-year corruption and bribery investigation into UK subsidiaries of KBR, a U.S.-based engineering company. In August 2020, the SFO had informed KBR that it was no longer investigating allegations of corruption involving Unaoil, but that some lines of inquiry remained open. And in February 2021, the UK Supreme Court held in KBR v. SFO that the SFO cannot use its statutory power under section 2(3) of the Criminal Justice Act 1987 to require a non‑UK company that does not have a registered office or carry out business in the UK to produce documents from abroad. This ruling may have contributed to the SFO’s conclusion that “the evidence in this case did not meet the evidential test as defined in the Code for Crown Prosecutors.”
3. UK to Launch Corruption Sanctions Regime in 2021. On March 16, 2021, the UK’s Prime Minister released a report titled, “Global Britain in a Competitive Age: The Integrated Review of Security, Defense, Development and Foreign Policy.” Among other things, the Review states that “In 2021, the UK will launch a second global sanctions regime on corruption, giving us powers to prevent those involved in corruption from freely entering the UK or channeling money through our financial system. This will complement existing anti-corruption tools, including law enforcement powers, and enable us to work with allies who have similar regimes, such as the U.S. and Canada.” The UK has faced criticism, including from within the UK, for allowing the proceeds of foreign bribery and corruption to proliferate through the country. (See, for example, the discussion of a UK parliamentary report on the proceeds of Russian corruption in our May 2018 Top 10.) The UK launched its first autonomous “Magnitsky-style” sanctions regime in July 2020, giving the UK the ability to impose targeted asset freezes and travel bans on people involved in serious human rights violations or abuses.
4. Former CFO of New York-Based Hedge Fund Ordered to Pay Civil Penalty. On March 16, 2021, the U.S. Securities and Exchange Commission (SEC) ordered that Joel Frank, the former chief financial officer (CFO) of Och-Ziff Capital Management, pay a civil money penalty in the amount of $35,000 for failing to fulfill his responsibilities regarding Och-Ziff’s internal accounting controls and its books and records. SEC announced in September 2016 that Frank had resolved the allegations, but that his penalty would be assessed at a later date. According to the March 2021 Order, between 2007 and 2011, Och-Ziff paid bribes through intermediaries and partners to high ranking government officials in Africa in order to win or retain business. The Order alleges that Frank authorized and approved each payment that was improperly recorded in the hedge fund’s books and records and failed to ensure that required information regarding transactions was documented, that appropriate business partner information was obtained, and that ongoing due diligence and audits were performed properly.
5. Ecuadorian Nationals Charged in Bribery Scheme Involving Ecuador’s Public Police Pension Fund. On March 2, 2021, DOJ announced that John Luzuriaga Aguinaga and Jorge Cherrez Miño had each been charged in the Southern District of Florida with one count of conspiracy to commit money laundering for their roles in an alleged bribery and money laundering scheme involving Ecuador’s public police pension fund (ISSPOL). Cherrez, an investment advisor, allegedly paid more than $2.6 million in bribes to the public pension fund’s officials, including nearly $1.4 million to the fund’s Risk Director and a member of its Investment Committee, in order to obtain and retain investment business from ISSPOL. According to the complaint, the payments were received in an account in the United States and bribes were paid using Florida-based companies and bank accounts.
6. Former Ecuadorian Official and Business Executive Receive Prison Terms for Bribery at State-Owned Surety Company. On March 23, 2021, DOJ announced that Juan Ribas Domenech, an Ecuadorian and Italian national who was chairman of Seguros Sucre, Ecuador’s state-owned surety company, and an advisor to the then-president of Ecuador, had been sentenced to 51 months in prison following his September 2020 plea of guilty in the Southern District of Florida to one count of conspiracy to commit money laundering. Ribas allegedly accepted over $5 million in bribes in exchange for using his official position to help three UK reinsurance companies to obtain and retain reinsurance contracts with Seguros Sucre. The bribe payments were allegedly paid through various intermediaries and partially laundered through the United States. On March 26, 2021, José Vicente Gómez Avilés was sentenced to 46 months in prison following his June 2020 plea of guilty to a related conspiracy charge. Gómez allegedly helped bribe Domenech to help secure a contract for the Colombian subsidiary of one of the UK reinsurance companies.
7. Former Venezuelan Official Pleads Guilty in Connection with International Bribery and Money Laundering Scheme. On March 23, 2021, DOJ announced that Jose Luis De Jongh Atencio, a former official at Citgo Petroleum Corporation, a Houston-based subsidiary of Petróleos de Venezuela S.A. (PDVSA), had pleaded guilty in the Southern District of Texas to one count of conspiracy to commit money laundering. De Jongh, a dual U.S.-Venezuelan citizen, allegedly accepted more than $7 million in bribe payments and gifts, including Super Bowl, World Series, and U2 concert tickets, in exchange for assisting the bribe payers in procuring contracts with Citgo and providing other business advantages. DeJongh allegedly directed the bribe payments into the bank accounts of Panamanian and Swiss shell companies. Charges against De Jongh were unsealed in August 2020. Sentencing is scheduled for August 19, 2021.
8. Former Procurement Chief at PDVSA Joint Venture Sentenced to Prison for Bribery Scheme. On March 23, 2021, Lennys Rangel, a former procurement chief at Petrocedeño, a joint venture between PDVSA, Venezuela’s state-owned oil company, and two European oil companies, was sentenced to 23 months in prison following her August 2020 plea of guilty in the Southern District of Florida to one count of conspiracy to commit money laundering. Rangel allegedly received bribes from various contractors in exchange for awarding them Petrocedeño business.
9. Oil Companies Acquitted in Italy over Nigeria Deal. On March 17, 2021, an Italian court acquitted Royal Dutch Shell and Eni of corruption charges following a three-year trial. Eleven other defendants, including Eni’s current CEO, his predecessor, and a former Nigerian oil minister were also acquitted. In December 2017, Shell and Eni initially answered charges brought by Italian prosecutors, who alleged that roughly half of a $1.3 billion deal to obtain the rights to an oil field that holds nearly a quarter of Nigeria’s oil reserves was converted into cash and used to pay bribes and that several hundred million more dollars were used to bribe a former oil minister. The court has 90 days to issue its reasoning in the case, after which the prosecutors may appeal.
10. Brazil Update.
- Brazilian National Oil Company Recovers $920 Million. On March 2, 2021, Petrobras announced that it had recovered 5.3 billion reals ($920 million) to date as part of a series of reimbursements related to the Lava Jato investigation. The sum, announced in March, includes 360 million additional reals ($65 million) that Petrobras recently received pursuant to a February 2021 leniency agreement with South Korean shipbuilder Samsung Heavy Industries. This sum is just the first installment from a total 705.9 million reals ($122.8 million) Petrobras will receive from Samsung Heavy Industries under that agreement.
- Former President’s Charges Related to Operation Car Wash Annulled. On March 9, 2021, a Supreme Court Justice in Brazil annulled corruption convictions against Luis Inácio Lula da Silva, the former president of Brazil. The Justice agreed with Lula’s lawyers that jurisdiction was improper in this case, since he was tried and convicted in Curitiba, Paraná state, for crimes that allegedly occurred in Brasilia, where Lula was living when he was president of Brazil. The prosecution can appeal the decision, or Lula can be retried in Brasilia on the corruption charges. In the meantime, however, Lula is once again free to run for political office. (See our April 2016, August 2016, September 2016, October 2016, December 2016, June 2017, July 2017, September 2017, January 2018, and September 2020 Top 10s for previous discussions of charges against Lula.)
By MoFo’s FCPA and Global Anti-Corruption Team
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: How will the Supreme Court’s limitation on the U.S. Securities and Exchange Commission’s (SEC) disgorgement authority influence FCPA enforcement? Will the U.S. Department of Justice (DOJ) continue to seek “declinations with disgorgement?” What is the latest sector to fall under the microscope in China’s ongoing anti-anticorruption campaign? The answers to these questions and more are here in our June 2017 Top Ten list.
1. Personnel Moves at DOJ’s Fraud Section.
- DOJ Compliance Counsel Departs Ahead of Schedule. In November 2015, DOJ announced that it had selected Hui Chen, formerly head of Standard Chartered’s anti-bribery and corruption compliance, for the newly created role of compliance counsel. The appointment was intended to assist prosecutors in assessing a company’s compliance program, particularly when determining the sufficiency of any remediation. Chen’s influence was seen publicly in the FCPA Pilot Program, issued by the Fraud Section in April 2016, and in the “Evaluation of Corporate Compliance Programs,” issued by the Fraud Section in February 2017, and she became a fixture at Filip Factors presentations and other compliance-related meetings at the Fraud Section. Chen’s contract was set to run until September 2017, but in early June 2017, DOJ began advertising for the position. Later in the month, it was announced that Chen had left her position as of June 23, 2017. Following her resignation, Chen posted a statement explaining that her decision was based on disagreements and concerns with the Trump Administration, the prohibition on her public speaking on compliance issues imposed by DOJ, and the limitations the Hatch Act would impose on her ability to be politically active. The addition of a compliance expert was seen by most observers as a positive development at the Fraud Section, and it is welcome news that DOJ appears intent on continuing the role in the future.
- Changes in Leadership Positions at DOJ’s FCPA Unit. In June 2017, Laura Perkins, an assistant chief in DOJ’s FCPA Unit for several years, departed the Fraud Section for private practice. As we discussed in last month’s Top Ten, FCPA Unit Assistant Chief Albert “B.J.” Stieglitz is expected to depart for a two-year detail to the United Kingdom in the near future. Meanwhile, the Fraud Section has hired two new FCPA assistant chiefs in 2017: David Johnson, a veteran of the D.C. U.S. Attorney’s Office and SEC who tried a securities fraud case with FCPA Unit Deputy Chief Dan Kahn in 2014, and Chris Cestaro, who transferred to the FCPA Unit in 2014 following a successful run in the Fraud Section’s Health Care Fraud Unit. While Perkins and Stieglitz’s expertise will be missed by the close-knit FCPA Unit, the unit has added two more talented prosecutors in Johnson and Cestaro to the management ranks.
2. U.S. Supreme Court Limits SEC’s Ability to Obtain Disgorgement. On June 6, 2017, in Kokesh v. SEC, the U.S. Supreme Court unanimously held that SEC’s ability to disgorge allegedly ill-gotten gains from defendants was subject to the five-year statute of limitation set out in 28 U.S.C. § 2462 for suits brought by the government to enforce “any civil fine, penalty, or forfeiture.” The court held that disgorgement operates as a “penalty” within the meaning of that statute. The ruling reverses an August 2016 appellate court opinion and resolves a circuit split. (Interestingly, in the May 2016 decision that caused the circuit split, the appellate court held that disgorgement constituted “forfeiture” within the meaning of Section 2462.) It also deals a potentially significant blow to SEC’s FCPA enforcement efforts. SEC had consistently argued that disgorgement was an equitable remedy not subject to any statute of limitations. This gave SEC the ability to reach alleged misconduct from the distant past, an important tool in FCPA investigations, which tend to be lengthy and tend to involve conduct occurring years in the past. Although Kokesh may provide companies with more leverage in some FCPA investigations, we will likely see countermeasures from SEC. For example, SEC may increase the pressure to move more quickly in FCPA investigations, rely on tolling agreements more heavily, and make more use of its authority to seek civil penalties for conduct that is not time barred.
3. DOJ Continues to Pursue “Declinations with Disgorgement.” “Declinations with disgorgement” were first announced as an enforcement tool in DOJ’s April 2016 FCPA Pilot Program, and it was unclear whether they would survive the change in administration. Two resolutions brought in June 2017 suggest they are here to stay—at least for the time being.
- U.S.-based Units of German Oil and Gas Supplier Receive Declination with Disgorgement in Connection with Georgia Bribery Allegations. On June 16, 2017, in its first public FCPA action under the Trump Administration, DOJ’s FCPA Unit published a letter it sent to Linde North America Inc. and Linde Gas North America LLC declining to prosecute the companies in connection with payments allegedly made by Spectra Gases, a New Jersey-based company acquired by Linde in 2006, to Republic of Georgia officials to ensure continuity of business. The letter further stated that Linde agreed to disgorge and forfeit a combined $11.2 million in connection with the investigation. The letter highlighted the companies’ timely and voluntary self-disclosure, comprehensive internal investigation, compliance program enhancement, and full remediation, including termination of the employees involved in the misconduct and withholding of payments owed to certain executives.
- Boston-based Construction Company Receives Declination with Disgorgement in Connection with India Bribery Allegations. On June 29, 2017, DOJ revealed that it had also resolved its second public FCPA action under the Trump Administration as a declination with disgorgement. In a letter to CDM Smith Inc., DOJ’s FCPA Unit declined to prosecute the company in connection with $1.18 million in improper payments allegedly made by its Indian subsidiary to Indian government officials in connection with securing highway and water project construction contracts from 2011 through 2015. The company agreed to disgorge $4,037,138, pursuant to the terms of the letter agreement. In reaching its decision, DOJ cited the company’s timely and voluntary self-disclosure, thorough and comprehensive investigation, full cooperation, compliance program enhancements, and termination of all executives and employees involved in the misconduct.
4. Guilty Plea in Vietnam Skyscraper Case. In January 2017, DOJ announced charges against four individuals, including the brother and nephew of former UN Secretary General Ban Ki-moon, in the Southern District of New York for allegedly conspiring to bribe a foreign official in connection with a deal to sell Vietnam’s tallest skyscraper. On June 21, 2017, DOJ announced that one of the defendants, Malcolm Harris, had pleaded guilty to wire fraud and money laundering charges in connection with his role as middleman in the scheme. According to DOJ, Harris convinced his co-defendants to send him $500,000 to pay an upfront bribe to a foreign official who could purportedly influence the sale of the skyscraper; in reality, Harris did not have a relationship with the foreign official and instead stole the money, which he spent on “lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.” Harris, who faces up to 30 years’ imprisonment in connection with his guilty plea, is scheduled to be sentenced on September 27, 2017.
5. FIFA Releases Internal Investigation Report Following Additional Guilty Pleas in U.S. Prosecution. In June 2017, two more individuals pleaded guilty to charges arising from DOJ’s sprawling investigation into the Fédération Internationale de Football Association (FIFA), which has been the subject of client alerts, updates, and advice here, here, here, and here.
- Former Guatemalan Judge Pleads Guilty to Wire Fraud. On June 2, 2017, Hector Trujillo, former judge of the Constitutional Court of Guatemala and general secretary of the Guatemalan soccer federation from 2009 to 2015, pleaded guilty to one count of wire fraud and one count of wire fraud conspiracy for his role in awarding lucrative media and marketing rights to the Guatemalan national soccer team’s home World Cup qualifier matches in exchange for hundreds of thousands of dollars. He faces a maximum sentence of 20 years’ imprisonment for each of the two counts for which he pleaded guilty. Trujillo also agreed to forfeit $175,000.
- Former Swiss Bank Managing Director Pleads Guilty to Money Laundering Charge. On June 15, 2017, Jorge Luis Arzuaga, an Argentine citizen and former Swiss private banker, pleaded guilty to money laundering charges for his role in facilitating millions of dollars in bribes to soccer officials, including the late president of the Argentinian soccer federation. From 2010 through 2015, Arzuaga used his position to facilitate bribes by opening bank accounts for shell companies on behalf of soccer officials and transferring funds to officials and their families in exchange for bonus payments. Arzuaga received approximately $1,046,000 in payments and agreed to forfeit that amount.
- FIFA Releases Internal Investigation Report. On June 27, 2017, FIFA released a 400-page plus report of its internal investigation into allegations of corruption surrounding the selection of Russia and Qatar to host the 2018 and 2022 World Cup tournaments, respectively. Although the newly released report is much more detailed than the 42-page “summary” report released in 2014, Russia and Qatar are not expected to be stripped of the rights to host the tournaments. FIFA’s decision to release the report, or at least the timing of the release, appears to have been motivated by a German newspaper’s announcement that it intended to publish a leaked version of the report on June 27, 2017.
6. DOJ Files Forfeiture Complaint in Connection with Alleged Malaysia Bribery Scheme. On June 15, 2017, DOJ announced the filing of civil forfeiture complaints seeking to recover approximately $540 million in assets associated with an alleged international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund. The complaints supplement complaints filed in July 2016 arising from the same matter seeking more than $1 billion. Together, the complaints represent the largest action brought under DOJ’s Kleptocracy Asset Recovery Initiative. According to the complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1Malaysia Development Berhad (1MDB), an entity designed by the Malaysian government to further Malaysian economic development, was allegedly misappropriated by high-level officials of 1MDB and their associates. Officials at 1MDB, along with their relatives and others, allegedly diverted more than $4.5 billion in 1MDB funds using fraudulent documents and representations and laundered the funds through a series of complex transactions and shell companies with bank accounts located in the United States and abroad. The funds were allegedly used to purchase, among other things, a 300 foot luxury yacht valued at over $260 million, certain movie rights, high-end properties, tens of millions of dollars of jewelry, and artwork. A portion of the proceeds was also allegedly used in an elaborate, Ponzi-like scheme to create the false appearance that an earlier 1MDB investment had been profitable. Malaysian press has reported that the forfeiture actions have caused significant political turmoil, with the governing party denying the allegations and the opposition party organizing protests.
7. Multilateral Development Bank Official Sentenced by UK Court. In the first indictment of 2015, Pennsylvania-based business executive Dimitrij Harder was charged with bribing senior officials at the European Bank for Reconstruction and Development (“EBRD”) to secure millions of dollars of business in development projects in Eastern Europe. After losing several motions, including a challenge regarding the EBRD’s status as a “public international organization” within the meaning of the FCPA, Harder pleaded guilty in April 2016. On June 20, 2017, a UK court sentenced former EBRD banker Andrey Ryjenko to six years’ imprisonment for conspiring to make or accept corrupt payments and money laundering in connection with the Harder scheme. According to the facts presented to the sentencing court, Ryjenko introduced Harder to a number of businesses in former Soviet states to help them apply for EBRD funding. Once the applications were approved, Harder transferred approximately $3.5 million, representing half of his consultancy fees, to Ryjenko through accounts held in the name of Ryjenko’s sister. The Harder-Ryjenko case is an excellent example of cooperation between development banks and law enforcement authorities in multiple jurisdictions. Indeed, the sentencing court and Crown Prosecution Service both credited the assistance they received from U.S. authorities—which included making Harder available to testify via videoconference—for the successful prosecution of Ryjenko.
8. OECD Working Group on Bribery Calls for Increased Foreign Bribery Enforcement in Czech Republic. On June 22, 2017, the OECD Working Group on Bribery released its Phase 4 evaluation report of the Czech Republic. The Working Group called for the Czech Republic, which has yet to prosecute a case involving the bribery of foreign public officials despite its exports in the machinery and defense materials sectors, to “strengthen its efforts to detect, investigate and prosecute foreign bribery.” Nevertheless, the Working Group also recognized improvements made by the Czech Republic over the last several years and its “strong determination to improve its system for combating foreign bribery.” (See our March 2017 Top Ten for more discussion of the Phase 4 evaluation process.)
9. Brazil’s President Charged with Accepting Bribes. On June 26, 2017, Brazil’s President, Michel Temer, was indicted on corruption charges in connection with allegations that he accepted millions of dollars in bribes from a Brazilian meat-packing company in exchange for resolving tax issues and facilitating loans from state-run banks on the company’s behalf. The allegations followed the release of a secret recording between Temer and a company executive in which Temer apparently offered money to buy the silence of Eduardo Cunha, a member of Temer’s party currently serving a 15-year sentence for corruption. (See our May 2017 discussion of these allegations.) Temer, the first sitting Brazilian president to be charged with a crime, became president in May 2016, after his predecessor, Dilma Rousseff, was removed from office to stand trial for impeachment. Rousseff’s predecessor, Luiz Inacio Lula da Silva, has also been charged with numerous crimes (see, for example, our December 2016 Top Ten). Under Brazilian law, the lower house of Congress (the Chamber of Deputies) must now vote on whether to allow a trial against Temer to move forward, with a two-thirds majority required to permit a trial. It appears that Temer may have sufficient votes to resist trial, at least for the time being. However, Brazilian prosecutors are also expected to bring additional charges against him in the coming months.
10. Chinese Anti-Corruption Efforts Continue with Inspection of 31 Major Universities. According to the Chinese press, Chinese authorities recently concluded a political and disciplinary inspection of 31 major universities, including Peking and Tsinghua universities, as part of its continued anti-corruption efforts. Findings from the inspection were reported to the Communist Party of China’s Central Committee on June 28, 2017. According to the report, universities were found to have permitted the private use of public vehicles, banquets at the public expense, and unauthorized overseas business trips. Additionally, the report identified certain university functions, such as university construction projects and management of research funds, as high risk for potential graft. This continued anti-corruption focus is particularly important for those companies engaged in business or research with Chinese universities or affiliated companies.