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 UK Serious Fraud Office (SFO) respond to a UK Supreme Court decision limiting its ability to gather foreign evidence? How did arguably the world’s largest foreign bribery investigation end in Brazil? What impact did the COVID-19 pandemic have on U.S. foreign bribery prosecutions? The answers to these questions and more are here in our February 2021 Top Ten list.
1. UK Supreme Court Limits Ability of UK Serious Fraud Office (SFO) to Compel Production of Foreign Evidence. On February 5, 2021, the UK Supreme Court held in KBR v. SFO that the SFO cannot use its statutory power under section 2(3) of the Criminal Justice Act 1987 to require a non-UK company that does not have a registered office or carry out business in the UK to produce documents from abroad. The SFO had attempted to use its section 2(3) powers to compel KBR, Inc., a U.S.-based company, to produce documents from outside the UK in support of its foreign bribery investigation into Unaoil. KBR moved to quash the SFO’s notice on jurisdictional grounds. The UK Divisional Court found that the section 2(3) power could be used to compel a foreign company to produce documents to the SFO where there was a “sufficient connection between the company and the jurisdiction.” The Supreme Court, however, held that section 2(3) neither expressly nor implicitly demonstrated an intent for such extraterritorial applicability and that there was no basis for the lower court’s “sufficient connection” test. Going forward, we expect the SFO to use the formal,and potentially more time-consuming, mutual legal assistance process to obtain documents from foreign companies with no presence in the UK. The SFO will likely continue to compel UK companies to produce documents held overseas, where the relevant documents are held on a server or physically in an office outside the UK, via its section 2(3) powers. (See our client alert for more on the Supreme Court’s decision. For more on the Unaoil investigation, see our November 12 2017, May 2018, June 2018, December 2018, July 2019, March 2020, May 2020, July 2020, and August 2020 Top 10s. KBR disclosed in August 2020 that the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) had declined to pursue a related enforcement action.)
2. Brazil’s Operation Car Wash Ends. On February 1, 2021, Brazil’s Operation Car Wash or “Lava Jato” was officially shut down. Car Wash began in 2014 as a money laundering investigation in the Brazilian city of Curitiba and expanded into what was arguably the world’s largest foreign bribery investigation of all time, resulting in the conviction of hundreds of officials and business executives in Brazil and international enforcement actions against numerous multinational companies related to alleged corruption at Petróleo Brasileiro S.A. (“Petrobras”), Brazil’s national oil company. According to Brazil’s Federal Prosecution Service (MPF), the Car Wash task force was responsible for 295 arrests, 278 convictions, and 4.3 billion reais ($803 million) in ill-gotten gains being returned to the Brazilian state during its roughly seven years of operation. The Car Wash task force pioneered the use of new procedural tools in Brazil, including plea-bargaining, and cooperated with enforcement agencies from around the world. In September 2020, Brazil’s Attorney General’s Office extended the mandate for Car Wash until January 31, 2021, with a suggestion that it would not be extended further. According to a statement from the Attorney General’s Office, the nine members that formed the Car Wash task force were reassigned to Gaeco, a unit fighting organized crime in Brazil. Four prosecutors will continue to pursue investigations related to Car Wash, while the remaining five will engage in other procedures. Between the winding down of Operation Car Wash and the economic, political, and pandemic-related challenges faced by Brazil, the pace of enforcement in Brazil is likely to slow down in the near term. (See our May 2015, May 2016, March 2017, September 2018, October 2019, February 2020, and September 2020 Top 10s for some of our prior discussions of Operation Car Wash. See also #3 below.)
3. South Korean Shipbuilder Resolves Petrobras-Related Corruption Allegations in Brazil. On February 22, 2021, the MPF announced that Samsung Heavy Industries had signed a leniency agreement with Brazilian authorities to resolve allegations of corruption and money laundering tied to contracts with state oil company Petrobras. The company agreed to pay 811.8 million reais ($149 million) to settle the allegations. The majority of the penalty, 705.9 million reais, is to be returned to Petrobras as damages, while 105.9 million reais constitutes a fine under a Brazilian administrative improbity law. This was the first Car Wash-related leniency agreement entered into since that operation’s integration into Gaeco (see #2 above) and follows the company’s November 2019 entry into a three-year deferred prosecution agreement (DPA) with the U.S. Department of Justice (DOJ), in which it agreed to pay $75 million in penalties to settle allegations that it paid millions in bribes to officials at Petrobras to secure a lucrative shipbuilding contract.
4. Brazilian Food Company Announces SEC Declination. In a February 26, 2021 market announcement, BRF S.A. disclosed that the SEC Enforcement Division had informed the company that it does not intend to recommend an enforcement action against the company. BRF had previously stated in its U.S. securities filings that it was cooperating with investigations by DOJ and SEC, after Brazilian authorities opened an investigation into alleged bribery of food-sanitation inspectors and other misconduct in Brazil (Operations Carne Fraca and Trapaça). According to the announcement, the company is continuing to cooperate with ongoing probes by DOJ and Brazilian authorities.
5. Former Oil Executive Convicted in UK for Role in Iraq Bribery Scheme. On February 24, 2021, the SFO announced the conviction of Paul Bond, a former SBM executive who allegedly conspired to bribe public officials at the Iraqi South Oil Company in order to secure lucrative oil contracts in the late 2000s. A jury found Bond guilty on two counts of conspiracy to give corrupt payments. This was Bond’s second trial on these charges—in July 2020, a jury convicted two defendants of related crimes but could not reach a verdict as to Bond. The SFO first announced charges against Bond in November 2017. On March 1, 2021, Bond was sentenced to three and a half years’ imprisonment. Bond is now the fourth executive convicted in relation to the SFO’s Unaoil investigation, which the SFO reports uncovered the payment of over $17 million worth of bribes to secure contracts worth $1.7 billion for Unaoil and its clients.
6. Former Investment Bank Executive Acquitted by Hong Kong Court in “Princelings” Hiring Case. On February 1, 2021, Catherine Leung, former Asia investment banking vice chair of a large financial institution, was acquitted of allegedly bribing a potential client by hiring his son in exchange for that client giving the financial institution a role in the client’s company’s IPO. In its ruling, the court explained that Leung had not played a major role in the hiring decision and had followed procedures required under the financial institution’s client referral program, which allowed staff to refer the children or relatives of the company’s existing and potential clients for training or employment. Leung was originally charged by Hong Kong’s Independent Commission Against Corruption (ICAC) in May 2019, while her former employer resolved related charges with U.S. authorities in November 2016.
7. Spain Extradites Steel Company Executive to Mexico to Face Pemex-related Corruption Allegations. On February 4, 2021, Spain reportedly extradited Alonso Ancira, the chairman of the board of Altos Hornos de México (AHMSA), to face charges in Mexico related to alleged corruption involving Mexico’s national oil company, Petróleos Mexicanos (Pemex). Ancira was arrested in Spain in May 2019 for allegedly bribing Emilio Lozoya, the former chief executive of Pemex, in connection with Pemex’s 2014 purchase of a fertilizer plant from AHMSA. In November 2019, a Spanish court rejected Ancira’s claim that he was the victim of political persecution and ordered his extradition. (See our May 2019, February 2020, July 2020, September 2020, and December 2020 Top 10s for more on the Pemex investigation.)
8. DOJ’s Fraud Section Posts Impressive Record in 2020 Despite Pandemic. On February 24, 2021, the Fraud Section of DOJ’s Criminal Division released its “2020 Year in Review” report. Although down somewhat from 2019, particularly in terms of individual prosecutions, the report showed that the Fraud Section was generally able to maintain its productivity despite the pandemic. The Fraud Section’s FCPA Unit brought or unsealed charges against 28 individuals and secured 15 convictions in 2020, compared with 34 individuals charged and 30 convicted in 2019. This slight decrease is not at all that surprising, given that courts and grand juries in the United States were shut down for much of the year. In contrast, FCPA corporate resolutions were up slightly. The FCPA Unit reached eight corporate resolutions in 2020, involving over $2.3 billion in U.S. criminal monetary penalties, compared to seven corporate resolutions in 2019, involving more than $1.6 billion in financial penalties. The FCPA Unit also issued two declinations with disgorgement under the DOJ’s FCPA Corporate Enforcement Policy resulting in about $37.7 million in disgorgement, interest, and penalties. The relative stability of the FCPA unit’s corporate results is not all that surprising, given that FCPA corporate investigations tend to be long-term matters, taking an average of three to four years to resolve. Any impacts of the pandemic and its restrictions on the Fraud Section’s FCPA corporate cases will likely not be visible until a year or two from now, although the FCPA Unit has the resources to quickly make up for lost time. (You can read more about our observations regarding the Fraud Section’s 2020 Year in Review here.)
9. Anecdotal Evidence of COVID-19 Related Corruption. As we have discussed in prior Top 10s, local and international organizations have warned of increased corruption risk caused by the COVID-19 pandemic, and we have reported on prior instances of coronavirus-specific forms of corruption. With countries around the world ramping up their COVID-19 responses by signing contracts for more personal protective equipment (PPE) and procuring vaccines, February 2021 provided more anecdotal evidence of increased COVID-19-related corruption. For example, in the United Kingdom, a Member of Parliament and former health minister apologized for breaking ministerial rules when he took paid consulting work from Aerosol Shield, a company that was then seeking to sell PPE to the National Health Service. The Italian police are reportedly investigating eight middlemen who allegedly pocketed illegal commissions worth millions of euros in connection with government contracts worth 1.25 billion euros with three Chinese consortiums for 800 million PPE face masks. The Ukrainian anti-corruption agency NABU reportedly began an inquiry in February 2021 into the government’s procurement of China’s Sinovac vaccines through an intermediary importer. There have also been reports from Peru and Brazil of public officials using their political influence to improperly obtain vaccines for themselves and their family members. Citing reports of opaque vaccine contracts and corruption in spending of relief funds, the World Bank recently recommended steps companies and governments can take to improve governance and integrity during the pandemic. (See our COVID-19 Resource Center for more on how to plan for and respond to risks associated with the outbreak as it continues to evolve.)
10. FIFA Update. On February 16, 2021, Swiss prosecutors appealed the acquittals of former Fédération Internationale de Football Association (FIFA) Secretary General Jerome Valcke and Qatari sports and broadcasting executive Nasser Al-Khelaifi. Valcke and Al-Khelaifi were charged by Swiss prosecutors in February 2020 in connection with an alleged scheme to bribe Valcke to direct media rights for important football events to certain media partners but were acquitted on several charges in October 2020 following a two-week trial. (Valcke was convicted of a lesser offense of falsifying documents.) On February 25, 2021, FIFA announced that it had closed its internal ethics investigation of German soccer legend Franz Beckenbauer, who was the head of the World Cup organizing committee when Germany was named host for the 2006 World Cup, as well as former German Football Association executives Theo Zwanziger and Horst Schmidt. According to FIFA, the 10-year limitations periods for investigating allegations of bribery surrounding Germany’s successful World Cup bid had expired. The Swiss criminal investigations of Beckenbauer, Zwanziger, and Schmidt were also effectively terminated by the expiration of the Swiss statute of limitations in April 2020. (For more on the global FIFA investigations, see our May 2015, December 2016, November 2017, February 2018, February 2020, April 2020, May 2020, and June 2020 Top 10s.)