Charles E. Duross, James M. Koukios, Julie A. Nicholson, Mingda Hang, and Monica Chan
FCPA + Global Anti-Corruption, Investigations + White Collar Defense, Public Companies Counseling + Compliance, and Securities Enforcement
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: Who will lead the Criminal Division of the U.S. Department of Justice (DOJ)? What FCPA enforcement action was dismissed as time-barred under recent U.S. Supreme Court precedent? Which offshore oil and gas company resolved corruption allegations with Brazilian authorities? The answers to these questions and more are here in our July 2018 Top Ten list.
1. New Assistant Attorney General for DOJ Criminal Division Confirmed. On July 11, 2018, Attorney General Jeff Sessions announced the Senate confirmation of Brian Allen Benczkowski as the Assistant Attorney General (AAG) for the Criminal Division. Because criminal enforcement of the FCPA resides exclusively with the Criminal Division’s Fraud Section, this confirmation is particularly significant for those in the anti-corruption space. Although never a line prosecutor, Benckowski has experience serving in other positions at DOJ. From 2008 to 2009, Benczkowski served as the Chief of Staff for the Office of the Attorney General and the Office of the Deputy Attorney General. He has also served as Principal Deputy Assistant Attorney General for Legislative Affairs, as chief of staff at the Bureau of Alcohol, Tobacco, Firearms and Explosives, and as staff director and senior counsel to DOJ’s Office of Legal Policy. Benczkowski was first nominated for the AAG position in June 2017, but his nomination stalled over Democratic Party concerns that he had represented a Russian bank while in private practice. The ultimate vote was close, with only one Democratic Senator breaking ranks. As with prior Trump DOJ appointments, we do not see any reason to believe that FCPA enforcement will cease to be a priority under AAG Benczkowski. (See, for example, our discussion of the nomination of Attorney General Jeff Sessions in November 2016 and the confirmation of Deputy Attorney General Rod Rosenstein in April 2017.)
2. Senior DOJ Official Says FCPA Corporate Enforcement Policy Applies to Acquired Companies. During a July 25, 2018 speech in Washington, D.C., DOJ Criminal Division Deputy Assistant Attorney General (DAAG) Matt Miner emphasized that the FCPA Corporate Enforcement Policy, announced in November 2017, applies in the M&A context. In particular, Miner “ma[d]e clear that we intend to apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy.” In other words, “an acquiring company [that] conducts robust due diligence that unearths wrongdoing, reports that conduct to the Department, and engages in remedial measures, including extending already robust compliance to the acquired company,” is eligible for the benefits under the Policy. Recognizing that the ability to conduct robust pre-acquisition due diligence may be limited in some circumstances, Miner also emphasized that the Policy will also apply when the conduct is discovered during post-acquisition due diligence. Miner also encouraged companies to use the FCPA Opinion Procedure process, noting that the last time the process was used was in 2014, when DOJ stated its intention not to bring an enforcement action against a multinational company that discovered during M&A due diligence potentially improper payments made by a target company. (See our Client Alert for more details.) While Miner’s statements are generally welcome news, they do leave some open questions. As Miner noted earlier in his speech, a declination under the FCPA Corporate Enforcement is “subject to disgorgement of ill-gotten gains.” Does Miner’s announcement mean that an acquiring company will always have to “disgorge” profits for pre-acquisition misconduct that it reports to the Department? If so, this is something of a break from past practice, under which DOJ often (but not always) fully declined to pursue an enforcement action for such misconduct. Indeed, in the 2014 Opinion Procedure release that Miner cites, DOJ did not condition its decision not to pursue an enforcement action on the acquiring or target companies disgorging any ill-gotten gains. Regardless, Miner’s efforts to provide clarity to DOJ’s enforcement policies in the M&A context are welcome and underscore the importance for acquiring companies to conduct both pre- and post-acquisition due diligence and to quickly integrate the target company into the acquiring company’s compliance program.
3. Federal Judge Dismisses FCPA Action Against Former Hedge Fund Executives. On July 12, 2018, U.S. District Judge Nicholas G. Garaufis of the Eastern District of New York dismissed as time-barred the SEC’s enforcement action against Michael L. Cohen and Vanja Baros, two former employees of Och-Ziff Capital Management LLC. In January 2017, SEC announced that it had brought FCPA charges against Cohen and Baros for allegedly causing Och-Ziff and a subsidiary to pay bribes to officials in several African countries. In dismissing the case, Judge Garaufis relied on the U.S. Supreme Court’s June 2017 decision in SEC v. Kokesh that SEC disgorgement actions are subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462, which applies to government actions seeking “any civil fine, penalty, or forfeiture.” Extending Kokesh, Judge Garaufis concluded that the five-year statute of limitations also applied to and barred SEC’s action against Cohen and Baros for injunctive relief because the requested injunction “would function at least partly to punish defendants and is therefore a penalty.” Although the first in the FCPA context, the Cohen case is not the first to address the effects of Kokesh on an SEC enforcement action. In December 2017, the District of New Jersey extended Kokesh to dismiss as time-barred an action seeking an “obey the law” injunction and a “penny stock bar.” In contrast, in June 2017, the Eighth Circuit held that Kokesh does not apply to an “obey the law” injunction. Thus, there appears to be an emerging split in how courts apply Kokesh, which may ultimately require the Supreme Court to revisit the decision. In more immediate terms, the issue of whether the SEC’s claims were untimely in Cohen largely centered on the terms of the SEC’s tolling agreements in that particular case, which suggests that SEC will be more vigilant in seeking broad tolling agreements from companies and individuals in FCPA and other investigations.
4. Switzerland-based Bank and Its Hong Kong-based Subsidiary Resolve FCPA Allegations involving Hiring Practices. On July 5, 2018, SEC and DOJ announced that Credit Suisse Group AG (“Credit Suisse”) and its Hong Kong subsidiary had agreed to resolve allegations that the subsidiary was involved in a scheme to obtain banking business with Chinese state-owned entities by hiring and promoting friends and family of Chinese government officials between 2007 and 2013. The subsidiary allegedly made at least $46 million in profits from this practice. As part of a three-year non-prosecution agreement (NPA) with DOJ, the subsidiary agreed to pay a criminal penalty of approximately $47 million. As part of an SEC administrative cease-and-desist order, the parent agreed to pay disgorgement of $24.9 million and $4.8 million in interest. This is the first hiring resolution since the “Sons and Daughters” resolution in November 2016. But, it might not be the last. As we discussed in our August 2015 Top Ten, SEC has reportedly been conducting an industry sweep into hiring practices in the financial services industry for several years. This most recent resolution illustrates that companies should continue to be vigilant in their hiring, internship, and training programs, as these continue to be areas of focus for U.S. enforcement agencies.
5. Chicago-based Spirits Producer Resolves India FCPA Allegations. On July 2, 2018, SEC announced that Beam Suntory Inc. had agreed to pay $5.2 million in disgorgement, $917,498 in prejudgment interest, and a $2 million civil penalty to resolve allegations that an Indian subsidiary had made improper payments to government officials to “increase sales orders, process license and label registrations, and facilitate the distribution of [the company’s] distilled spirit products” from 2006 to 2012. According to the SEC order, this conduct violated the FCPA’s accounting provisions. The company neither admitted nor denied the allegations. Given the lack of a parallel resolution and the imposition of a civil penalty, it appears that DOJ declined prosecution, potentially because no jurisdiction existed to bring anti-bribery charges against the parent company.
6. Dutch Oil and Gas Company Resolves Corruption Allegations With Brazilian Authorities. In July 2016, we reported that Dutch offshore oil and gas company SBM Offshore N.V. had reached a resolution with multiple Brazilian agencies to resolve allegations that the company won contracts from Petrobras as a result of bribery. But, on September 2, 2016, SBM Offshore informed investors that the Fifth Chamber of the Brazilian Federal Prosecutor Service had rejected the leniency agreement. In November 2017, SBM and a subsidiary entered into a corporate resolution with DOJ that included a $238 million penalty. In its press release, DOJ said that, in calculating the fine, the Department credited, among other things, “the payment of penalties likely to be paid to the Brazilian Ministerio Publico Federal (MPF).” On July 26, 2018, Brazil’s Ministry of Transparency (CGU) announced that SBM had entered into a leniency agreement with the CGU, Brazil’s Attorney General’s Office (AGU), and Petrobras, under which the company would pay a total of approximately $189 million. The MPF, however, is not part of the agreement.
7. Former Venezuelan Official Pleads Guilty to FCPA Violation and Money Laundering in Bribery Scheme. On July 16, 2018, DOJ announced that Luis Carlos De Leon-Perez, a former Venezuelan official with dual U.S.-Venezuelan citizenship, pleaded guilty in the Southern District of Texas to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering for his role in a scheme to bribe officials of Venezuela’s state-owned energy company, Petroleos de Venezuela S.A. (PDVSA). According to the plea agreement, between 2011 and 2013, De Leon conspired with others to solicit bribes and kickbacks from PDVSA vendors in exchange for business with PDVSA. De Leon also admitted to an international money laundering scheme to conceal the bribes through a series of financial transactions. De Leon’s sentencing hearing is scheduled for September 24, 2018. To date, 12 individuals have entered into guilty pleas in connection with DOJ’s investigation into bribery at PDVSA. (See our most recent coverage on the PDVSA investigation for February 2018 and April 2018.)
8. Eight Individuals Charged With Laundering Funds Embezzled from Venezuela’s National Oil Company. On July 25, 2018, DOJ announced that eight individuals—described as “former PDVSA officials, professional third-party money launderers, and members of the Venezuelan elite”—were charged in the Southern District of Florida with conspiracy to launder funds embezzled from PDVSA through bribery and fraud. Two of the defendants, Matthias Krull and Gustavo Adolfo Hernandez Frieri, were arrested on the charges, while the other defendants remain at large. The complaint alleges that the money laundering schemes were supported by complicit money managers, brokerage firms, banks, and real estate investment firms in the United States and elsewhere, operating as a network of professional money launderers.
9. Florida- and Spain-based Media Companies Resolve Allegations Related to International Soccer Probe. On July 10, 2018, DOJ announced that US Imagina, LLC (“US Imagina”) had pleaded guilty to two counts of wire fraud conspiracy for the involvement of two senior executives (as well as a high-ranking executive of its parent company in Spain) in an alleged scheme to pay more than $6.5 million in bribes to soccer officials of the Caribbean Football Union (CFU) and four Central American national soccer federations in exchange for media and marketing rights to World Cup qualifier matches. Imagina Media Audiovisual SL (“Imagine Media”), US Imagina’s Spain-based parent company, entered into an NPA with DOJ in connection with an executive officer’s participation in the alleged scheme. Pursuant to the plea agreement, US Imagina agreed to pay $5.3 million in criminal forfeiture and a total of more than $6.6 million in restitution to CFU and various Central American national soccer federations. US Imagina also agreed to pay a criminal fine of $12.9 million, which Imagina Media agreed to pay on its behalf pursuant to the NPA.
10. DPA for New Jersey-based Engineering, Architecture, and Construction Management Company Ends. In July 2015, Louis Berger International entered into a three-year DPA with DOJ in connection with allegations that it bribed foreign officials in India, Indonesia, Vietnam, and Kuwait in violation of the FCPA. In an order dated July 24, 2018, United States Magistrate Judge Mark Falk from the District of New Jersey granted DOJ’s request that the matter be continued for six months “to permit the government to evaluate if dismissal of the complaint is warranted.” DOJ’s motion is consistent with the terms of the DPA, which provided that it would seek dismissal of the criminal Complaint against the company within six months of the expiration of the term of the DPA. Thus, the continuance does not necessarily reflect that DOJ suspects that the company has engaged in additional wrongdoing or otherwise failed to comply with the terms of the DPA. Extensions for such reasons have been sought in other cases. Instead, the extra time provided in the DPA and the accompanying order reflect DOJ’s experience that issues may come to light only after a DPA or NPA ends.
 United States v. Louis Berger International, Inc., Mag. No. 15-3624 (MF), ECF No. 10 (D.N.J. July 24, 2018).
Podcast Highlights: James Koukios’ insights on select Top Tens
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