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Senator Ben Cardin and Republican co-sponsors recently introduced a bill titled the “Combating Global Corruption Act of 2017,” which seeks “to identify and combat corruption in countries, to establish a tiered system of countries with respect to levels of corruption by their governments and their efforts to combat such corruption, and to assess United States assistance to designated countries in order to advance anti-corruption efforts in those countries and better serve United States taxpayers.”
This bill, if enacted, would require the Secretary of State to publish annual rankings of foreign countries split up into three tiers that depend on whether those countries’ governments comply with “minimum standards for the elimination of corruption.” The introduced bill defines corruption as “the exercise of public power for private gain, including by bribery, nepotism, fraud, or embezzlement.”
Once a country’s tier-rank is established, the bill would then require the Secretary of State, Administrator of USAID, and the Secretary of Defense to take various steps, including the creation of a “corruption risk assessment” and “corruption mitigation strategy” for U.S. foreign assistance programs; fortified anti-corruption and clawback provisions in contracts, grants and other agreements; disclosure of beneficial ownership for contractors and other participants; and mechanisms to investigate misappropriated funds.
If passed into law, this bill would create substantial new enforcement powers to combat international corruption activities. And, unlike the current ambiguity under the FCPA regarding its applicability to state-owned or state-controlled enterprises (“SOEs”), as drafted, this bill expressly would cover SOEs. Like the FCPA, however, this bill also contains a broad national security waiver component, if the Secretary of State “certifies to the appropriate congressional committees that such waiver is important to the national security interest of the United States.”
Speaking at the American Bar Association’s National Institute on White Collar Crime yesterday, U.S. Department of Justice official Kenneth Blanco reportedly announced that the Justice Department’s FCPA pilot program encouraging corporate cooperation will not end on April 5 of this year as originally announced. Instead, until the Justice Department is able to render a final decision based on a complete evaluation, the program will remain in force. Notably, as previously reported, the new Deputy Assistant Attorney General with oversight over the Fraud Section, Trevor N. McFadden, co-authored an article during his time in the private sector praising the program as “a step forward in providing companies and their counsel with more transparent and predictable benefits for self-reporting, cooperating, and remediating FCPA misconduct.”
Transparency International, a German nonprofit that tracks global corruption and perceptions of corruption, has published People and Corruption: Asia Pacific – Global Corruption Barometer. In what the organization calls “the most extensive survey of its kind,” the group spent a year and a half interviewing over 21,000 people living in the Asia Pacific region as a litmus test for corruption in the area. The 38-page report found considerable differences in bribery rates between surveyed countries; for example, while Japan weighed in at 0.2%, a staggering 69% of people surveyed in India indicated they had paid a bribe in the past year in exchange for public services. People across the surveyed region agreed that police were the most corrupt part of public services. While Australians expressed the “most positive” outlook on corruption, people in Malaysia and Vietnam felt the least positive overall, and people in China “were most likely to think the level of corruption had increased recently.” The report outlines three key recommendations, encouraging governments to “make good on promises,” “stop bribery in public services,” and “encourag[e] more people to report corruption.”
On March 2, 2017, a three judge panel for the United States Court of Appeals for the Second Circuit heard oral arguments in U.S. v. Hoskins. The government charged U.K. citizen Lawrence Hoskins with FCPA violations as part of a larger scheme involving a U.S. subsidiary of French company Alstom S.A. Hoskins, a non-resident foreign national who did not act on U.S. soil and who was an executive of a non-U.S. company (Alstom UK), argued in federal district court that Congress did not intend for people like him to be subject to direct FCPA liability, and that the government cannot circumvent Congressional intent by charging him with accomplice liability. In August of 2015, the federal district court in Connecticut ruled in Hoskins’ favor, holding that the government would first have to show that Hoskins was subject to direct liability as an agent of a U.S. concern in order to reach accomplice liability. The legal issues at hand are detailed in previous FCPA Scorecard posts here and here.
In addition to the important question of the scope of liability of foreign nationals under the FCPA, this argument has a secondary importance related to the right of the government to appeal criminal matters under Title 18 U.S.C. § 3731. Section 3731 allows the government to appeal “from a decision, judgment, or order of a district court dismissing an indictment or information or granting a new trial after verdict or judgment, as to any one or more counts, or any part thereof….” Here, Hoskins argues that the court did not dismiss any counts, so the government had no right to make the interlocutory appeal. For its part, the government argues that the court’s ruling was effectively a dismissal of a portion of a count, making the matter appealable.
In ruling on the Hoskins case, the Second Circuit will have the potential to expand or limit both the reach of the FCPA, and the power of the federal government to bring interlocutory appeals when a trial court rules against it in a criminal matter.
According to a June 1 news report, the DOJ has named Daniel Kahn to lead the Fraud Sections FCPA unit. Mr. Kahn has led the FCPA unit on an interim basis since March of this year. He was previously the Assistant Chief of the FCPA Unit since 2013. Mr. Kahn has led significant recent FCPA prosecutions including the Alstom case, which led to a record $772 million fine, and the Esquenazi case, which generated case law on the FCPAs definition of a foreign official. (See previous FCPA Scorecard coverage of those cases here and here.)
On May 10, Deputy U.S. Attorney General Sally Yates spoke at the New York City Bar Association's White Collar Crime Conference and expanded on the DOJ's Individual Accountability Policy, which informally bears Yates' name (the Yates Memo). The DOJ issued the Yates Memo in September 2015, and Yates' remarks were focused on why DOJ issued the policy and how it has been working in practice. Yates made clear that "holding individuals accountable for corporate wrongdoing has always been a priority for" DOJ, but that the policy memorandum was necessary to overcome "real world challenges" that DOJ encounters (e.g., convoluted corporate structures and lines of authority, data privacy laws, and inability to compel foreign witness testimony) so that it can hold individuals responsible for corporate wrongdoing. In practice, Yates said that the policy has not caused the parade of horrors that defense attorneys and client alerts have predicted. For example, she stated that she was not aware of any company refusing to cooperate with DOJ as a result of the policy. She further added that "no one has told us that they will be forced to waive privilege in order to comply with the policy." Instead, she said that the policy already has caused a shift toward higher compliance standards within companies. Yates also highlighted how DOJ attorneys are focused on individuals from the outset of an investigation: "The first thing the lawyers briefing me discuss is what we are doing to identify the individuals involved and what the company is doing during the course of its cooperation to meet its obligation to provide all the facts about individual conduct." In addition civil enforcement efforts have broadened to focusing on individuals. According to Yates, "[a]bility to pay is one of the factors considered, but it's no longer the determinative factor in deciding whether to bring an action in the first instance."
On March 23, 2016, the DOJ announced that Abraham Jose Shiera-Bastidas pleaded guilty in a federal court in Texas to violating the FCPA and committing wire fraud by paying bribes to ensure that two companies won contracts and received other preferential treatment from Venezuelas state-owned oil company, Petroleos de Venezuela (Petroleos). Mr. Shiera-Bastidas was the owner of an oil-field supply company that supplied goods and services to Petroleos de Venezuela. Mr. Shiera-Bastidas was charged in December 2015 along with the owner of the other involved company, Mr. Roberto Enrique Rincon Fernandez. The charges against Mr. Rincon Fernandez are still pending and he has been detained pending his trial, which is scheduled for April. The judge also unsealed guilty pleas made by four other individuals in connection with the same probe into Petroleos. One of these individuals was an employee of Mr. Shiera-Bastidas company, while the other three individuals were former officials of Petroleos. Mr. Shiera-Bastidas is due to be sentenced in July and faces a maximum of five years in prison for each count. Previous FCPA Scorecard coverage on the Petroleos investigations can be found here.
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.
On February 4, 2016, the SEC announced a settlement with the CEO of Chile-based LAN Airlines S.A. and its holding company Latam Airlines Group SA, Ignacio Cueto Plaza, regarding his approval of the payment of over $1.15 million to an Argentinian consultant in connection with LAN Airlines attempts to settle disputes over wages and work conditions with employees in Argentina. According to the SEC, Cueto knew that a portion of these payments might be passed on to union officials in Argentina and that the actual services agreed to in the underlying consulting agreement would not be performed. Without admitting or denying the SECs findings, Cueto agreed to pay a $75,000 penalty and "certify his compliance with his airlines policies and procedures by attending anti-corruption training among other undertakings." In its administrative cease and desist order, the SEC found that Cueto violated both the FCPAs internal accounting controls and books and records provisions. The company has said that this was an isolated matter, that it cooperated with the SECs investigation, and strengthened its accounting controls since the incident took place.
On February 4, 2016, the SEC settled FCPA allegations with California-based SciClone Pharmaceuticals with a cease and desist order finding that SciClone violated the FCPAs anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of SciClone subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that SciClone failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program. SciClone consented to the SECs order without admitting or denying the charges and agreed to pay $12.8 million to resolve the charges, including a $2.5 million penalty, the disgorgement of $9.426 million in profits, and $900,000 in prejudgment interest. SciClone will also provide status reports to the SEC for the next three years regarding remediation efforts and new anti-corruption compliance measures. SciClone simultaneously announced that the DOJ had declined to pursue any additional action.
- Kathryn L. Ryan to discuss "NMLS usage" at the NMLS Annual Conference & Training
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- 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