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 foreign bribery charges in the United Kingdom? What did the former CEO of a New York Stock Exchange listed company plead guilty to in a New York federal court? What are the latest developments in the investigations of alleged corruption at the national oil companies in Ecuador and Venezuela? The answers to these questions and more are here in our April 2021 Top 10 list.
1. UK Subsidiary of Aircraft Manufacturer Pleads Guilty to Saudi Arabia Bribery Scheme. On April 28, 2021, the UK’s Serious Fraud Office (SFO) announced that GPT Special Project Management Ltd. (GPT), a former subsidiary of Airbus SE which ceased operations in April 2020, had pleaded guilty to one count of corruption, contrary to section 1 of the Prevention of Corruption Act 1906. According to the SFO, GPT paid bribes to win a £2 billion contract to provide military communications services to the Saudi Arabian National Guard. The company was ordered to pay a confiscation order of £20.6 million, a fine of £7.5 million, and the SFO’s costs of £2.2 million. The investigation into the company’s work in Saudi Arabia began in 2012. In July 2020, the SFO brought charges against the company and three individuals, who are due to face trials in May 2022. This also follows the separate $3.9 billion deferred prosecution agreement (DPA) entered into by Airbus SE with U.S., British, and French authorities in January 2020.
2. Former Brazilian Petrochemical Company CEO Pleads Guilty to Brazil Bribery Scheme. On April 15, 2021, the U.S. Department of Justice (DOJ) announced that former Braskem S.A. CEO Jose Carlos Grubisich had pleaded guilty in the Eastern District of New York to conspiring to violate the anti-bribery and books and records provisions of the Foreign Corrupt Practices Act (FCPA). According to the indictment, Grubisich and his co-conspirators engaged in a massive bribery scheme involving Braskem and its parent company that resulted in the diversion of approximately $250 million of Braskem’s funds into a secret slush fund, which was used to pay bribes to government officials, political parties, and others in Brazil. Grubisich admitted that, while he was CEO, he agreed to pay bribes to Brazilian government officials to ensure that the company would retain a contract for a significant petrochemical project from Brazil’s national oil company, Petroleo Brasileiro S.A. (“Petrobras”). Grubisich also admitted to agreeing to falsely record payments to offshore shell companies as payments for legitimate services. Grubisich faces up to 10 years in prison and has agreed to pay approximately $2.2 million in forfeiture. He is scheduled to be sentenced on August 5, 2021. In December 2016, Braskem reached related resolutions with DOJ and the Securities and Exchange Commission (SEC).
3. Former Barbados Official Sentenced for Laundering Bribe Payments. On April 27, 2021, DOJ announced that Donville Inniss, a former member of Parliament and Minister of Industry, International Business, Commerce, and Small Business Development in Barbados, had been sentenced to two years in prison, following his January 2020 conviction by a jury in the Eastern District of New York on several money laundering charges. Inniss was also ordered to forfeit approximately $36,000 in bribes he allegedly received from the Insurance Corporation of Barbados Limited (ICBL) in exchange for renewing contracts from the Barbados government to insure government property worth over $100 million. In July 2020, Inniss unsuccessfully tried to persuade the trial court to overturn his convictions.
4. Former Logistics Company Executive Sentenced for Scheme to Bribe a Russian Official. On April 30, 2021, Daren Condrey, former co-president of Maryland-based Transport Logistics International (TLI), was sentenced to two years in prison, three years of supervised release, and a fine of $12,500 following his June 2015 guilty plea in the District of Maryland to FCPA and wire fraud conspiracy charges. Condrey allegedly agreed to pay approximately $2 million to Vadim Mikerin, an official at a subsidiary of Russia’s state-owned uranium company, to secure contracts for TLI. DOJ announced guilty pleas by Condrey and Mikerin in August 2015. Condrey’s former co-president, Mark Lambert, was convicted following a jury trial in November 2019 and sentenced to four years’ imprisonment in October 2020. TLI resolved related charges with DOJ in March 2018.
5. Former Employee of Switzerland-Based Commodities Firm Pleads Guilty in Connection with Ecuador Bribery Scheme. On April 6, 2021, Raymond Kohut pleaded guilty in the Eastern District of New York to one count of conspiracy to launder the proceeds of a scheme to pay at least $22 million in bribes to officials at Ecuador’s national oil company, Empresa Pública de Hidrocarburos del Ecuador (“Petroecuador”). According to the Information, the officials caused Petroecuador to enter into a series of contracts with two Asian state-owned oil and gas entities (the “Asian SOEs”) under which the Asian SOEs provided loans to Petroecuador secured by oil to be delivered over a period of years. Kohut’s employer, an unnamed European energy trading company (reportedly Gunvor Group, Ltd.), then entered into agreements with the Asian SOEs to market and sell the oil products delivered under those contracts. Kohut’s employer allegedly paid fees to two consulting firms to generate the bribe money, some of which was transmitted through the U.S. banking system. Kohut faces up to 20 years in prison and has agreed to forfeit $2.2 million. (For more on the Petroecuador prosecutions, please see our April 2018, September 2018, November 2018, April 2019, October 2019, November 2019, December 2019, January 2020, February 2020, September 2020, and January 2021 Top 10s, as well as the stories below.)
6. Argentine National Sentenced for Ecuador Bribery Scheme. On April 16, 2021, Ramiro Andres Luque Flores was sentenced to four years of probation with six months of home confinement following his October 2017 guilty plea in the Eastern District of New York to FCPA and money laundering conspiracy charges. Luque was also ordered to pay a fine of $30,000. Luque allegedly paid bribes worth $3.2 million to Petroecuador officials to secure and retain approximately $38 million in oil and gas contracts for his hazardous waste disposal company, Galileo Energy SA. Luque’s cooperation with the government and probationary sentences for other cooperators factored into Luque’s sentence.
7. Ecuadorian Business Executive Sentenced for Bribery at Ecuadorian State-Owned Surety Company. On April 26, 2021, Roberto Heinert was sentenced to three years in prison and three years of supervised release following his guilty plea in the Southern District of Florida to one count of conspiracy to commit money laundering in connection with a $3 million bribery scheme involving officials at Seguros Sucre S.A., Ecuador’s state-owned surety company. According to prosecutors, Heinert and his business partner, José Vicente Gómez Avilés, assisted Felipe Moncaleano Botero, the former CEO of a UK reinsurance company’s Colombian subsidiary, in paying bribes to the chairman of Seguros Sucre, Juan Ribas Domenech, to retain a reinsurance contract between the UK reinsurance company and Ecuador’s Ministry of Defense. In March 2021, both Gómez and Ribas received prison terms for related conspiracy charges.
8. Venezuelan Businessman Pleads Guilty to Conspiracy to Commit Money Laundering. On April 19, 2021, Carlos Enrique Urbano Fermin pleaded guilty in the Southern District of Florida to one count of conspiracy to commit money laundering in connection with a scheme to bribe a Venezuelan prosecutor not to prosecute his companies, which had won several large contracts from three subsidiaries of Venezuela’s national oil company Petróleos de Venezuela SA (PDVSA). According to the Information and factual proffer, $1 million in bribe payments was wired in or from the United States, including a $100,000 wire transfer from Fermin’s U.S. bank account to a bank account in Coral Gables, Florida, held by an intermediary who had a relationship with the prosecutor and described himself as an “insurance policy” against the charges. Fermin is scheduled to be sentenced on September 3, 2021. (For more on PDVSA-related prosecutions, please see our October 2017, May 2019, February 2020, August 2020, September 2020, November 2020, and January 2021 Top 10s, as well as the stories below.)
9. Former Venezuelan State-Owned Oil Company General Counsel Sentenced for Laundering Bribe Payments. On April 21, 2021, Edoardo Orsoni, a former general counsel at PDVSA, was sentenced in the Southern District of Florida to three years’ probation following his August 2020 guilty plea to one count of conspiracy to commit money laundering in connection with an alleged PDVSA joint venture bribery scheme. Orsoni and Lennys Rangel, a former procurement chief of Petrocedeño (a joint venture between PDVSA and two European oil companies), allegedly received bribes from various contractors to secure contracts with the joint venture. Prosecutors said that Orsoni provided substantial assistance to the government investigation and prosecution of others.
10. Miami-Based Business Executive Sentenced for Venezuela Bribery Scheme. On April 30, 2021, Gustavo Adolfo Hernandez Frieri was sentenced to 46 months in prison, three years supervised release, and a $50,000 fine following his November 2019 guilty plea in the Southern District of Florida to one count of conspiracy to commit money laundering in connection with an alleged $1.2 billion conspiracy to embezzle money from PDVSA. DOJ announced Hernandez’s arrest in July 2018. According to prosecutors, Hernandez allowed PDVSA’s former finance director, Abraham Edgardo Ortega, to launder $12 million in bribes through his financial advisory firm, Global Securities Advisors LLC. Ortega pleaded guilty in October 2018.
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 countries brought the largest coordinated foreign bribery resolution of all time? Which countries moved up, and which moved down, in the latest Transparency International Corruption Perceptions Index? How does the UK Serious Fraud Office evaluate the effectiveness of corporate compliance programs? The answers to these questions and more are here in our January 2020 Top 10.
1. European Aircraft Manufacturer Enters Into Largest-Ever Global Foreign Bribery Resolution. On January 31, 2020, DOJ announced that Airbus SE had agreed to pay over $3.9 billion in total penalties to resolve foreign bribery allegations with authorities in the United States, France, and the UK, as well as export controls allegations in the United States. The company entered into a deferred prosecution agreement (DPA), filed in federal court in the District of Columbia, related to charges that it conspired to violate the FCPA’s anti-bribery provisions in connection with benefits provided to Chinese officials and failed to disclose political contributions, commissions, or fees in connection with the sale or export of defense articles and defense services to the armed forces of a foreign country or international organization, in violation of the Arms Export Control Act (AECA) and its implementing regulations, the International Traffic in Arms Regulations (ITAR). The company agreed to pay $2.29 billion as part of an agreement with the Parquet National Financier (PNF) in France to resolve allegations that it paid bribes to public officials and private airline executives in China and other countries and $1.09 billion as part of a DPA with the UK Serious Fraud Office (SFO) related to bribery allegations involving Ghana, Indonesia, Malaysia, Sri Lanka, and Taiwan. The U.S. portion of the resolution was approximately $592 million. According to DOJ’s press release, this is the largest global foreign bribery resolution in history.
2. Transparency International Releases Annual Corruption Perceptions Index. On January 23, 2020, Transparency International (TI) published its annual Corruption Perceptions Index (CPI) for 2019. The CPI, which measures the perceived levels of public-sector corruption in 180 countries and territories, provides one of the major data-points used by compliance officers, outside counsel, and enforcement officials in assessing the anti-corruption risk of doing business in particular countries. TI uses a numerical system to rate countries on a number of factors, with a higher score representing a lower level of corruption and a lower score representing a higher level of corruption. Scores range from 0 (very corrupt) to 100 (very clean). This year’s scores ranged from 9 for Somalia, which repeated its last-place finish from last year, to 87 for Denmark and New Zealand, which were last year’s first- and second-place finishers, respectively. With a score of 69, the United States dropped two points since last year to earn its lowest score on the CPI in eight years. Just like in 2018, the average overall score was 43, with two-thirds of the countries scoring below 50, which is considered a failing score. Since 2011, only 22 countries significantly improved their CPI scores, including Greece, Guyana, and Estonia, while the scores for 21 others have significantly declined. As we noted in our client alert examining CPI results in Asia, China (41) and Indonesia (40) both saw a slight two-point improvement on their 2018 scores of 39 and 38, respectively. In a noteworthy development, Malaysia’s score jumped from 47 in 2018 to 53 in 2019, which marks the first time since 2015 that Malaysia did not obtain a failing score. Some have attributed Malaysia’s improvement to its swift response to a number of recent corruption cases, including 1MDB.
3. SFO Releases Guidance on Evaluating Compliance Programs. On January 17, 2020, the SFO released guidance on evaluating the effectiveness of compliance programs. According to the SFO guidance, the SFO will evaluate a compliance program at the time of an offense and at the time of resolution, and when deciding whether future improvements can be made through a DPA. The effectiveness of the compliance program should be reviewed at an early point in the investigation, and should be reviewed again at various time periods to determine whether the company qualifies for a DPA. The SFO guidance stresses the importance of keeping written records of corporate compliance programs but also counsels that “a key feature of any compliance programme is that it needs to be effective and not simply a ‘paper exercise.’” The SFO guidance also states that the “Six Principles” in the Ministry of Justice’s guidance on the UK Bribery Act, published in March 2011, are a good general framework for assessing compliance programs. In other words, the SFO will assess (1) proportionate procedures, (2) top-level commitment, (3) risk assessment, (4) due diligence, (5) communication (including training), and (6) monitoring and review. This is the first such guidance to be issued by the SFO and a welcome addition to the growing body of compliance expectations published by enforcement agencies. For more on the SFO guidance, please read our January 2020 client alert.
4. Former Barbados Official Convicted of Money Laundering. On January 16, 2020, DOJ announced that a federal jury in the Eastern District of New York had convicted Donville Inniss of one count of conspiracy to commit money laundering and two counts of money laundering. Inniss, a former member of the Barbados Parliament who also served as the country’s Minister of Industry, was accused of receiving bribes in exchange for renewing insurance contracts with the Insurance Corporation of Barbados Limited (ICBL). Inniss allegedly received the bribes through a U.S. bank account in the name of his friend’s dental company, located in New York. In August 2018, DOJ informed ICBL that it was closing its investigation consistent with the FCPA Corporate Enforcement Policy. Two former ICBL executives, Ingrid Innes and Alex Tasker, were also charged in connection with the same alleged bribery scheme, although DOJ moved to dismiss some of the charges against them in January 2019 in light of the Second Circuit’s August 2018 decision in United States v. Hoskins. Sentencing for Inniss has not yet been scheduled.
5. Miami-Based Businessman Pleads Guilty to Petroecuador Bribery Scheme. On January 23, 2020, DOJ announced that Armengol Alfonso Cevallos Diaz, an Ecuadorian businessman living in Miami, Florida, had pleaded guilty in the Southern District of Florida to one count of conspiring to violate the FCPA and one count of conspiring to commit money laundering in connection with an alleged $4.4 million bribery and money laundering scheme that funneled bribes to officials of Ecuador’s national oil company, Empresa Pública de Hidrocarburos del Ecuador (“Petroecuador”). Cevallos’ plea follows 12 public charges and guilty pleas against other individuals in DOJ’s ongoing investigation into bribery and money laundering involving Petroecuador. (For more on the Petroecuador prosecutions, read our April 2018, September 2018, November 2018, April 2019, October 2019, and December 2019 Top 10s.) Sentencing is scheduled for April 2020.
6. Florida Businessman Sentenced in Venezuela Oil Bribery Case. On January 8, 2020, DOJ announced that Florida businessman Juan José Hernández Comerma had been sentenced in the Southern District of Texas to four years’ imprisonment following his January 2017 guilty plea to one count of conspiracy to violate the FCPA and one count of violating the FCPA. Hernández admitted to conspiring with Abraham Jose Shiera Bastides and Roberto Enrique Rincon Fernandez to pay bribes to officials of Venezuela’s national oil company, Petroleos de Venezuela S.A. (PDVSA), including Alfonzo Eliezer Gravina Munoz, in order to win lucrative energy contracts. Shiera, Rincon, and Gravina all pleaded guilty to related charges in March 2016, June 2016, and December 2018, respectively. According to DOJ, 25 individuals have been publicly charged, and 19 have pleaded guilty, in connection with the PDVSA investigation. In addition to his prison term, Hernández was also ordered to pay a $127,000 fine and forfeit $3 million.
7. DOJ Declines to Pursue FCPA Enforcement Action Against Ride-Hailing Company. In a January 6, 2020 securities filing, Uber disclosed that DOJ had informed the company that it had closed its inquiry into potential FCPA violations in China, India, Indonesia, and Malaysia without pursuing an enforcement action. The investigation was first disclosed in August 2017.
8. Africa’s Richest Woman Faces Embezzlement and Money Laundering Charges. On January 22, 2020, Angola’s top prosecutor announced that Isabel dos Santos, the daughter of the country’s former president and reputedly the continent’s richest woman, had been formally charged with money laundering, mismanagement, and other offenses allegedly committed during her tenure as chairwoman of Sonangol, Angola’s national oil company. The announcement came just days after the International Consortium of Investigative Journalists published a detailed report analyzing more than 700,000 documents, which it called the Luanda Leaks, related to Ms. dos Santos’ businesses. According to the article, hundreds of millions of dollars in loans and contracts were directed to companies owned by dos Santos. On January 23, 2020, Angola’s attorney general requested assistance from Portugal, where dos Santos reportedly made substantial investments, in investigating the case, which involved several countries in Africa, Europe, and the Middle East.
9. China Sentences Former Interpol Chief to 13.5 Years in Prison. On January 21, 2020, a Chinese court sentenced former International Police Agency (“Interpol”) President Hongwei Meng to 13.5 years’ imprisonment. Mr. Meng, the first Chinese national to assume the presidency of the France-based international law enforcement organization, was detained by China’s Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission (NSC) in September 2018 for “suspected illegal activities.” Chinese authorities accused Meng of using his position within the Chinese Communist Party between 2005 and 2017 to receive special benefits, promotions for his wife, and more than $2 million in bribes. Meng was formally arrested and charged in April 2019 and pleaded guilty in June 2019. Meng, who was also fined approximately $290,000, said that he would not appeal his sentence.
10. SFO Wins First Conviction for Withholding Documents Requested in Bribery Investigation. On January 30, 2020, the SFO announced that, following a trial, a UK judge had found Anna Machkevitch guilty of failing to fully comply with a document request by the SFO under Section 2 of the Criminal Justice Act in connection with its bribery investigation into the Eurasian Natural Resources Company (ENRC), a Kazakh mining company co-founded by her father. Ms. Machkevitch, who is not a suspect in the ENRC investigation, is the first person to be convicted for failing to comply with a Section 2 notice. She was ordered to pay a £800 fine and a £181 victim surcharge and to cover the SFO’s legal costs.
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 does the U.S. Department of Justice (DOJ) evaluate corporate compliance programs? Which country set up a new anti-corruption court, and will it be effective? What new efforts are being taken to counter maritime corruption? The answers to these questions and more are here in our April Top 10 list.
- DOJ Updates Guidance on Evaluation of Corporate Compliance Programs. On April 30, 2019, Assistant Attorney General Brian Benczkowski announced the release of an updated version of DOJ’s “Evaluation of Corporate Compliance Programs” guidance (the “revised Guidance”), a document that provides insights into how federal prosecutors will evaluate compliance programs when conducting or resolving a corporate investigation. The revised Guidance doubles the length of the original document, which was released quietly in February 2017, and broadens its applicability to the entire Criminal Division, as opposed to just the Division’s Fraud Section. Most notably, the revised Guidance provides companies with additional details regarding how prosecutors will be thinking about compliance programs when conducting or resolving corporate investigations, and will be useful to companies as they benchmark their own compliance programs against DOJ’s expectations. The revised Guidance also highlights certain key principles of corporate compliance programs, including ensuring that the program is well designed, assessing whether the program is being implemented effectively, and asking whether the company’s compliance program works in practice. This revision comes in the wake of the Criminal Division’s October 2018 decision not to hire a dedicated compliance counsel and to instead implement Division-wide training programs to train all of its prosecutors on compliance issues. The revised Guidance also follows DOJ’s March 2019 revisions to its FCPA Corporate Enforcement Policy, which appear (at least in part) to have been made to address concerns from the business community aiming to comply with the policy. For more on the revised Guidance, please see our client alert.
- Debate Over Meaning of “Agent” Under FCPA Intensifies Ahead of Hoskins Trial. On April 12, 2019, former Alstom executive Lawrence Hoskins filed a reply memorandum in support of his motion asking the court for jury instructions on the definition of “agent” under the FCPA. In August 2018 the U.S. Court of Appeals for the Second Circuit held that, unless DOJ can prove at trial that Hoskins, a non-U.S. person working for a subsidiary of a non-U.S. company outside of the United States, was an “agent” of a domestic concern, he cannot be convicted of conspiring with or assisting others in violating the FCPA. As we noted at the time, the court declined to express any “views on the scope of agency under the FCPA,” leaving the precise contours of that critical issue undecided. Hoskins and DOJ agree that the district court should use a common law definition for “agent,” including that an agent is controlled by a person or company that it performs a service for, but disagree on how to apply the definition to Hoskins. DOJ argues for a looser instruction on the meaning of control, including that it may be inferred circumstantially and from the words and actions of the parties involved. DOJ also argues that the agent relationship need not be a formal agreement between principal and agent. In contrast, Hoskins argues that an agent of one corporation is not necessarily also an agent of an affiliate corporation unless a separate agency relationship with that affiliated corporation is established. Hoskins also argues that DOJ should be required to show that Alstom’s U.S. subsidiary had the right to control his conduct, including supervising his work and terminating his services. Hoskins is scheduled to go to trial in September 2019. (For more on Hoskins, read our August 2015, March 2017, and August 2018 Top 10s.)
- Federal Court Finds FCPA Investigation Documents Protected by Attorney-Client Privilege. On April 11, 2019, a federal court in the Eastern District of New York held that documents created by external counsel during an internal investigation into potential FCPA violations are protected by the attorney-client privilege. The court ruled that Misonix Inc., a U.S. medical device maker, did not have to produce to Cicel (Beijing) Science & Tech. Ltd., a Chinese manufacturer, documents created by its external counsel during an internal investigation into potential FCPA violations by Cicel. The court rejected Cicel’s argument that the documents were not privileged because external counsel had been hired to make findings of fact, not to provide legal advice, holding that fact-finding is a crucial part of determining proper legal advice and that the two roles are not mutually exclusive. The ruling was made in a civil suit alleging wrongful termination of an exclusive distributor contract, but the court’s holding more broadly highlights the need to take appropriate safeguards to ensure that internal investigations remain privileged.
- Ecuadorian Executive Pleads Guilty to Laundering PetroEcuador Bribery Money. On April 4, 2019, Ecuadorian businessman Gustavo Trujillo pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering relating to a scheme to launder bribe money paid to former PetroEcuador officials in exchange for contracts with the state-owned oil company. According to his guilty plea, Trujillo, the beneficial owner of Madison Assets LLC, used approximately $2.9 million in proceeds from a PetroEcuador contract obtained through bribery to pay certain clients of a real estate venture. This is the sixth guilty plea obtained by DOJ relating to bribery at PetroEcuador. Trujillo is scheduled to be sentenced on July 24, 2019. A seventh defendant, Frank Chatburn Ripalda, has pleaded not guilty to FCPA violations and is scheduled to go to trial in September 2019. (For more on the PetroEcuador prosecutions, read our April 2018, September 2018, and November 2018 Top 10s.)
- Micronesian Official Pleads Guilty to Laundering Bribery Proceeds. On April 2, 2019, DOJ announced that Master Halbert had pleaded guilty to a money laundering charge involving bribes made to secure contracts from the government of the Federated States of Micronesia (FSM). Halbert, an official with the FSM’s Department of Transportation, Communications and Infrastructure who administered the FSM’s aviation programs, allegedly accepted bribes between 2006 and 2016 to steer engineering and project management contracts to a Hawaii-based engineering and consulting company owned by Frank James Lyon. Halbert and Lyon allegedly agreed that the bribe payments would be transported from the United States to FSM, in violation of the federal money laundering statutes. Lyon pleaded guilty in January 2019 to being involved in the payment of at least $200,000 in bribes to FSM officials. Halbert is scheduled to be sentenced on July 29, 2019.
- Former Interpol President Formally Arrested on Bribery Charges in China. On April 24, 2019, China’s Supreme People’s Procuratorate announced that it had formally arrested former International Police Agency (Interpol) President Hongwei Meng based on charges that he accepted bribes. Meng was initially detained in September 2018 by China’s Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission (NSC) for his alleged “illegal activities.” In March 2019, Meng was expelled from public office in China, where he had served as a Vice Minister of Public Security, and from China’s Communist Party. The CCDI has claimed that Meng abused his office to support his family’s “extravagant lifestyle,” including his wife’s use of his authority for personal benefit. Meng’s wife, who has lived in France with their two sons since Meng’s detention in September 2018, has claimed that Meng’s human rights are being violated and that she is not sure if he is still alive. Meng is among a group of high-ranking Chinese officials caught in President Xi’s crackdown on graft and corruption.
- OECD Urges Russia to Step Up Fight Against Foreign Bribery. On April 24, 2019, the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery issued a statement reiterating its request for Russia to “urgently focus” on the investigation and prosecution of alleged cases of foreign bribery. According to the Working Group, in the seven years since ratifying the OECD Anti-Bribery Convention, Russia has failed to investigate or prosecute a single case involving the bribery of foreign public officials. A high-level mission from the Working Group met with Russian officials on April 18 and 19, 2019, to discuss deficiencies in Russia’s anti-bribery legislation and enforcement efforts. The mission was led by Drago Kos, Chair of the Working Group, and included experts from Austria, Denmark, Italy, Poland, Slovenia, Sweden, and the United States, along with members of the OECD Secretariat. According to Kos, “Russia must focus its immediate efforts on filling in the legal gaps identified by the Working Group, and stepping up the investigation and prosecution of alleged cases of foreign bribery.” Noting that Russia could also improve its interagency cooperation in the fight against corruption, Kos welcomed Russia’s initiative to set up a multi‑agency task force led by the Minister of Justice, Alexander Konovalov, to strengthen antibribery enforcement. The outcomes of the mission will be discussed at the next Working Group on Bribery meeting in June 2019. For more on the OECD’s past criticism of Russia’s foreign bribery enforcement record, see our October 2016 and October 2017 Top 10s.
- Ukraine Announces New Anti-Corruption Court. On April 11, 2019, former Ukrainian President Petro Poroshenko announced the creation of the High Anti-Corruption Court, a special court set up to try corruption cases. Poroshenko also announced the appointment of 38 new judges to the court. The long-anticipated anti-corruption court was established as part of Ukraine’s $3.9 billion loan program with the International Monetary Fund, with the goal of fighting systemic corruption in the Ukrainian government. The announcement came ten days before Ukraine’s presidential runoff election, in which Poroshenko lost by a landslide to Volodymyr Zelenskiy, a comedian with no prior political experience. The timing of the court’s establishment was criticized as a last-minute attempt by Poroshenko to deflect criticism based on a military embezzlement scheme allegedly involving his top associates and a factory controlled by Poroshenko.
- International Maritime Organization (IMO) Sets Anti-Corruption Agenda. Following its April 8–12, 2019 meeting, the IMO’s Facilitation Committee reported that it would include maritime corruption as a regular work item on its agenda. The IMO is the United Nations’ (UN) specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. According to the IMO, the decision to pursue an anti-corruption agenda followed a submission by several countries and non-governmental organizations that “proposed the development of IMO Guidelines and/or a Code of Best Practice, with the aim of addressing the problem of maritime corruption and reducing the impact on global trade, improving port governance and reducing adverse consequences on seafarers.” The IMO guidance is expected to be completed in 2021 and should align IMO regulations and requirements for the maritime industry with the United Nations Convention Against Corruption (UNCAC). Since the Maritime Anti-Corruption Network established an anonymous reporting system in 2011, more than 28,000 instances of maritime corruption have been reported. The IMO guidance, therefore, has the potential to significantly enhance international anti-corruption efforts.
- Argentina Seeks Greater Alignment with International Anti-Corruption Conventions. On April 10, 2019, the Argentinian government approved the implementation of a National Anti-Corruption Plan (NAP) to be executed between 2019 and 2023. The NAP’s stated goal is to consolidate Argentina’s efforts in line with the international conventions against corruption, organized crime, and money laundering of the UN, the Organization of American States (OAS), and the OECD. Priorities include strengthening systems for contracting public works and procurement of goods and services by the government, including for state-owned enterprises such as port authorities, sanitation, and railway operations. The NAP also provides for the creation of an Advisory Council that will include private sector experts and civil society organizations to help in the implementation of its initiatives. The Argentine executive has stated that it hopes these initiatives will be replicated by provincial and local governments across Argentina. As we have noted previously, despite country-specific variations in anti-corruption laws and challenges, international conventions have resulted in an increasing level of standardization in anti-corruption efforts in Latin America. The NAP is further evidence of this trend.
 Reply Memorandum in Support of Lawrence Hoskins’s Motion in Limine to Instruct the Jury Regarding the Meaning of the Term “Agent” in the Foreign Corrupt Practices Act, United States v. Hoskins, No. 3:12-cr-238 (JBA) (D. Conn. Apr. 12, 2019), ECF No. 481.
 Information, United States v. Trujillo, No. 1:19-cr-00134-CBA (E.D.N.Y. Apr. 4, 2019), ECF No. 5.
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 did a landmark judicial decision limit the jurisdictional reach of the Foreign Corrupt Practices Act (FCPA)? Why did the U.S. Department of Justice (DOJ) decline to prosecute a U.K.-based engineering company that is also being investigated by the U.K. Serious Fraud Office (SFO)? Which company was debarred by the World Bank for its alleged activities in Africa? The answers to these questions and more are here in our August 2018 Top 10 list.
1. Appellate Court Limits FCPA Jurisdiction. In an August 24, 2018 decision in United States v. Hoskins, the United States Court of Appeals for the Second Circuit restricted DOJ’s ability to charge overseas defendants with conspiring to violate, or aiding and abetting a violation of, the FCPA. The case involves an alleged scheme by Alstom S.A. and its subsidiaries, including Connecticut-based Alstom Power, Inc., to bribe Indonesian officials to secure a $118 million power construction contract. The appellee, Lawrence Hoskins, was a non-U.S. citizen who worked for Alstom’s UK subsidiary in France. Although the indictment alleges that his co-conspirators took several acts in furtherance of the conspiracy in the United States and casts Hoskins as a critical member of the conspiracy—among other things, Hoskins is alleged to have played a role in selecting and paying the two consultants who were hired to deliver bribes to the Indonesian officials—DOJ conceded that Hoskins himself never stepped foot within the United States in furtherance of the conspiracy. The court held that, unless DOJ can prove at trial that Hoskins was an “agent” of a domestic concern, Hoskins is outside of the FCPA’s jurisdictional reach and cannot, therefore, be charged with conspiratorial or accessorial liability under 18 U.S.C. § 371 or 18 U.S.C. § 2. According to the court, “Congress did not intend for persons outside of the statute’s carefully delimited categories to be subject to conspiracy or complicity liability.” The court also held, however, that “the government’s intention to prove that Hoskins was an agent of a domestic concern places him squarely within the terms of the statute . . . .” Although the court’s ruling limits DOJ’s ability to use conspiracy and complicity theories to charge overseas defendants who do not act in the United States with FCPA violations, it remains to be seen what practical impact the ruling will have given that DOJ may still charge overseas defendants as “agents” of domestic concerns and issuers. The court declined to express any “views on the scope of agency under the FCPA,” leaving the precise contours of that critical issue undecided. (For more on Hoskins, read our August 2015 and March 2017 Top 10s.)
2. Barbados-based Insurance Company Enters into “Declination with Disgorgement” with DOJ. In an August 23, 2018 letter, DOJ informed Insurance Corporation of Barbados Limited that it was closing its investigation into potential FCPA violations by the company “[c]onsistent with the FCPA Corporate Enforcement Policy.” According to the letter, DOJ determined that, in August 2015 and April 2016, the company had paid $36,000 in bribes to Donville Inniss, then a member of the Parliament of Barbados and the country’s Minister of Industry, International Business, Commerce, and Small Business Development in exchange for assistance in obtaining two government contracts. Inniss, a U.S. legal permanent resident, allegedly arranged to receive the bribe payments in the United States. The company agreed to disgorge the profits from the two contracts of $93,940.19.
3. DOJ Declines to Prosecute UK-Based Engineering Company, While the UK SFO Charges the Company’s Former Executives for Alleged Bribery in Korea. In an August 20, 2018 letter, DOJ informed Guralp Systems Limited that it had closed its investigation into potential FCPA violations by the company “consistent with the FCPA Corporate Enforcement Policy.” According to the letter, DOJ determined that there was evidence that the company had violated the FCPA when it made payments to Heon-Cheol Chi, the director of the Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources. Following a four-day jury trial in the Central District of California, Chi was convicted in July 2017 of laundering bribes that he received from two seismological companies in California and England. In a twist to prior declinations that had been announced under the FCPA Corporate Enforcement Policy and its predecessor, the FCPA Pilot Program, DOJ did not require the company to disgorge profits as part of the declination. Rather, DOJ cited the company’s assistance in the prosecution of Chi and the fact that the company “is the subject of an ongoing parallel investigation by the U.K.’s Serious Fraud Office [SFO] for violations of law relating to the same conduct and has committed to accepting responsibility for that conduct with the SFO” as two factors warranting declination. Although DOJ’s declination letter does not cite the Department’s “Piling On” policy, the declination is consistent with that policy, which was announced in May 2018. On August 17, 2018, the SFO charged Guralp’s founder and former managing director with conspiracy to corruptly make payments to Chi.
4. U.S.-based Car Rental Company Discloses DOJ and SEC Declinations for Brazil FCPA Investigation. In an August 6, 2018 securities filing, the Hertz Corporation disclosed that the U.S. Securities & Exchange Commission (SEC) and DOJ had informed the company that they had closed their investigations into potential FCPA violations without further action. According to an August 2016 securities filing, the company identified and self-reported to enforcement authorities activities in Brazil that might raise issues under the FCPA. In the recent filing, the company announced that it was continuing to cooperate with Brazilian authorities.
5. Brazil-based Electric Company Discloses DOJ Declination. In an August 13, 2018 market announcement, Centrais Eletricas Brasileiras S.A., also known as Eletrobras, disclosed that DOJ declined to prosecute the company for potential FCPA violations. Eletrobras disclosed to investors in 2015 that it had uncovered evidence of potential bribery and overbilling since 2008 in connection with construction contracts in Brazil. According to the market announcement, the company is negotiating a resolution with SEC.
6. China-based Biopharmaceutical Company Discloses SEC Declination. In an August 20, 2018 press release, Sinovac Biotech announced that SEC had concluded its investigations into possible FCPA and securities laws violations. A 2016 report by financial research boutique GeoInvesting alleged that court documents showed that a Sinovac executive had bribed an official at the China Food and Drug Administration. After some of its salespeople were referenced in Chinese court cases against officials at the Chinese Center for Disease Control, Sinovac also investigated potential bribery involving its sales personnel. An investor lawsuit brought against the company in July 2017 related to the China Food and Drug Administration allegations was voluntarily dismissed in September 2017.
7. U.S.-based Investment Firm Resolves Libya Bribery Allegations with SEC. On August 27, 2018, SEC announced that a U.S.-based investment firm had agreed to pay approximately $34 million in disgorgement and prejudgment interest to resolve allegations that it violated the FCPA’s internal accounting controls provisions in connection with its subsidiary’s use of an intermediary to bribe Libyan government officials in order to secure investments from Libyan state-owned financial institutions. The SEC did not impose a civil penalty in light of the firm’s June 2018 resolution with DOJ.
8. Slovenia-based Infrastructure Provider Debarred by World Bank for Bribery Allegations involving the Democratic Republic of Congo. On August 22, 2018, the World Bank announced that Flycom d.o.o. had agreed to a Negotiated Resolution Agreement to resolve allegations that the company engaged in corrupt practices in relation to a project designed to improve the transmission of electricity in the Democratic Republic of Congo (DRC). According to the World Bank, the company made improper payments between 2010 and 2014 to a consultant engineer in connection with contracts that the company received under the Southern Africa Power Market Project. The debarment makes the company and its affiliates ineligible to participate in World Bank-financed projects for 18 months. It may also affect the company’s ability to engage with other multilateral development banks as the sanctions qualify for cross-debarment.
9. Update on PDVSA-Related Individual Prosecutions.
- Former Managing Director of Swiss Bank Pleads Guilty to Billion-Dollar Money Laundering Scheme. On August 22, 2018, DOJ announced that a former managing director and vice chairman of Swiss bank Julius Baer had pleaded guilty to one count of conspiracy to commit money laundering. According to DOJ, Krull admitted to assisting his clients, including Francisco Convit Guruceaga, who was indicted on money laundering charges on August 16, 2018, in designing a scheme to embezzle monies from Venezuela’s national oil company, Petroleos de Venezuela SA (PDVSA). DOJ alleged that, in 2016, Krull was enlisted to help his co-conspirators launder the proceeds of a currency exchange scheme that was used to embezzle approximately $1.2 billion from PDVSA from December 2014 through May 2015. The money laundering conspiracy allegedly used Miami, Florida, real estate and sophisticated false-investment schemes to conceal the origin of the funds. Krull was arrested in July 2018 and is scheduled to be sentenced on October 29, 2018. FINMA, the Swiss financial regulator, is reportedly investigating the bank in connection with the PDVSA allegations.
- Venezuelan Business Executive Charged with Conspiring to Violate the FCPA. On August 1, 2018, DOJ announced the arrest of Jose Manuel Gonzalez Testino on charges of making corrupt payments to a PDVSA official in exchange for business opportunities that included directing new contracts to Gonzalez’s companies, being prioritized over other vendors for receipt of payments, and awarding PDVSA contracts to Gonzalez’s companies in U.S. dollars instead of Venezuelan bolivares. The criminal complaint alleges that Gonzalez and a co-conspirator paid at least $629,000 in bribes to a former PSDVSA official who has not been named. Thus far, 17 individuals have been charged, 12 of whom have pleaded guilty, in relation to this investigation. (See our July 2018 Top 10 for more).
10. Developments in Malaysian Sovereign Wealth Fund Scandal. Following elections in May 2018, which saw former Prime Minister Najib Razak unseated, Malaysia has moved ahead with charges against some of the key players in the 1MDB scandal. (See our July 2016, August 2016, June 2017, December 2017, May 2018, and June 2018 Top 10s for more on 1MDB). Parallel investigations are ongoing in the United States, Switzerland, and Singapore.
- Former Prime Minister of Malaysia Charged with Money Laundering. On August 8, 2018, the Malaysian prosecutor charged Najib with three counts of money laundering. These charges, each of which carries a potential 15-year prison sentence, are linked to three transactions totaling approximately $10 million from 1MDB to Najib’s personal bank accounts. In July, Najib was charged with three counts of criminal breach of trust and one count of corruption. He has pleaded not guilty to all charges.
- Criminal Charges Filed Against Malaysian Financier. On August 24, 2018, eight charges of money laundering were filed against Low Taek Jho, also known as Jho Low, a Malaysian financier who was allegedly a close acquaintance of Najib. Low’s father, Low Hock Peng, was also charged with one count of money laundering. Warrants for arrest were issued for both individuals, but their whereabouts are currently unknown.
- Fire Sale of Seized $250 Million Superyacht. On August 24, 2018, a Malaysian court granted an application to sell a $250 million luxury yacht, alleged to have been purchased using illicit proceeds related to 1MBD. The Indonesian government handed over the superyacht, named Equanimity, to the Malaysian government earlier in August. Malaysian authorities confirmed that they are looking to sell the asset due to the high cost of maintenance.
Margot Benedict assisted in the writing of this alert.
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 Europe’s new data privacy law affect anti-corruption efforts? What impact will the new “Piling On” policy of the U.S. Department of Justice (DOJ) have on foreign bribery resolutions? How did a major foreign bribery investigation contribute to the electoral defeat of Malaysia’s now-former Prime Minister? The answers to these questions and more are here in our May 2018 Top Ten list.
1. GDPR Comes Into Effect. On May 25, 2018, the European Union’s new data privacy regime, known as the General Data Protection Regulation or GDPR, came into effect. The GDPR imposes far-reaching obligations on companies that collect, use, or process personal information in the European Union. Although not an anti-corruption law, the GDPR has the potential to affect the way companies conduct anti-corruption compliance (such as third party due diligence), undertake internal investigations, and interact with government enforcement authorities. With possible penalties of up to €20 million or 4% of global annual revenue for non-compliance, companies cannot afford to turn a blind eye to the GDPR. At Morrison & Foerster, our FCPA and Anti-Corruption Group works closely with our Privacy and Data Security Group to ensure that compliance programs and internal investigations address relevant data privacy concerns. For more information on what your company should be doing to remain compliant and for updates as the GDPR is locally implemented in EU member states, visit MoFo’s GDPR Resource Center.
2. DOJ Announces New “Piling On” Policy. On May 9, 2018, Deputy Attorney General Rod Rosenstein announced a new policy instructing DOJ components to coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company for the same conduct. The new “Piling On” policy has four parts: (1) it reaffirms that DOJ cannot use the threat of criminal enforcement to persuade a company to pay a larger settlement in a civil case; (2) it directs DOJ components to coordinate with one another, and to achieve an overall equitable result, including by crediting and apportionment of financial fines, forfeitures, and penalties; (3) it encourages DOJ components to coordinate with other federal, state, local, or foreign enforcement authorities seeking to resolve a case with a company for the same misconduct; and (4) it sets forth factors that DOJ may evaluate in determining whether multiple penalties serve the interests of justice in a particular case, such as the egregiousness of the wrongdoing, statutory mandates regarding penalties, the risk of delay in finalizing a resolution, and the adequacy and timeliness of a company’s disclosures and cooperation with DOJ. DOJ’s FCPA Unit has effectively been pursuing a similar policy for many years—for example, in November 2017, DOJ announced that it had credited money paid to Singapore and to be paid to Brazil as part of its FCPA resolution with SBM Offshore NV—but the new policy is significant in that it has been incorporated into the United States Attorney’s Manual and applies to all DOJ components.
3. Switzerland-based Drilling Company Discloses DOJ and SEC Declinations. In a May 1, 2018 securities filing, Transocean Ltd. disclosed that DOJ and SEC had informed the company that they had closed their inquiry “into statements made by a former employee of Petroleo Brasilerio S.A. (“Petrobras”) related to the award . . . of a drilling services contract in Brazil.” According to reports, former Petrobras official Eduardo Musa told Brazilian prosecutors conducting Operation Lava Jato (“Car Wash”) that a person claiming to be a commercial representative of the company had given him money after it had been awarded a contract to operate a Petrobras drilling rig.
4. Three Foreign Nationals Charged in Connection with Gas Pipeline Bribery Scheme. On May 24, 2018, DOJ announced that two foreign nationals—Azat Martirossian, the former Armenian ambassador to China, and Vitaly Leshkov, a Russian citizen—had been charged in the Southern District of Ohio with one count of conspiracy to launder money and 10 counts of money laundering in connection with an alleged scheme to assist a U.S.-based subsidiary of Rolls Royce plc in securing a contract to supply equipment and services to power a gas pipeline from Kazakhstan to China. Petros Contuguris, a Greek citizen who was previously charged in October 2017, was also included in the charges. In November 2017, DOJ announced the original charges against Contuguris and four other individuals who had pleaded guilty in connection with the same alleged scheme. According to the new charges, Rolls Royce made consulting payments to Contuguris, who then passed on a portion of those payments to Martirossian and Leshkov, who were employees of an international engineering consulting firm, knowing that some of the money would be used to bribe a Kazakh official to help win pipeline-related contracts. Martirossian, Leshkov, and Contuguris are all believed to be living outside the United States, meaning no trial date is imminent. Rolls Royce entered into a corporate FCPA resolution in January 2017.
5. Honduran National Charged with Laundering Honduran Kleptocracy Proceeds. On May 1, 2018, DOJ announced that Carlos Alberto Zelaya Rojas had been charged in the Eastern District of Louisiana with money laundering and various obstruction of justice violations. According to the indictment, Carlos Zelaya conspired with his brother, the former Executive Director of the Honduran Institute of Social Security, to launder over $1.3 million in bribe payments from two Honduran businessmen. Zelaya also allegedly used his brother’s high-ranking official position to profit from lucrative Honduran government contracts. The illicit funds were allegedly laundered into the New Orleans area through international wire transfers and used to purchase real estate. The indictment further alleges that Zelaya illegally spent rental income subject to a preservation order and lied to a federal judge about the rental income. The charges in this case were brought as part of DOJ’s Kleptocracy Initiative.
6. Chinese Billionaire Sentenced to Four Years’ Imprisonment in United Nations Bribery Case. On May 11, 2018, DOJ announced that Chinese billionaire Ng Lap Seng had been sentenced in the Southern District of New York to four years’ imprisonment following his July 2017 trial conviction on charges related to allegations that he had participated in a scheme to bribe two former UN ambassadors to win UN support to build a conference center in Macau. In addition to his four-year prison term, Ng Lap Seng was ordered to pay a fine of $1 million, forfeit $1.5 million, and make restitution to the United Nations for its legal fees.
7. UK Serious Fraud Office Brings Additional Charges Against Individuals in Iraq Bribery Investigation. On May 22, 2018, the UK Serious Fraud Office (SFO) announced that it had brought conspiracy charges against Basil Al Jarah and Ziad Akle for their alleged role in making corrupt payments to secure the award of a $733 million contract to Leighton Contractors Singapore PTE Ltd. for a project to build two oil pipelines in southern Iraq. In November 2017, the SFO announced that it had charged Al Jarah, Akle and two former SBM executives, Paul Bond and Stephen Whiteley, with conspiring to pay bribes to assist SBM Offshore NV in winning oil contracts in Iraq. The SFO lost its bid to secure the extradition from Monaco of a fifth individual, Saman Ashani, earlier this year. Al Jarah, Akle, and Ashani were associated with Unaoil, a Monaco-based consulting company that has been under investigation by the SFO since March 2016.
8. UK Parliament Questions Presence and Implications of Russian Kleptocracy Proceeds in London. On May 21, 2018, the UK Parliament Foreign Affairs Committee issued a report entitled “Moscow’s Gold: Russian Corruption in the U.K.” that argued that the proceeds of “Kremlin-connected corruption” were being hidden in London and had “clear implications for our national security.” According to the report, London is a “‘top destination’ for Russian oligarchs with links to the Kremlin to launder proceeds of corruption and to hide their assets.” The report then argues that “[t]here is a direct relationship between the oligarch’s wealth and the ability of [Russian] President [Vladimir] Putin to execute his aggressive foreign policy and domestic agenda,” which the report found to be a threat to UK national security. The Committee called on the government to expend more resources aimed at “ending the flow of dirty money into the UK,” including by allocating sufficient resources to law enforcement, improving mechanisms for information sharing, and assisting Overseas Territories and Crown Dependencies in increasing transparency in their beneficial ownership registries. The Committee further urged the government to increase sanctions on more Kremlin-connected individuals and to work with the European Union, United States, and G7 to tighten loopholes in the sanction regime that allow Russia to issue new sovereign debt with the assistance of sanctioned entities. While it is not clear that the government will act on any of these suggestions, they could have important impacts on companies doing business related to the UK.
9. Irish Legislature Passes Comprehensive New Anti-Corruption Legislation. On May 30, 2018, the Irish Minister for Justice and Equality, Charlie Flanagan, announced that the Criminal Justice (Corruption Offenses) Bill 2017 had been passed by the Irish legislature, known as the Oierachtas. Minister Flanagan described the bill as “a complete modernisation of our anti-corruption laws.” Among other things, the bill creates a corporate liability offense in which a company may be found guilty of an offense if anyone acting on its behalf is found guilty of a corruption offense and a new offense of making payments to a third party knowing that the payment will be used for a bribe. The bill also creates a “reasonable procedures” defense to corporate liability. The bill was intended to address recommendations made by several international organizations, including the Organisation for Economic Co-operation and Development (OECD).
10. Sovereign Wealth Fund Bribery Scandal Contributes to Electoral Defeat of Malaysian Prime Minister. On May 10, 2018, Najib Razak, who had served as Malaysia’s Prime Minister since 2009, was defeated in a national election by Mahathir Mohamad. Mahathir, a former ally of Najib, previously served as prime minister from 1981 to 2003. Observers noted that the long-running corruption investigation involving Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MDB) was a major issue during the election and contributed heavily to Najib’s defeat. Najib, who established 1MDB in 2009 and previously served as chairman of the fund’s advisory board, is accused of siphoning off approximately $700 million from the fund. Several countries, including the United States, Switzerland, and Singapore, have launched money laundering investigations into 1MDB. (See our July 2016, August 2016, June 2017, and December 2017 Top Tens for more on 1MDB.) Immediately following his victory, Mahathir vowed that his administration would “get most of the 1MDB money back.” On May 17, 2018, a new committee was established to look into 1MDB and Malaysian police searched a number of locations linked to Najib. On May 22, 2018, Najib was questioned by the Malaysian Anti-Corruption Commission (MACC) regarding 1MDB. The multi-national investigations into 1MDB are expected to continue for some time.
Margot Benedict assisted in the writing of this alert.
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 on June 6 2015, November 2016, June 1 2015, and December 2016.
- 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.