2017 marked another significant year for Foreign Corrupt Practices Act (FCPA) enforcement with more than $1.45 billion in related corporate penalties. This follows last year's record and represents the second-highest year of penalties since enactment of the statute. Some view this as a signal that the Trump administration is continuing to enforce it aggressively. While this may be true, it is important to note that the large penalties total was driven primarily by Telia, which paid over $730 million in fines and is one of many cases initiated under the previous administration.
Nonetheless, several other signs point to FCPA enforcement being very much alive and well under the new administration. First, both Attorney General Jeff Sessions and Securities and Exchange Commission (SEC) Chairman Jay Clayton have made it clear that continuing to enforce the FCPA is a priority of both agencies and that the agencies have a number of cases in the pipeline. Second, both agencies have generally maintained the level of resources devoted to FCPA enforcement, and the FCPA units at the Department of Justice (DOJ) and the SEC are headed by experienced prosecutors who have worked in the government for multiple administrations. Finally, changes in administrations often delay certain enforcement actions as positions are filled within the agencies, which likely occurred this past year. Overall, signals indicate that FCPA enforcement will continue to be a key focus rather than cease as some had wishfully predicted.
Importantly, 2017 also marked the continuing cooperation between U.S. regulators and prosecutors and law enforcement officials from around the globe on anti-corruption enforcement actions. The Odebrecht case, for example, resulted in a $2.6 billion-dollar settlement--the largest global fine ever imposed in a corruption case with fines coordinated among the United States, Brazil and Switzerland. Less than $100 million of that settlement was paid to U.S. regulators. Telia represented major cooperation among United States, Dutch and Swedish regulators resulting in a global settlement of $965 million. And Rolls-Royce paid approximately $170 million in U.S. penalties as part of an $800 million global resolution of investigations in three countries--the United States, the United Kingdom and Brazil.
Both the Odebrecht and Rolls-Royce cases also continued the trend of the United States focusing on anti-corruption activities arising out of Latin America. Indeed, allegations involving acts of bribery in Latin America represented almost 50 percent of the
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...the focus on holding individuals accountable under the FCPA followed
the path that the Yates memo formalized in 2016 and continued strong in 2017.
settlements in 2017. And U.S. regulators have publicly stated that there are more in the pipeline. This trend is likely driven by the cooperation that exists between the United States and many Latin American countries.
While corporate enforcement actions illustrated the continued focus of regulators on anti-competitive conduct, the focus on holding individuals accountable under the FCPA followed the path that the Yates memo formalized in 2016 and continued strong in 2017. There were 21 convictions or guilty pleas involving FCPA violations in 2017. And significantly, individual enforcement abroad was on the rise with, for example, approximately 80 individuals charged around the world in connection with the Odebrecht case.
In 2017, DOJ also made two noteworthy and formal announcements regarding its policies with respect to FCPA enforcement. In November 2017, Deputy Attorney General Rod Rosenstein announced changes to DOJ's FCPA corporate enforcement policy, formalizing incentives for companies to self-disclose misconduct. These changes enhanced the incentives that had been offered in connection with the FCPA pilot program that DOJ had launched under the Obama administration. The new policy provides that if a company satisfies the standards of voluntary self-disclosure, full cooperation and timely and appropriate remediation, DOJ will apply a strong presumption in favor of resolving the case through a declination. The practical implication of this policy on companies, however, remains to be seen, as no matters have been resolved under it.
The second announcement came in February 2017 when DOJ's Fraud Section released compliance program guidance in the form of a list of topics and sample questions that DOJ uses to evaluate the effectiveness of compliance programs for companies implicated in misconduct. The compliance program guidance is intended to provide the public with more transparency about federal prosecutors' review of compliance programs under the DOJ corporate charging guidelines, but it also serves as a practical guide to assist companies in implementing and enhancing compliance programs, which DOJ has indicated will vary based on the size and risk profile of each company.
These enforcement trends, along with other updates and insights, are discussed in more detail below.
Deputy Attorney General Rosenstein announced a new policy that offers a further incentive to
companies to self-disclose.
CHANGES IN DOJ AND SEC POLICIES
DOJ Launches New FCPA Corporate Enforcement Policy
A significant 2017 FCPA development occurred on November 29 when Deputy Attorney General Rosenstein announced changes to DOJ's FCPA corporate enforcement policy. Rosenstein stated that DOJ's efforts to encourage voluntary disclosure of conduct in violation of the FCPA via the FCPA pilot program, which began in 2016, "proved to be a step forward in fighting corporate crime" but that "there were opportunities for improvement."
To that end, Rosenstein announced a new policy that offers a further incentive to companies to self-disclose: If a company satisfies the standards of voluntary self-disclosure, full cooperation and timely and appropriate remediation, DOJ will apply a strong presumption in favor of resolving the case through a declination. That presumption may be overcome in cases involving aggravated circumstances related to the nature or seriousness of the offense or if the offender is a recidivist. Even where aggravated circumstances are involved, DOJ will recommend a 50 percent reduction from the low end of the sentencing guidelines fine range where a company voluntarily self-discloses and otherwise satisfies the requirements of the policy. Criminal recidivists, however, may not be eligible for that credit. This revised policy, likely an effort by DOJ to increase the number of companies availing themselves of similar benefits under the FCPA pilot program, is now set forth in the United States Attorneys' Manual as the FCPA Corporate Enforcement Policy.
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Rosenstein stated that the enhancements are intended to provide "greater certainty for companies" deciding whether to voluntarily disclose potential wrongdoing and to enable DOJ to "efficiently identify and punish criminal conduct." He emphasized that the policy provides "greater clarity" about the government's decision-making.
In connection with encouraging disclosures under the policy, Rosenstein emphasized the favorable outcomes in recent cases involving self-disclosure, highlighting that only two of the 17 FCPA-related criminal resolutions since 2016 were voluntary disclosures under the FCPA pilot program and those were both resolved through a nonprosecution agreement without the requirement for a compliance monitor. This was in comparison to 10 other resolutions that required corporate compliance monitors. Rosenstein emphasized that DOJ was not offering immunity to companies, however, noting that while DOJ had declined to prosecute seven additional matters that were voluntarily disclosed during the FCPA pilot program, DOJ did seek disgorgement of ill-gotten gains.
While announcing the policy, Rosenstein emphasized another FCPA trend in recent years-- the continued evolution of DOJ's focus on individual prosecutions--stating:
Effective deterrence of corporate corruption requires prosecution of culpable individuals. We should not just announce large corporate fines and celebrate penalizing shareholders. Most American companies are serious about engaging in lawful business practices. Those companies want to do the right thing. They need our support to protect them from criminals who seek unfair advantages.
Later in his remarks, Rosenstein further stated that "[i]t makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability."
While DOJ's revised policy offers additional concessions to companies that implement robust compliance programs and choose to self-disclose, cooperate and remediate, it is too early to fully evaluate the impact of the policy. It is clear, however, that DOJ hopes the strong presumption of a declination will provide additional incentive for companies to self-disclose violations.
One other potential implication is that the government may use its resources more toward monitoring self-disclosures than actively pursuing cases on its own.
DOJ's Fraud Section released a document on its website titled "Compliance
Program Guidance" that contains a list of topics
and sample questions that DOJ uses to evaluate the
effectiveness of compliance programs for companies implicated in misconduct.
DOJ Releases Compliance Program Guidance
Another significant FCPA-related DOJ announcement in 2017 occurred on February 8, when DOJ's Fraud Section released a document on its website titled "Compliance Program Guidance" that contains a list of topics and sample questions that DOJ uses to evaluate the effectiveness of compliance programs for companies implicated in misconduct. The Compliance Program Guidance is intended to provide the public with more transparency about federal prosecutors' review of compliance programs under the DOJ corporate charging guidelines as outlined in "Principles of Federal Prosecution of Business Organizations," known more commonly as the "Filip Factors."
While the sample questions and topics largely reiterate prior guidance, the document is the most detailed DOJ guidance with general applicability to all companies and for all types of corporate misconduct. The document includes 11 key compliance program evaluation topics, with a corresponding set of "common questions" that DOJ considers relevant in
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The Compliance Program Guidance also emphasizes
the Fraud Section's focus on gauging a company's commitment to implementing a program that meaningfully integrates compliance into the fabric of its leadership.
A key highlight of the Compliance Program Guidance relates to the autonomy, value assigned and resources devoted to compliance programs.
assessing compliance programs within the context of a criminal investigation. Those topics are:
1. Analysis and Remediation of Underlying Conduct
2. Senior and Middle Management
3. Autonomy and Resources
7. Confidential Reporting and Investigation
8. Incentives and Disciplinary Measures
9. Continuous Improvement, Periodic Testing and Review
4. Policies and Procedures
10.Third Party Management
5. Risk Assessment
11.Mergers and Acquisitions
6. Training and Communications
The Compliance Program Guidance devotes considerable attention to the design and day-to-day application of a company's program. The factors focus on gauging how tailored the program is to the company's risk profile and the effectiveness of the program's implementation and communication. Considerations include the "methodology [that] the company used to identify, analyze, and address the particular risks it face[s]," the "information or metrics [that] the company collect[s] and use[s] to help detect" misconduct, and the scope of the company's risk assessments. A separate inquiry assesses whether the company undergoes recurrent evaluations of the program's effectiveness by asking about the type and frequency of internal audits, testing and monitoring of the program.
With regard to the specific misconduct being prosecuted, the Compliance Program Guidance encourages DOJ to examine the company's "root cause analysis" to address the cause of the misconduct. The document focuses not only on whether there were opportunities to detect the misconduct but also, importantly, a company's "analysis of why such opportunities were missed." It similarly includes a question about the specific remediation the company implemented to address identified issues.
The Compliance Program Guidance also emphasizes the Fraud Section's focus on gauging a company's commitment to implementing a program that meaningfully integrates compliance into the fabric of its leadership. For example, the Compliance Program Guidance encourages assessment of the monitoring role of corporate leadership and a commitment to compliance across company stakeholders. In this regard, the Compliance Program Guidance includes questions on how a company monitors its senior leadership's behavior and what type of information board members and senior management examined in their exercise of oversight in the areas where misconduct occurred.
A final key highlight of the Compliance Program Guidance relates to the autonomy, value assigned and resources devoted to compliance programs. For instance, the document includes questions addressing whether compliance personnel have "direct reporting lines to anyone on the board of directors" and whether "relevant control personnel in the field have reporting lines to headquarters." They also look for signs of "empowerment," such as instances where "specific transactions or deals...were stopped, modified, or more closely examined as a result of compliance concerns" and the role compliance plays in "strategic and operational decisions."
Deputy Attorney General Rosenstein's November remarks announcing DOJ's FCPA Corporate Enforcement Policy--discussed in detail above--also offered guidance on DOJ's evaluation of appropriate compliance programs, which Rosenstein acknowledged "will vary depending on the size and resources of a business." Rosenstein also noted several important hallmarks of a robust compliance program, including "fostering a culture of compliance, dedicating sufficient resources to compliance activities, and ensuring that experienced compliance personnel have appropriate access to management and to the board."
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...the prevailing message from DOJ is that
companies must integrate compliance programs into the fabric of their
organizations, adequately resource them, properly
tailor them and regularly update and enhance them.
...DOJ is "committed to continuing to work
together with [its] overseas partners, to hold
accountable individuals and companies who engage in corruption,
regardless of where they operate or reside.'"
In sum, the prevailing message from DOJ is that companies must integrate compliance programs into the fabric of their organizations, adequately resource them, properly tailor them and regularly update and enhance them. DOJ has made clear that it is focused on the operation, rather than the appearance, of corporate compliance programs.
DOJ and SEC Continue Their Increased Global Cooperation and Enforcement
2017 saw a continued increase in cooperation among global regulators and government enforcers. This has been especially true in the areas of anti-bribery, corruption, anti-money-laundering and market manipulation. In the past year, the SEC has publicly acknowledged assistance from 19 jurisdictions in FCPA matters. Steven R. Peikin, Co-Director of the SEC's Enforcement Division, explained in November that "in an increasingly international enforcement environment, the U.S. authorities cannot--and should not--go it alone in fighting corruption." He emphasized that the SEC is "much more effective" when assisted by its international counterparts. Former Acting Assistant Attorney General Kenneth Blanco expressed similar sentiments, noting that DOJ is "committed to continuing to work together with [its] overseas partners, to hold accountable individuals and companies who engage in corruption, regardless of where they operate or reside" and highlighting the "extraordinary results" DOJ has recently obtained through such cooperation.
The evidence of this cooperation appears in a number of enforcement actions, including the Odebrecht, Rolls-Royce and Telia cases--discussed in more detail below in the Corporate Anti-Corruption Enforcement Actions section--in which prosecutors and law enforcement from around the globe coordinated their efforts and, ultimately, shared the credit for the enforcement actions.
The Odebrecht case resulted in a $2.6 billion-dollar settlement--the largest global fine ever imposed in a corruption case with fines coordinated among the United States, Brazil and Switzerland. Additionally, approximately 80 people were charged across the globe in connection with the case.
Rolls-Royce paid approximately $170 million in U.S. penalties as part of an $800 million global resolution of investigations in three countries--the United States, the United Kingdom and Brazil.
Finally, the Telia case resulted in a settlement of more than $965 million for corrupt payments in Uzbekistan, including a total criminal penalty of $275 million to the United States and a total of $457 million in disgorgement of profits and prejudgment interest under the terms of its resolution with the SEC. The Telia settlement was the third-largest global resolution of charges to date under the FCPA. The press release on the settlement recognized cooperation from 13 other countries: Sweden, the Netherlands, Austria, Belgium, Cyprus, France, Ireland, Latvia, Luxembourg, Norway, Switzerland, the Isle of Man and the United Kingdom.
Significantly, these resolutions and others also indicate the increasing sophistication of anti-corruption regimes outside of the U.S. and of anti-corruption laws other than the FCPA. But even as global enforcement and cooperation has increased, enforcement authorities are sensitive to concerns about potential "piling on" in circumstances where multiple law enforcement and regulatory authorities pursue a single investigative target for the same or substantially similar conduct. Deputy Attorney General Rosenstein has noted that DOJ is "committed to making a concerted effort to apportion penalties among both international and domestic agencies, where appropriate" and is considering proposals for improving coordination in that regard with other agencies.
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MAJOR CORPORATE ANTI-CORRUPTION ENFORCEMENT ACTIONS
...DOJ and the SEC separately reached agreements with two companies to settle corruption allegations that related only to
internal controls violations and did not specifically include bribery.
DOJ and SEC Settle FCPA Charges Without Citing Actual Bribery
In January 2017, DOJ and the SEC separately reached agreements with two companies to settle corruption allegations that related only to internal controls violations and did not specifically include bribery.
On January 6, the SEC settled with Modelz International, Inc. (formerly known as Kraft Foods Inc.), which had acquired Cadbury in February 2010. The SEC alleged that in early 2010, a Cadbury subsidiary retained an agent to work on its behalf to obtain licenses and approvals in India. The SEC said that Cadbury failed to conduct appropriate due diligence and monitoring on the agent that created a risk that the funds paid to the agent could be used for unlawful purposes. The SEC also alleged that the subsidiary's books and records did not accurately and fairly reflect the nature of the services rendered by the agent, in that the agent submitted invoices to the subsidiary for work the subsidiary's employees actually performed. Without admitting or denying guilt, Modelz agreed to pay a $13 million civil penalty.
More notable is the settlement action, on January 13, involving the Chilean chemicals and mining company Sociedad Qumica y Minera de Chile (SQM), which agreed to pay a criminal penalty of $15.5 million and a civil penalty of $15 million for a total fine and penalty of $30.5 million in connection with payments to politically connected individuals in Chile. Neither DOJ nor the SEC alleged bribery but instead alleged violations of the FCPA's accounting provisions--both the books and records and internal controls provisions. It is very rare for a company to pay a criminal fine in connection with violations of the accounting provisions.
The settlements are unusual because DOJ and the SEC did not specifically allege bribery. In the Modelz matter, the SEC cited no evidence of actual bribery but rather alleged that the funds could have been used to pay bribes. The SQM case involved actual payments to politically connected individuals, but rather than charging the company with bribery, DOJ instead brought criminal charges for violations of the FCPA books and records and internal controls provisions.
DOJ alleged that Rolls-Royce knowingly conspired to repeatedly
bribe foreign officials to secure government contracts for itself and
its subsidiaries throughout the world.
Rolls-Royce Reaches Agreements Totaling $800 Million to Settle Bribery Allegations
On January 17, 2017, authorities in the United States, the United Kingdom and Brazil announced agreements with Rolls-Royce whereby the company would pay more than $800 million to settle allegations related to widespread bribery of foreign officials. Rolls-Royce reached agreements with DOJ for $170 million, the UK's Serious Fraud Office (SFO) for $604 million and Brazil's Ministrio Pblico Federal for $26 million.
DOJ alleged that Rolls-Royce knowingly conspired to repeatedly bribe foreign officials to secure government contracts for itself and its subsidiaries throughout the world. Rolls-Royce admitted that between 2000 and 2013, the company paid more than $35 million in bribes to foreign officials in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola and Iraq. The payments, which were concealed through the use of intermediaries, were for the purpose of obtaining oil and gas contracts and other unfair advantages from the countries' state-owned companies. The United Kingdom's investigation concerned similar bribes in China, India, Indonesia, Malaysia, Nigeria and Russia, and Brazilian authorities focused on bribes paid by Rolls-Royce to government officials in Brazil.
The action against Rolls-Royce was unusual in that the basis for U.S. jurisdiction appears to be predicated on its relationship with an Ohio-based indirect Rolls-Royce subsidiary, Rolls-Royce Energy Systems, Inc. (RRESI). DOJ alleged that Rolls-Royce conspired with RRESI--a "domestic concern" under the FCPA--and also undertook corrupt acts while within the territory of the United States, although the information does not specify any such acts by Rolls-Royce employees.
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The U.S. penalty reflected a 25 percent reduction from the bottom of the sentencing guidelines' fine range. DOJ credited Rolls-Royce with cooperating with its investigation and taking remedial steps but noted that Rolls-Royce failed to disclose the criminal conduct until after the media began reporting allegations and after the SFO opened an investigation.
(See below for a discussion of five individual guilty pleas in connection with this case.)
U.S. Authorities Agree to Reduce U.S. Portion of Odebrecht and Braskem's Record-Setting Settlement Agreement
On April 14, United States District Court Judge Raymond Dearie ruled that Brazilian engineering company Odebrecht S.A. and its affiliate Braskem S.A. would pay $93 million rather than $260 million for the U.S. portion of a global settlement related to FCPA allegations. The original settlement was announced in December 2016 and called for the company to pay a combined total global penalty of at least $3.5 billion, making it the largest-ever foreign bribery case, but the final total amount was conditioned on the company's ability to pay. In addition to the $93 million payable to the United States, the company will pay $2.39 billion to Brazil and $116 million to Switzerland.
The charges against Odebrecht and Braskem stemmed from a nearly three-year investigation in Brazil concerning corruption at Petrobras, Brazil's state-run oil company. The investigation uncovered bribes to officials in 12 countries and led to dozens of arrests as well as the initiation of new investigations by various countries' law enforcement authorities.
After Swedish authorities opened a criminal investigation, U.S. authorities became
involved, [and] law enforcement authorities
in numerous European countries provided
assistance in the matter.
Telia Company AB and Subsidiary Agree to Pay Nearly $1 Billion in One of The Largest-Ever Foreign Bribery Cases
On September 21, Telia Company AB, a Swedish telecommunications company, and its Uzbek subsidiary Coscom LLC agreed to pay more than $965 million as part of a global agreement to resolve foreign bribery charges. The $965 million comprised a criminal penalty of approximately $274 million to DOJ, a separate criminal penalty of approximately $274 million to Dutch authorities and disgorgement of profits and prejudgment interest of approximately $457 million to the SEC. The combined penalty is one of the largest-ever criminal corporate bribery and corruption resolutions.
The companies admitted to paying about $331 million in bribes to an Uzbek government official between approximately 2007 and 2010. According to DOJ, the government official had influence over the Uzbek governmental body that regulated the telecom industry, and the bribes allowed Telia to enter the Uzbek market and allowed Coscom to gain valuable telecom assets. The bribes, which the companies structured and concealed through various payments, were paid by managers and employees within Telia, Coscom and affiliated entities. Certain Telia and Coscom managers considered paying an additional bribe in late 2012 even after Swedish media began reporting on Telia's previous corrupt payments.
After Swedish authorities opened a criminal investigation, U.S. authorities became involved because Telia's securities were traded publicly in New York and the bribe payments were wired around the world through accounts based in New York. According to DOJ, law enforcement authorities in numerous European countries provided assistance in the matter.
The criminal penalty reflected a 25 percent reduction from the bottom of the U.S. sentencing guidelines' fine range. Telia and Coscom received significant credit for their extensive remedial measures and cooperation with DOJ's investigation, but they failed to receive more significant mitigation credit because they did not voluntarily disclose their conduct.
DOJ did not impose a monitor as part of the settlement citing its satisfaction with the fact that the company had implemented an effective compliance program.
Telia's agreement with the SEC continues the trend of requiring disgorgement in enforcement actions. Although the Supreme Court limited the SEC's use of disgorgement
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in June 2017 in Kokesh v. SEC, unanimously holding that disgorgement is subject to a five-year statute of limitations, the SEC continues to seek disgorgement when ill-gotten
gains are involved. (A discussion of Kokesh is included below.) The Telia settlement is the largest disgorgement ever ordered in an FCPA enforcement action.
The companies admitted to participating in a
foreign bribery scheme dating to at least 1996
and continuing until at least 2012 that
involved funneling corrupt payments to foreign officials through
SBM Offshore N.V. and Subsidiary Reach Agreement With DOJ for Global Bribery Scheme
On November 29, Netherlands-based SBM Offshore N.V. (SBM) and its U.S. subsidiary SBM Offshore USA Inc. (SBM USA) reached an agreement with DOJ to resolve FCPA criminal charges by paying a penalty of $238 million. As part of the agreement, SBM USA pleaded guilty to one count of conspiracy to violate the FCPA anti-bribery provisions.
The companies admitted to participating in a foreign bribery scheme dating to at least 1996 and continuing until at least 2012 that involved funneling corrupt payments to foreign officials through intermediaries. SBM allegedly made payments of more than $180 million with knowledge that some of the money would be used to bribe foreign officials in Angola, Brazil, Equatorial Guinea, Iraq and Kazakhstan. The payments were made for the purpose of obtaining or retaining contracts or securing other advantages with the countries' state-owned oil companies. SBM acknowledged that it gained at least $2.8 billion from the projects it obtained as a result of the bribes.
The negotiated amount of $238 million reflected several mitigating and aggravating factors. DOJ credited SBM with bringing the conduct to the attention of U.S. and Dutch authorities, cooperating with the investigation and undertaking significant remedial measures. DOJ also considered SBM's ability to pay.
Additionally, in 2014, SBM paid $240 million in disgorged profits and penalties to Dutch authorities over related conduct. The agreement with DOJ brought SBM's total worldwide penalties to over $475 million. (A discussion of guilty pleas by two SBM executives is included below.)
DOJ's press release made multiple references to the work of its foreign partners and specifically praised law enforcement authorities in Brazil, the Netherlands and Switzerland for the substantial assistance they provided during the investigation.
...the companies corruptly obtained 13 contracts with
Brazilian state-owned oil company Petrobras and another Brazilian entity
by paying approximately $55 million in bribes to Petrobras officials and to the then-governing political party in Brazil.
Keppel Offshore & Marine Ltd. and Subsidiary Enter Into $422 Million Global Agreement for Conduct in Brazil and Singapore
On December 22, Keppel Offshore & Marine Ltd. (KOM), a Singapore-based shipyard operator, and its wholly owned U.S. subsidiary, Keppel Offshore & Marine USA Inc. (KOM USA), agreed to pay a combined penalty of more than $422 million to authorities in the United States, Brazil and Singapore to resolve foreign bribery charges. According to DOJ, the companies corruptly obtained 13 contracts with Brazilian state-owned oil company Petrobras and another Brazilian entity by paying approximately $55 million in bribes to Petrobras officials and to the then-governing political party in Brazil. The bribes were concealed as oversized commissions to an intermediary, purportedly for legitimate consulting services, which then provided payments to the relevant officials. The contracts obtained as a result led to over $350 million in profits for the companies from 2001 to 2014.
Separate criminal informations filed in the Eastern District of New York charged KOM and KOM USA with conspiracy to violate the FCPA anti-bribery provisions. As part of the settlement, KOM entered into a deferred prosecution agreement, and KOM USA pleaded guilty. As part of the deferred prosecution agreement, KOM also agreed to cooperate fully with DOJ's ongoing investigation and to implement rigorous internal controls. (A discussion of the guilty plea of a senior KOM lawyer is included below.)
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NOTEWORTHY INDIVIDUAL ANTI-CORRUPTION ENFORCEMENT ACTIONS
60-Month Sentence for Former Owner Following Guilty Plea in European Official Case
On July 18, Dmitrij Harder, the former owner and president of a consulting company in Pennsylvania, was sentenced to 60 months in jail for bribing foreign officials. Harder was also ordered to forfeit $1.9 million. According to his guilty plea, Harder paid approximately $3,500,000 in bribes to an official at the European Bank for Reconstruction and Development. In exchange, the official referred his clients to the consulting company. Harder admitted to bribing the official through the bank accounts of the official's sister. A British jury found the official guilty of corruption and sentenced him to six years' imprisonment.
Another Individual Guilty Plea in Haitian Telecommunications Corporation Case
On July 19, DOJ announced that Amadeus Richers, the former manager of Cinergy Telecommunications Inc., pleaded guilty to foreign bribery charges. According to the plea, Richers and his co-conspirators paid approximately $3 million in bribes to Haitian officials to obtain a contract with Haiti's state-controlled telecommunications company. They paid officials both directly and indirectly, funneling some money through third-party intermediaries. Richers is the ninth defendant to be convicted or plead guilty in this case.
While Richers was indicted in 2011, he remained a fugitive until he was extradited from Panama on February 23. On September 25, he was sentenced to time served plus three years of supervised release. He was also ordered to pay a $100 fine.
Guilty Verdict for Billionaire in UN Bribery Scheme
On July 27, a federal jury found Ng Lap Seng, a billionaire and chairman of a Macau-based real estate development company, guilty of bribing two United Nations officials. According to DOJ, Ng conspired with and paid at least $1 million in bribes to Francis Lorenzo, a former UN Deputy Ambassador from the Dominican Republic, and John W. Ashe, the late former UN Representative of Antigua and Barbuda and 68th President of the UN General Assembly. In exchange, Ambassador Lorenzo and Ambassador Ashe promoted development of a multibillion-dollar conference center in Macau. Ng has been under house arrest while awaiting sentencing. He faces a maximum of five years in prison for the FCPA convictions, 10 years for the bribery offense and 20 years for the money-laundering convictions.
In addition to Ng, Ambassadors Lorenzo and Ashe were charged with bribery. Ambassador Lorenzo pleaded guilty and served as a government witness in Ng's trial. Ambassador Ashe's charges were dismissed following his death in 2016.
In his position as a senior lawyer, Chow became
aware that KOM overpaid an agent it hired by millions of dollars.
Guilty Plea by Senior KOM Lawyer Unsealed
On August 29, Jeffrey Chow, a senior member of the KOM legal team, pleaded guilty to violating the FCPA. (A discussion of KOM's $422 million global settlement is included above.) According to DOJ, KOM paid millions of dollars over a decade to bribe Brazilian officials. In his position as a senior lawyer, Chow became aware that KOM overpaid an agent it hired by millions of dollars. In his plea, Chow confessed that he was responsible for drafting contracts with KOM's agents and acknowledged that these contracts gave the impression that these payments were legal. DOJ unsealed Chow's guilty plea on December 26. Chow is awaiting sentencing in the Eastern District of New York.
Guilty Plea by Part-Owner in Venezuelan Energy Company Case
On October 11, DOJ announced that Fernando Ardila Rueda, the part-owner of several Florida-based businesses, pleaded guilty in federal court to one count of conspiracy to violate the FCPA and one count of violating the FCPA in connection with a scheme to pay bribes to win contracts from Petroleos de Venezuela S.A. (PDVSA), Venezuela's state-owned
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Rueda conspired to pay bribes to purchasing
analysts to ensure that the companies were placed
on bidding panels and to obtain or retain business.
oil company. From 2008 to 2014, Rueda was the sales director, manager and partial owner of several companies. According to DOJ, Rueda conspired to pay bribes to PDVSA purchasing analysts to ensure that the companies were placed on bidding panels and to obtain or retain business with PDVSA. The amount of the bribes was based on a percentage of the value of the contracts the officials helped to award to the companies. Rueda is the 10th individual to plead guilty in connection with a wider U.S. investigation into corruption at PDVSA. He is scheduled to be sentenced on February 8, 2018.
Five Individual Guilty Pleas in Connection With the Rolls-Royce Case
On November 7, DOJ unsealed charges against three Rolls-Royce employees, an intermediary and an engineering executive who worked with Rolls-Royce for their involvement in a scheme to bribe officials of a state-owned energy joint venture between China and Kazakhstan. (A discussion of Rolls-Royce's $800 million global settlement is included above.) The three Rolls-Royce employees--Keith Barnett, James Finley and Aloysius Johannes Jozef Zuurhout--concealed illegal payments as commissions to the company owned by the intermediary, Petros Contoguris. DOJ believes Contoguris is living outside of the United States and has declared him a fugitive. Contoguris was charged with seven counts of FCPA bribery, one count of conspiracy to violate the FCPA, 10 counts of money laundering and one count of conspiracy to launder money. Finley pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA. The other two Rolls-Royce employees and the engineering executive, Andreas Kohler, pleaded guilty to one count each of conspiracy to violate the FCPA.
In particular, Mace was charged under a theory of willful blindness for being
aware that payments were likely bribes and intentionally avoiding learning the truth about
Guilty Pleas by Two SBM Executives
Two former SBM executives pleaded guilty to one count each of conspiracy to violate the FCPA. Anthony Mace, a former CEO and member of the board of directors, and Robert Zubiate, a former sales and marketing executive, entered guilty pleas on November 9 and November 6, respectively. In particular, Mace was charged under a theory of willful blindness for being aware that payments were likely bribes and intentionally avoiding learning the truth about the payments. Mace and Zubiate's guilty pleas follow SBM's agreement to pay $238 million (discussed in detail above) related to its bribery of officials in Angola, Brazil, Equatorial Guinea, Iraq and Kazakhstan. Mace is scheduled for sentencing in January 2018, and Zubiate's sentencing is scheduled for February 2018.
Guilty Plea by Sales Executive in Embraer Bribery Case
On December 21, Colin Steven, a former sales executive of Embraer S.A. (Embraer), pleaded guilty to bribing foreign government officials to secure Embraer's sale of three airplanes to Saudi Arabia's national oil company. Steven was charged with one count of violating the FCPA, one count of conspiracy to violate the FCPA, one count of money laundering, one count of conspiracy to launder money, one count of wire fraud, one count of conspiracy to commit wire fraud and one count of making a false statement. In his plea, Steven confessed to participating in bribery and kickback schemes, laundering money through a South African company and lying to FBI officials. Steven is currently awaiting sentencing.
The Supreme Court Holds That the SEC's Disgorgement Power Is Subject to a Five-Year Statute of Limitations in SEC Enforcement Actions On June 5, in a unanimous decision, the Supreme Court significantly limited the SEC's disgorgement power. In Kokesh v. SEC, 137 S. Ct. 1635 (2017), the Court held that the SEC's ability to seek disgorgement is limited by the five-year statute of limitations of 28 U.S.C.
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Kokesh is particularly significant for FCPA enforcement actions, where disgorgement has become the prevailing remedy.
The SEC will likely feel pressure to resolve
investigations more quickly to minimize statute of limitations issues. Likewise, the SEC may focus greater resources on cases with the most recent violations.
2462 because disgorgement operates as a penalty. The decision follows the Court's 2013 decision in Gabelli v. SEC, 568 U.S. 442 (2013), which held that 2462 applies to SEC actions where the commission seeks civil money penalties. Kokesh is particularly significant for FCPA enforcement actions, where disgorgement has become the prevailing remedy.
Kokesh originated in October 2009, when the SEC filed suit against Charles Kokesh for alleged misconduct occurring from 1995 to 2009. The parties disputed whether there was any time limit concerning disgorgement. Ultimately, the district court rejected Kokesh's argument that disgorgement should be subject to 2462's five-year limitations period because it is a "penalty." On appeal, the Tenth Circuit held that the disgorgement ordered was remedial and therefore was neither a "penalty" nor a "forfeiture" under 2462. In reaching that conclusion, the Tenth Circuit explicitly disagreed with a recent decision by the Eleventh Circuit, SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016), which held that disgorgement was a "forfeiture" under the statute.
Adopting a different interpretation than either the Tenth or Eleventh Circuits, the Supreme Court held that disgorgement, when ordered in an SEC enforcement action, is a "penalty" for purposes of 2462 and, as such, is subject to 2462's five-year limitations period. Justice Sonia Sotomayor's opinion relied on two guiding principles to reach that conclusion: (1) whether the sanction seeks to redress "a wrong to the public, or a [private] wrong to the individual," and (2) whether a sanction "is sought `for the purpose of punishment, and to deter others from offending in like manner'--as opposed to compensating a victim for his loss."
The Court explained that those two "principles readily demonstrate that SEC disgorgement constitutes a penalty within the meaning of 2462." Noting that the SEC conceded that its enforcement actions sought to vindicate the public interest and to address public harm, the Court easily determined that the disgorgement ordered satisfied the first principle. Likewise, coupling the parade of lower-court opinions that have described the "primary purpose" of disgorgement as deterrence, with the Court's view that sanctions are punitive when imposed to deter violations of public laws, the Court quickly concluded: "SEC disgorgement is imposed for punitive purposes." In reaching that conclusion, the Court rejected the SEC's argument that disgorgement was compensatory because the payments can be passed along to victims. That practice, the Court observed, had no statutory footing and was merely an inconsistent exercise of courts' discretion.
Although it is too early to see the implications of Kokesh, the decision will likely bring significant changes in the SEC's enforcement efforts. The most immediate consequence is that the SEC cannot use either of its two main monetary sanctions to address misconduct that occurred more than five years ago, absent a tolling agreement, which is a significant departure from its practice to date.
This in turn places an increased importance on tolling agreements. FCPA defendants often sign tolling agreements in hopes of proving their cooperation. However, moving forward, defendants may be less willing to enter into such agreements or seek to narrowly tailor them given their expanded significance after Kokesh.
Second, Kokesh significantly increases the leverage of defendants under investigation, as it eliminates the SEC's ability to use threats of large disgorgement orders for very old misconduct as a point of leverage in resolution discussions. Instead, both sides will have to focus on conduct within the five-year statute of limitations.
Third, the SEC will have to adjust the speed and focus of its investigations. The SEC will likely feel pressure to resolve investigations more quickly to minimize statute of limitations issues. Likewise, the SEC may focus greater resources on cases with the most recent violations.
Finally, and perhaps most significantly, the Court's characterization of disgorgement as a penalty raises a number of questions regarding how disgorgement should be calculated and when it may be awarded. For example, if disgorgement is a penalty for the purposes of
Anti-Corruption | Q4 201711
2462, defendants could argue that it should be considered a penalty under the federal securities laws as well and therefore governed by the framework used to calculate civil money penalties. Moreover, Kokesh invites the question of whether the SEC has the authority to obtain disgorgement--a judicially created remedy--in the first place. The Court raised that issue in a footnote but conspicuously did not address it.
The Second Circuit Considers Whether the Government Can Charge Foreign Nationals With Accomplice Liability Under the FCPA
On March 2, the Second Circuit heard oral arguments in U.S. v. Hoskins. The issue before the court is whether a nonresident foreign national can be liable under the FCPA under a theory of accomplice liability. DOJ charged UK citizen Lawrence Hoskins, a former executive of French company Alstom S.A., with violations of the FCPA for actions committed abroad. Hoskins moved to dismiss count one of the indictment, arguing that "it charges a legally invalid theory that he could be criminally liable for conspiracy to violate the FCPA even if the evidence does not establish that he was subject to criminal liability as a principal, by being an `agent' of a `domestic concern.'" On August 13, 2015, Judge Janet Bond Arterton of the District of Connecticut agreed, holding that the FCPA cannot reach a nonresident foreign national who is not "an agent of a domestic concern" and who "does not commit acts while physically present in the territory of the United States."
The case was heard before a three-judge panel of the Second Circuit. The panel heard arguments from DOJ, Hoskins and the New York Counsel of Defense Lawyers in support of Hoskins' position. The Second Circuit's decision, expected this year, should provide significant judicial guidance as to the FCPA's reach.
...World Bank investigation revealed that Berkman engaged
in corrupt practices to influence the
implementation of World Bank-financed
contracts and also made several material
misrepresentations when seeking certain
of the contracts.
IN THE INTERIM
October 4, 2017: The World Bank Group debarred two Manila-based companies, Berkman International Inc. and Center for Environmental Studies and Management (CESM), for engaging in corrupt and fraudulent practices. According to a press release, a World Bank investigation revealed that Berkman engaged in corrupt practices to influence the implementation of World Bank-financed contracts and also made several material misrepresentations when seeking certain of the contracts. CESM engaged in fraudulent practices by concealing a conflict of interest with a procurement consultant. An individual, Belen Gacad, was debarred in connection with the same investigation for facilitating some of Berkman's corrupt payments. Berkman was debarred for five years while CESM and Gacad were debarred for 18 months. The debarments qualify for cross-debarment by the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the African Development Bank pursuant to the Agreement for Mutual Enforcement of Debarment Decisions.
October 11, 2017: As discussed above, Fernando Ardila Rueda, the part-owner of several Florida-based businesses, pleaded guilty in federal court to one count of conspiracy to violate the FCPA and one count of violating the FCPA in connection with a scheme to pay bribes to win contracts from PDVSA, Venezuela's state-owned oil company. He is scheduled to be sentenced February 8, 2018.
October 24, 2017: Amsterdam-based Core Laboratories N.V. stated in a securities filing that DOJ has closed its investigation into the company's interactions with Monaco-based Unaoil without taking any action. Core Labs was one of about a dozen Unaoil clients named in a March 2016 media report that alleged widespread corruption by Unaoil to obtain billions of dollars worth of government contracts. Core Lab first disclosed the DOJ investigation in May 2016.
Anti-Corruption | Q4 201712
...DOJ announced the unsealing of a complaint charging two individuals
with violations of the FCPA, international
money laundering and conspiracy to commit both
in relation to a scheme to bribe African government
officials on behalf of [a] Chinese energy conglomerate.
November 7, 2017: As discussed above, DOJ unsealed charges against three Rolls-Royce employees, an intermediary and an engineering executive who worked with Rolls-Royce for their involvement in a scheme to bribe officials of a state-owned energy joint venture between China and Kazakhstan.
November 9, 2017: The World Bank Group announced that it debarred Canada-based FreeBalance, Inc. for six months for sanctionable misconduct in relation to a project in Liberia, specifically the company's failure to disclose the identity and payment terms of a local agent in Liberia. The debarment is part of a negotiated resolution agreement that provides for a reduction in their period of debarment because of the company's voluntary corrective and remedial actions. Following the six-month debarment, FreeBalance will enter a 12-month probationary period.
November 16, 2017: The UK SFO announced that it has charged two individuals in relation to the ongoing Unaoil investigation. The SFO charged Ziad Akle and Basil Al Jarah with conspiracy to make corrupt payments to secure contracts in Iraq for Unaoil client SBM between 2005 and 2011. Akle was Unaoil's territory manager in Iraq, and Al Jarah was a partner of Unaoil's in Iraq.
November 20, 2017: DOJ announced the unsealing of a complaint charging two individuals with violations of the FCPA, international money laundering and conspiracy to commit both in relation to a scheme to bribe African government officials on behalf of [a] Chinese energy conglomerate CEFS China Energy Company Limited. The individuals, Chi Ping Patrick Ho of Hong Kong and Cheikh Gadio of Senegal, allegedly offered a $2 million bribe to the President of Chad to help secure oil rights and a $500,000 bribe to the Ugandan foreign affairs minister in exchange for certain business advantages. CEFS China has denied any wrongdoing.
November 29, 2017: As discussed above, Netherlands-based SBM Offshore USA Inc. agreed to pay $238 million to resolve criminal charges in connection with schemes to bribe foreign officials that occurred from at least 1996 to 2012. Also, as discussed above, on November 6 and 9, two former executives of SBM pleaded guilty to FCPA charges.
November 30, 2017: The World Bank Group debarred the French digital security firm Oberthur Technologies SA for two-and-a-half years for corrupt and collusive practices to secure a national ID project in Bangladesh. According to the World Bank Group, Oberthur admitted as part of a negotiated resolution agreement that the company engaged in "collusive misconduct to obtain and modify bid specifications to narrow competition and secure the award of the contract."
December 5, 2017: The World Bank Group debarred the French company Sediver SAS, which manufactures insulators for power transmission lines, for two years for corrupt practices in connection with the Southern Africa Power Market Project in the Democratic Republic of Congo. According to the World Bank Group, Sediver made "improper payments to an employee of a consulting company to influence a tender process." The World Bank Group conditionally nondebarred Sediver SAS's parent company, Sediver SpA, for 18 months, allowing Sediver SpA to "remain eligible to participate in World Bank-financed projects as long as it complies with its obligations under the [negotiated resolution agreement]."
December 20, 2017: Royal Dutch Shell, Italy-based Eni and a group of current and former executives of the companies will stand trial in Italy on charges of aggravated international corruption for allegedly paying bribes to win a $1.1 billion deal for oil exploration rights in Nigeria. The charges follow a long-running investigation by the Milan Public Prosecutor's office and a raid of Shell's offices by Dutch police last year. According to a press release from Global Witness, an international nongovernmental organization that has conducted its own investigation into the matter, half of the $1.1 billion that Shell and Eni paid for the rights was converted into cash for payment to Nigerian officials. Global Witness received leaked emails
Anti-Corruption | Q4 201713
...Royal Dutch Shell, Italy-based Eni and a group of current and former executives of the companies will stand trial in Italy on charges of aggravated international corruption for allegedly paying bribes to win a
$1.1 billion deal for oil exploration rights
from the Dutch raid of Shell's offices and has stated that the emails show that executives at Shell knew about the illegal payments. The companies claim that their payment was legal, and they did not know and were not responsible for what happened to the money afterward.
December 21, 2017: As discussed above, Colin Steven, a former sales executive of Embraer S.A., pleaded guilty in the Southern District of New York to one count of violating the FCPA and one count of conspiracy to violate the FCPA, in addition to several other counts of wire fraud, money laundering and making a false statement, for bribing a Saudi Arabian foreign official in exchange for assistance getting an aircraft sales contract with favorable terms awarded to Embraer. Steven's plea follows the DOJ deferred prosecution agreement that Embraer entered into in October 2016, under which Embraer agreed to pay a $107 million penalty to DOJ as part of a $205 million global resolution with DOJ, the SEC and Brazilian authorities related to corrupt conduct in several countries, including Saudi Arabia.
December 22, 2017: As discussed above, KOM and its wholly owned U.S. subsidiary KOM USA agreed to pay a combined penalty of more than $422 million to authorities in the United States, Brazil and Singapore to resolve foreign bribery charges. Also, as discussed above, Jeffrey Chow, a senior member of the KOM legal team, pleaded guilty to violating the FCPA. He is awaiting sentencing.
December 22, 2017: Eberhard Reichert, a former Siemens executive and German citizen whom DOJ indicted in December 2011 for bribing officials in Argentina, pleaded not guilty in the Southern District of New York and was released on bond of $500,000. Reichert is one of eight former Siemens executives and agents indicted for a criminal conspiracy to violate the FCPA in additional to money laundering and wire fraud counts. All are non-U.S. citizens living outside the U.S. Reichert, one of only two of the so-called "Siemens 8" to appear in a U.S. federal court, was extradited to New York after his arrest in Croatia in September 2017. His trial is scheduled to begin in July 2018. In September 2015, Andres Truppel, a dual citizen of Germany and Argentina and former CEO of Siemens in Argentina, pleaded guilty to conspiracy to violate the FCPA and agreed to cooperate with the authorities in their investigation of other individuals.
December 22, 2017: Maryland-based telecommunications company Ciena Corporation disclosed in a securities filing that it has launched an internal investigation "to determine whether certain payments to an individual employed by a customer in a country in the ASEAN region" may have violated applicable laws and regulations, including the FCPA. The company said that it had recently "voluntarily contacted" DOJ and the SEC to advise them of the internal investigation. Ciena employs about 5,700 people and had revenue last year of $2.6 billion.
Anti-Corruption | Q4 201714
FCPA GOVERNMENT INVESTIGATIONS AND CORPORATE SETTLEMENTS
26 23 25
21 20 19
11 11 13 14
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
* N ew criminal or civil cases (settled or contested) instituted by year ** Based upon public disclosures of investigations
2017 Pending Investigations**
Corporate FCPA-Related Penalties*
(in U.S. millions)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pending Settlement**
* Includes disgorgement; does not include non-U.S. fines ** Includes publicly disclosed reserves for future FCPA settlements
Anti-Corruption | Q4 201715
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Our FCPA/Anti-Corruption practice, which involves over 90 of our lawyers, includes creating and implementing compliance programs for clients, counseling clients on compliance issues that arise from international sales and marketing activities, conducting internal investigations in more than 90 countries and defending clients in the course of SEC and DOJ proceedings. Our clients in this area include Fortune 100 and 500 companies in the pharmaceutical, healthcare, defense, aerospace, energy, transportation, advertising, telecommunications, insurance, food products and manufacturing industries, leading investment banks and other financial institutions.
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