Charles E. Duross, James M. Koukios, Lauren A. Navarro, and Harriet Sassoon
FCPA + Anti-Corruption, Government Contracts + Public Procurement, Public Companies Counseling + Compliance, Securities Enforcement, Securities Litigation, and Investigations + White Collar Defense
By MoFo’s FCPA and Global Anti-Corruption Team
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 many corporate and individual enforcement actions did the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announce in the last month of 2016? How did SEC use a part of the FCPA to reach allegations of domestic bribery? Which company resolved allegations related to the FIFA corruption case? What was the reaction in Brazil to a proposed anti-corruption law? The answers to these questions and more are here in our December 2016 Top Ten list:
1. World’s Biggest Generic Drug Manufacturer Faces Fourth Largest FCPA Settlement of all Time.
On December 22, 2016, DOJ and SEC announced a $519 million enforcement action against Teva Pharmaceutical Industries Ltd. (“Teva”), an Israeli company with American Depository Receipts traded in the United States, and its wholly owned Russian subsidiary, Teva LLC. According to the enforcement actions, employees at the companies allegedly bribed a high-ranking Russian official, as well as Mexican doctors, to increase the sales of a profitable multiple sclerosis drug and bribed a Ukrainian Ministry of Health official to influence the registration of the company’s products in that country. Teva entered into a three-year Deferred Prosecution Agreement (“DPA”) under which it agreed to pay a monetary penalty of over $283 million and to retain an independent compliance monitor in connection with an information charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. Teva LLC signed a plea agreement, subject to court approval, in which it agreed to plead guilty to a one‑count criminal information charging it with conspiring to violate the FCPA’s anti-bribery provisions. Teva agreed to pay over $236 million in disgorgement and prejudgment interest to resolve violations of the FCPA’s anti-bribery and accounting provisions alleged in an SEC complaint. This is the second biggest FCPA disgorgement ever, exceeded only by Siemens’s $350 million disgorgement in 2008. The criminal informations and the civil complaint were all filed in the Southern District of Florida.
2. Brazilian Construction and Petrochemical Companies Enter into Global FCPA Settlement.
On December 21, 2016, DOJ and SEC announced that Odebrecht S.A., Brazil’s family-owned construction conglomerate, and Braskem S.A., a Brazilian petrochemical company, had agreed to a $3.5 billion global settlement to resolve charges with U.S., Brazilian, and Swiss authorities arising out of alleged schemes to pay bribes to foreign officials around the world. After accounting for various credits and deductions, including payments to Brazilian and Swiss authorities, the net FCPA settlement amount is approximately $420 million. Odebrecht pleaded guilty to a one-count criminal information charging conspiracy to violate the FCPA’s anti-bribery provisions. Odebrecht agreed to a criminal fine of $4.5 billion but said it only had the ability to pay $2.6 billion; the fine will be set at the sentencing hearing scheduled for April 17, 2017. Under the plea agreement, DOJ will credit the amount the company pays to Brazil and Switzerland over the full term of their respective agreements, with the United States and Switzerland each receiving 10% of the total fine and Brazil receiving the remaining 80%. Odebrecht has also settled with the Ministerio Publico Federal in Brazil and the Office of the Attorney General in Switzerland. Separately, Braskem, of which Odebrecht owns 50.1% of the voting shares and over a third of the total share capital, also pleaded guilty to a one-count criminal information charging conspiracy to violate the FCPA. Under Braskem’s plea agreement with DOJ, the parties agreed on a criminal penalty of $632 million, with $94.8 million each to the United States and Switzerland, and the remaining 70% to Brazilian authorities. In related SEC proceedings, Braskem agreed to pay $325 million in disgorgement, including $65 million to SEC and $260 million to Brazilian authorities. Both companies received reductions off the bottom of the U.S. Sentencing Guidelines fine range in recognition of their cooperation with the enforcement agencies—Odebrecht received a 25% reduction for full cooperation, while Braskem received a 15% reduction for partial cooperation. Both companies agreed to independent compliance monitors.
3. Kentucky-Based Cable and Wire Manufacturer Resolves FCPA Allegations Involving Asia and Africa.
On December 29, 2016, DOJ and SEC announced that General Cable Corporation had agreed to pay more than $75 million to resolve FCPA charges involving allegedly improper payments by some of its foreign subsidiaries to government officials in Angola, Bangladesh, China, Egypt, Indonesia, and Thailand. SEC and DOJ agreed that the company generated approximately $51 million in profits as a result of the allegedly improper payments but appear to have disagreed slightly on the time period—2003 to 2015 for SEC, 2002 to 2013 for DOJ—and the amounts of the improper payments—$19 million for SEC, $13 million for DOJ—involved. The company entered into a three-year Non-Prosecution Agreement (“NPA”) with DOJ, agreeing to a criminal penalty of just under $20.5 million, which DOJ said reflected a 50% reduction off the bottom of the U.S. Sentencing Guidelines range due to the company’s self-disclosure, full cooperation, and remediation. The company agreed to pay more than $55 million in disgorgement and prejudgment interest as part of the SEC cease-and-desist order (as well as a $6.5 million civil penalty as part of a separate SEC cease-and-desist order related to allegations regarding improper inventory accounting at the company’s Brazilian subsidiary). In addition, SEC announced that it had resolved allegations that Karl Zimmer, a former senior vice president, caused the company to violate the FCPA’s books and records provision and knowingly circumvented a number of the company’s internal accounting controls when he approved excessive commission payments to an agent who assisted in sales to Angolan state-owned enterprises. Zimmer agreed to pay a $20,000 penalty without admitting or denying the allegations.
4. South American Sports Marketing Company Resolves FIFA Bribery Charges.
On December 13, 2016, the U.S Attorney’s Office for the Eastern District of New York announced that Torneos y Competencias S.A. had resolved wire fraud conspiracy charges involving an alleged 15-year scheme to pay bribes and kickbacks to officials of the Fédération Internationale de Football Association (“FIFA”) and other soccer associations to gain broadcasting and marketing rights to various tournaments, including the broadcast rights for the 2018, 2022, 2026, and 2030 FIFA World Cups. The company entered into a four-year DPA and agreed to pay a total of approximately $112.9 million (approximately $89.1 million in forfeiture and $23.8 million in penalties) to resolve the matter. According to the DPA, the scheme was completed through the use of cash, sham contracts and invoices, reliance on corrupt intermediaries and bankers, and the creation and use of shell companies. (For more coverage of the FIFA case, please see our Top Tens from May 2015, December 2015, October 2016, and November 2016.)
5. U.S.-Based Airline Resolves Domestic Bribery Allegations with SEC.
On December 2, 2016, SEC announced that the parent company of United Airlines, United Continental Holdings Inc., had agreed to pay $2.4 million to settle charges under the FCPA’s accounting provisions related to an alleged domestic bribery scheme. According to the SEC order, United’s then-CEO approved the reinstatement of an unprofitable non‑stop flight from Newark, New Jersey, to Columbia, South Carolina, on the same day that the board of the Port Authority of New York and New Jersey approved a lease agreement related to a hangar project that would help the airline at the Newark airport. The reinstatement of the route was allegedly at the behest of David Samson, then-Chairman of the Port Authority, who had a home in South Carolina. The route was allegedly canceled again around the time that Samson resigned from the Port Authority. According to SEC, the airline “circumvented its standard process for initiating new routes, and no corporate record at [the airline] accurately and fairly reflected the authorization to approve the money-losing flight route from Newark to Columbia.” Although enacted as part of the FCPA, the Act’s accounting provisions, 15 U.S.C. § 78m, are not expressly limited to foreign bribery offenses. Indeed, in recent years, SEC has used the accounting provisions to go after alleged commercial bribery and alleged violations of sanctions laws. Nevertheless, SEC’s use of the accounting provisions to pursue an alleged domestic bribery scheme is novel and could signal a potentially significant expansion of the SEC’s enforcement agenda. In a related action earlier this year, United entered into an NPA with the United States Attorney’s Office for the District of New Jersey in connection with its Port Authority investigation and agreed to pay a fine of $2.25 million. Although not an FCPA case, the NPA looks very much like an FCPA resolution, including its requirement that the airline adopt an enhanced anti-bribery/anti-corruption compliance program.
6. Son of Late Gabonese Prime Minister Pleads Guilty to African Bribery Scheme.
In August 2016, Samuel Mebiame, a Gabon national, was arrested and charged in the Eastern District of New York with conspiracy to violate the FCPA by bribing officials in three African nations in order to obtain mining rights for a joint venture, which included an anonymized U.S. hedge fund, and one of its portfolio companies. On December 9, 2016, DOJ announced that Mebiame had pleaded guilty to a one-count information charging him with FCPA conspiracy. The information revealed that the previously anonymized U.S. hedge fund was Och-Ziff Capital Management Group LLC, which, together with a subsidiary, resolved FCPA allegations with DOJ and SEC in September 2016. Mebiame faces up to five years in prison, with sentencing scheduled for April 6, 2017.
7. Former African Mining Minister Charged with Receiving and Laundering Millions of Dollars in Bribes from Chinese Companies.
On December 13, 2016, DOJ announced that Mahmoud Thiam, the Republic of Guinea’s Minister of Mines and Geology in 2009 and 2010, had been arrested in the Southern District of New York on charges that he laundered proceeds from bribes he allegedly received from two anonymized companies that form part of a Chinese conglomerate. According to the complaint, Thiam enabled affiliates of the Chinese conglomerate to obtain “exclusive and highly valuable” investment rights in a wide range of sectors of the Guinean economy, including “near total control” of its mining sector. Thiam allegedly received approximately $8.5 million in bribes in an account he set up in Hong Kong under false pretenses and transferred a substantial portion of those funds into the United States through various means. The former Minister, who is a U.S. citizen and New York resident, faces two counts of money laundering, with a maximum combined prison sentence of 30 years.
8. Texas-Based Aircraft Maintenance Executives, Agent, and Foreign Officials Plead Guilty in Connection with Bribery Scheme in Mexico.
On December 27, 2016, DOJ announced that six individuals had pleaded guilty in the Southern District of Texas for their involvement in a scheme to bribe Mexican officials in order to secure aircraft maintenance and repair contracts with Mexican government-owned and -controlled entities. Four of the defendants—Douglas Ray (president), Kamta Ramnarine (general manager), Daniel Perez (director of maintenance), and Victor Hugo Valdez Pinon (agent)—were associated with an anonymized Texas-based aircraft maintenance, repair, and overhaul (“MRO”) company and allegedly conspired to pay over $2 million in bribes over a ten-year period to several Mexican officials, including defendants Ernesto Hernandez-Montemayor, the former director of aviation of Tamaulipas State, and Ramiro Ascencio Nevarez, formerly an employee of a Mexican public university. According to the press release, the officials pleaded guilty to money laundering conspiracy in December 2015 and March 2016, respectively. Nevarez was sentenced to 15 months’ imprisonment in May 2016, while Hernandez-Montemayor is scheduled to be sentenced on January 17, 2017. Ray and Valdez Pinon pleaded guilty in October 2016 to conspiring to violate the FCPA and to commit wire fraud and are scheduled to be sentenced on February 23, 2017. Ramnarine and Perez pleaded guilty to conspiring to violate the FCPA in November 2016 and are scheduled to be sentenced on January 30, 2017. The MRO industry has been a fairly frequent target of FCPA enforcement (see, e.g., here and here).
9. UK Executive Jailed for Destroying Evidence.
In December 2015, the UK Serious Fraud Office (“SFO”) announced that Sweett Group PLC had pleaded guilty to an offense under Section 7 of the UK Bribery Act 2010 (UKBA) for failing to prevent bribery in the Middle East. A month earlier, the SFO announced that former Sweett Group executive Richard Kingston had been charged with two destruction of evidence offences, contrary to section 2(16) of the Criminal Justice Act 1987. (Kingston had also been arrested in December 2014 on bribery charges and in June 2015 in an ongoing investigation.) On December 21, 2016, the SFO announced that Kingston was found guilty by a jury on the destruction of evidence charges at Southwark Crown Court and sentenced to one year in prison. According to SFO, Kingston, the managing director for a Sweett subsidiary in the Middle East and India from 2009 to 2011, destroyed mobile phones containing emails, text messages, and Whatsapp messages that he knew were relevant to the SFO investigation.
10. Brazilians Protest “Watered-Down” Anti-Corruption Law.
On November 30, 2016, Brazil’s lower house of Congress overwhelmingly voted in favor (450-1) of a new anti‑corruption bill. The bill had originally been put forward by Brazil’s Federal Prosecution Services (“MPF”) and was backed by a petition signed by 2.5 million Brazilians, but it had taken on a substantially different tone by the time of the vote. The lower house approved only four of the “Ten Measures Against Corruption” included in the original bill and instead added a provision that would make judges and prosecutors criminally liable for abuse of power in the course of an investigation, prosecution, or trial. The MPF strongly criticized the amended bill, which it viewed as an attempt to shutter “Operation Car Wash,” a sweeping investigation into alleged bribery involving Brazil’s state-owned oil company, Petróleo Brasileiro S.A. (a/k/a “Petrobras”), which has reached elected officials. In December 2016, the Brazilian population responded, taking to the streets to protest the bill. On December 14, 2016, the Supremo Tribunal Federal, Brazil’s highest constitutional court, found that the lower house had committed a procedural error in adding the abuse of power provision and sent the bill back for further analysis and a second vote. Meanwhile, on December 19, 2016, a fifth set of charges was added against former Brazilian President Luiz Inacio Lula da Silva (see our September 2016 and October 2016 Top Ten for coverage of the earlier charges), demonstrating that, despite the lower house’s efforts, Operation Car Wash continues to steam ahead.
MoFo FCPA and Global Anti-Corruption Team
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