Designed for busy in-house counsel, compliance professionals, and anti-corruption lawyers, this newsletter summarizes some of the most important international anti-corruption law and case developments from the past month, with links to primary resources. This month we ask: What lessons does the most recent Foreign Corrupt Practices Act (FCPA) enforcement action by the U.S. Securities and Exchange Commission (SEC) hold for companies considering an M&A deal? What does a recent federal court decision teach about the scope of the FCPA’s internal accounting controls provision? How does China plan to deter companies and individuals from bribing Chinese officials? The answers to these questions and more are here in our September 2021 Top 10.
On September 24, 2021, the U.S. Securities and Exchange Commission announced that it had charged London-based WPP plc, the world’s largest advertising group, with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The company, which neither admitted nor denied SEC’s allegations, agreed to pay more than $19 million in disgorgement, civil penalties, and prejudgment interest to resolve the charges. According to the SEC order, the company “implemented an aggressive acquisition strategy in order to grow its business.” The company acquired a controlling interest in small, localized agencies in high-risk markets around the world but failed to ensure that these new subsidiaries implemented its internal accounting controls and compliance policies, instead allowing the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence. The company allegedly lacked sufficient internal accounting controls, had no compliance department, and lacked meaningful coordination between its legal and internal audit departments and management at its international locations. The company also allegedly failed to timely and properly manage its response to red flags indicating corruption risks, or remediate identified control deficiencies. SEC alleged numerous schemes that occurred at the company’s subsidiaries. A majority-owned Indian subsidiary allegedly used third parties to pay as much as a million dollars in bribes to Indian officials to obtain and retain government business resulting in over $5 million in net profit from 2015-2017. SEC alleged that the company failed to properly respond to seven anonymous complaints of bribery schemes at the Indian subsidiary for several years. A Chinese subsidiary allegedly made unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings. SEC alleged that the company failed to properly respond to significant red flags for several years and did not uncover the scheme until early 2019 while conducting an unrelated review. SEC further alleged that a Brazilian subsidiary made improper payments to vendors in connection with government contracts, and that a Peruvian subsidiary funneled funds through other group entities to disguise the source of funding for a political campaign in Peru. There was no parallel enforcement action from the U.S. Department of Justice (DOJ), and the imposition of a civil penalty suggests there might not be one, even though DOJ has not posted a declination letter on its website, as it has done in connection with several other SEC-only resolutions. In any event, the SEC resolution is a reminder about the importance of pre-acquisition due diligence and post-acquisition integration for mitigating FCPA risk in the M&A context.
Despite the WPP resolution, September 2021 was a relatively quiet month for SEC, as compared to past Septembers. September historically has been one of the busiest months for SEC FCPA resolutions because it marks the end of the agency’s fiscal year. For example, SEC brought five FCPA enforcement actions in September 2016, two in September 2017, six in September 2018, and four in September 2019. SEC brought no FCPA enforcement actions in September 2020, and just the one this year. One potential explanation for the recent September SEC slowdowns may be the lingering effects of the global pandemic.
On September 8, 2021, DOJ announced the unsealing of an indictment in the Southern District of New York charging Afework “Affe” Bereket with conspiring to violate the FCPA and to commit money laundering. According to DOJ, Bereket, the former account manager for the Horn of Africa for Swedish telecommunications company Telegonaktiebolaget LM Ericsson (Ericsson), conspired to bribe two high-ranking officials in Djibouti’s executive branch and a high-level executive of Djibouti’s state-owned telecommunications company to obtain a contract valued at approximately €20.3 million. Bereket and others allegedly created a sham consulting contract, supported by a false due-diligence report that concealed the relationship between the consulting company and one of the officials, and fake invoices to generate the funds used to pay the bribes. According to DOJ, Bereket remains at large. He faces a maximum penalty of 25 years in prison if convicted of both counts. In December 2019, DOJ and SEC announced parallel corporate resolutions with Ericsson, with combined penalties exceeding $1 billion, which included allegations related to Djibouti, among other countries.
On September 28, 2021, in the Southern District of Florida, Bryan Berkman and Philip Lichtenfeld pleaded guilty to conspiracy to violate the FCPA, and Luis Berkman (Bryan’s father) pleaded guilty to conspiracy to commit money laundering. DOJ announced in May 2021 that the three had been charged, along with two former Bolivian officials, for allegedly paying $602,000 in bribes so that Berkman’s Florida-based company could win a $5.6 million contract with the Bolivian Ministry of Defense for the supply of tear gas and other non-lethal equipment. Lichtenfeld and Bryan Berkman each face up to five years in prison, while Luis Berkman faces up to 10 years in prison.
On September 3, 2021, Eastern District of New York Judge Margo Brodie denied former investment bank executive Roger Ng’s motion to dismiss FCPA anti-bribery and accounting charges brought against him in October 2018. Ng allegedly conspired to launder billions of dollars embezzled from 1Malaysia Development Berhad (1MDB), to violate the FCPA by paying bribes to multiple government officials in Malaysia and Abu Dhabi, and to violate the FCPA by circumventing the internal accounting controls of a major New York-headquartered financial institution. In May 2019, DOJ announced that Ng had been extradited from Malaysia to answer to the charges. In October 2020, Ng moved to dismiss the indictment, arguing, among other things, that the indictment improperly eliminated the “issuer” requirement of an FCPA anti-bribery violation brought under 15 U.S.C. § 78dd-1 and failed to allege that he conspired to circumvent a set of controls cognizable under the FCPA. The court rejected Ng’s arguments. The court held that Ng’s first argument had been mooted by the superseding indictment, which replaced an anonymized version of the “U.S. Financial Institution” from the original indictment with the actual name of the issuer and alleged that Ng was an employee, agent, and stockholder of that issuer. The court rejected Ng’s second argument because “the Superseding Indictment alleges that Ng and others conspired to conceal information [regarding co-defendant Jho Low’s involvement in the contested bond transactions] from the groups at the [issuer] responsible for enforcing the internal accounting controls, and that, had the concealed information been known, it would have triggered an investigation in accordance with those controls that likely would have prevented the authorization of the bond transactions and access to the assets used to purchase the bonds[.]” The court held that, by concealing this information to ensure that the bond transactions were authorized, the allegations fell within the FCPA’s focus on maintaining “a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the firm’s assets.” The court further held that the indictment sufficiently tracked the language of the FCPA and that it was a matter for the jury to decide whether Ng violated specific internal accounting controls as part of the scheme. Given its in-depth treatment of the FCPA’s internal accounting controls provision, the Court’s decision is a worthwhile read for practitioners in this space. (In its 160-page opinion, the Court rejected a number of additional arguments raised by Ng.) Jury selection in Ng’s trial is set to begin in January 2022. (For more on the 1MDB case, see our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, October 2018, February 2019, May 2019, April 2020, and August 2021 Top 10s.)
On September 20, 2021, DOJ announced that it had entered into agreements to distribute $19.25 million to the United Nations for the purchase and distribution of COVID-19 vaccines and $6.35 million to Medical Care Development International for the purchase and distribution of medicines and medical supplies throughout Equatorial Guinea, as part of a civil forfeiture settlement resolving the disposition of certain assets previously purchased by the current First Vice President of Equatorial Guinea, Teodoro Nguema Obiang Mangue with the proceeds of alleged corruption. Pursuant to a 2014 settlement agreement, Obiang, who allegedly corruptly amassed more than $300 million worth of assets while serving as the Minister of Agriculture and Forestry, forfeited a Malibu mansion, a Ferrari, and various items of Michael Jackson memorabilia. (In July 2021, a French court upheld Obiang’s 2017 embezzlement conviction, which resulted in the forfeiture of approximately €150 million in additional assets.)
On September 10, 2021, the Counter-Kleptocracy Act was introduced in the U.S. House of Representatives. The FCPA focuses solely on bribe payers, also known as the “supply side” of foreign bribery. Although DOJ has increasingly used other tools, such as the Travel Act, the federal money laundering statutes, and asset forfeiture, to pursue corrupt foreign officials, many observers believe that the United States should do more to tackle the “demand side” of foreign bribery. To that end, the Act includes seven counter-kleptocracy bills, including the Foreign Extortion Prevention Act, which would make it a crime for foreign officials to demand or accept bribes to influence an official act or violate an official duty. Although the Foreign Extortion Prevention Act arguably would fill a hole in the FCPA’s coverage, it would be implemented by amending the federal domestic bribery statute, 18 U.S.C. § 201, rather than by amending the FCPA. Other bills in the Counter-Kleptocracy Act would, among other things, enable the executive branch to reveal the names of human rights abusers and kleptocrats banned under the Immigration and Nationality Act, allow for the imposition of Global Magnitsky sanctions against leaders of countries that fail to comply with anti-corruption norms and commitments, and create a DOJ website documenting the amount of money stolen by corrupt officials in each country and recovered by the United States.
On September 3, 2021, DOJ announced that U.S. Marine Corps Colonel Enrico DeGuzman had pleaded guilty in the Southern District of California to a bribery charge, admitting that he accepted more than $67,000 in gifts, meals, and entertainment in exchange for using his official position to assist Leonard Glenn Francis, the owner and CEO of Singapore-based Glenn Defense Marine Asia (GDMA), in winning U.S. Navy business. Among other things, DeGuzman admitted to attending multiple junkets costing tens‑of‑thousands of dollars. In total, 34 U.S. Navy officials, defense contractors, and GDMA have been charged in connection with the “Fat Leonard” investigation, with 27 of the defendants having pleaded guilty. Trial of the remaining defendants is scheduled to begin in February 2022. The Fat Leonard case illustrates the continued need for companies to implement internal controls surrounding gifts, travel, and entertainment of government officials, anywhere in the world they do business.
On September 7, 2021, the Tokyo District Court sentenced Tsukasa Akimoto, Japan’s former vice‑minister in charge of tourism and casino promotions, to four years in prison for allegedly having taken approximately $69,000 in bribes from 500.com, a Chinese gambling operator that planned to start a casino business in the ski-resort village of Rusutsu, Hokkaido, Japan. Akimoto allegedly accepted the bribes in 2017-2018, about one year after Japan passed a law allowing casino gambling in an effort to capitalize on increased tourism from China. Akimoto was also convicted of offering bribes to two 500.com advisors in the hope that they would provide testimony favorable for him; the two ultimately admitted to having bribed Akimoto in exchange for favorable treatment. Akimoto has maintained his innocence and has pledged to both appeal his conviction and run for a seat in the upcoming lower house election.
On September 8, 2021, the Central Commission for Discipline Inspection (CCDI) of the Communist Party of China, the National Supervisory Commission, and five other authorities released an anti-bribery guideline, which includes, among other things, a system to blacklist companies and individuals who pay or offer bribes in China. The offenders may also have their access to markets restricted. The guideline stated that authorities would be focusing particular scrutiny on the areas of environmental protection, finance, social insurance, medical care, and education, as well as projects relating to personnel matters, law enforcement, and disaster relief. Several of these areas have been highlighted in prior policy announcements. (See, for example, #10 in our January 2021 Top 10.) Chinese authorities have been engaged in a prolonged anti‑corruption campaign, but the campaign’s typical targets have been government officials and employees of state-owned enterprises and other institutions. Because this new development is focused on bribe payers, it is important for companies and individuals doing business in China to be aware of it.