FCPA Spring Review 2015
The pace of enforcement under the U.S. Foreign Corrupt Practices Act ("FCPA") has slowed considerably in 2015, with just three resolved enforcement actions during the year's first quarter -- all brought by the U.S. Securities and Exchange Commission ("SEC") -- which represents the lowest level of enforcement to begin a year since 2006. This downturn comes after a spike in enforcement during the fourth quarter of 2014 to levels not seen in four years (see FCPA Winter Review 2015). When factoring in the apparent drop in newly disclosed FCPA investigations (see Known Investigations Initiated below) and the uptick this quarter in the number of disclosed declinations (see Known Declinations Chart below), it is difficult to predict the direction in which enforcement is trending in 2015, except to say that U.S. enforcement officials continue to assert that the agencies are committed to aggressively enforcing the FCPA, are currently pursuing a large number of ongoing investigations, and have recently devoted even more resources to combating the bribery of foreign officials. For instance, in a February address during the Practicing Law Institute's "SEC Speaks in 2015" event, SEC FCPA Unit Chief Kara Brockmeyer warned that the SEC will pursue actions against businesses of all sizes in 2015, noting, "We won't focus only on multinationals, but also on small and medium-sized companies." And earlier this year, the U.S. Federal Bureau of Investigation revealed it had tripled the number of agents it has focused on overseas bribery, from 10 to more than 30 (see The Wall Street Journal).
The recent drop in resolved enforcement activity by U.S. authorities notwithstanding, it is difficult to argue that there has been a corresponding drop in the compliance risk that the bribery of non-U.S. officials poses to corporations and individuals alike. Reports of significant cooperation between U.S. enforcement officials and their counterparts abroad over the past year indicate that companies may well face prosecution for alleged misconduct, even in situations where the United States has chosen to stay its hand. As reported in our FCPA Winter Review 2015, the U.S. Department of Justice ("DOJ") declined to prosecute the Netherlands-based oil and gas services provider SBM Offshore NV for alleged bribery in Equatorial Guinea, Angola, and Brazil, after the company finalized a $240 million settlement with Dutch authorities for the same underlying activity. This declination, along with recent reports of several high-profile anti-corruption investigations by authorities abroad with no sign to date of parallel investigations by the DOJ and SEC, suggests that the U.S. enforcement agencies may be limiting their involvement in certain cases where a foreign country appears fully committed to pursuing allegations of bribery and related conduct.
In the first quarter of 2015, the SEC settled two corporate dispositions, one administrative settlement with the Goodyear Tire & Rubber Company, and one deferred prosecution agreement ("DPA") with PBSJ Corporation (each discussed below), and entered into an administrative settlement with former PBSJ executive Walid Hatoum. The SEC brought its fourth enforcement action of the year, and first of the second quarter, on April 8, 2015, entering into an administrative settlement with FLIR Systems, which we will discuss in our forthcoming FCPA Summer Review 2015. Of note, two former FLIR employees resolved related charges with the SEC in November 2014 (see FCPA Winter Review 2015). While the DOJ resolved no actions this quarter, a federal grand jury indicted Chestnut Consulting Group executive Dmitrij Harder on numerous FCPA counts, among other charges, for his role in a scheme to pay bribes to an employee of the European Bank for Reconstruction and Development, a public international organization (discussed below).
To date, Miller & Chevalier has identified only two investigations initiated in 2015, although this number is sure to rise, as there is often a lag of six months or more before investigations become public (if they ever do). Based on recent SEC filings, as well as other public reports, we have identified 16 FCPA-related investigations initiated in 2014, which represents a significant decline from previous years, as reflected in the chart below. While there is a good chance that this total will increase as additional investigations come to light, based on past experience any such increase is still likely to leave 2014 well below the heightened investigation levels of the past four years.
We are aware of five companies that have disclosed declinations from the U.S. authorities in 2015, including four DOJ declinations and one SEC declination. This total represents a slight increase from the first quarter of 2014, when we recorded three DOJ declinations and one SEC declination. Note that we define "declinations" here broadly to refer to any instance in which the DOJ or SEC decides to close an FCPA investigation without pursuing enforcement. We take this approach because the agencies almost never acknowledge these declination decisions publicly and frequently do not provide the companies benefiting from the decisions with the rationale behind them. As such, it is difficult to determine whether a decision not to prosecute is a benefit in favor of disclosure or cooperation or due to insufficient facts to establish a violation (see Discussion of Declinations by Miller & Chevalier Counsel Marc Alain Bohn). The recent declination decisions we have identified, including a recently confirmed declination from 2014, are as follows:
- Eli Lilly and Company: On February 19, 2015, Eli Lilly disclosed that the DOJ advised the company that it had closed an investigation relating to allegations against Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 to 2009. Lilly did not specify why the DOJ closed its investigation, but noted that the company had already agreed to a $29.4 million settlement with the SEC in 2012 related to the same conduct (see FCPA Winter Review 2013).
- 21st Century Fox and News Corporation: On February 2, 2015, the two companies issued a joint announcement stating that they had "been notified by the [DOJ] that it has completed its investigation of voicemail interception and payments to public officials in London, and is declining to prosecute either company." The companies did not disclose any rationale for the DOJ's declination and it is unclear whether the SEC's investigation into the same conduct is still ongoing.
- Cobalt International Energy, Inc.: On January 28, 2015, Cobalt announced that the SEC ended its investigation of the company's Angola operations. CEO Joseph Bryant stated, "We are of course pleased with the closure of the SEC's investigation. We have the utmost respect for the SEC and its investigative process, and cooperated fully with the SEC." Although Cobalt's announcement emphasized the company's cooperation with the investigation, it is unclear what led to the SEC's declination on the matter.
- Goodyear Tire & Rubber Company: In its 2014 10-K statement, Goodyear Tire & Rubber Company ("Goodyear") stated that the DOJ notified the company it had closed its investigation into Goodyear's alleged payments to officials in Kenya and Angola without charging the company. As discussed below, Goodyear later entered into a $16 million settlement with the SEC to resolve these accusations.
- PetroTiger Ltd.: On September 17, 2014, DOJ Principal Deputy Director for the Criminal Division Marshall Miller told the Global Investigations Review Program that the DOJ had declined to prosecute PetroTiger after bribe payments made by various executives were "brought to the attention of the department through voluntary disclosure by PetroTiger, which cooperated fully with the department's investigation." Miller also emphasized the DOJ's prosecution of individual PetroTiger executives, which we have discussed in our FCPA Spring Review 2014, FCPA Summer Review 2014, and FCPA Winter Review 2015. One of those prosecutions -- that of former PetroTiger co-CEO Joseph Sigelman -- will go to trial in June after Judge Joseph Irenas delayed the trial for two months to allow testimony from the Colombian official Sigelman is alleged to have bribed.
This quarter's enforcement action against Goodyear (reported below) and last quarter's SEC and DOJ settlement with Bio-Rad (see FCPA Winter Review 2015) highlight the importance of proper merger & acquisition ("M&A") due diligence. As the chart below demonstrates, while the number of M&A-related dispositions has decreased from its peak three years ago, it is still reflective of the significant anti-corruption risks associated with M&A activity. The DOJ and SEC, through these enforcement efforts and guidance such as the Resource Guide to the U.S. Foreign Corrupt Practices Act, have firmly established an expectation for companies to engage in substantive anti-corruption due diligence in connection with M&As they are contemplating. Although conducting some of this due diligence post-acquisition is seen as acceptable, the agencies have said that "a company that does not perform adequate FCPA due diligence prior to a merger or acquisition may face both legal and business risks" (see page 62 of the Resource Guide to the U.S. Foreign Corrupt Practices Act).
While substantive FCPA due diligence can complicate and even potentially derail a merger or acquisition (such as Lockheed Martin Corp.'s failed acquisition of Titan Corp. in 2004, (March 8, 2005 Miller & Chevalier International Alert)), the failure to undertake such due diligence can render a transaction worthless after the fact. For instance, as reported in our FCPA Spring Review 2009, eLandia International's 2009 acquisition of Latin Node, Inc., demonstrates the potential costs of undertaking insufficient pre-acquisition due diligence. Although eLandia was never charged in connection with potential FCPA violations by Latin Node that the company discovered and promptly disclosed during the post-acquisition due diligence process, the value of the entire acquisition greatly declined as a result of the findings and eLandia eventually sold off Latin Node's assets entirely. While the DOJ credited Latin Node for its cooperation in connection with the matter, charging only Latin Node and imposed a fine less than the amount of the corrupt payments involved, eLandia later determined that the fair market value of Latin Node declined by $20,600,000 from the purchase price of $26,819,000, due largely to "the cost of the FCPA investigation, the resulting fines and penalties to which we may be subject, the termination of Latin Node's senior management, and the resultant loss of business."
Finally, as discussed below, Goodyear's insufficient pre and post-acquisition due diligence of its subsidiary in Kenya was contributed to the company's $16 million settlement with the SEC this February, and almost certainly cost Goodyear millions of dollars more in investigation and compliance costs related to the settlement.
The recent sentencing of Direct Access Partners ("DAP") executives Benito Chinea and Joseph DeMeneses (discussed below) to four year prison terms provides an opportunity to review the individual criminal sentences imposed in connection with FCPA and FCPA-related offenses. As reflected by the chart below, courts vary widely in sentencing defendants convicted of FCPA and FCPA-related misconduct. Although they do not entirely explain the disparities highlighted in the chart, there are a number of factors which can exacerbate the variation, including: cooperation, having the means to hire adequate representation, willingness to plead and the specific facts of a case. For example, in April 2014, Judge Katherine Forrest of the Southern District of New York sentenced former American Bank Note Holographics, Inc. executive Joshua Cantor, who pleaded guilty to four FCPA-related conspiracy counts in 2001, to time served on the basis of several factors, including: Cantor's cooperation, his efforts to "turn [his] life around," and the fact that Morris Weissman, Cantor's former boss, was only sentenced to 18 months house arrest. By contrast, Judge Denise Cote of the Southern District of New York sentenced both Chinea and DeMeneses, who each pleaded guilty to one count of conspiracy to violate the FCPA and Travel Act, to four years in prison, specifically highlighting the severity and extent of their conduct.
As discussed below, several additional developments this quarter are also worth mentioning. On February 9, 2015, the U.S. Court of Appeals for the Eleventh Circuit affirmed its prior interpretation of what constitutes a government "instrumentality" under the FCPA when it upheld the conviction of former Haiti Teleco executive Jean Rene Duperval. On February 5, 2015, a judge for the U.S. District Court for the District of Columbia rejected a proposed DPA between the DOJ and the Dutch company Fokker Services B.V. for alleged export controls violations, a decision which may signal increased judicial scrutiny of negotiated DPAs more broadly. And finally, we highlight a range of important international developments in Australia, Brazil, Canada, Chile, Greece, Korea, and the United Kingdom. Among them, the Petrobras scandal continues to grow and embroil more executives and companies in Brazil; Brazilian authorities also issued guidance on the Clean Company Act; Canadian authorities charged SNC-Lavalin for alleged bribery in Libya; U.K. authorities continue to investigate Alstom SA; Greek authorities indicted 64 Siemens executives; Chile is experiencing its first wide-scale corruption scandal in recent years; and Australia made arrests in only its second foreign bribery prosecution in 15 years.
On February 24, 2015, the SEC announced a settlement with Goodyear, the global tire-manufacturing company. As described in the SEC's cease and desist order ("the SEC Order"), Goodyear violated the books and records and internal controls provisions of the FCPA in connection with $3.2 million in improper payments made by two subsidiaries to employees of government-owned entities and private companies in Kenya and Angola. The two subsidiaries recorded the improper payments as legitimate business expenses in their books and records, which were then consolidated into Goodyear's books and records. According to the SEC Order, Goodyear did not prevent or detect these payments because "it failed to implement adequate FCPA compliance controls at its subsidiaries in sub-Saharan Africa." Under the terms of the settlement, Goodyear agreed to pay disgorgement of $14,122,525, and pre-judgment interest of $2,105,540, totaling just over $16 million. Goodyear also agreed to report on its remediation efforts and compliance program implementation for a three-year period.
According to the SEC Order, from 2007 to 2011, Goodyear's indirect subsidiary in Kenya, Treadsetters, paid over $1.5 million in bribes to employees of private companies and government agencies, including the Kenya Ports Authority, the Kenyan Air Force, the Ministry of Roads, and the Ministry of State for Defense, to obtain business. The subsidiary also made improper payments to local government officials, including city council employees, police, and building inspectors. The SEC Order alleges that Treadsetters managers regularly approved improper payments, which "were paid in cash and falsely recorded on Treadsetters' books and expenses for promotional products."
Goodyear acquired a minority ownership interest in Treadsetters in 2002, and by 2006, Goodyear acquired a majority ownership interest. After Goodyear became majority owner, Treadsetters' founders and local general manager continued to run day-to-day operations. Although the SEC Order only covers improper payments from 2007 to 2011 (the time period when Goodyear was a majority owner), the SEC faulted Goodyear for failing to conduct and detect the improper payments through adequate due diligence when it acquired Treadsetters, and for failing to implement adequate FCPA compliance training and controls after acquisition.
The SEC also alleged that between 2007 and 2011, Goodyear's subsidiary in Angola, Trentyre, paid over $1.6 million in bribes to employees of private companies and government-owned or affiliated customers, the largest of which was the Catoca Diamond Mine, a consortium owned in part by Angola's national mining company, to obtain tire sales. Trentyre also allegedly made approximately $64,713 in improper payments to local government officials, including police and tax authorities. The SEC Order states that Trentyre falsely recorded improper payments as "payments to vendors for freight and clearing costs." According to the SEC Order, Goodyear did not prevent or detect these payments because it failed to implement adequate FCPA compliance training and controls.
- Pre-Acquisition Due Diligence, Even for Minority Stakes, is Not Optional: Goodyear provides yet another example of the importance of pre-acquisition due diligence. The SEC faulted Goodyear for failing to conduct "adequate due diligence" before acquiring an interest in its Kenyan subsidiary. This finding is especially noteworthy because Goodyear initially held only a minority interest in Treadsetters, which suggests that companies should conduct adequate due diligence when acquiring a minority stake, or when increasing ownership, in an entity.
- Commercial Bribery May Result in Books and Records Violations: The SEC alleged that both Treadsetters and Trentyre made improper payments to employees of private companies to secure business. According to the SEC Order, the subsidiaries falsely recorded the payments as legitimate business expenses in violation of the books and records provisions of the FCPA. While the FCPA anti-bribery provisions do not apply to commercial bribery, the SEC Order illustrates the importance of companies addressing such risks in order avoid potential violations of the accounting provisions, other U.S. laws (such as the Travel Act and Money Laundering Control Act), and international and local laws that may apply.
- Strong Cooperation, DOJ Declination: Goodyear reported in its annual earnings report that the DOJ declined to file charges following its investigation into potential FCPA violations. The DOJ declination may have resulted from Goodyear's voluntary disclosure and its significant cooperation, as described by the SEC, as well as the improper payments having no obvious nexus to the United States to confer jurisdiction under the FCPA's anti-bribery provisions. In a recent address, SEC Enforcement Division Director Andrew Ceresney stated that the SEC imposed no civil fine (only disgorgement) on Goodyear because of the company's strong cooperation, including: "self-reporting; taking speedy remedial steps; voluntarily making foreign witnesses available for interviews; and sharing real-time investigative findings, timelines, internal summaries, English language translations, and full forensic images with [SEC] staff." Goodyear also strengthened its internal compliance program and hired full-time compliance personnel. Finally, Goodyear divested its ownership in its Kenyan subsidiary, and is in the process of divesting itself of its Angolan subsidiary. Notably, once Goodyear halted the improper payments in Angola, the Angolan subsidiary lost its biggest customer. Instead of having an outside monitorship, the Company is required to self-report to the SEC periodically on its FCPA and anti-corruption remediation and compliance measures.
On January 22, 2015, The PBSJ Corporation ("PBSJ"), a Florida-based engineering and construction firm, entered into a two-year deferred prosecution agreement ("DPA") with the SEC to resolve alleged violations of the anti-bribery, internal controls, and books and records provisions of the FCPA. PBSJ agreed to pay over $3.4 million in penalties, including $3,032,875 in disgorgement and pre-judgment interest and a fine of $375,000. In 2010, PBSJ became an indirect wholly owned subsidiary of U.K.-based WS Atkins plc and was de-listed. The company is now named The Atkins North America Holdings Corporation. The SEC also entered into a separate settlement with Walid Hatoum, a former PBSJ executive, which is discussed below.
In 2009, a wholly owned subsidiary of PBSJ, PBS&J International, Inc. ("PBSJ International"), won two multi-million dollar contracts within a period of three months -- one for a light rail transit project in Qatar and the other for a hotel resort development in Morocco ("Morocco Resort"). PBSJ procured both projects through competitive bids solicited by the Qatari Diar Real Estate Investment Company ("Qatari Diar"), the real estate arm of the Qatar Investment Authority, Qatar's sovereign wealth fund. Qatari Diar is wholly owned by the Qatari government.
According to the SEC's DPA, PBSJ International obtained the contracts after it made improper payments to Qatari officials. Hatoum (a U.S. citizen), PBSJ International's President and a former PBSJ officer, allegedly made improper payments to his former business colleague, the Director of International Projects at Qatari Diar ("the director"). According to the facts described in the DPA, the director gave Hatoum access to confidential bid and pricing information on the two projects in exchange for promised payments to a local company owned by the director ("local company").
In its proposal for the light rail transit project, PBSJ International listed the local company as its agent. According to the SEC's cease and desist order against Hatoum ("SEC Order"), [h]ad PBSJ conducted meaningful due diligence at that time, it would have discovered the [director's] dual role as both government official and third-party owner/operator of [the local company]." Hatoum allegedly agreed to pay the director 40% of profits realized from the light rail transit contract in exchange for confidential information and guidance related to confidential bid requirements. With the director's assistance, PBSJ International won the light rail transit project. Shortly thereafter, PBSJ International opened a joint account with the local company and deposited approximately $3.6 million into the account.
As alleged in the SEC Order, Hatoum offered the director an agency fee of approximately $750,000, to be paid to the local company, in exchange for securing the contract for the Morocco Resort, worth $25 million. Further, Hatoum allegedly attempted to conceal the agency fee by inflating other parts of the Morocco Resort proposal. In exchange, the director made changes to PBSJ International's original bid offer, including inserting technical revisions and instructing PBSJ International to lower its offer to a specific dollar amount.
According to the SEC Order, PBSJ's general counsel launched an investigation of the issues surrounding the light rail transit project and the Morocco Resort following a conversation he had with Hatoum. The SEC Order states that Hatoum told the general counsel that PBSJ International won the projects because he offered "agency fees" and admitted that there "would be a problem" if the fees were not paid. The general counsel immediately initiated an internal investigation and ultimately made a voluntary disclosure to the DOJ and SEC in December 2009.
One month after PBSJ launched an internal investigation, Qatari Diar rescinded PBSJ International's contract for the Morocco Resort project. In response, Hatoum unsuccessfully attempted to offer employment to a second Qatari foreign official in exchange for influencing Qatari Diar to restore the contract, according to the SEC Order.
Following PBSJ's discovery of the payments, the SEC Order states that PBSJ International and Qatari Diar agreed to terminate the light rail contract, although PBSJ International continued to perform work on the project until a suitable replacement was found. Overall, the SEC Order states PBSJ earned approximately $2.9 million in profits from the light rail contract.
The terms of the DPA require PBSJ to update its code of conduct annually, to obtain signed certifications of compliance from all employees on an annual basis, and to train relevant employees within 90 days of their joining the company. Failure to comply with the DPA could result in the SEC recommending an enforcement action against PBSJ, in which case, PBSJ would be required to adopt the SEC's factual statements as admissions.
- Second DPA by the SEC: PBSJ is only the second company to enter into a DPA with the SEC to settle FCPA-related allegations. In early 2010, the SEC pledged to use tools such as DPAs in order to encourage voluntary disclosures. Although several companies have since settled with the SEC following voluntary disclosures, the SEC has not granted a DPA since its settlement with Tenaris S.A. in 2011 (see FCPA Summer Review 2011). The allegations against Tenaris S.A. and PBSJ both involved bribes paid to obtain confidential bid information. Both DPAs issued by the SEC had two-year terms and included similar compliance requirements (discussed below). The DPA may have been a particularly appropriate instrument in this case because PBSJ and The Atkins North America Holdings Corporation are no longer issuers, and an order to cease and desist from violations of securities laws would have had no practical effect.
- Rare Guidance on SEC Compliance Expectations: While the DOJ typically includes compliance program requirements in its resolutions, the SEC does not. Thus, the DPA offers rare guidance on the SEC's expectations for adequate compliance programs, which are identical to the requirements enumerated in the DPA with Tenaris S.A. The DPA mandates that the company's code of conduct be updated on an annual basis and that training be provided to all employees working in positions that involve or impact the company's policies regarding anti-corruption compliance within 90 days of their affiliation with the company. Unlike the targeted training requirement, the DPA mandates that every employee of the company sign a certification of compliance with the code of conduct on an annual basis. The SEC's requirements also include internal controls obligations related to making and keeping adequate books and records even though PBSJ is no longer an issuer.
- PBSJ Investigated for Payments in Connection with Sovereign Wealth Fund: PBSJ's DPA is the first enforcement action by a U.S. enforcement authority involving payments to a sovereign wealth fund. In January 2011, the Boston office of the SEC reportedly sent letters and subpoenas to several financial services firms and banks requesting information relating to their interactions with state-owned investment funds. Other companies believed to be under continuing scrutiny by the SEC related to interactions with sovereign wealth funds include Goldman Sachs, Blackstone Group, Barclays, KKR & Co., Och-Ziff Capital Management Group LLC, and Societe Generale SA.
- Violations that Pre-Date Employment: Although Hatoum was not formally an employee of PBSJ International until April 2009, the SEC charged the company with violations related to actions by Hatoum that began as far back as January 2009. The SEC presumably viewed Hatoum as acting as the company's agent prior to employment, although the DPA does not discuss this point. The PBSJ matter underscores the importance of preventing individuals from acting on a company's behalf until they are formally retained and trained.
- Praise for Company's Response: In the SEC's DPA, the SEC praised PBSJ's swift reaction to the violations and steps to end the misconduct after self-reporting to the SEC, specifically noting that PBSJ suspended Hatoum and reprimanded four other employees who failed to report red flags prior to the company's voluntary disclosure in December 2009. Moreover, PBSJ withdrew all proposals in the Middle East that were initiated under Hatoum's administration. The SEC further acknowledged PBSJ's efforts to enhance its compliance program by requiring annual training for third parties and creating an international compliance oversight committee.
On March 27, 2015, U.S. District Court Judge Denise Cote sentenced former DAP executives Benito Chinea and Joseph DeMeneses to four years in prison each for conspiracy to violate the anti-bribery provisions of the FCPA and the Travel Act. Judge Cote also ordered Chinea and DeMeneses to forfeit $3,636,432 and $2,670,612, respectively. As reported in our FCPA Winter Review 2015, on December 17, 2014, Chinea and DeMeneses pleaded guilty to conduct relating to their involvement in a scheme to conceal improper payments given to an official in Venezuela's state-run development bank in exchange for trading business that earned more than $60 million for DAP. "The extent of the misconduct here is extraordinary," remarked Judge Cote at the sentencing. See our FCPA Summer Review 2014 and FCPA Summer Review 2013 for information on DAP-related enforcement actions.
On January 22, 2015, the SEC entered into an administrative settlement with Walid Hatoum, former President of PBSJ International and former officer of PBSJ, for alleged violations of the anti-bribery, internal controls, and books and records provisions of the FCPA (see Cease and Desist Order). The same day, PBSJ entered into a DPA with the SEC, discussed above.
In the SEC Order against Hatoum, the SEC asserted that, through Hatoum, PBSJ and PBSJ International offered bribes to a Qatari foreign official in the scheme described here. The SEC also alleged that the approximately $1.4 million in payments Hatoum authorized to the foreign official were not accurately recorded in PBSJ's books and records. Hatoum allegedly asked subordinates to hide some payments within bids, while other offers and promises to pay, with Hatoum's knowledge, were inaccurately described as legitimate transaction costs.
According to the SEC Order, Hatoum, a U.S. citizen, submitted a settlement offer to the SEC, which the SEC determined to accept. Hatoum agreed to pay a penalty of $50,000 and to appear and be interviewed by the SEC. Hatoum did not admit or deny the SEC's findings.
On January 6, 2015, a federal grand jury in the Eastern District of Pennsylvania issued a 14-count indictment against Dmitrij Harder, a Russian national and permanent resident alien of the United States, for his alleged role in bribing a foreign official at the European Bank for Reconstruction and Development ("EBRD"). The indictment alleges FCPA anti-bribery, money laundering, and Travel Act violations and related conspiracy charges, and gives notice that the government will seek forfeiture of any proceeds traceable to the commission of the charged offenses. Harder pleaded not guilty on January 13. Harder was released on $100,000 bail, and his movement was restricted to certain family and business-related travel in the eastern United States.
Harder's indictment marks the DOJ's first individual FCPA prosecution of 2015. The case is also noteworthy because the alleged bribe recipient qualifies as a "foreign official" not because he worked for a foreign government entity, but because he worked for a "public international organization," as that term is defined under the FCPA.
Harder was the president and owner of the Chestnut Consulting Group, Inc. and Chestnut Consulting Group, Co., incorporated in Pennsylvania and Delaware, respectively. Those companies (collectively referred to as the "Chestnut Group") offered consulting services to companies seeking financing from multilateral development banks. It was the Chestnut Group's dealings with one such bank, the EBRD, which gave rise to Harder's indictment. The EBRD was founded in 1991, with the goal of helping central and eastern European former communist countries as they transitioned to market economies. That same year, the President of the United States issued an executive order designating the EBRD as a "public international organization" under 22 U.S.C. § 288. Over 60 countries and organizations own shares in the EBRD, and their initial and continuing financial contributions serve as the Bank's capital base. That capital is used primarily for investment in projects in the countries that the Bank serves. Certain officials at the EBRD are responsible for reviewing applications from those seeking project financing, which often comes in the form of loans and equity investments.
In or around 2007, the indictment alleges, several companies hired the Chestnut Group to assist them in acquiring financing from the EBRD. According to the indictment, Dmitrij Harder bribed the EBRD official responsible for reviewing the companies' applications. One alleged scheme involved "Company A," a Russian-based oil and gas company seeking funds for a development project in Russia. The company agreed to pay Chestnut a "success fee" of a certain percentage of the funds it obtained from the EBRD. The EBRD official reviewing Company A's application had been a business associate of Harder since at least 1999. At the official's recommendation, the EBRD extended an $85 million equity investment and, later, a €90 million (approximately $114 million) loan to Company A. After these funds were dispensed, Company A paid the success fee to Chestnut. Harder, in turn, allegedly wired money to the EBRD official's sister in payment for consulting services she never performed for Chestnut. All told, Chestnut received $2.9 million in success fees from Company A, and Harder allegedly paid the official's sister $1.06 million.
Under a similar alleged scheme, Company B, a U.K.-based gas company, received a $40 million equity investment and a $60 million convertible loan. That company paid Chestnut $5 million in success fees, and Harder again reportedly paid roughly $2.5 million to the EBRD official's sister.
On February 9, 2015, the U.S. Court of Appeals for the Eleventh Circuit affirmed Jean Rene Duperval's convictions for conspiring to commit money laundering and concealment of money laundering and his nine-year sentence followed by three years of supervised release, for his role in accepting bribes while working for Telecommunications D'Haiti ("Haiti Teleco"). Duperval, the former Director of International Affairs at Haiti Teleco, was convicted of conspiracy to commit money laundering and concealment of money laundering. He was not charged under the FCPA itself because the statute does not create liability for foreign bribe takers. See our FCPA Spring Review 2010, FCPA Summer Review 2010, FCPA Autumn Review 2010, FCPA Winter Review 2010 and FCPA Autumn Review 2011 for background on the Haiti Teleco prosecutions.
As previously discussed in our FCPA Spring Review 2012, Duperval, was convicted on March 13, 2012, following a jury trial. As reported in our FCPA Summer Review 2012, on May 21, 2012, Duperval was sentenced to nine years in prison and ordered to forfeit $497,331. He filed his appeal on June 5, 2012.
The Eleventh Circuit opinion from Circuit Judge William Pryor addressed five arguments raised by Duperval, including that there was "insufficient evidence for the jury to find that Teleco was an instrumentality of Haiti." United States v. Duperval, 777 F.3d 1324, 1333 (11th Cir. 2015). The unlawful act underlying the money laundering charges in this case was an alleged violation of the FCPA. Thus, in order to prove money laundering, the government had to establish that the funds arose from the proceeds of an FCPA violation. Moreover, in order for the predicate act in this case to be considered an FCPA violation, the government had to establish that Haiti Teleco was an instrumentality of Haiti. The definition of an entity as an "instrumentality" is important because it determines the scope of the term "foreign official" under the FCPA. As reported in our FCPA Summer Review 2014, the Eleventh Circuit previously took up this question in another closely watched Haiti Teleco case, involving Joel Esquenazi and Carlos Rodriguez, two executives in a U.S. telecom company. Acknowledging that "[o]ur review of the sufficiency of the evidence is controlled by our recent decision in the appeal by Duperval's co-conspirators[,]" the Court stated, "we recently explained that an instrumentality is 'an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.'"
The Court rejected Duperval's argument that Haiti Teleco was not a government instrumentality, concluding, "the jury could have reasonably found that [Haiti] Teleco was an instrumentality of Haiti." In particular, the Court pointed to evidence "that the Central Bank of Haiti owned 97 percent of the shares of Teleco; the government had owned its interest since about 1971; the government appointed the board of directors and the general director of Teleco; the government granted Teleco a monopoly over telecommunication services; and the ‘government, officials, everyone consider[ed] Teleco as a public administration.'" The Court also noted that "[i]n Esquenazi and this appeal, the government introduced almost identical evidence about Teleco…."
Importantly, the Court also rejected Duperval's argument that the district court erred in refusing to "instruct the jury on the exception to the FCPA for routine governmental action." Under this exception, also known as the facilitating payments exception, the FCPA exempts payments to foreign officials in connection with expediting routine actions the official ordinarily performs, such as processing governmental paperwork or providing police protection. The Court emphasized the limited nature of this exception and concluded that Duperval's interpretation of the FCPA to allow "rewarding" of a decision-maker for administering a contract "would provide an end-run around the provisions of the Act" and "finds no support in the text of the Act."
The Court also held that the government did not violate Duperval's due process right to call a witness when it assisted Jean Max Bellerive, the Prime Minister and acting Minister of Justice and Public Safety of Haiti, to prepare a second declaration which explained "that [Haiti] Teleco was a part of the public administration of Haiti, that the first declaration [which stated that Haiti Teleco was not a state enterprise] was prepared for internal purposes, and that Bellerive did not know that the first request was related to a criminal trial in the United States." The Court stated that "Duperval offered no evidence that the government substantially interfered with Bellerive" and "also failed to prove that Bellerive would have testified at trial."
Judge Pryor's majority opinion also concluded that "the district court did not abuse its discretion when it declined to question the jurors individually" regarding mid-trial publicity. Two media-related incidents were at issue -- first, an "article brought to the attention of the district court reported on President Aristide and the corruption in his administration" and, second, a note from "juror number one . . . about her awareness of corruption in Haiti."
Finally, the Court also considered arguments regarding Duperval's sentence, ultimately upholding it as not procedurally or substantively unreasonable.
During the first quarter of 2015, the DOJ experienced more FCPA-related personnel changes. As reported in our FCPA Winter Review 2015, in late 2014, President Obama nominated Loretta Lynch, the current U.S. Attorney for the Eastern District of New York, to replace outgoing U.S. Attorney General Eric Holder. While not yet confirmed, most observers believe that Lynch eventually will be confirmed. Lynch's responses to questions posed by senators on the issue of FCPA enforcement suggest that Lynch will largely continue DOJ's current course on FCPA enforcement. In her answers, Lynch specifically declined to support the reforms to the FCPA and its enforcement proposed by the U.S. Chamber of Commerce, including adding a compliance defense to the FCPA, narrowing the definition of "foreign official," and setting additional limitations on successor liability, parent-subsidiary liability, and corporate criminal liability. Lynch also declined to identify any potential changes to the DOJ's policies on issues such as sharing information regarding declinations and speedier resolution of FCPA enforcement actions.
Also as reported in our FCPA Winter Review 2015, in early January 2015, the DOJ tapped Andrew Weissmann to serve as the new Chief of the Fraud Section, replacing Jeffrey Knox, who left for private practice in September 2014. In his new position, Weissmann will oversee FCPA enforcement. Interestingly, Weissmann, while in private practice, drafted the U.S. Chamber of Commerce report that made the same reform proposals that Lynch rejected as discussed above. Weissmann also testified to Congress, on behalf of the Chamber, criticizing the state of FCPA enforcement and arguing in favor of the Chamber's reform proposals. Lynch was asked about Weissmann's positions as a part of her confirmation and her answer emphasized that he made his comments "while in private practice and in connection with his representation of the [Chamber]."
At the end of March 2015, another Fraud Section employee, senior deputy chief James Koukios, left the DOJ, reportedly for private practice. While at the DOJ, Koukios served as a senior trial attorney and assistant chief of the FCPA Unit and later became a senior deputy chief with responsibility over FCPA enforcement. Two FCPA cases Koukios was involved in that have been in the news recently include the prosecution of employees of Direct Access Partners and the prosecution of Esquenazi and Rodriguez in the Haiti Teleco case. Finally, Jason Jones also left the Fraud Section this past quarter for private practice; Jones joined the Fraud Section's FCPA unit in February 2012 as an assistant chief. The DOJ named three new assistant chiefs for the Fraud Section's FCPA unit after Jones left: Tarek Helou, Laura Perkins, and Leo Tsao.
During the last quarter, several important developments occurred relating to the Brazilian government's investigation into alleged corruption at Petroleo Brasileiro S.A. ("Petrobras"), known as "Operation Car Wash," including the resignation of the company's president and the announcement of an investigation of 54 individuals, including many prominent Brazilian politicians. We previously reported on the Petrobras investigation in our FCPA Winter Review 2015.
On February 5, 2015, the Brazilian newspaper O Estado de São Paulo disclosed the cooperation deal executed by Pedro Barusco, a former service manager from Petrobras, with the Brazilian Federal Public Prosecutor's Office. According to Barusco, the Brazilian Workers Party, to which President Rousseff also belongs, collected up to USD $200 million in bribes between 2003 and 2013 through a corruption scheme involving construction companies, Petrobras employees, and senior politicians. As part of his cooperation deal, press reports indicate that Barusco agreed to return over USD $58 million in proceeds from his bribery to Brazilian authorities, which he hid in various Swiss bank accounts.
On February 6, 2015, according to press reports, the President of Petrobras, Maria das Graças Silva Foster, and five other Petrobras directors resigned from the company. The executives had been under fire since the corruption scandal involving Petrobras became public. Brazilian President Dilma Rousseff replaced Foster, who worked for Petrobras for 30 years and was its president since February 2012, with Aldemir Bendine, the former president of Banco do Brasil.
On March 4, 2015, the Attorney General of Brazil requested permission from the Brazilian Supreme Court to investigate 54 people who may have been involved in Petrobras-related corruption, including the President of the Brazilian House of Representatives, Eduardo Cunha; the President of the Brazilian Senate, Renan Calheiros; former president and current senator Fernando Collor; and many other high-level politicians. On March 6, 2015, the Brazilian Supreme Court approved the criminal investigation against the individuals, who are officially accused of corruption and money laundering.
On March 20, 2015, the Brazilian Federal Public Prosecutor's Office and the Brazilian Administrative Counsel of Economic Defense ("CADE") signed a leniency agreement with Setal Engenharia e Construções ("Setal"), SOG Óleo e Gás S.A. ("SOG"), and former and current employees from these construction companies. CADE is the Brazilian agency in charge of antitrust enforcement. As reported by CADE, the signatories of the leniency agreement admitted to their participation in a cartel of construction companies that conspired to fix contract prices with Petrobras. The leniency agreement specifically indicates that the companies colluded to fix prices, avoided participation in public procurement, and admitted to shared markets, among others unlawful practices.
On March 25, 2015, the Globo reported that the Brazilian Comptroller General of the Union (CGU) declared it had received and was currently analyzing five leniency requests under the Brazilian Clean Company Act. According to the Globo, CGU received the leniency requests from OAS, Galvão Engenharia, Engevix, and SOG, as well as from the Dutch company SBM Offshore. The leniency requests relate to the companies' suspected involvement in bribing Petrobras employees, which is currently under investigation by CGU. If proven, these allegations may cause Brazilian authorities to impose fines and debar the companies from executing new contracts with Petrobras.
On March 27, 2015, Reuters reported that the Brazilian Federal Police arrested Dario Galvão, the CEO of the construction group Grupo Galvão. Federal Judge Sergio Moro identified Galvão as the "mastermind" of his company's alleged corruption scheme with Petrobras. In particular, Judge Moro found that Federal Public Prosecutors had evidence of crimes committed by Galvão from 2008 until 2014 and that Galvão's liberty would pose a risk of additional crimes.
On March 30, 2015, the Globo reported that Dalton Avancini, the current CEO of construction company Camargo Corrêa, who was reportedly involved in the Petrobras bribe scheme, was released from prison. As reported by the Globo, Avancini will serve his sentence from home after signing a cooperation agreement with the Prosecutor's Office, in which he disclosed information exposing corruption related to the construction of the Belo Monte hydroelectric dam in northern Brazil.
The Valor Econômico reported on April 2, 2015, that certain Petrobras shareholders filed lawsuits against Petrobras claiming they had suffered damages as a result of the corruption scandal. A group of investment pension funds holding Petrobras shares from Luxembourg, Norway, and Denmark filed one of the suits and are claiming damages varying from USD $222 million to USD $267 million.
Finally, Reuters reported on April 10, 2015, the most recent ramification of Operation Car Wash. According to the report, three former congressmen have been arrested and accused of taking bribes in exchange for helping a public relations firm and a biotech lab retain business with the Brazilian state-owned bank Caixa Econômica Federal and the Brazilian health ministry.
Federal Guidelines for the Brazilian Clean Company Act
On March 18, 2015, President Rousseff enacted Decree 8.420/15, approving the Federal Guidelines for the Brazilian Clean Company Act ("the Guidelines"). Although the Clean Company Act has been in force since early 2014 (see FCPA Spring Review 2014), the Guidelines establish important standards for evaluating compliance programs and assessing fines under the law. The Guidelines also stipulate the general parameters for the application of administrative sanctions under the Clean Company Act, provide rules for leniency agreements, and establish that CGU has exclusive competence for the execution of leniency agreements in the Federal Executive Branch.
Compliance Programs: The Guidelines encourage the adoption of anti-corruption compliance programs and sets forth the requirements of an effective compliance program, such as: the implementation of codes of ethics and conduct, commitment from senior management, training of employees and third parties, monitoring and periodic audits, creation of a hotline for guidance and reporting, effective procedures ensuring that unlawful activity will be detected and investigated, disciplinary measures in case of wrongdoing, and due diligence on third parties.
Calculating Fines: The Guidelines also set forth criteria for federal authorities to calculate penalties for practice of unlawful acts under the law. The Guidelines establish that fines will range between 0.1% to 20% of the gross revenues of the company the year before the commencement of the administrative procedure against the company.
In order to assist in calculating penalties, the Guidelines list a number of mitigating and aggravating factors that can affect the size of a penalty. Mitigating factors include: compensating victims, self-disclosure, and the existence of an effective compliance program. Aggravating factors include: the recurrence of the act, management's tolerance of the conduct, and the infraction's continuity over time.
Federal Guidelines from CGU for the Brazilian Clean Company Act
Following the issuance of Decree No. 8.420/15, on April 8, 2015, CGU issued additional guidelines for the enforcement of the Clean Company Act.
CGU Normative Ruling No. 1/2015 establishes the methodology for determining of the gross revenue of a company that has violated the Clean Company Act for purposes of calculating the fine. Ordinance CGU No. 909/15 details how CGU will evaluate the effectiveness of a compliance program of a company that violates the Clean Company Act for purposes of reducing its fine between 1% and 4%. These standards will also be applied by CGU to assess the efficiency of compliance programs for companies under leniency agreements.
Ongoing Prosecution of Alstom
According to media sources, on January 28, 2015, Judge Nicholas Loraine-Smith of Southwark Crown Court ordered an eight-week trial of Alstom Network UK ("Alstom Network," a U.K. unit of French conglomerate Alstom), and two of its former employees. As reported in our FCPA Winter Review 2015, Alstom settled the second largest FCPA action to date with U.S. authorities in December 2014, and the SFO continues to prosecute two U.K. Alstom units for alleged bribery offenses under the U.K.'s prior anti-corruption laws. Alstom Network is accused of bribery related to large transport projects in India, Poland, and Tunisia; and Alstom Power is accused of bribery in connection with a power plant in Lithuania. The trial of Alstom Network is reportedly scheduled to start in May 2016, and Alstom Power's trial has yet to be scheduled. Notably, Reuters reports, in the recent hearing, the court reportedly heard that a third Alstom trial may be necessary to address allegations related to Hungary, for which the SFO has not yet brought charges, suggesting that the SFO's ongoing prosecutions of Alstom units may continue to expand.
Two Individuals Sentenced under Prior Anti-Bribery Laws
On February 12, 2015, Southwark Crown Court sentenced two employees of U.K. printing company Smith and Ouzman Ltd. for bribery of officials in Kenya and Mauritania, in violation of the U.K.'s prior anti-corruption laws (which apply to conduct committed before the U.K. Bribery Act went into force on July 1, 2011). According to the SFO's press release, the court sentenced Smith and Ouzman's chairman, Christopher John Smith, to 18 months imprisonment, 250 hours of unpaid work, and a three-month curfew. The court sentenced Nicholas Charles Smith, the company's sales and marketing director (and the chairman's son), to three years imprisonment. Both defendants are disqualified from acting as company directors for six years. The SFO stated that the company itself was also convicted of the same offenses and will be sentenced at a later date. As reported in our FCPA Winter Review 2015, the SFO noted that this case marks the first convictions secured by the office against a company for foreign bribery following a contested trial.
On February 19, 2015, the Royal Canadian Mounted Police ("RCMP") charged SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc., and its subsidiary SNC-Lavalin International Inc. (collectively "SNC"), with one count of fraud under Section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of Canada's Corruption of Foreign Public Officials Act. According to The Globe and Mail, the RCMP charged SNC, one of the world's leading engineering and construction firms, after the company rejected a settlement deal that would have triggered a 10-year ban on entering into Canadian government contracts.
According to an RCMP press release, Canadian officials accuse SNC of paying CAN$47.7 million in bribes to Libyan government officials between 2001 and 2011. The RCMP also alleged that the company defrauded various Libyan public agencies of approximately CAN$129.8 million. As the National Post reported, the major recipient of SNC's illegal payments is alleged to be Saadi Gaddafi, son of dictator Muammar Gaddafi, who had close ties to SNC's former senior executive Riadh Ben Aissa. According to the CTV News, an RCMP affidavit, which has since been resealed, maintained that Mr. Ben Aissa established a scheme in which two companies billed SNC approximately CAN$127 million for helping SNC receive a number of major contracts in Libya.
In October 2014, Switzerland's Federal Criminal Court sentenced Mr. Ben Aissa to 29 months in prison and ordered him to forfeit approximately USD$41 million for fraud, corruption, and money laundering related to the Libya scheme. According to the CBC, Mr. Ben Aissa has since been extradited to Canada where he faces fraud charges for an unrelated scheme to defraud the McGill University Health Center.
In a press release, SNC characterized the RCMP's charges as being without merit, stating,
"[t]hese charges related to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company." SNC emphasized its extensive efforts to improve ethics and compliance, stating "[o]ver the past three years, we have made significant changes to the company and remain focused on continuous improvements in ethics and compliance."
These are the first charges by the Canadian government against SNC. In 2013, the World Bank debarred the company for 10 years over alleged corruption in Bangladesh and Cambodia (see FCPA Summer Review 2013).
On March 9, 2015, according to media sources, Greek authorities announced the indictment of 64 Greek and German nationals on charges of bribery and money laundering. The charges relate to Siemens AG ("Siemens")'s sale of equipment to state-owned Hellenic Telecommunications, otherwise known as OTE. In particular, the authorities allege that Siemens paid bribes to Greek officials, including members of the socialist Pasok party and senior officials of the Greek government who brokered contracts between Siemens and OTE. The Greek government claims that the bribes cost the state €2 billion. The group of 64 individuals charged includes former Siemens and OTE officials allegedly involved in Siemens' payment of bribes from the mid-1990s through 2007.
These indictments are not the first enforcement action relating to Siemens' alleged bribery of OTE officials. As reported in our FCPA Autumn Review 2012, on August 23, 2012, Siemens agreed to pay €330 million to settle allegations the company paid bribes to win contracts with OTE. The DOJ's 2008 information against Siemens further discusses bonus payments made to OTE employees by a Siemens manager. Siemens' $800 million 2008 settlement with the DOJ and SEC remains the largest FCPA enforcement action to date (see December 2008 FCPA Alert).
Chile, a country not known to be particularly corrupt and that is ranked just behind the United States on Transparency International's 2014 Corruption Perceptions Index, is experiencing its largest corruption scandal in recent history. At the center of the alleged scheme is Grupo Penta, a Chilean holding company specializing in insurance, healthcare, and education.
According to press reports (see articles on rt.com, clarin.com, bbc.co.uk, and infobae.com), last August, the Chilean Internal Tax Authority ("Servicio de Impuestos Internos" or "SSI") reported to the Public Ministry that a number of people related to the Grupo Penta were engaged in a fraudulent scheme valued between $260 million and $660 million. The alleged scheme involved the payment of bribes to Chilean tax officials to help companies avoid paying taxes. Hugo Bravo, the former director of Grupo Penta's subsidiary, Banco Penta, who is allegedly cooperating with Chilean authorities, is said to have reported that Groupo Penta's owners, Carlos Delano and Carlos Lavin, used money saved in the scheme to make illegal donations to Chilean politicians who were members of Chile's right-wing Independent Democratic Union ("Unión Demócrata Independiente" or "UDI").
On March 7, 2015, Santiago-based judge Juan Manuel Escobar ordered the continued imprisonment of six defendants while enforcement authorities conduct their investigation. The defendants include Bravo, Delano, and Lavin as well as former Penta accounting manager, Marcos Castro, a Chilean tax official, Iván Álvarez, and a former Chilean deputy mining minister, Pablo Wagner. In addition, Chilean authorities placed Manuel Antonio Tocornal, a former Penta General Manager, and Juan Martinez, a Chilean tax official, under house arrest. Samuel Irarrázaval, Penta's legal representative, and Carlos Bombal, a former UDI senator, were reportedly placed under police supervision.
Grupo Penta also faces liability and potential penalties pursuant to law no. 20,393, which introduced corporate liability for bribery and other offenses in 2009. While criminal fines for companies are capped at around $1 million dollars, companies can be banned from public procurement or liquidated if they engage in a criminal act after having been convicted or if they are found to have repeatedly broken the law. Miller & Chevalier Member Matteson Ellis has previously written on the subject of corporate liability for bribery committed by employees of Chilean corporations in the FCPAmericas blog.
On March 3, 2015, the National Assembly of South Korea passed a new anti-corruption law seeking to reduce graft by government officials. The law, according to The Wall Street Journal and other publications, broadens the scope of existing anti-corruption regulations by criminalizing the receipt of cash or gifts worth more than one million (approximately $900) won by public officials, even if the cash or gifts are not directly related to their duties. The law also covers receipts of benefits by spouses of public officials and, somewhat controversially, journalists and teachers. Violations of the law are punishable by up to three years in prison and fines.
Notably, the new legislation also allows for the imposition of corporate liability. A company may be held liable if its employee or agent violates the provisions of the law, unless it can show that it exercised due care and had procedures in place to prevent such violations.
A significant aspect of the new law is the elimination of the requirement of a direct link between a gift to a public servant and a specific benefit in favor of the gift-giver. South Korea already has laws imposing limits on gifts and regulating disclosure of gifts and assets by certain public officials, as well as criminalizing certain forms of corrupt activity. The existing requirement that gifts be linked to specific favors, however, gave rise to concerns that many instances of corruption were cloaked behind long-standing relationships between businesspeople and government officials, in which gifts were provided in exchange for later favors, rather than a specific immediate action. The loosening of this requirement is likely to increase, or at least facilitate, the prosecutions of public officials for bribery.
The new legislation is a significant development in a country that is as well known for its rapid economic growth as it is for exchanges of personal favors and for corruption in the public sector. South Korea is ranked 43rd on Transparency International's Corruption Perception Index for 2014, behind many other developed nations. A particular problem for South Korea is its culture of gift-giving, often involving cash, which sometimes blurs the line between bribes and social norms. In a recent address to the OECD Integrity Forum in Paris, Lee Sung-bo, chairman of South Korea's Anti-Corruption & Civil Rights Commission, emphasized that the new law will bring South Korea into compliance with its obligations under the OECD Convention. Mr. Lee noted, "I am convinced that a series of moves to fight corruption, including the enactment of the new act, will contribute to solving fundamental causes of corruption in Korean society."
The new law has, nonetheless, generated some controversy because of its broad scope. Press reports suggest that the law was rushed through the legislature due to public pressure. However, President Park Geun-hye has urged its ratification, and the law is expected to go into effect in October 2016.
According to press reports, in February 2015, the Australian Federal Police ("AFP") arrested three executives from Lifese Engineering, an Australian engineering and construction firm, for attempting to provide an AUS$1 million bribe to an Iraqi public official in an effort to win multimillion dollar contracts in Iraq. Two directors of Lifese, brothers Mamdouh and Ibrahim Elomar, as well as a third official, John Jousif, have been charged with bribery of foreign officials pursuant to section 70 of the Criminal Code Act, which was adopted in 1999 following Australia's ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Each defendant is currently out of jail on AUS$10,000 bail and has been forced to surrender his passport. The Lifese executives face jail sentences of up to 10 years if found guilty of the bribery charges.
Although this is the only the second foreign bribery case to appear before Australian courts in 15 years, Australian commenters believe the case indicates an increased emphasis on fighting foreign corruption by the AFP. AFP officials have stated that the agency has 14 active foreign bribery investigations at this time. Furthermore, Linda Champion, ATF's Manager of Fraud and Anti-Corruption, stated that AFP is determined to review all allegations "that Australian companies or citizens are circumventing lawful processes when pursuing business opportunities [abroad]." Neville Tiffen, director with Transparency International Australia and former head of global compliance for Rio Tinto, also commented: "If I was a director of any company I'd be really checking my compliance programs, not just for the sake of the company but for the sake of the shareholders and even for my own sake."
On February 5, 2015, Judge Richard J. Leon of the U.S. District Court for the District of Columbia rejected a proposed DPA between the United States government and the Dutch company Fokker Services B.V. ("Fokker"). While the charges facing Fokker arose out of alleged violations of U.S. export laws, the case signals a growing willingness on the part of courts to scrutinize DPAs carefully, and as such has implications for both the DOJ and defendants in FCPA cases.
DPAs have become a common tool used by the DOJ to settle FCPA allegations. In 2014 alone, the DOJ entered into five DPAs with corporate defendants. The decision in Fokker highlights the need for both the DOJ and FCPA defendants to weigh the risks of resolving pending cases with a DPA. Indeed, Judge Leon acknowledged that the court "would have no role . . . if the Government had chosen not to charge . . . criminal conduct -- even if such a decision was the result of a non-prosecution agreement."
Instead, Judge Leon found that once faced with a request to approve a DPA, the Court has an obligation to "uphold the integrity of the judicial process" (citing Brandeis, J., dissenting, in Olmstead v. United States, 277 U.S. 438, 483-85 (1928)) by refusing to "[give] the Court's stamp of approval to either overly-lenient prosecutorial action, or overly-zealous prosecutorial conduct." He concluded that the courts must exercise their supervisory power over the administration of justice to determine whether to approve or reject a DPA. In doing so, Judge Leon concluded, the Court must "[weigh] the seriousness of defendant's offense against the potential harm to innocent parties that could result should [the] prosecution go forward."
An examination of the circumstances of the Fokker case or the appropriateness of the weight attached by Judge Leon to those circumstances is beyond the scope of this commentary and is not intended here, but a review of the decision does provide the prospective parties to FCPA DPAs with some sense of the factors that may be weighed by the court from which approval of the DPA is sought, including:
- whether the violations were knowing and willful;
- whether senior management orchestrated or participated in the violations;
- whether egregious conduct continued over a sustained period of time and whether the length of the proposed probationary period is appropriate in the circumstances;
- whether the amount of the agreed fine exceeds the amount of any revenues or other benefits collected as a result of the illegal transactions;
- whether individuals involved in the illegal conduct are being prosecuted or being permitted to remain with the defendant company;
- whether the violations caused harm to national security;
- whether the DPA calls for an independent monitor or for periodic reports to DOJ or the Court regarding compliance with U.S. law during the pendency of the DPA; and
- whether the defendant's voluntary self-disclosure and/or other cooperation and remediation efforts as well as its financial condition supports the DOJ's position that the DPA appropriately punishes the defendant while allowing for rehabilitation.
In rejecting the DPA as too lenient in light of these factors, Judge Leon appeared to place particular importance on the amount of the fine, the length of the probationary period, and the lack of a monitor who could "verify for [the court] and the Government that [the defendant] truly is on the path to complete compliance" -- all factors which would tend to increase the duration and cost of a DPA.
If intense judicial scrutiny of DPAs continues, the risk that a court will refuse to approve a negotiated DPA likely will weigh heavily on a company's decision to disclose potential FCPA violations to the government, just as the desire to secure DPA terms that will prove acceptable to the courts will impact the DOJ's negotiating stance once a potential violation is disclosed.
Editors: Kathryn Cameron Atkinson, James G. Tillen, Matthew T. Reinhard, Marc Alain Bohn,* and Austen Walsh*
Contributors: Adam Braskich,* Kuang Chiang,* Abigail Cotterill,* Ben Gao*, Alice Hsieh,* Maryna Kavaleuskaya, Nate Lankford, Barbara Linney,* Claire Rickard Palmer,** Katherine Pappas, Eloy Rizzo, Michael Skopets,* Ann Sultan, and Saskia Zandieh*
*Former Miller & Chevalier attorney
**Former Miller & Chevalier consultant
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