Charles E. Duross, James M. Koukios, Lauren M Bennett, and Mingda Hang
FCPA + Anti-Corruption, Public Companies Counseling + Compliance, Securities Enforcement, and Investigations + White Collar
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: Which companies resolved FCPA allegations involving alleged misconduct in Romania, Russia, West Africa, and the United States? What changes were made in the anti-corruption enforcement regimes in China, Saudi Arabia, and Singapore? Which current and former world leaders are facing anti-corruption scrutiny in France, Korea, and Peru? The answers to these questions and more are here in our March 2018 Top Ten list.
1. Maryland-based Nuclear Transportation Company Resolves Russia FCPA Allegations with DOJ. On March 13, 2018, the Department of Justice (“DOJ”) announced that Transport Logistics International Inc. had agreed to pay $2 million and enter into a three-year deferred prosecution agreement (DPA) in the District of Maryland to resolve allegations that it bribed an official of JSC Techsnabexport (TENEX), a subsidiary of Russia’s State Atomic Energy Corporation, in order to receive various business advantages. According to the DPA, the company created invoices for services that were never provided and wired approximately $1.7 million to shell companies in several countries to further the scheme. DOJ noted that the company’s inability to pay was factored into the $2 million penalty amount. In August 2015, DOJ announced that the company’s co-president, Daren Condrey, had pleaded guilty to conspiring to violate the FCPA and to commit wire fraud, while the other co-president, Mark Lambert, was charged with FCPA, wire fraud, and money laundering counts in January 2018. The official, Vadim Mikerin, pleaded guilty to money laundering charges in August 2015 and was sentenced to 48 months’ imprisonment in December 2015.
2. Canada-based Mining Company Resolves West Africa FCPA Allegations with SEC. On March 26, 2018, the Securities and Exchange Commission (SEC) announced that Kinross Gold had agreed to pay a civil penalty of $950,000 to resolve alleged violations of the FCPA’s accounting provisions. According to the SEC Order, from September 2010 through at least 2014, the company operated gold mines in Mauritania and Ghana without devising and maintaining adequate internal controls, despite red flags identified during the due diligence process when those operations were acquired in 2010. The Order alleges that some of the same problematic practices identified in the due diligence process, such as allowing low-level employees to contract with vendors and make payments with petty cash, continued post-acquisition. The company also allegedly contracted with a “consultant” to facilitate contact with high-level government officials in Mauritania without conducting the heightened due diligence required by the company’s policies. The company neither admitted nor denied the SEC’s findings. In its press release regarding the resolution, the company stated that DOJ told the company in November 2017 that it had closed its parallel investigation without taking an enforcement action.
3. Israel-based Real Estate and Development Company Resolves Romania and U.S. FCPA Allegations with SEC. On March 9, 2018, SEC announced that Elbit Imaging Ltd. had agreed to pay a $500,000 civil penalty to resolve alleged violations of the FCPA’s accounting provisions. According to the SEC Order, Elbit and one of its majority-owned indirect subsidiaries paid millions of dollars to third-party offshore consultants and sales agents in connection with a real estate development project in Romania and the sale of a large portfolio of real estate assets in the United States without proof of actual performance. According to SEC, the Romanian payments “may have been used to make corrupt payments to Romanian government officials or were embezzled.” According to SEC, a former executive caused the companies to enter into a sales agent contract with one sales agent, which then, unbeknownst to anyone else at the companies, agreed to pay, and ultimately did pay, 98% of its commission fee to a second sales agent that was indirectly beneficially owned by the former executive. The company, which neither admitted nor denied SEC’s findings, self-disclosed the alleged misconduct to SEC.
4. France-based Pharmaceutical Company Discloses DOJ Declination of Middle East and Africa FCPA Allegations. On March 7, 2018, Sanofi S.A. announced in a securities filing that DOJ told the company in February 2018 that it was closing its inquiry into allegations that the company’s non-U.S. subsidiaries had made improper payments to healthcare professionals in the Middle East and Africa from 2007 to 2012. According to reports, the company self-disclosed to SEC and DOJ in October 2014 potentially improper payments to doctors in Kenya and other East African nations in order to influence their prescribing decisions. The company is still cooperating with SEC’s review of the allegations.
5. Former Engineering Company Executive Pleads Guilty to Argentina FCPA Allegations. On March 15, 2018, DOJ announced that former Siemens executive Eberhard Reichert had pleaded guilty in the Southern District of New York to one count of conspiring to violate the FCPA’s accounting provisions and to commit wire fraud. Reichert, a German citizen, was arrested in Croatia in September 2017, almost six years after being charged with taking part in a bribery scheme to win a $1 billion contract with the Argentine government to produce national identity cards. Reichert pleaded not guilty to the charges and was released on bond in December 2017. DOJ did not announce Reichert’s sentencing date. One of Reichert’s co-defendants, Andres Truppel, pleaded guilty in September 2015 and has yet to be sentenced. Six additional co-defendants have yet to be arrested.
6. China Creates New Anti-corruption Agency. On March 20, 2018, China’s legislature passed the Supervision Law, granting extremely broad investigative powers to a new anti-corruption agency—the National Supervision Commission (NSC)—established by constitutional amendment earlier in the month. The Supervision Law centralizes in the NSC various supervisory and anti-corruption responsibilities previously held by different government agencies and the Chinese Communist Party (CCP). The NSC is tasked with investigating criminal, ethical, and professional violations committed by “state functionaries who exercise public powers,” even if the functionaries are not CCP members. The Supervision Law also provides the NSC with expansive powers, including, among others, the powers to compel the production of evidence, detain suspects for up to six months, and freeze assets. This is a significant development that will change the anti-corruption regulatory and enforcement landscape in mainland China. Businesses operating in China should be mindful that, even if they are not likely to be targeted by the NSC for investigation, they may need to respond to NSC requests for assistance. (See our client alert for more on the NSC.)
7. Saudi Arabia Establishes Specialized Anti-corruption Units. On March 11, 2018, the Saudi Press Agency announced that King Salman had established specialized anti-corruption units of prosecutors tasked with investigating corruption cases in the country. According to the announcement, the move is intended to increase the effectiveness and speed of anti-corruption efforts and reflects the King’s growing concern over corruption. In January 2018, the Kingdom announced the end of a corruption probe that reportedly yielded over $100 billion in settlements.
8. Singapore Introduces Deferred Prosecution Agreements. On March 19, 2018, Singapore’s Parliament passed the Criminal Justice Reform Bill (Bill No. 14/2018), which significantly amended the country’s Criminal Procedure Code (CPC) and Evidence Act. Among other things, the Bill introduces deferred prosecution agreements (DPAs) as a tool to combat charges of corruption, money laundering, and violations of the Singapore Securities and Futures Act against corporations (but not against individuals). The Bill provides that Singapore’s High Court must approve a DPA, which must be fair, reasonable, and in the interests of justice. Singapore now joins the United States, the United Kingdom, and France in the ranks of countries using DPAs, while Australia and Canada are actively considering introducing legislation providing for the use of this enforcement tool. (See our April 2017, September 2017, November 2017, and February 2018 Top Tens for discussions of other countries’ interest in DPAs.)
9. OECD Working Group on Bribery Evaluates Polish, Swiss Anti-corruption Enforcement Efforts. In March 2018, the Organisation for Economic Co-operation and Development’s (OECD) Working Group on Bribery released reports on Poland’s and Switzerland’s enforcement of the OECD Anti-Bribery Convention. The Working Group on Bribery is made up of the 43 countries—including Poland and Switzerland—that are signatories to the Convention. The parties to the Convention are subject to a rigorous peer review process.
10. Current and Former World Leaders Face Anti-corruption Scrutiny.
Podcast Highlights: James Koukios’ insights on select Top Tens
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