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 the U.S. Department of Justice (DOJ) revise its stance on ephemeral messaging systems? Which U.S. enforcement agency announced that it had entered the foreign bribery arena? What steps has the U.S. Federal Bureau of Investigation (FBI) taken to combat foreign bribery in Latin America? Which Asian country appointed its first-ever anti-corruption ombudsman? The answers to these questions and more are here in our March 2019 Top Ten list.
1. DOJ Revises Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy. On March 8, 2019, Assistant Attorney General Brian Benczkowski announced that DOJ had revised the FCPA Corporate Enforcement Policy (the “Policy”). First announced in November 2017, the Policy was designed to encourage companies to self-report FCPA violations and to cooperate with DOJ FCPA investigations. The revised Policy includes a number of changes, but most notably softens DOJ’s stance on ephemeral messaging systems. Whereas the original Policy required companies seeking remediation credit under the Policy to prohibit ephemeral messaging systems, the revised Policy requires companies to “implement appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company’s ability to appropriately retain business records or communications or otherwise comply with the company’s document retention policies or legal obligations.” The revised Policy also clarifies when a company seeking full credit for cooperation must coordinate (or “de-conflict”) its internal investigation with DOJ and makes explicit that companies undergoing mergers and acquisitions can avail themselves of the Policy if they uncover wrongdoing at the target entity. Overall, the revisions are a positive development that seem to reflect that the Department listened to and incorporated feedback from the business community on the challenges posed by the original Policy. For more on the revised Policy and an extended discussion of the implications of the revised ephemeral messaging requirements, please see our client alert and our Socially Aware blog post.
2. U.S. Commodity Futures Trading Commission (CFTC) Announces Entry into Foreign Bribery Enforcement Arena. On March 6, 2019, the CFTC Division of Enforcement announced that it had issued an Enforcement Advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices. In a speech delivered the same day, James McDonald, the CFTC’s enforcement chief, explained that foreign bribery “might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC. Bribes might be employed, for example, to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives . . . [or] to manipulate benchmarks that serve as the basis for related derivatives contracts . . . [and] might alter the prices in commodity markets that drive U.S. derivatives prices. We currently have open investigations involving similar conduct. But regardless of the specific factual scenario, we are committed at the CFTC to enforcing the CEA provisions that encompass foreign corrupt practices.” Similar to the DOJ FCPA Corporate Enforcement Policy, the Enforcement Advisory states that, absent aggravating circumstances, there will be a presumption against a civil monetary penalty for companies and individuals that are not registered, or not required to be registered with the CFTC, that self-disclose and cooperate in the investigation of violations of the CEA involving foreign corrupt practices. The presumption will not apply to CFTC registrants, but the CFTC will recommend a “substantial reduction in the civil monetary penalty” for registrants who self-report and cooperate. In his speech, McDonald sought to reassure the public that the CFTC would work closely with other enforcement agencies, including DOJ and SEC, and, echoing DOJ policy, “will not pile onto other existing investigations.” How much of an impact the CFTC’s entry into the foreign bribery enforcement arena will have is yet to be seen but, for companies that fall within the CFTC’s scope, this development adds further complexity to the process of reaching a global settlement of foreign bribery allegations.
3. FBI Establishes Miami-Based International Corruption Squad. On March 5, 2019, the FBI announced that it had created a dedicated international anti-corruption squad based in its Miami Field Office. The FBI had previously created similar squads in its New York, Los Angeles, and Washington, D.C. Field Offices. These squads focus on foreign bribery, kleptocracy, and antitrust matters that occur outside U.S. borders but have a nexus to the United States. The creation of the Miami squad is a reflection of the significant ongoing investigations into alleged corruption in Latin America (see, for example, our coverage of ongoing investigations involving national oil companies in Brazil, Ecuador, and Venezuela) and, more broadly, the importance of Miami as a hub for activities that violate the FCPA and related laws.
4. Former Uzbek Official and Former Telecommunications Executive Charged in Alleged Bribery and Money Laundering Scheme, While Third Telecommunications Company Resolves Related Allegations. On March 7, 2019, DOJ announced that money laundering charges had been unsealed against Gulnara Karimova, a former Uzbek government official and daughter of former Uzbek president Islam Karimov. Bekhzod Akhmedov, a former telecommunications executive, was also charged with money laundering and FCPA violations. According to the indictment, filed in the Southern District of New York, Akhmedov helped three telecommunications companies pay more than $865 million in bribes to Karimova between 2011 and 2012 in return for lucrative business opportunities and to operate in the Uzbek market. Two of the three telecommunications companies, Amsterdam-based VimpelCom and Stockholm-based Telia, had previously resolved related allegations in February 2016 and September 2017, respectively. On March 6 and 7, 2019, the U.S. Securities and Exchange Commission (SEC) and DOJ announced that the third company, Russia-based Mobile TeleSystems PJSC (MTS), and its subsidiary Kolorit Dizayn Ink LLC, had agreed to resolve allegations that they paid $420 million to Karimova between 2004 and 2012. MTS agreed to pay a total combined penalty of approximately $850 million pursuant to a deferred prosecution agreement (DPA) with DOJ and an administrative cease-and-desist order with SEC and a guilty plea for Kolorit. Taken as a whole, these actions have led to the recovery by U.S. and foreign authorities of approximately $2.6 billion, and involved cooperation and coordination between enforcement authorities in the United States, the Netherlands, Sweden, Switzerland, Norway, Latvia, the UK, France, and Ireland.
5. Germany-Based Provider of Medical Products and Services Resolves FCPA Allegations. On March 29, 2019, DOJ and SEC announced that Fresenius Medical Care AG & Co. KGaA had agreed to pay a total of approximately $231 million to resolve allegations that it made improper payments to health care providers or health officials in several countries, in violation of the FCPA’s anti-bribery and accounting provisions. The company entered into a non-prosecution agreement (NPA) with DOJ, while the SEC entered an administrative cease-and-desist order.
6. Mozambique’s Former Finance Minister and Several Others Charged in “Tuna Boat” Case. On March 7, 2019, DOJ announced the unsealing of an indictment, filed in the Eastern District of New York, alleging a $2 billion bribery, fraud, and money laundering scheme perpetrated by government officials from Mozambique, shipbuilding executives, and investment bankers. The indictment alleges that three former Mozambique officials—Manuel Chang, the country’s former minister of finance, Antonio do Rosario, an official with Mozambique’s State Information and Security Office, and Teofilo Nhangumele, a representative of Mozambique’s Office of the President—coordinated with three former London-based investment bankers and two executives at a shipbuilding company to steal approximately $200 million from a total of $2 billion in loans issued to state-controlled companies between 2013 and 2016 for three maritime projects, including one related to tuna fishing. One of the shipbuilding executives was arrested at John F. Kennedy Airport in New York in January 2019 and has pleaded not guilty; a trial date has not yet been set. The United States is seeking extradition of three investment bankers arrested in London in January 2019 and Chang, who was arrested in South Africa in December 2018. Do Rosario, Nhangumele, and the remaining shipbuilding executive are not currently in U.S. custody, although do Rosario and Nhangumele have reportedly been arrested in Mozambique. The tuna boat case is another reminder that DOJ will pursue FCPA and related charges against non-U.S. citizens, including against the officials who allegedly received the bribes.
7. Ex-Hong Kong Minister Sentenced for African Bribery Schemes. On March 25, 2019, DOJ announced that former Hong Kong home affairs minister Patrick Ho had been sentenced in the Southern District of New York to 36 months’ imprisonment and a fine of $400,000. Ho was convicted in December 2018, following a week-long trial, of FCPA and money laundering charges stemming from allegations that, while acting as the head of a Virginia-based non-governmental organization, he offered to pay $2.9 million in bribes to prominent African politicians, including the president of Chad and Uganda’s foreign minister, in order to secure contracts for a Chinese energy conglomerate. Ho’s sentence was two years shorter than DOJ had sought, in part because the court took into account what it deemed to be Ho’s “extraordinary” history of charity.
8. Canadian Court Sentences UK and U.S. Nationals to 30-Month Prison Terms Over Failed India Bribery Scheme. On March 7, 2019, an Ontario Superior Court judge sentenced Robert Barra, a U.S. citizen, and Shailesh Govindia, a UK national, to 30 months’ imprisonment in connection with a failed plot to bribe officials at India’s national airline, Air India, to secure a biometrics contract for U.S.-based Cryptometrics and its Canadian subsidiary. Barra’s and Govindia’s January 2019 convictions were the result of the second-ever trial under Canada’s foreign bribery law, the Corruption of Foreign Public Officials Act (CFPOA). In July 2017, the Court of Appeal of Ontario affirmed the first-ever conviction under the CFPOA in connection with related charges against Nazir Karigar, a former agent of the Canadian subsidiary. The Barra and Govindia case was also noteworthy because the court held that prosecutors were required to prove that the defendants had knowledge that the intended bribe recipient was a “foreign public official” under the CFPOA. The court found the evidence sufficient to prove that the defendants knew that India’s Minister of Civil Aviation was a foreign public official but insufficient to prove the same regarding the Air India employees.
9. OECD Working Group on Bribery Reports on the UK’s Foreign Bribery Enforcement Record. In March 2017, the Organization for Economic Cooperation and Development’s Working Group on Bribery released its first “Phase 4” evaluations, of the United Kingdom and Finland. The Phase 4 monitoring process, launched in March 2016, focuses on the evaluated country’s enforcement of the OECD Anti-Bribery Convention and considers the country’s particular challenges and positive achievements. On March 21, 2019, the Working Group published its “Phase 4 Two-Year Follow-Up Report” for the UK. The report concluded that the UK had fully or partially implemented roughly three-quarters of the 2017 report’s recommendations. The report commended the passage of the Criminal Finances Act of 2017 and the increased level of, and capacity for, enforcement of the UK’s foreign bribery laws. But the report expressed concern that the “total number of finalised and ongoing cases relative to the UK economy remains relatively low,” including just three concluded foreign bribery cases since the Phase 4 evaluation in 2017. Other areas for improvement noted in the report include increasing collaboration between government agencies to promote information sharing and bribery detection; increasing transparency surrounding court decisions on foreign bribery cases, including routine publication of sentencing remarks; and ensuring the independence of foreign bribery investigations and prosecutions. The Working Group requested that the UK file an update on its implementation progress in another two years.
10. India Appoints First Anti-Corruption Ombudsman. On March 19, 2019, Indian President Nath Kovind cleared the way for former Indian Supreme Court Justice Pinaki Chandra Ghose to become the first anti-corruption ombudsman, or Lokpal, of India. Ghose was appointed under the Lokpal Act, which authorizes the Lokpal to investigate corruption allegations against any public official, other than officials in the armed forces. The Act also provides for analogous positions at the state level. Although passed in 2013, no ombudsman had been appointed until the Indian Supreme Court ordered the Indian government to appoint a Lokpal in January 2019. India, which ranked 78th out of 180 countries on the 2018 Transparency International Corruption Perception Index, is predicted to be the fastest growing major economy in the world over the next two years. As such, it will be interesting to see the impact that this appointment will have on anti-corruption enforcement.