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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.
The relatively sparse judicial caselaw on the FCPA expanded last week with a new opinion interpreting the "public international organization" language in the statute. In an opinion denying the defense's Motion to Dismiss an indictment originally brought in 2015, Judge Paul Diamond of the United States District Court for the Eastern District of Pennsylvania found that the FCPA "plainly" applies to public international organizations. United States v. Dmitrij Harder, No. 2:15-cr-00001 (E.D. Pa. Mar. 2, 2016). Combined with the Eleventh Circuits 2014 opinion in Esquenazi, the contours of the types of foreign government entities subjecting defendants to FCPA sanctions are beginning to be fleshed out. (Previous FCPA Scorecard coverage of the Esquenazi case can be found here.) Dmitrij Harder - a Russian national, German citizen, and U.S. permanent resident - owned and operated two consulting companies that, in 2007 and 2009, assisted two different independent energy companies in obtaining financing from the European Bank for Regional Development (the "EBRD"). The EBRD is a multilateral development bank founded in 1991 to foster the growth of businesses operating in the former Soviet Union. Today it invests throughout Europe and is jointly owned by sixty-four countries. The DOJ charged Harder in 2015 with 14 counts of violating the FCPA, the Travel Act, and money laundering. The government alleged that the energy companies entered into agreements with Harder whereby they agreed to pay him success fees upon receiving financing from the EBRD. After both companies obtained sizable investments from the EBRD - one company received an $85 million investment; the other a $40 million investment and $60 million loan - they allegedly paid Harder success fees totaling almost $8 million. Shortly after the success fees were paid, Harder allegedly wired payments totaling almost $3.5 million to the sister of an EBRD official. The government alleged that the sister of the EBRD official entered into sham consulting agreements with Harder's companies, making it appear that the payments were made for services rendered under the agreements, but no such services were actually performed. In arguing for dismissal of the FCPA counts of the indictment, Harder challenged the sufficiency of the Indictment on several bases, including a failure to plead the involvement of a "foreign official," and that the Indictment impermissibly substituted the phrase "foreign government or instrumentality thereof" with "public international organization" in reciting the fourth of the FCPA's proscribed corrupt purposes: "inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality." 15 USC 78dd-2(a)(3)(B). On the first challenge, Judge Diamond rejected the idea that officials of EBRD could not qualify as "foreign official[s]" within the FCPA's prohibitions. Op. at 6; see also Op. at 8 (noting that "whether EBRD falls within the FCPA's ambit is necessarily a 'fact-bound question' properly decided by a jury"). On the second challenged, Harder had maintained that permitting the government to substitute "public international organization" into the statute would create an entirely new offense with no basis in the statute. Rejecting this argument, Judge Diamond pointed out that public international organizations are themselves "an association of foreign governments." Op. at 7. He reasoned that refusing to allow this substitution in the language of indictments where a public international organization, rather than a foreign government, is involved would "make it impossible to prosecute any public international organization employee who unlawfully used his position," calling this "an absurd result" in light of Congress' decision to include public international organizations within the scope of the FCPA. Op. at 7. Harder also raised two challenges to the constitutionality of the FCPA's inclusion of the EBRD. In 1998, the FCPA was amended to include employees of public international organizations within the scope of the Act's prohibition on certain corrupt payments. The 1998 amendments brought employees of two groups of public international organizations within the scope of the FCPA; (1) those organizations that the President declares by Executive order are covered by the FCPA, and (2) those organizations identified pursuant to the International Organization Immunities Act ("the IOIA"), 22 USC 288. The IOIA allows the President, acting by executive order, to provide public international organizations in which the US participates with legal capacity, certain immunities, and privileges under US law. In 1991, the EBRD was designated a public international organization under the IOIA, and so it became subject to the FCPA after the 1998 amendments. First, Harder argued that the FCPAs inclusion of the EBRD and other public international organizations violates the non-delegation doctrine, which provides that where Congress delegates legislative authority it must do so with "an intelligible principle" to guide the exercise of the delegated authority. United States v. Cooper, 750 F.3d 263, 270 (3d Cir. 2014). Harder argued that Congress, by allowing the President to expand the list of public international organizations covered by the FCPA by executive order, impermissibly delegated its legislative function to the executive branch. Judge Diamond rejected this argument, finding that the legislative scheme enacted by Congress constrains the President's ability to add public international organizations to the scope of the FCPA, and that the clearly stated purposes of the FCPA provide sufficient guidance. Op. at 9-11. Second, Harder argued that the FCPA's inclusion of the EBRD violates the void-for-vagueness doctrine, which provides that a criminal law is void if it fails to define the offense in a way that "ordinary people can understand what conduct is prohibited" and in a way that does not encourage "arbitrary and discriminatory enforcement." Skilling v. United States, 561 U.S. 358, 402-403 (2010). Harder argued that the somewhat circuitous route by which the EBRD was made subject to the FCPA renders the law unconstitutionally vague because it would require individuals to monitor whether a particular public international organization has been the subject of an executive order that subjects it to the FCPA. Judge Diamond rejected this argument also, finding that an ordinary person could research the status of a public international organization. Judge Diamond also pointed out that there is a publicly available list of all public international organizations subject to the FCPA, and that the FCPAs knowledge requirement alleviated any concern that a defendant might unwittingly violate the FCPA. Op. at 13.
Federal Court Releases Transcript of Wire Recording Between Former PetroTiger CEO and General Counsel
On January 12, the U.S. District Court for the District of New Jersey released the transcript of a December 2012 wire recording between the former CEO of PetroTiger and the companys general counsel. In rejecting the former CEOs argument that the recording was subject to the attorney-client privilege, the court ruled the recording did not indicate he was receiving or actively seeking legal counsel from his attorney. The former CEO was indicted in May 2014 on charges of violating the FCPA and conspiring to violate the FCPA, as well as wire fraud and money laundering charges. The former CEO, co-CEO, and general counsel allegedly conspired to secure a $39 million oil services contract by making illicit payments of approximately $335,000 to an official at Colombias national oil company which had ultimate authority to approve the contract. They also allegedly defrauded PetroTiger by taking kickbacks in connection with the acquisition of another company by PetroTiger. The former general counsel pleaded guilty in November 2013 to one count of conspiracy to violate the FCPA and commit wire fraud. The former co-CEO also pleaded guilty to the same charges in February 2014.
On January 6, a federal grand jury in Pennsylvania returned a 14-count indictment charging the former owner of the Chestnut Group financial consulting companies with bribing an official of the European Bank for Reconstruction and Development (EBRD). EBRD is a multilateral development bank owned by 64 sovereign nations that "fosters transition to market economies in countries from central and eastern Europe to central Asia and the southern and eastern Mediterranean." According to the indictment, Dmitrij Harder, a Russian national, paid $3.5 million in bribes to the sister of the EBRD official in order to influence the official's actions on financing applications submitted by two separate clients of the Chestnut Group. The indictment alleges that the two clients, both of which conducted oil-and-gas operations in Russia, retained Chestnut Group "despite its relatively small size, distant location from the EBRD, and unproven track record as a financial advisor." The EBRD approved the two applications. Thereafter, the Chestnut Group made payments to the EBRD official's sister, who was retained as a consultant but actually provided no services to the Chestnut Group. The indictment alleges violations of the Foreign Corrupt Practices Act, the Travel Act, the money laundering statute and conspiracy. Mr. Harder's attorney has disputed the charges in media reports.
On September 19, according to media reports, a Chinese court ordered the Chinese subsidiary of GlaxoSmithKline, the UK-based pharmaceutical company, to pay approximately $487 million related to alleged bribery of hospitals and doctors. Five of Glaxo's managers were also convicted after entering guilty pleas, and Glaxo's former country manager was ordered to be deported. Glaxo apologized for the conduct in a statement. Glaxo's Chinese subsidiary was alleged to have bribed hospitals and their doctors to boost prescriptions of Glaxo products, including through payment of large travel and entertainment expenses and other fees, leading to over $150 million in additional revenue. The Glaxo case involves many of the key areas currently affecting anti-corruption practitioners and compliance personnel. For example, allegations were first raised by a whistleblower in 2013, and investigations regarding bribery of foreign state-owned hospitals or their doctors have been rising in the past few years. Here, while the full facts are not yet clear, Glaxo has stated that only commercial (business to business) bribery was at issue, characterizing the conduct at issue as "offer[ing] money or property to non-government personnel in order to obtain improper commercial gains, and . . . bribing non-government personnel."
On January 6, the U.S. Department of Justice (DOJ) announced that two former CEOs of an oil and gas services company had been charged for their alleged involvement in a scheme to violate the anti-bribery provisions of the FCPA and for other related offenses. The DOJ also revealed that the companys former general counsel had entered a guilty plea on bribery and fraud charges related to the alleged schemes. According to two separate Criminal Complaints that were filed in the U.S. District Court for the District of New Jersey, the former CEOs allegedly paid bribes to a Colombian official for his assistance in securing approval of a contract valued at approximately $39 million. They were also charged with attempting to defraud members of the companys board through their attempts to secure kickbacks for themselves as part of an effort to acquire another firm. The Information filed against the former GC provided further details on the bribery and kickback schemes.
On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologiesa U.S.-based energy storage and power-delivery companyfor alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.
- US DOJ indicts eight former Siemens executives as US SEC charges seven, in continuation of long-running FCPA enforcement action.
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- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
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- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
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- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program