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Dmiitry Firtash, the Ukrainian billionaire indicted in 2013 for his alleged role in a conspiracy to bribe government officials in India to permit the mining of titanium minerals, filed a motion to dismiss the indictment on May 9 in a federal district court in Illinois. Firtash also faces money laundering and RICO charges along with five alleged coconspirators. In 2015, an Austrian court denied the United States’ extradition request, but that decision was eventually reversed and Firtash was extradited earlier this year. See previous Scorecard coverage here.
Firtash’s motion to dismiss focuses on the lack of jurisdictional contact between the charged conduct and the United States. It vigorously challenges the jurisdictional basis alleged in the indictment, which was that Firtash’s coconspirators, but not Firtash himself, transferred money through United States correspondent banks, traveled to the United states, and used email accounts and cellular phones hosted on servers in the United States. However, Firtash claims that the indictment fails to allege that any of these contacts have any connection to the alleged bribery scheme and that Firtash himself never entered the United States in connection with the charged conduct, and never made or received any phone calls or sent or received any emails regarding the allegations in the indictment.
The amount and quality of contacts with the United States required to support jurisdiction under the FCPA is a frequently contested issue. The United States has repeatedly taken the position that jurisdiction is proper even where the wrongful conduct took place outside the United States and did not involve any United States companies or citizens, so long as there was some contact with the United States. For example, in the recent Magyar Telekom cases, emails sent through servers hosted in the United States were held to be sufficient to support jurisdiction. See previous Scorecard coverage here. The outcome of Firtash’s motion to dismiss will shed further light on the jurisdictional standard.
Two former executives of a Hungarian telecommunications company, Magyar Telekom, recently agreed to settle their FCPA claims with the SEC and pay related penalties, along with five-year bars against serving as an officer or director of any SEC-registered public company. The company’s former CEO agreed to pay a $250,000 penalty, while its former Chief Strategy Officer agreed to pay a $150,000 penalty. The settlements are still subject to court approval.
The SEC’s case against these individuals was heading to trial this month prior to this week’s settlement. The SEC’s complaint alleged that these individuals used sham contracts to funnel millions of dollars in bribes to foreign officials in Macedonia and Montenegro to win contracts and, importantly, block out competitors including U.S.-traded telecoms. This action was related to similar claims previously brought against Magyar Telekom and its majority owner Deutsche Telekom AG, who settled civil and criminal FCPA charges in December 2011 for $95 million. In February 2017, another former Magyar Telekom executive settled FCPA charges, agreeing to pay a $60,000 penalty without admitting or denying the charges.
These settlements underscore the FCPA’s broad territorial and jurisdictional reach, which can encompass transactions that facially do not even involve U.S. companies. As the SEC’s Stephanie Avakian noted, these individuals were ultimately charged because they “spearhead[ed] secret agreements with a prime minister and others to block out telecom competitors,” and “[the SEC] persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market”.
On February 8th, Tamas Morvai, a former executive of the Hungarian telecommunications company, Magyar Telekom, settled a 2011 civil complaint filed by the SEC. The trial of the remaining co-defendants is scheduled for May 8. As part of the settlement, Morvai agreed to pay a $60,000 civil penalty and did not admit or deny the SEC’s allegations. Morvai also admitted that U.S. courts had jurisdiction over the case. The issue of jurisdiction had been contested; in 2013, the court denied the defendants’ motion to dismiss for lack of personal jurisdiction.
The SEC’s complaint alleged that Morvai, along with two other co-defendants, authorized bribes to Macedonian government officials and others. In 2014, the SEC dropped allegations regarding payments to government officials in Montenegro, substantially narrowing the allegations in the case. Magyar Telekom and its parent, Deutsche Telekom AG, settled allegations regarding payments to government officials in Macedonia and Montenegro with the SEC and DOJ in 2011. Prior Scorecard coverage of the Magyar Telekom investigation can be found here.
This outcome of this lengthy case illustrates that individual defendants can still achieve relatively favorable outcomes when they choose to litigate FCPA cases, even after the corporate defendants have reached a resolution.
On July 14, the SEC moved for leave to file an Amended Complaint in its FCPA enforcement action against three former executives of Magyar Telekom, a Hungarian telecommunications company. The Amended Complaint dropped allegations that the defendants bribed officials in Montenegro, while maintaining allegations of bribery in Macedonia.
While this sort of pre-trial narrowing of the allegations is not unusual, the development is still notable for those willing to litigate FCPA cases against the government. Magyar previously settled with both the SEC and the Department of Justice based on both sets of bribery allegations, even admitting to a detailed statement of facts regarding the alleged bribes in Montenegro in its Deferred Prosecution Agreement. Yet those allegations evidently did not stand up to scrutiny in contested litigation against the individual defendants. As with the SECs recent enforcement action against two Noble Corp. executives (one of whom was represented by Buckley Sandler LLP), it is often the case that individual defendants may have more success defending FCPA charges even where related corporate entities have already admitted or settled those same charges.
Judge Refuses to Find Personal Jurisdiction over Siemens Executive, in Conflict with SDNY Colleagues Ruling in Prior Week
On February 19, 2013, a federal judge granted the motion to dismiss filed by a Siemens executive, Herbert Steffen, on the grounds that the SEC's civil FCPA complaint had failed to adequately allege personal jurisdiction over him, because the allegations were "far too attenuated from the resulting harm to establish minimum contacts." A week earlier, a different judge on the same court had refused to dismiss charges against executives of Magyar Telekom on similar personal jurisdiction grounds.
On February 8, 2013, a federal judge denied the motion to dismiss of several Magyar Telekom executives facing civil FCPA allegations, holding that the SEC had adequately alleged personal jurisdiction because the defendants' alleged conduct was “designed to violate” U.S. securities laws and thus was “directed toward the United States.” On February 22, the Defendants filed a motion to certify the order for interlocutory appeal to the Second Circuit, which was denied on procedural grounds without prejudice to re-file.
In November 2011, Assistant Attorney General for the Criminal Division Lanny Breuer announced that the U.S. Department of Justice would issue "detailed new guidance on the [US FCPA's] criminal and civil enforcement provisions" at some point in 2012. Here is our prior post on the announcement. While the guidance has not yet been released, recent enforcement activity – most notably the August 2012 Pfizer resolution – allows insight into possible directions that the guidance may go. We believe that the DOJ has, through these prior settlements, essentially set the stage for the guidance.
Drumbeat of Compliance Undertakings
In December 2011, Deutsche Telekom and its majority-owned Hungarian affiliate, Magyar Telekom Plc., settled an FCPA enforcement action for a total sanction exceeding $95 million. Part of the resolution called for the companies to undertake a series of compliance measures. The undertakings (here in table/checklist format) allow a look at the FCPA compliance program the DOJ wanted those companies to construct as part of the resolution. Settlements in February (Smith & Nephew), March (BizJet and Biomet), and July (Nordham Group) each contained some form of compliance undertakings, but in many cases, these did little more than repeat the elements of an “effective compliance and ethics program” as set forth at Chapter 8B2.1 of the U.S. Sentencing Guidelines, and did not specify the application of those elements in the anti-corruption context.
Pfizer Settlement: FCPA-Specific “Enhanced Compliance Obligations”
More recently, Pfizer and two components – Wyeth and Pfizer H.C.P. Corp. – resolved an FCPA action for a combined sanction exceeding $60 million. In the deferred prosecution agreement, Pfizer agreed to a detailed series of FCPA-specific compliance undertakings, augmenting the more general rendition of program elements. In part, the enhancements:
- Detail the structure of the company’s compliance program staffing and oversight;
- Mandate the maintenance and content of certain anti-corruption policies and procedures;
- Provide mechanisms and resources for internal compliance reporting;
- Require annual company-wide, corruption-related risk assessments and five market-specific proactive compliance reviews annually;
- Call for acquisitions to be made only after thorough corruption-risk diligence;
- Describe a program of third party diligence and control; and
- Direct a program of biennial FCPA training for specified personnel and directors, and a three-year training rotation for certain third parties.
The entire list of “Enhanced Compliance Obligations” is available on the BuckleySandler website in a table/checklist format, allowing compliance counsel to conduct a quick cross-check of their company’s existing compliance program elements.
Possible Preview of DOJ FCPA Compliance Guidance
When the DOJ releases its FCPA compliance guidance – expected soon – FCPA practitioners will evaluate the guidance to confirm whether existing anti-corruption compliance programs are in line with the DOJ’s announced expectations. Reviewing the “Enhanced Compliance Obligations” contained in the Pfizer deferred prosecution agreement should allow compliance counsel a head start on where the DOJ’s FCPA guidance will lead. When the guidance is issued, we will provide an update and analysis.
As the books closed on FCPA enforcement for 2011, one final enforcement action came through the door: On December 29th, Magyar Telekom Plc. and Deutsche Telecom AG resolved an FCPA enforcement matter for a combined monetary sanction exceeding $95 million. The settlement offers important compliance benchmarks and should provide a useful starting point for anti-corruption counsel planning a risk assessment and/or compliance testing for 2012.
The Deutsche Telecom and Magyar Telekom Action
The two companies resolved the FCPA enforcement matter, which had been disclosed in 2009, in an arrangement involving an Information and a Deferred Prosecution Agreement filed against Magyar Telekom, a Non-Prosecution Agreement for Deutsche Telekom, and an SEC Complaint against both Deutsche Telecom and Magyar Telekom. The conduct in question involved payments through third parties to officials Macedonia and Montenegro.
At the same time the settled action was filed, the SEC charged three former Magyar Telekom executives with violations of the FCPA. None of the individuals is a US citizen. According to the Complaint, the basis for jurisdiction over these individuals rests on their prior status as officers, directors, employees or agents of Magyar Telekom, which was at the time an “issuer” with American Depository Receipts listed on the New York Stock Exchange, and the allegation that email messages in furtherance of the bribe scheme “were sent from locations outside the United States, but were routed through and/or stored on network servers located within the United States.”
Compliance Lessons: Anti-Corruption Program Elements Clearly Set Forth
The Magyar Telekom Deferred Prosecution Agreement contains a section articulating the minimum elements of a Corporate Compliance Program, a common feature of Deferred Prosecution Agreements. These elements describe the company’s compliance obligations in detail and are tailored to corruption-specific risks.
For compliance counsel, the elements described in the Corporate Compliance Program section (transcribed here in table/checklist format) may provide a very helpful tool for planning a program review. Counsel looking for a source to determine whether the elements of a company’s compliance program are up-to-date with the DOJ’s latest settlement can use the linked list as a starting point for a review, which can then be tailored to the specifics of geographical, business model and other risk factors.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable