Top 10 International Anti-Corruption Developments for September 2022
Top 10 International Anti-Corruption Developments for September 2022
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 sources. This month we ask: What changes has the U.S. Department of Justice (DOJ) made in its approach to corporate criminal enforcement? Which airline resolved Brazilian bribery allegations with DOJ and the U.S. Securities and Exchange Commission (SEC)? Which company was charged in Canada for bribery in the Philippines? The answers to these questions and more are here in our September 2022 Top 10.
On September 15, 2022, Deputy Attorney General (DAG) Lisa Monaco announced new DOJ guidance and policies for corporate criminal enforcement. The “Monaco Memo” directs all DOJ components to implement policies similar to those already in place for DOJ’s Criminal Division (or other Divisions that already have similar guidance in place) to (1) provide credit for self-disclosure of potential misconduct, (2) establish a framework for evaluating corporate compliance programs, and (3) implement written procedures for the selection of independent compliance monitors. The Monaco Memo discusses factors that DOJ prosecutors will consider in evaluating corporate recidivism. In October 2021, Monaco directed prosecutors to consider the full criminal, civil, and regulatory records of companies that are targets of criminal investigations but did not provide detail as to how they should go about doing this. The new memo explains that “[n]ot all instances of prior misconduct … are equally relevant or probative.” Among other things, and with the typical caveats that each case turns on its own facts and circumstances, more recent conduct, U.S. criminal resolutions, and misconduct involving the same personnel or management generally will be given more weight than older conduct, civil and regulatory resolutions, and prior misconduct by an acquired entity. The Monaco Memo also sets out a list of 10 factors that prosecutors should consider in determining whether to require the imposition of an independent compliance monitor as part of a corporate resolution. Among other things, prosecutors should consider whether the company self-reported the misconduct, whether the company has adequately tested its compliance program and internal controls to demonstrate that they will likely detect and prevent similar misconduct in the future, and whether the company adequately investigated and remediated the underlying conduct.
The Monaco Memo also sets out DOJ’s compliance expectations in two areas. First, with respect to personal devices and third-party messaging apps (an issue that has presented challenges to DOJ in the past, as discussed in our March 2019 Top 10), the memo states, “As a general rule, all corporations with robust compliance programs should have effective policies governing the use of personal devices and third-party messaging platforms for corporate communications, should provide clear training to employees about such policies, and should enforce such policies when violations are identified.” In addition, a company seeking cooperation credit must have instituted policies to ensure that it will be able to collect and produce relevant evidence, including texts, messages, and chats, from any device used for business purposes. Second, the memo advocates for compensation clawback provisions as a key feature of an effective corporate compliance program. See our client alert for additional details and insights.
In a speech delivered on September 16, 2022, the Assistant Attorney General (AAG) for DOJ’s Criminal Division, Kenneth Polite, expanded on certain aspects of the Monaco Memo. Polite noted that the Monaco Memo directed DOJ’s Criminal Division to provide further guidance on both personal device/third-party messaging app policies and compensation clawbacks. With respect to the former, Polite observed, “We have seen a rise in companies and individuals using these types of messaging systems, and companies must ensure that they can monitor and retain these communications as appropriate.” With respect to the latter, Polite stated, “In the coming months, our team will be meeting with, among others, our agency partners and experts on executive compensation, and gathering relevant data points. Based on these inputs, the Criminal Division will then provide further guidance on how prosecutors will consider and reward corporations that develop and apply compensation claw back policies.” Consistent with the Monaco Memo, Polite noted that companies with histories of prior misconduct may still avoid a guilty plea by voluntarily self-disclosing wrongdoing, absent aggravating factors. Polite elaborated that, although not specifically outlined in the Monaco Memo, the Criminal Division will consider aggravating factors as including involvement by senior executives, significant profit from the misconduct, and “pervasive or egregious” misconduct.
Polite also reaffirmed prior statements from Criminal Division officials that, as part of all of its corporate resolutions, the Criminal Division will consider requiring both the Chief Executive Officer and the Chief Compliance Officer to sign a certification at the end of the agreement that the company’s compliance program is reasonably designed, implemented to detect and prevent violations of the law, and is functioning effectively. According to Polite, the certifications are “designed to give compliance officers an additional tool that enables them to raise and address compliance issues within a company or directly with the department early and clearly” and “underscore our message to corporations [that] investing in and supporting effective compliance programs and internal controls systems is smart business[.]” Further reinforcing his compliance message, Polite also highlighted that the Criminal Division had hired two former compliance officers to occupy prominent positions in the Division’s Fraud Section.
On September 15, 2022, DOJ and SEC announced resolutions with Brazil’s second-largest domestic airline, GOL Linhas Aéreas Intelligentes (GOL), stemming from allegations that, between approximately 2011 and 2013, the company caused bribe payments to be made to Brazilian officials to secure the passage of two pieces of favorable legislation related to payroll and fuel tax reductions, in violation of the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA). According to the agencies, a company director caused the company to enter into sham contracts with, and make payments to, entities connected to the Brazilian officials. The agencies also noted that co-conspirators used an ephemeral U.S.-based messaging application in furtherance of the alleged bribery scheme—another example of the phenomenon noted by AAG Polite in his recent speech (see #2 above) and in other recent FCPA resolutions (see, for example, #4 in our March 2022 Top 10). The company agreed to a three-year deferred prosecution agreement (DPA) with DOJ, while the SEC instituted a cease-and-desist order. In total, the company agreed to pay more than $41 million to resolve the investigations. That amount reflected credits given to the company for penalties and disgorgement to be paid to Brazilian authorities and the company’s demonstrated inability to pay the full guideline penalty and disgorgement amount.
On September 2, 2022, DOJ announced that Cary Yan and Gina Zhou had been charged in the Southern District of New York with violating the FCPA and money-laundering statutes in connection with an alleged scheme to bribe elected officials of the Republic of the Marshall Islands (RMI) in exchange for supporting legislation creating a semi-autonomous region within the RMI that would benefit the defendants and their associates. According to DOJ, Yan and Zhou carried out the scheme using a New York-based non-governmental organization (NGO) where they were employed. The charges were initially filed in August 2020, but Yan and Zhou were arrested in Thailand in November 2020 and extradited to the United States in September 2022.
On September 27, 2022, SEC announced that it had resolved FCPA anti-bribery and accounting allegations with a U.S.-based technology company for alleged misconduct in India, Turkey, and the United Arab Emirates. Without admitting or denying the allegations, the company agreed to pay approximately $8 million in disgorgement and a $15 million civil penalty.
On September 6, 2022, Leonard Glenn Francis, known as “Fat Leonard,” escaped from house arrest in San Diego, California. Francis, a Malaysian national, is the owner of Glenn Defense Marine Asia (GDMA), which provided port services to U.S. Navy ships in the Pacific Ocean. Francis pleaded guilty in January 2015 for bribing U.S. Navy officials with lavish hospitality and prostitutes in exchange for information that allowed him to overcharge the U.S. Navy for GDMA’s services. Nearly 30 defendants have pleaded guilty to related charges, while four others were found guilty following a jury trial. (See our June 2022 Top 10 for more.) Francis’s escape, which came approximately three weeks before he was scheduled to be sentenced, sparked an international manhunt. On September 21, 2022, Francis was arrested in Venezuela. According to reports, Francis had traveled to Venezuela from Mexico, with a stopover in Cuba, and was arrested at the Caracas Airport as he was about to board a flight to Russia. Although the icy relationship between the United States and Venezuela could make it difficult for U.S. authorities to secure Francis’s extradition, some analysts believe that Venezuela might use the extradition of Francis as a bargaining chip in its efforts to thaw relations between the two countries. Meanwhile, Francis has requested asylum in Venezuela.
On September 21, 2022, the Royal Canadian Mounted Police (RCMP) announced that Ultra Electronics Forensic Technology Inc., as well as four of its former executives, had been charged with bribery of a foreign official under the Corruption of Foreign Public Officials Act (CFPOA) and defrauding the public under the Criminal Code of Canada. According to the RCMP, the company and its former executives directed local agents in the Philippines to pay public officials to influence the awarding of a multimillion-dollar contract.
On September 5, 2022, the Director of the UK Serious Fraud Office (SFO), Lisa Osofsky, delivered a keynote speech at the Cambridge International Symposium on Economic Crime in which she highlighted the agency’s continued efforts to work with its international law enforcement partners to combat bribery and corruption, which she described as a “cornerstone” of the SFO’s successes since she was named SFO Director in June 2018. According to Osofsky, the SFO has “intensified and broadened [its] international collaboration and reach,” highlighting the Airbus and Glencore cases, which involved cooperation with French and U.S. authorities. Osofsky also pledged that the SFO would prioritize and restructure its document collection and review processes, the current framework for which she described as being “designed before the advent of mass digital data [w]hen there was far less material for investigators and prosecutors to deal with.” According to Osofsky, SFO’s existing document review framework “demands manual review,” which can leave “victims waiting for a resolution” and for “their day in court.” To address this problem, Osofsky secured over £4 million in extra funding in 2021 to improve SFO’s ability to collect and review documents in fraud cases—signaling a continued commitment by U.K. regulators to fund fraud investigations. Although not explicitly mentioned, Osofsky’s comments regarding the SFO’s disclosure efforts are likely in response to a July 2022 independent review criticizing the SFO’s disclosure practices.
On September 22, 2022, the U.K.’s House of Commons conducted its first reading (the first stage of a bill’s passage) of a new Economic Crime and Corporate Transparency Bill that could significantly expand the SFO’s investigative reach. Under existing law, the SFO is only able to compel suspected criminals, financial institutions, or technology companies to disclose information during its pre-investigative stages in cases related to international bribery and corruption. If implemented, however, the new bill would expand SFO’s pre-investigative powers to other cases involving “suspected fraud or domestic bribery and corruption.” This would allow SFO to gather evidence at earlier stages in its investigation, which could in practice result in the freezing of assets on an expedited basis. The new bill is also designed to crack down on “kleptocrats, organised criminals and terrorists abusing the UK’s open economy” and “strengthen the UK’s reputation as a place where legitimate businesses can thrive while driving dirty money out of the UK.” Among other things, the new bill would require anyone who registers a company in the UK to verify their identity and would provide Companies House with new power to check, challenge, and decline incorrect or fraudulent information and to report suspicious activity to national security agencies and law enforcement.
On September 28, 2022, the Inter-American Development Bank (IDB) announced a $195 million loan to Honduras to create programs designed to “tighten accountability, enhance government transparency, and boost the effectiveness of its integrity policies and corruption control systems.” The resulting programs are intended to support transparent budgeting and public spending, to help advance a draft bill to overhaul civil service laws promoting transparency and integrity in public offices, and to design a platform for digitally managing tax returns and asset and liability statements as an oversight system to strengthen public integrity. The funding will also be used to help Honduran efforts to cooperate with tax authorities in over 100 countries to cross-check information. IDB noted that the funding follows $23 million in “technical cooperation” that it has devoted to fighting anti-bribery and corruption in Latin America and the Caribbean since 2007, signaling its continued efforts to fight bribery in the region.