The U.S. Department of Justice (DOJ) continues to focus on cross-border white collar investigations and charge individuals located abroad. Since our last report, the government indicted four individuals involved in the Panama Papers scandal – three of whom were non-U.S. citizens and arrested overseas. Four German nationals were indicted in the U.S. in relation to Audi's diesel emissions scandal. The government has requested the extradition of Huawei Technologies CFO Wanzhou Meng, who was arrested in Canada. The U.S. has also requested the extradition of four individuals charged with bribery in Mozambique. And an indictment is pending against the billionaire owner of a Venezuelan news network. All of these matters, and more, are discussed below.

However, DOJ's ability to successfully prosecute these individuals located abroad remains questionable. DOJ recently lost an extradition battle to Germany, which won out based on the European Union's rule that member states must prioritize extradition requests by fellow member states (in this case, France) for a citizen's surrender for prosecution. And many of the indicted individuals abroad are located in countries that rarely extradite to the U.S., if at all. As a result, DOJ's successes in these global investigations may be elusive.

Noteworthy Investigations

Nissan Investigation

Nissan's Chairman Fired, Investigated, and Charged For Overstating Pay and Misuse of Company Funds: In November 2018, Carlos Ghosn, Chairman of Nissan and Mitsubishi and CEO and Chairman of Renault, was arrested by Japanese authorities for underreporting his income by tens of millions of dollars and misusing company funds between 2011 and 2015. Greg Kelly, a representative director at Nissan and former board member, was also arrested for conspiring with Ghosn. Nissan issued a statement alleging that its own investigation revealed that Ghosn and Kelly underreported their compensation to the Tokyo Stock Exchange. The company also claimed that "[n]umerous other significant acts of misconduct have been uncovered, such as personal use of company assets." Ghosn has been fired. Japan's Securities and Exchange Surveillance Commission filed a criminal complaint against Nissan, Ghosn, and Kelly in December 2018. The U.S. Securities and Exchange Commission (SEC) is investigating Nissan over the alleged financial misconduct. Nissan is cooperating with the SEC.

Panama Papers

U.S. Brings Charges in Panama Papers Leak: In December 2018, an indictment was unsealed against four individuals in an alleged money laundering scheme connected to Panama-based law firm Mossack Fonseca, which was closely tied to the 2015 Panama Papers leak. The Panama Papers involve the anonymous leak of nearly 12 million financial records held by the law firm on behalf of clients. The stolen data exposed a network of offshore companies used to hold assets. The indictment alleges that a Mossack Fonseca attorney and investment advisor created sham foundations and shell companies, and that the investment advisor and an outside accountant allegedly helped a firm client evade U.S. income taxes and reporting requirements. The accountant was arrested in the U.S. and has pled not guilty. The firm's client was arrested in London and the U.S. is seeking his extradition. The investment advisor was arrested in France and extradited to Germany, as we report later in this publication. The attorney was arrested in Panama, and it is unclear whether the U.S. is seeking his extradition.

Volkswagen Investigation

Four Former Audi Executives Indicted by the U.S. in Emissions Scandal: Since we last reported on the Volkswagen investigation, four former managers of German operations for Audi were indicted regarding the diesel emissions scandal. Each executive was charged with fraud-related charges and violating the Clean Air Act for allegedly misleading the U.S. and customers as to whether Audi vehicles complied with U.S. Environmental Protection Agency (EPA) emissions standards. All four are German nationals living in Germany; Germany rarely extradites its own citizens, and by law, does not allow its citizens to serve prison time abroad. So far in the Volkswagen investigation, two individuals have pled guilty and 13 have been charged, 11 of whom reside abroad beyond the U.S.'s territorial reaches.

Huawei Investigation

Huawei and Huawei CFO Charged With Financial Fraud: In January 2019, a 13-count indictment was unsealed against Chinese telecommunications giant Huawei Technologies Co. Ltd. (Huawei), two Huawei affiliates, and Huawei's CFO, Wanzhou Meng, on charges related to fraud, sanctions violations, money laundering, and obstruction of justice. The indictment alleges that the defendants misled large banks in order to obtain clearance for transactions with Iran and attempted to impede the resulting investigation by destroying or concealing evidence. In December 2018, Meng was arrested in Canada on U.S. charges and is currently out on bail. The U.S. has requested extradition of Meng from Canada. 

NCAA Investigation

Two Former Coaches Plead Guilty in NCAA Corruption Case: Since we last reported on the NCAA investigation, two former assistant basketball coaches have pled guilty as part of the sports bribery scheme. In January 2019, the University of Southern California's former assistant men's basketball coach admitted to pressuring his basketball players to hire certain financial advisers and business managers. The University of Arizona's former assistant basketball coach admitted to accepting $20,000 in 2017 to steer college athletes to a particular business manager; he was convicted last fall. Both await sentencing. Eight individuals have pled guilty or been charged in this investigation.

Actions Against Executives

FCPA

U.S. Businessman Pleads Guilty to Bribing Hawaiian and Micronesian Officials: In January, engineering company owner Frank James Lyon pled guilty to paying approximately $450,000 in bribes to Micronesian and Hawaiian officials in order to obtain more than $10 million in contracts between 2006 and 2016. Lyon pled guilty to conspiracy to violate the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act (FCPA) and to pay bribes to an agent of an organization receiving federal funds. Lyon is scheduled to be sentenced on May 13, 2019. 

Two Former Panasonic Executives Settle FCPA Civil Charges: In December, the SEC announced the settlement of charges against two former Panasonic senior executives – Paul Margis, the former CEO of Panasonic's California based Panasonic Aviation Corporation (PAC) and Takeshi "Tyrone" Uonaga, PAC's former CFO, who were both charged by the SEC with FCPA-related civil violations. Margis agreed to a monetary penalty of $75,000, while Uonaga agreed to pay $50,000 and accept a five-year suspension from appearing or practicing before the SEC as an accountant. 

Three Former Credit Suisse Bankers Charged in Mozambique Bribery Scheme: In January, a grand jury indicted three former Credit Suisse bankers on charges of securities fraud, money laundering, and FCPA-related violations for their participation in a $2 billion fraudulent maritime loan scheme. In addition, the former finance minister of Mozambique, Manuel Chang, and an executive of maritime contractor Privinvest were charged in the same indictment. According to the indictment, from 2013 to 2016 the bankers allegedly arranged for Credit Suisse to loan approximately $2 billion to companies controlled by the government of Mozambique for various maritime construction projects. The projects were then allegedly contracted out to Privinvest, whereupon the bankers diverted nearly $200 million in loan proceeds to fund bribes and kickbacks to Mozambique officials. All five defendants have been arrested and the U.S. is currently seeking extradition of the four who remain abroad.

DOJ Indicts Three Execs in Venezuelan Money Laundering Conspiracy: In November 2018, DOJ unsealed an indictment charging Raul Gorrin Belisario (Gorrin), the billionaire owner of Venezuelan news network Globovision, with bribing multiple Venezuelan officials as part of a billion-dollar currency exchange, embezzlement, and money laundering scheme. According to the indictment, between 2007 and 2013 Gorrin paid approximately $160 million in bribes to two high-level Venezuelan Treasury officials in exchange for the rights to conduct foreign currency exchanges at the more favorable government rates, rather than the market rates. At the same time, DOJ also unsealed the guilty pleas of two of Gorrin's co-conspirators – Alejandro Andrade Cedeno (Andrade) and Gabriel Arturo Jimenez Aray (Jimenez) – for their involvement in the money laundering scheme. Andrade, a former Venezuelan Treasury official, was sentenced to 10 years in prison for accepting over $1 billion in bribes from Gorrin and others in exchange for granting the rights to conduct the currency exchange transactions at favorable rates. Andrade agreed to forfeit the $1 billion in bribes he received. Jimenez, the former owner of Banco Peravia, was sentenced to three years in prison.  

First U.S. Criminal Charges Unveiled in 1MDB Corruption Scheme: In November 2018, DOJ unsealed the guilty plea of Tim Leissner, a former managing director of Goldman Sachs and chairman of its Southeast Asia operations, on FCPA and money laundering-related charges for his alleged participation in the 1Malaysia Development Berhad (1MDB) corruption scheme. According to the criminal information, from around 2009 to 2014, Leissner and his co-conspirators bribed government officials at 1MDB, a state-owned sovereign wealth fund. DOJ also unsealed an indictment against Leissner's alleged two co-conspirators – a Malaysian national who leveraged his relationships with 1MDB officials to help Leissner and a former Goldman Sachs managing director, who paid bribes to government officials in Malaysia and Abu Dhabi in exchange for Goldman Sachs assisting with bond offering transactions worth more than $6.5 billion. Leissner will be sentenced in June 2019. In February, the Malaysian national agreed to be extradited to the U.S. to face the charges; the other co-conspirator is currently a fugitive.

Sanctions

Defense Contractor Executives Charged with Defrauding the Military, Violating Sanctions Laws: In November 2018, a federal grand jury indicted three senior executives for fraud relating to an $8 billion contract to supply food to troops in Afghanistan. The CEO of defense contractor Anham FZCO; the president and founder of international logistics company Unitrans International Incorporated; and Salah Maarouf, who operated a company that procured goods and services for Anham, allegedly knowingly submitted to the U.S. government false estimates of the completion dates for food storage warehouses contemplated under the contract. They also allegedly violated the Iran Sanctions Act by attempting to increase their profits by shipping materials through Iran. 

Cartel

Modest Progress for DOJ in Online Promotional Products Investigation: In January, DOJ announced charges against Netbrands Media Corporation and two of its executives, Mashnoon Ahmed and Mueen Akhter, for their roles in fixing the prices of wristbands, lanyards, temporary tattoos, and buttons sold in the U.S. To date, the online promotional products investigation has not resulted in significant fines or sentences. In November 2018, the CEO of Custom Wristbands Inc., Christopher Angeles, was sentenced to just one month in prison for conspiring to fix the prices of custom wristbands. As we previously reported, Angeles was one of two executives who pled guilty in 2017 for their roles in the price-fixing scheme. The sentence is far below the 19-month average sentence given to criminal antitrust defendants, and far below the statutory maximum of ten years under the Sherman Act. 

Money Laundering

Danske Bank Shutters Baltic Branches Following Charges in €200 Billion Anti-Money Laundering Investigation: In November, the Danish State Prosecutor for Serious Economic and International Crime charged Danske Bank with alleged money laundering at its Estonian branch, involving €200 billion ($225 billion) in suspicious transactions, according to press reports. The charges came on the heels of a detailed report on the branch's non-resident portfolio, which was published by Danish law firm Bruun & Hjejle at the direction of the bank's board of directors. The report found that the branch's anti-money laundering procedures "were manifestly insufficient and inadequate and in breach of international standards as well as Estonian law" – "even though the non-resident customers were categorized as high risk." The European Banking Authority and DOJ are also investigating. In February, the Estonian Financial Supervision Authority ordered the bank to cease banking operations in Estonia due to the "serious case of possible money laundering in Estonia." The bank said that it independently decided to close its offices in Latvia, Lithuania, and Russia.  

Tax

More Swiss Bankers Sentenced to Probation and Time Served: In August 2018, Swiss bank Zürcher Kantonalbank (ZKB) agreed to pay $98.5 million to the United States and entered into a deferred prosecution agreement (DPA) relating to allegations that ZKB assisted clients in hiding hundreds of millions of dollars in offshore bank accounts to evade their U.S. tax obligations. In separate proceedings, former ZKB bankers Stephan Fellman and Christof Reist pled guilty to conspiracy and cooperated with the government's investigation. In December, both were sentenced to one year of probation, continuing the recent trend of Swiss bankers avoiding prison time. 

In December, Seref Dogan Erbek, another Swiss financial services professional, was sentenced to time served, but only after he spent nearly a year in an Algerian prison awaiting extradition to the U.S. Erbek had been charged with securities fraud based on a reverse merger and stock-price manipulation scheme, and was arrested in Algeria in November 2017. After his extradition, Erbek pleaded guilty. At sentencing, the district court acknowledged the difficult conditions of his confinement (which reportedly included sharing a small cell with 30 or more other men and losing 20 percent of his body weight) and accepted the government's time-served compromise.    

Other Fraud

Freshfields' German Offices Raided for the Second Time: In November, as reported by German newspaper Handelsblatt Global, the Frankfurt offices of law firm Freshfields Bruckhaus Deringer were raided in connection with German authorities' ongoing, multi-year investigation into tax fraud. The authorities reportedly are investigating wrongdoing by, among others, a Freshfields client and its attorneys. This marks the second raid of Freshfields' Frankfurt office in connection with the tax investigation and follows searches in March 2017 by German authorities of the Munich offices of another law firm, Jones Day, in connection with the public prosecutor's investigation into the firm's client, Volkswagen AG. 

Former Executives Charged with Fraud in Connection with $11 Billion Acquisition: In November, a federal grand jury in San Francisco indicted two former executives of Autonomy Corporation, a software development and distribution holding company, on wire fraud charges. The indictment alleges that Michael Richard Lynch, Autonomy's former CEO, and Stephen Keith Chamberlain, Autonomy's former vice president of finance, engaged in a fraudulent scheme to mislead investors regarding Autonomy's financial wellbeing between 2009 and 2011. The indictment alleges that the defendants, both residents of the United Kingdom, inflated the company's revenue and made false and misleading statements to independent auditors, market analysts, and regulators. In particular, the government alleges that the conspirators provided Hewlett-Packard Company and Hewlett-Packard Vision B.V. with false and misleading information leading up to the acquisition of Autonomy by those companies for approximately $11 billion in the fall of 2011. Chamberlain has pled not guilty. A status conference is set for February 27, 2019, and no trial date is currently scheduled.

Extradition & Extraterritoriality

U.S. Loses Extradition Battle to Germany: In January, French authorities extradited Dirk Brauer, a German national accused of fraud and money laundering, to Germany after arresting him on a U.S. warrant. Brauer's extradition is the first time the European Union has applied its ruling that member states must prioritize requests by fellow member states for a citizen's surrender for prosecution in their country. Both the United States and Germany began investigating Brauer, a former investment manager for Mossfon Asset Management S.A., based on the Panama Papers data leak. In November 2018, French authorities arrested Brauer in Paris and German authorities issued an arrest warrant for Brauer one week later. In December 2018, the U.S. indicted Brauer on multiple charges relating to the alleged criminal scheme. Brauer was cooperating with German prosecutors at the time the U.S. indicted him. 

Obstruction

Two Companies' Execs Bypass Prison, Despite Providing False Statements to the SEC: In July 2018, Edward Withrow III, former chairman of Endeavor Power Corp., a medical diagnostics company, pled guilty to lying during his 2013 sworn testimony before the SEC. At the time of Withrow's testimony, the SEC was investigating trading in Endeavor's securities and Withrow allegedly misled the SEC when asked about ownership of Endeavor's unrestricted stock. In its sentencing memorandum, the government asked the court to sentence Withrow to five months of imprisonment, noting the importance "for a public company official to be honest with the SEC" and the ability of false statements to obstruct investigations. The court instead sentenced Withrow to five months of home confinement and up to five years of probation.

A few months later in November, Joshua Carlucci, the former CEO of M2 Interactive Group., Inc. (d/b/a Momentum Mobile), was sentenced to six months of probation after pleading guilty to obstructing the SEC's investigation into Quadrant 4 System Corp's acquisition of Momentum Mobile. Quadrant 4 executives sought to conceal the true terms of its acquisition of Momentum Mobile, providing its auditors with a fake acquisition agreement. After the executives learned that the SEC wanted to question Carlucci and Christopher Young, also of Momentum Mobile, they paid Carlucci and Young to generate an email stating that Momentum Mobile authorized the terms of the fake agreement. In its sentencing memorandum, the government, while noting the seriousness of the crime, supported a sentence of probation, citing Carlucci's lack of criminal history, long employment record, and lesser level of culpability compared to the Quadrant 4 executives. 

Officer & Director Issues   

KPMG Employment-for-Inside-Information Scheme Nets Additional Exec Guilty Pleas: As we previously reported, in January 2018, DOJ unsealed an indictment against two former KPMG executives and three former employees of the Public Company Accounting Oversight Board (PCAOB), the regulatory body that oversees the audit industry. The indictment charged the defendants with engaging in a scheme in which the PCAOB employees agreed to pass confidential information about the regulator's audit inspection plans to KPMG in exchange for employment at KPMG. In October, one of the two former KPMG executives, Thomas Whittle, and one of the former PCAOB employees, Cynthia Holden, who became a KPMG executive as a result of the criminal scheme, pled guilty to one count of conspiracy to defraud the United States (Holden), and wire fraud and conspiracy (Whittle). The remaining three defendants are set to go to trial in February 2019.

Former CFO of Aveo Pharmaceuticals Found Liable for Civil Securities Fraud: In November 2018, a federal jury sided with the SEC in finding David Johnston, former Aveo Pharmaceuticals CFO, liable for three civil claims of securities fraud after an eight-day trial. The SEC had accused Johnston of misleading investors by failing to inform them that the FDA had recommended a second clinical trial for its kidney cancer drug, Tivo. Aveo's former CEO and Chief Medical Officer had already reached settlements with the SEC and the company had agreed to pay a $4 million penalty and reform its internal policies. Johnston, who had become CFO of ImmunoGen since departing Aveo in 2013, resigned after the jury's verdict.

Noteworthy Sentences

Judge Halves Sentence for Cooperator in Securities Fraud Scheme: In January, Hyunjin Lerner, the former vice president of finance for publicly traded Bankrate, Inc., had his sentence reduced from 60 to 30 months after his extensive cooperation led to his boss pleading guilty. As we previously reported, Lerner was originally sentenced to five years despite his cooperation. However, in June 2018, after Lerner was sentenced, CFO Edward DiMaria pled guilty, due in part to Lerner's assistance. In September 2018, DiMaria was sentenced to 10 years for leading the widespread securities fraud and was ordered to pay $21.2 million in restitution. Following that result, the government sought a reduced sentence of 40 months for Lerner based on his substantial assistance in obtaining DiMaria's guilty plea and the court went below the government's recommendation. 

Airline VP Receives Nearly Eight Years for Scheme to Steal Passenger Fees from Escrow: In November, Kay Ellison, the former vice president of charter airplane operator Direct Air and Tours, received a 94-month sentence after being convicted of multiple counts of wire and bank fraud. Ellison had convinced banks to release to the company passenger payments that U.S. Department of Transportation regulations require to be held in escrow until after the flights have occurred. The sentencing judge also imposed a $19.6 million restitution charge on Ellison. Former CEO Judy Tull, who, like Ellison, was convicted at trial in March 2018, and former CFO Robert Keilman, who pled guilty, have yet to be sentenced. 

Government Policies and Guidance

DOJ Announces Changes to Yates Memorandum: In late November, Deputy Attorney General Rod Rosenstein announced updates to DOJ's Justice Manual concerning corporate enforcement and individual accountability. The changes reflect a continued emphasis on individual accountability as established in September 2015 by then-Deputy Attorney General Sally Yates, in what is now known as the "Yates Memo." Rosenstein stated that pursuing individuals involved in corporate fraud will continue to be a top DOJ priority, noting that "the most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes."

In criminal matters, the government will no longer condition corporate cooperation credit on a company's disclosure of "all relevant facts" about all individuals involved in the alleged misconduct. Companies need only identify individuals who are "substantially involved in or responsible for the criminal conduct." The government may, however, deny cooperation credit if it determines that a company has not been forthright in identifying individuals involved in criminal conduct. And a corporate resolution cannot shield individuals from criminal liability, absent "extraordinary circumstances."

On the civil side, companies must identify all wrongdoing by senior officials, including members of senior management and the board of directors. To receive maximum cooperation credit, a company must identify every individual "substantially involved in or responsible for the misconduct."

Editors: Lauren E. Briggerman, Dawn E. Murphy-Johnson, Kirby D. Behre

Contributors: Sarah A. Dowd,* Nina C. Gupta,* Amelia Hairston-Porter,* Ian A. Herbert, Aiysha S. Hussain,* Jonathan D. Kossak,* Nicholas R. Metcalf,* Katherine E. Pappas, Dwight B. N. Pope*

*Former Miller & Chevalier attorney

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