Charles E. Duross, James M. Koukios, Margot G. Benedict, Karen Leung, and Cheryl Zhu
FCPA + Anti-Corruption, Investigations + White Collar Defense, Public Companies Counseling + Compliance, Securities Enforcement, and Securities Litigation
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 company entered into a Foreign Corrupt Practices Act (FCPA) resolution for allegedly providing World Cup tickets to government officials? Is a Mexican version of Operation Car Wash brewing? What was the political fallout from Austria’s “Ibiza-gate?” The answers to these questions and more are here in our May 2019 Top 10.
1. Brazilian Telecommunications Company Resolves FCPA Violations related to World Cup. On May 9, 2019, the U.S. Securities and Exchange Commission (SEC) announced that Telefônica Brasil S.A. had resolved allegations that it failed to accurately record payments for tickets and hospitality amenities for dozens of government officials for the 2014 World Cup and the 2013 Confederations Cup, in violation of the FCPA’s accounting provisions. According to the SEC order, the company provided World Cup and Confederations Cup tickets to a total of more than 120 government officials who were directly involved with, or in a position to influence, legislative actions, regulatory approvals, and business dealings involving the company. The order further found that the company improperly booked the ticket costs as being for general advertising and promotional purposes. The company agreed to pay a $4.125 million civil penalty without admitting or denying the SEC findings. There was no parallel resolution with the U.S. Department of Justice (DOJ), suggesting that DOJ declined the matter.
2. Mexico Unveils Bribery-Related Charges Against Former Pemex and Steelmaker Executives. On May 28, 2019, Mexican authorities reportedly issued an arrest warrant for Emilio Lozoya, the former Chief Executive of Mexico’s state oil company, Petroleos Mexicanos (Pemex). The charges, first reported as potential bribery and tax fraud charges and later clarified as money laundering charges, stem from Lozoya’s alleged role in facilitating Pemex’s 2014 purchase of a fertilizer plant from steelmaker Altos Hornos de Mexico (AHMSA) and his alleged acceptance of $10 million in bribes from the former executive of a Brazilian construction company in 2012. The Mexican government previously banned Lozoya, who played a significant role in former Mexican president Enrique Pena Nieto’s election campaign and administration, from public service for 10 years due to the fertilizer plant investigation. Also on May 28, 2019, AHMSA chairman Alonso Ancira was arrested in Spain for allegedly bribing Lozoya. This is the first major bribery prosecution under the administration of Mexican president Andrés Manuel López Obrador, who ran on an anti-corruption platform. Mexico has been criticized by the Organization for Economic Cooperation and Development (OECD) for its deficient anti-corruption efforts, including its delay in enacting reforms under the National Anti-Corruption System (NACS), the implementing legislation for which was signed into law in July 2016. It remains to be seen whether the probe sweeps in more Mexican officials and business executives, as many politicians have urged, and gives teeth to the NACS. If so, Mexico could join Brazil as a major source of anti-corruption investigations and prosecutions in Latin America in the years to come.
3. Malaysian Investment Banker Extradited to United States to Face FCPA Charges. On May 3, 2019, DOJ announced that a Malaysian national and former investment banker, Roger Ng, had been extradited from Malaysia to the United States to face money laundering and FCPA charges related to 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund. In October 2018, DOJ announced that Ng had been charged in the Eastern District of New York with conspiring to launder billions of dollars embezzled from 1MDB, conspiring to violate the FCPA by paying bribes to multiple government officials in Malaysia and Abu Dhabi, and conspiring to violate the FCPA by circumventing the internal accounting controls of a major New York-headquartered financial institution. Ng pleaded not guilty to the charges on May 6, 2019, and was released on a $20 million bond. On May 23, 2019, DOJ reportedly produced to Ng’s counsel the first subset of 1 million documents it intends to provide on a rolling basis before trial. Ng faces up to 30 years’ imprisonment if convicted of all three charges. (For more on the 1MDB case, see our July 2016, August 2016, June 2017, December 2017, May 2018, June 2018, August 2018, October 2018, and February 2019 Top 10s.)
4. Hawaiian Engineering Firm Owner Sentenced for Micronesia Bribery Scheme. May 14, 2019, DOJ announced that Frank James Lyon had been sentenced in the District of Hawaii to two-and-a-half years in prison for conspiring to violate the FCPA. In February 2019, DOJ announced that Lyon had admitted that, over a 10-year period, he and his co-conspirators paid at least $200,000 in bribes to officials of the Federated States of Micronesia (FSM), to obtain and retain contracts worth approximately $7.8 million. One of the alleged bribe recipients, Master Halbert, an official with the FSM’s Department of Transportation, Communications and Infrastructure, pleaded guilty to a related money laundering charge in April 2019 and is awaiting sentencing. Between 2011 and 2016, Lyon also allegedly paid a Hawaiian state employee $240,000 to win a $2.5 million contract.
5. American-Argentinian Citizen Pleads Guilty to Violating FCPA. On May 29, 2019, DOJ announced that dual U.S.-Argentinian citizen Jose Manuel Gonzalez Testino had pleaded guilty to one count of conspiracy to violate the FCPA and one count of failing to report foreign bank accounts. According to DOJ, between 2012 and 2018, Gonzalez paid hundreds of thousands of dollars to officials of Venezuela’s state-owned oil company, Petroleos de Venezuela S.A. (PDVSA), and its Texas-based subsidiary, Citgo Petroleum Corporation, in exchange for inside information on PDVSA’s bidding process, prioritizing Gonzalez’s invoices, and concealing Gonzalez’s ownership stake in companies that placed bids on PDVSA projects. DOJ had announced Gonzalez’s arrest in August 2018. Sentencing is scheduled for August 28, 2019.
6. PDVSA Officials Sentenced in Connection with Alleged Bribery Scheme. On May 23, 2019, two former PDVSA purchasing officials accused of accepting bribes in exchange for putting companies on PDVSA bidding panels were sentenced in the Southern District of Texas. Karina Del Carmen Nunez-Arias, who admitted to accepting a multi-million-dollar home in Florida, expensive watches, and a trip to Paris, was sentenced to 36 months in prison and ordered to forfeit $3.2 million. Christian Javier Maldonado-Barillas, who cooperated with the government’s investigation, including by recording people allegedly attempting to bribe him, was sentenced to probation and ordered to pay $165,000.
7. Former Venezuelan Minister of Electrical Development Arrested in Spain on U.S. Warrant. On May 9, 2019, Spanish police reportedly arrested Javier Alvarado Ochoa, Venezuela’s former minister of electrical development, on a U.S. warrant for PDVSA-related money laundering charges. Extradition proceedings are still pending against Alvarado, who is also being investigated by Spain and Portugal. Alvarado’s arrest is an example of the growing internationalization of anti-corruption investigations.
8. Investment Bank Executive Charged with Bribery in Hong Kong. In May 2019, Catherine Leung, JPMorgan’s former Asia investment banking vice-chair, was reportedly charged with two counts of bribery by Hong Kong’s Independent Commission Against Corruption (ICAC) for allegedly offering employment to the son of a company chairman in 2010 and 2011 in return for favoring the bank’s Hong Kong-based subsidiary for IPO work. In November 2016, the bank and its subsidiary resolved related allegations with DOJ, SEC, and the Federal Reserve. The charges against Leung are another instance of the potential international ramifications of a U.S. enforcement action.
9. Two Former Defense Group Executives Acquitted in Italy of Indian Bribery Charges. On May 22, 2019, Italy’s Supreme Court acquitted two former executives of Leonardo, an Italian state-controlled defense group formerly known as Finmeccanica, of charges related to a 2010 helicopter contract with the Indian government. Giuseppe Orsi, former group chief executive, and Bruno Spagnolini, former head of the group’s helicopter business, had been convicted in 2016 of corruption charges related to the €560-million contract for 12 helicopters. Charges against the group were dropped in July 2014, while the helicopter business agreed to a €7.5 million settlement in August 2014. Orsi and Spagnolini still face corruption and money laundering charges in India.
10. Austrian Politicians Ousted Following Russian Corruption Allegations. On May 17, 2019, Austrian Vice Chancellor and head of the country’s far-right Freedom Party, Hans-Christian Strache, resigned following the release of a video in which he appears to enter into a corrupt deal with the purported niece of a Russian oligarch. In the video, recorded in July 2017 in a mansion on the Spanish island of Ibiza, the Russian woman agrees to purchase 50% of a major Austrian newspaper, which she would use to support the Freedom Party, and to make illegal campaign donations in return for Strache’s agreement to secure lucrative government contracts for her. The exchange turned out to be a sting, apparently staged by a civil-society organization rather than by law enforcement. The video’s release had further ramifications for Austria’s government. Most significantly, on May 28, 2019, Sebastian Kurz, Austria’s Chancellor and head of the country’s center-right People’s Party, which governed in a coalition with the Freedom Party, was ousted after a no-confidence vote by the Austrian parliament. Kurz’s removal was the first time an Austrian leader had been removed from office since World War II. Despite his removal, the 32-year-old Kurz remains popular and some experts predict he and the People’s Party will fare well in the upcoming elections, scheduled to take place in September 2019.
 United States v. Nunez-Arias, 4:16-CR-00436 (S.D. Tex. May 28, 2019), ECF No. 43
 United States v. Maldonado-Barillas, 4:15-CR-00635 (S.D. Tex. May 28, 2019), ECF No. 47.
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