Charles E. Duross, James M. Koukios, Jane P Bentrott, and Cameron Andrew Tepfer
FCPA + Anti-Corruption, Public Companies Counseling + Compliance, Securities Enforcement, and White Collar + Investigations
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 will the Supreme Court’s limitation on the U.S. Securities and Exchange Commission’s (SEC) disgorgement authority influence FCPA enforcement? Will the U.S. Department of Justice (DOJ) continue to seek “declinations with disgorgement?” What is the latest sector to fall under the microscope in China’s ongoing anti-anticorruption campaign? The answers to these questions and more are here in our June 2017 Top Ten list.
1. Personnel Moves at DOJ’s Fraud Section.
2. U.S. Supreme Court Limits SEC’s Ability to Obtain Disgorgement. On June 6, 2017, in Kokesh v. SEC, the U.S. Supreme Court unanimously held that SEC’s ability to disgorge allegedly ill-gotten gains from defendants was subject to the five-year statute of limitation set out in 28 U.S.C. § 2462 for suits brought by the government to enforce “any civil fine, penalty, or forfeiture.” The court held that disgorgement operates as a “penalty” within the meaning of that statute. The ruling reverses an August 2016 appellate court opinion and resolves a circuit split. (Interestingly, in the May 2016 decision that caused the circuit split, the appellate court held that disgorgement constituted “forfeiture” within the meaning of Section 2462.) It also deals a potentially significant blow to SEC’s FCPA enforcement efforts. SEC had consistently argued that disgorgement was an equitable remedy not subject to any statute of limitations. This gave SEC the ability to reach alleged misconduct from the distant past, an important tool in FCPA investigations, which tend to be lengthy and tend to involve conduct occurring years in the past. Although Kokesh may provide companies with more leverage in some FCPA investigations, we will likely see countermeasures from SEC. For example, SEC may increase the pressure to move more quickly in FCPA investigations, rely on tolling agreements more heavily, and make more use of its authority to seek civil penalties for conduct that is not time barred.
3. DOJ Continues to Pursue “Declinations with Disgorgement.” “Declinations with disgorgement” were first announced as an enforcement tool in DOJ’s April 2016 FCPA Pilot Program, and it was unclear whether they would survive the change in administration. Two resolutions brought in June 2017 suggest they are here to stay—at least for the time being.
4. Guilty Plea in Vietnam Skyscraper Case. In January 2017, DOJ announced charges against four individuals, including the brother and nephew of former UN Secretary General Ban Ki-moon, in the Southern District of New York for allegedly conspiring to bribe a foreign official in connection with a deal to sell Vietnam’s tallest skyscraper. On June 21, 2017, DOJ announced that one of the defendants, Malcolm Harris, had pleaded guilty to wire fraud and money laundering charges in connection with his role as middleman in the scheme. According to DOJ, Harris convinced his co-defendants to send him $500,000 to pay an upfront bribe to a foreign official who could purportedly influence the sale of the skyscraper; in reality, Harris did not have a relationship with the foreign official and instead stole the money, which he spent on “lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.” Harris, who faces up to 30 years’ imprisonment in connection with his guilty plea, is scheduled to be sentenced on September 27, 2017.
5. FIFA Releases Internal Investigation Report Following Additional Guilty Pleas in U.S. Prosecution. In June 2017, two more individuals pleaded guilty to charges arising from DOJ’s sprawling investigation into the Fédération Internationale de Football Association (FIFA), which has been the subject of client alerts, updates, and advice here, here, here, and here.
6. DOJ Files Forfeiture Complaint in Connection with Alleged Malaysia Bribery Scheme. On June 15, 2017, DOJ announced the filing of civil forfeiture complaints seeking to recover approximately $540 million in assets associated with an alleged international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund. The complaints supplement complaints filed in July 2016 arising from the same matter seeking more than $1 billion. Together, the complaints represent the largest action brought under DOJ’s Kleptocracy Asset Recovery Initiative. According to the complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1Malaysia Development Berhad (1MDB), an entity designed by the Malaysian government to further Malaysian economic development, was allegedly misappropriated by high-level officials of 1MDB and their associates. Officials at 1MDB, along with their relatives and others, allegedly diverted more than $4.5 billion in 1MDB funds using fraudulent documents and representations and laundered the funds through a series of complex transactions and shell companies with bank accounts located in the United States and abroad. The funds were allegedly used to purchase, among other things, a 300 foot luxury yacht valued at over $260 million, certain movie rights, high-end properties, tens of millions of dollars of jewelry, and artwork. A portion of the proceeds was also allegedly used in an elaborate, Ponzi-like scheme to create the false appearance that an earlier 1MDB investment had been profitable. Malaysian press has reported that the forfeiture actions have caused significant political turmoil, with the governing party denying the allegations and the opposition party organizing protests.
7. Multilateral Development Bank Official Sentenced by UK Court. In the first indictment of 2015, Pennsylvania-based business executive Dimitrij Harder was charged with bribing senior officials at the European Bank for Reconstruction and Development (“EBRD”) to secure millions of dollars of business in development projects in Eastern Europe. After losing several motions, including a challenge regarding the EBRD’s status as a “public international organization” within the meaning of the FCPA, Harder pleaded guilty in April 2016. On June 20, 2017, a UK court sentenced former EBRD banker Andrey Ryjenko to six years’ imprisonment for conspiring to make or accept corrupt payments and money laundering in connection with the Harder scheme. According to the facts presented to the sentencing court, Ryjenko introduced Harder to a number of businesses in former Soviet states to help them apply for EBRD funding. Once the applications were approved, Harder transferred approximately $3.5 million, representing half of his consultancy fees, to Ryjenko through accounts held in the name of Ryjenko’s sister. The Harder-Ryjenko case is an excellent example of cooperation between development banks and law enforcement authorities in multiple jurisdictions. Indeed, the sentencing court and Crown Prosecution Service both credited the assistance they received from U.S. authorities—which included making Harder available to testify via videoconference—for the successful prosecution of Ryjenko.
8. OECD Working Group on Bribery Calls for Increased Foreign Bribery Enforcement in Czech Republic. On June 22, 2017, the OECD Working Group on Bribery released its Phase 4 evaluation report of the Czech Republic. The Working Group called for the Czech Republic, which has yet to prosecute a case involving the bribery of foreign public officials despite its exports in the machinery and defense materials sectors, to “strengthen its efforts to detect, investigate and prosecute foreign bribery.” Nevertheless, the Working Group also recognized improvements made by the Czech Republic over the last several years and its “strong determination to improve its system for combating foreign bribery.” (See our March 2017 Top Ten for more discussion of the Phase 4 evaluation process.)
9. Brazil’s President Charged with Accepting Bribes. On June 26, 2017, Brazil’s President, Michel Temer, was indicted on corruption charges in connection with allegations that he accepted millions of dollars in bribes from a Brazilian meat-packing company in exchange for resolving tax issues and facilitating loans from state-run banks on the company’s behalf. The allegations followed the release of a secret recording between Temer and a company executive in which Temer apparently offered money to buy the silence of Eduardo Cunha, a member of Temer’s party currently serving a 15-year sentence for corruption. (See our May 2017 discussion of these allegations.) Temer, the first sitting Brazilian president to be charged with a crime, became president in May 2016, after his predecessor, Dilma Rousseff, was removed from office to stand trial for impeachment. Rousseff’s predecessor, Luiz Inacio Lula da Silva, has also been charged with numerous crimes (see, for example, our December 2016 Top Ten). Under Brazilian law, the lower house of Congress (the Chamber of Deputies) must now vote on whether to allow a trial against Temer to move forward, with a two-thirds majority required to permit a trial. It appears that Temer may have sufficient votes to resist trial, at least for the time being. However, Brazilian prosecutors are also expected to bring additional charges against him in the coming months.
10. Chinese Anti-Corruption Efforts Continue with Inspection of 31 Major Universities. According to the Chinese press, Chinese authorities recently concluded a political and disciplinary inspection of 31 major universities, including Peking and Tsinghua universities, as part of its continued anti-corruption efforts. Findings from the inspection were reported to the Communist Party of China’s Central Committee on June 28, 2017. According to the report, universities were found to have permitted the private use of public vehicles, banquets at the public expense, and unauthorized overseas business trips. Additionally, the report identified certain university functions, such as university construction projects and management of research funds, as high risk for potential graft. This continued anti-corruption focus is particularly important for those companies engaged in business or research with Chinese universities or affiliated companies.
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