Charles E. Duross, James M. Koukios, Andreea R. Vasiliu, and Ian K. Bausback
Securities Enforcement, Investigations + White Collar, FCPA + Anti-Corruption, and Public Companies Counseling + Compliance
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: Will the Department of Justice (DOJ) FCPA Pilot Program continue past its one year expiration date? How did the UK, Finland, and Argentina fare in the latest OECD Working Group on Bribery’s assessment of their foreign bribery enforcement records? What major domestic corruption efforts are underway in Argentina, Brazil, China, South Korea, and Thailand? The answers to these questions and more are here in our March 2017 Top Ten list.
1. FCPA Pilot Program to Continue Past April 2017.
During his March 10, 2017, keynote address to the American Bar Association’s 31st Annual National Institute on White Collar Crime, Kenneth Blanco, Acting Assistant Attorney General of DOJ’s Criminal Division, addressed the future of the FCPA Pilot Program. Announced in April 2016, the Pilot Program provides that companies which voluntarily disclose improper conduct to the Fraud Section’s FCPA Unit, fully cooperate in accordance with the Principles of Federal Prosecution of Business Organizations and the Yates Memo, appropriately remediate, and otherwise pass muster under the “stringent requirements” of the Program may receive up to a 50% reduction off the bottom of the U.S. Sentencing Guidelines fine range and generally will not be required to retain an independent compliance monitor. According to Blanco, the Program “provides our prosecutors, companies and the public clear metrics for what constitutes voluntary self-disclosure, full cooperation and full remediation. It also outlines the benefits that are accorded a voluntary self-disclosure of wrongdoing, full cooperation and remediation.” Blanco said of the Program, which was set to expire on April 5, 2017, “we will begin the process of evaluating [its] utility and efficacy . . . , whether to extend it, and what revisions, if any, we should make to it.” Blanco stated that the Program “will continue in full force until we reach a final decision on those issues.” In addition to discussing the Pilot Program, Blanco touted the Criminal Division’s cross-border investigative efforts, including the Division’s cooperation with its foreign law enforcement counterparts. According to Blanco, “the Criminal Division’s approach to large, complex transnational and white collar investigations is truly global in nature and the results that we have obtained demonstrate and reinforce the importance of working with and maintaining true partnerships with our counterparts aboard.” With respect to FCPA enforcement, Blanco continued the new administration’s theme of emphasizing the importance of multinational anti-bribery enforcement “to create an even playing field for global business.”
2. TRACE Reports Significant Increase in Global Foreign Bribery Enforcement.
On March 2, 2017, Trace International released its annual Global Enforcement Report (GER 2016). The GER 2016, a review of international anti-bribery enforcement trends in 2016, found that U.S. enforcement actions doubled (from 15 to 30), while non-U.S. enforcement actions more than doubled (from 4 to 10) since 2015. The GER 2016 noted that the U.S. Securities and Exchange Commission (SEC) and DOJ conducted 198 foreign bribery investigations, of which 38% involved companies headquartered outside the United States or individuals with non-U.S. citizenship. Of the investigations concerning alleged bribery of foreign officials being conducted against non-U.S. companies and individuals, the highest number involved companies or individuals in the United Kingdom, followed by Switzerland and Germany. Government officials in the Asia Pacific region were the alleged recipients of bribes in approximately 46% of investigations and 40% of enforcement actions concerning alleged bribery by U.S. companies and individuals. While SEC is conducting more anti-bribery investigations into U.S. companies and individuals than DOJ, the inverse is true for non-U.S. companies and individuals.
3. Second Circuit Hears Oral Argument in Challenge to DOJ’s Position on Jurisdictional Reach of FCPA.
On March 2, 2017, the United States Court of Appeals for the Second Circuit heard oral argument in an interlocutory appeal arising out of the prosecution of former Alstom SA executive Lawrence Hoskins, a case that raises questions about the jurisdictional reach of the FCPA. The issue before the Second Circuit, as expressed in DOJ’s brief, is “[w]hether a foreign person (who does not reside in the United States) can be liable for conspiring or aiding and abetting a U.S. company to violate the Foreign Corrupt Practices Act if that individual is not in the categories of principal persons covered in the statute.” As set out in documents such as the FCPA Resource Guide, DOJ’s position for years has been that foreign nationals and companies “may . . . be liable for conspiring to violate the FCPA . . . even if they are not, or could not be, independently charged with a substantive FCPA violation.” Hoskins, a UK citizen working for an Alstom subsidiary in France, was charged with conspiring with Alstom’s subsidiary in Connecticut and others to violate the FCPA by paying bribes to officials in Indonesia in exchange for a lucrative power station project contract. An August 2015 ruling by Connecticut U.S. District Judge Janet Arterton rejected DOJ’s position, holding that a nonresident foreign national who is not an agent of a domestic concern and commits no acts while physically present in the territory of the United States is excluded from FCPA substantive liability and, therefore, also cannot be charged with conspiring to violate the FCPA or with aiding and abetting an FCPA violation. At the Second Circuit hearing, Hoskins argued that Congress intended that the FCPA should exclude certain types of individuals from direct liability and that, pursuant to the 1932 Supreme Court ruling in Gebardi v. United States, an individual who could not be held directly liable under a given statute could not be charged with violating that same statute. Hoskins asserted that DOJ had other avenues it could use to reach conduct of non-resident foreign nationals, e.g., via the money laundering statute. Senior Judge Gerard Lynch seemed skeptical of Hoskins’ position and presented Hoskins with numerous hypotheticals, many of which got to the issue of why Congress would allow prosecutors to charge a “rickshaw driver in Jakarta” with an FCPA violation but not a Paris or London-based executive who instructed the driver to carry out the illegal act. The implication, Lynch noted—echoing an argument made by DOJ—was that this would simply incentivize U.S. companies to act indirectly, via their non-U.S. employees, instead of directly hiring the fixer in a given country where a bribery scheme is carried out. As we noted in August 2015, the outcome of the Hoskins decision is a case to watch because it is critical to many of DOJ’s enforcement principles.
4. Two More Telecom Executives Settle FCPA Claims with SEC.
In March 2017, the remaining two defendants in the long-running Magyar Telekom Plc case—Elek Straub and Andras Balogh—agreed to resolve civil FCPA charges brought against them by SEC in 2011. SEC disclosed the fact, but not the details, of the agreed settlements in two letters to Southern District of New York Judge Richard J. Sullivan. Straub and Balogh had been scheduled to go to trial in May 2017 with co-defendant Tamas Morvai, who agreed to settle with SEC in February 2017. According to the SEC complaint, the three defendants violated the FCPA by authorizing €4.875 million in bribes to Macedonian officials in 2005 and 2006 to prevent the introduction of a competitor to the Macedonian telecommunications market and to receive other regulatory benefits. In September 2016, Judge Sullivan rejected the defendants’ claim that SEC had failed to allege a sufficient jurisdictional nexus for the charges, ruling that the defendants’ actions in connection with Magyar’s EDGAR filings satisfied the FCPA’s jurisdictional requirements.
5. Aviation Services Company Owner Latest to Be Sentenced for Mexican Bribery Scheme.
On March 30, 2017, Douglas Ray, the president and owner of Houston-based airplane maintenance and repair company Global Aviation Services was sentenced in the Southern District of Texas to 18 months in prison (plus three years of supervised release) and $590,000 in restitution for his role in a $2 million scheme to bribe Mexican officials in exchange for repair and maintenance contracts. Ray is one of six individuals—four Texas business people and two Mexican officials—charged in the case. In October 2016, Ray and Victor Hugo Valdez Pinon, one of the Mexican officials, pleaded guilty to the charges of conspiracy to violate the FCPA and conspiracy to commit wire fraud. In February 2017, Hunt Pan Am Aviation executives Daniel Perez and Kamta Ramnarine were each sentenced to three years’ probation after pleading guilty to having conspired to violate the FCPA. In January 2017, one of the Mexican officials, Ernesto Hernandez-Montemayor, was sentenced to 24 months in prison for his role in the scheme. Montemayor had pleaded guilty to one count of conspiracy to commit money laundering and admitted that he received bribes from the Texas business people in exchange for assisting them with winning contracts from his employer, and that he conspired with the four business people to launder the bribe proceeds.
6. OECD Working Group on Bribery Releases Its First Ever Phase 4 Reports, Focusing on the UK and Finland.
On March 23, 2017, the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery released its first reports as part of Phase 4 of the OECD Anti-Bribery Convention’s peer-review monitoring system, to which all parties to the Convention are subject. 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. UK and Finland were the subjects of these reports.
In accordance with the monitoring process, the UK and Finland will submit written follow-up reports within two years to the Working Group on steps taken to implement its recommendations.
7. OECD Working Group on Bribery Criticizes Argentina’s Foreign Bribery Record, While Former President Ordered to Stand Trial on Financial Mismanagement Charges.
On March 24, 2017, the OECD Working Group on Bribery released a supplemental report on Argentina’s implementation of the OECD Anti-Bribery Convention, finding that Argentina “remains in serious non-compliance” with key articles of the Convention. The report is the result of the Working Group’s “exceptional” decision in 2014 to conduct a supplemental evaluation of Argentina following the country’s Phase 3 evaluation. In the latest report, the Working Group found that Argentina still cannot hold companies liable for foreign bribery or prosecute its citizens who commit foreign bribery abroad and recommended that Argentina ensure a Corporate Liability Bill that was introduced to Congress in October 2016 addresses these and other deficiencies, such as the absence of corporate liability for corruption-related false accounting, inadequate fines and sanctions, and lack of protection for whistleblowers. The Working Group also found that Argentina needs to address concerns about judicial and prosecutorial independence in the enforcement of its foreign bribery laws.
Separately, on March 23, 2017, a judge in Argentina ruled that former president Cristina Kirchner should stand trial on charges of financial mismanagement. The former economy minister and the former head of the Central Bank have also been charged, and another twelve defendants face trial as alleged accomplices. Kirchner is facing separate investigations into alleged corruption and, in December 2016, another judge approved her trial for alleged illicit association and administrative fraud in connection with infrastructure projects awarded to a company owned by a close associate. Kirchner’s vice president is currently being tried for corruption.
8. Former Officials from Thailand and Brazil Sentenced to Lengthy Terms of Imprisonment on Corruption Charges.
9. Former South Korean President Arrested in Corruption Investigation.
On March 31, 2017, South Korea’s former president, Park Geun-hye, was arrested on charges including bribery and abuse of power in connection with a corruption scandal that led to her impeachment in December 2016. Park lost her immunity from prosecution when South Korea’s Constitutional Court upheld her impeachment on March 10, 2017. A court in Seoul ordered her arrest following a hearing on March 30, 2017, and state prosecutors can detain her for up to twenty days for questioning before formally charging her. Park is being held at the same detention center as Choi Soon-sil, with whom Park is accused of colluding to pressure companies for tens of millions of dollars in return for political favors, and Lee Jae-yong, the acting head of Samsung who is accused of giving or promising to give Choi $37 million to obtain government support for a merger of two Samsung units. Choi and Lee are being tried separately.
10. Chinese Authorities Report on Efforts to Crack Down on Corruption.
On March 7, 2017, Chinese authorities reportedly announced the launch of operation “Sky Net 2017” to track down corruption suspects who have fled abroad and recover their illicit gains. According to China’s Central Commission for Discipline Inspection (CCDI), efforts to capture corrupt fugitives, including Sky Net, led to the return of 2,566 fugitives from more than 70 countries and regions between early 2014 and the end of last year and the confiscation of 8.64 billion yuan in illegal assets. An operation targeting fugitives implicated in dereliction of duty cases, launched in October 2014, has led to the return of 164 suspects from 37 countries and regions, according to a report from China’s Supreme People’s Procuratorate (SPP) released in March 2017.
According to a report from China’s Supreme People’s Court (SPC) released on March 12, 2017, China’s court system heard 45,000 graft cases involving 63,000 people, which represents a roughly one-third rise from the figures reported in 2015. The defendants included 35 former officials at the provincial and ministerial level or above, and 240 former officials at the prefectural level. Courts at all levels convicted 2,862 people of bribery. The SPP reported that prosecution proceedings were launched against 48 former officials in 2016 at the provincial and ministerial level or above, and procurators investigated 17,410 lower level officials suspected of corruption.
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