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On May 24, the SEC announced that it had awarded a whistleblower more than $4.5 million for sending an anonymous tip to a company, triggering an internal investigation within the company to review the allegations, while also sending the tip to the SEC within 120 days of reporting it to the company. Following its internal investigation, the company reported the allegations to the SEC and another agency. As a result of the company’s self-reporting, the SEC initiated its own investigation of the alleged misconduct.
This was the first time a claimant was awarded under SEC Rule 21F-4(c)(3), 17 C.F.R. § 240.21F-3(c), which provides that a whistleblower may be eligible for an award when he or she voluntarily provides the SEC with original information within 120 days of providing it to a company through the company’s internal procedures for reporting allegations of possible violations of law.
The SEC’s whistleblower award order can be seen here.
On May 9, Telefônica Brazil S.A. settled SEC charges that it spent $621,756 on 2014 World Cup tickets and hospitality for Brazilian and foreign government officials. The company will pay $4.125 to settle SEC claims that it violated internal accounting controls and recordkeeping requirements connected to providing 124 World Cup tickets and hospitality to 93 government officials at an average cost per guest of $3,204. The SEC took Telefônica Brazil’s remediation efforts into account, including “enhanced internal accounting controls” and “adopting a new anti-corruption policy and compliance structure.”
The SEC announced this week that it had awarded a whistleblower $37 million for providing “smoking gun” evidence that led to a successful enforcement action; the substance of the underlying case was not described. This was the third largest whistleblower award given since the SEC’s first award in 2012. A second whistleblower received $13 million. The largest whistleblower award remains the one granted in March 2018, $50 million awarded to two banking employees.
The SEC’s whistleblower award order from March 26, 2019 can be seen here.
On February 20, TechnipFMC, a London-based oil and gas services company, reported in a filing with the SEC that it has set aside $280 million as an estimate for the settlement of investigations by U.S., Brazilian, and French law enforcement authorities regarding potential violations of anticorruption laws in several countries. The company’s predecessor, Technip SA, previously paid $338 million to settle FCPA charges brought by the DOJ and the SEC in 2010.
On December 26, Brazil’s Centrais Elétricas Brasileiras S.A. – Eletrobras (Eletrobras or the company) entered into an administrative order to settle the SEC’s claims that Eletrobras violated the books and records and internal accounting controls provisions of the FCPA and agreed to pay a civil monetary penalty of $2.5 million.
Eletrobras, which is majority-owned by the Brazilian government, is alleged to have – through former officers of its nuclear power generation subsidiary – rigged bids and paid bribes through private construction companies in relation to construction of a nuclear power plant in Brazil. This matter was first announced publicly in October 2016 when the company hired outside counsel to conduct an internal investigation into related conduct.
In entering into this administrative order, the SEC consider the company’s cooperation efforts, including sharing facts discovered in its internal investigation and producing and translating related documents, as well as its efforts towards remediation, including discipline of involved employees, enhancement of internal accounting controls and compliance functions, and adoption of new anti-corruption policies and procedures.
Previous coverage can be found here.
On December 18, the former CEO and CFO of U.S.-based Panasonic Avionics Corporation (PAC) settled SEC charges that they knowingly violated books and records and internal accounting controls provisions of the federal securities laws and caused similar violations by PAC’s parent company, Osaka, Japan-based Panasonic Corp. (Panasonic). As detailed in prior FCPA Scorecard coverage, Panasonic and PAC settled related FCPA charges in April and agreed to pay a combined $280 million to the DOJ and SEC.
PAC’s former President and CEO, Paul A. Margis, and its former CFO, Takeshi “Tyrone” Uonaga, consented to the entry of their administrative orders without admitting or denying the findings and agreed to pay penalties of $75,000, and $50,000, respectively.
The SEC alleged Mr. Margis authorized the use of a third-party to pay more than $1.76 million to several consultants who provided little to no services. One of these consultants, a Middle East government official, was paid $875,000 to help secure over $700 million in business from a state-owned airline, but the position “required little to no work.” The bribery scheme involving this foreign official was previously described in the DPA with DOJ and the SEC Settlement Order. Mr. Margis was also charged with making false representations to PAC’s auditor regarding internal accounting controls, and books and records.
The SEC charged Mr. Uonaga in connection with a backdating scheme that resulted in Panasonic improperly recording $82 million in revenue. Mr. Uonaga was charged with making false representations to PAC’s auditor regarding the company’s financial statements, internal accounting controls, and books and records. The order against Mr. Uonaga suspends him from appearing or practicing before the Commission as an accountant for at least five years.
Mr. Margis and Mr. Uonaga were previously described in the SEC Settlement Order as PAC Executive 1 and PAC Executive 2, respectively. The DOJ has not brought any criminal charges against any individuals in this matter.
On November 15, the SEC released its 2018 Annual Report to Congress on its Whistleblower Program, as required under § 924(d) of the Dodd-Frank Act and § 21(F)(g)(5) of the Securities Exchange Act of 1934. The Report, which covers October 1, 2017 through September 30, 2018, indicates that the SEC received 202 FCPA-related whistleblower tips during the reporting year. Those 202 FCPA tips account for only 3.82% of the tips received in that period. While the overall number of whistleblower tips has steadily risen over the past 4 years, the number of FCPA tips has remained fairly steady. In 2015, there were 186 (4.74% of the tips received); in 2016 there were 238 (5.64% of the tips received); and in 2017 there were 210 (4.68% of the tips received). This relative consistency contrasts with the number of offering fraud tips, which jumped from 758 in 2017 to 1,054 in 2018.
In addition to providing statistics and background on the whistleblower program, the Report discusses rule amendments proposed earlier this year. In particular, the Report reviews proposed amendments to SEC Rule 21F-2 (Whistleblower Status and Retaliation Protection) that are intended to bring the rules in line with the Digital Realty Trust v. Somers decision. The proposed amendments would include instituting a uniform definition of whistleblower that requires the individual to have submitted the information “in writing” to the SEC.
On October 3, 2018, Steven Peiken, Co-Director of the SEC’s Division of Enforcement, offered remarks at a white collar crime conference in New York City, discussing a range of issues related to FCPA compliance and enforcement. For example, likely responding to increasing criticism about the relatively few enforcement cases that have been brought by the SEC in recent years, Peiken addressed questions regarding the Enforcement Division’s effectiveness and efficiency metrics, noting that the Division is moving away from quantitative measurements of success to more qualitative metrics, such as whether retail investors are adequately protected and whether the agency is “keeping pace with technological change.”
In addition, Peiken addressed the impact of the Supreme Court’s decision in Kokesh v. SEC, which held that disgorgement awards are punitive in nature and subject to a five year statute of limitations under 28 U.S.C. § 2462. Peiken stated: “The impact of Kokesh has been felt across our enforcement program. A few months ago, we calculated that Kokesh led us to forego seeking approximately $800 million in potential disgorgement in filed and settled cases. That number continues to rise.”
Peikin concluded his remarks by noting that the Enforcement Division cannot continue to rely upon quantitative metrics to determine success, such as the size of awards and penalties. Instead, the Division must adopt “a nuanced and qualitative evaluation of our overall impact on achieving our investor and market integrity protection mission.” These remarks suggest that the rate of new actions and investigations filed by SEC’s Enforcement Division may not keep pace with recent years, and that the Division may instead be relying on impact cases or those that satisfy the more qualitative metrics Peikin described, when measuring success going forward.
On September 28, the SEC announced a settlement with a Michigan-based medical device company, Stryker Corp., to resolve the SEC’s charges of books and records and internal controls violations. According to the order, the company agreed to pay a $7.8 million penalty and accepted the imposition of an independent compliance consultant to resolve allegations that Stryker’s Indian subsidiary failed to maintain accurate books and records, and that Stryker’s internal controls were inadequate to identify possible improper payments related to the sale of its products in India, China, and Kuwait.
This is the second enforcement action the SEC has brought against Stryker in recent years. In a prior action in October 2013, Stryker paid over $13.2 million in penalties, disgorgement, and interest to settle charges of FCPA violations for bribing doctors, health care professionals, and other government-employed officials in Argentina, Greece, Mexico, Poland, and Romania.
On September 12, the SEC announced that United Technologies Corporation (UTC) agreed to pay $13.9 million to settle FCPA charges related to payments made through a subsidiary in connection with the sales of elevator and airline equipment in Azerbaijan and China. According the SEC’s Order, from 2012 through 2014, the Connecticut-based company, through its wholly owned subsidiary Otis Elevator Company, made illicit payments to Azerbaijani officials to facilitate the sales of elevator equipment.
The Order also included other conduct that both the DOJ and SEC have focused on in recent years, including the use of agents and gifts and entertainment. For example, the Order detailed conduct by UTC and a joint venture partner from 2009 to 2013 in which an agent in China received improper commissions totaling $55 million in connection with the company’s attempt to win airline business in China. The Order also found that the company, from 2009 through 2015, improperly “provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia” in order to obtain business. UTC consented to the SEC’s order without admitting or denying the findings that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
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