FCPA Scorecard Blog

Two Telecom Executives Pay FCPA Penalties

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”.

SEC FCPA Magyar Telekom

SEC’S FCPA Chief to Leave Agency Later in April

On April 4, the SEC announced that FCPA Unit Chief Kara Brockmeyer will leave the agency later this month. Ms. Brockmeyer joined the SEC in 2000 and has led the FCPA Unit since September 2011. Under her supervision of the unit, the SEC brought 72 FCPA enforcement actions resulting in judgments and orders totaling more than $2 billion in disgorgement, prejudgment interest, and penalties.

SEC FCPA

ING Under Investigation by Dutch and U.S. Authorities for Activities Relating to VimpelCom

In an annual report filed with the SEC on March 20, 2017, ING Groep, N.V., a Netherlands-based financial services company, stated that it is under criminal investigation by Dutch authorities “regarding various requirements related to the on-boarding of clients, money laundering, and corrupt practices,” and that it has also received “related information requests” from U.S. authorities.  A spokesperson for the Dutch prosecutor reportedly expressed suspicion that ING failed to report irregular transactions and may have enabled international corruption, including unusual payments made by VimpelCom, the Russian telecom company, to a government official in Uzbekistan through a shell company.  VimpelCom settled bribery charges with the U.S. and Dutch governments in February 2016, admitting to paying bribes amounting over $114 million to an Uzbek official and agreeing to pay over $397 million in penalties to the DOJ and SEC for violations of the FCPA.  ING stated that it is cooperating with the ongoing investigations and requests of Dutch and U.S. authorities.

SEC DOJ Anti-Money Laundering Anti-Corruption ING Groep N.V. Dutch Uzbekistan VimpelCom

Claims Management Company Reports Conclusion of SEC FCPA Investigation

As previously covered here, Crawford & Co., an Atlanta-based claims management firm, disclosed in November 2015 that it self-reported possible FCPA violations to the DOJ and SEC.  These potential violations were identified during an internal audit.  On February 27, 2017, Crawford announced that it had received notice that the SEC “concluded its investigation and did not intend to recommend an enforcement action” related to this matter.   The company did not reference the DOJ in its announcement.

DOJ SEC Crawford & Co. FCPA

Financial Services Institution Discloses SEC FCPA Investigation into Hiring Practices

On February 24, a major financial services institution disclosed in its 10-K that government and regulatory agencies, including the SEC, are conducting investigations concerning potential violations of the FCPA related to hiring of candidates referred by or related to foreign government officials.  The institution stated that it was cooperating with the investigations.

This is not the first FCPA-related investigation of a company’s hiring practices.  As previously reported here in November 2016, a global financial company and a Hong Kong subsidiary agreed to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, ending a nearly three year, multi-agency investigation of the subsidiary’s “Sons and Daughters” referral program through which the children of influential Chinese officials were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia.  Similarly, as reported here, in August 2015, the SEC announced a settlement with a multinational financial services company over allegations that the company violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The company paid $14.8 million to settle the charges.

Nor are the inquiries confined to financial services companies.  For example, the SEC announced in March 2016 that it settled charges with Qualcomm Inc., the San Diego-based mobile chip maker.  Qualcomm agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist Qualcomm in obtaining or retaining business in China.

DOJ SEC FCPA Federal Reserve Qualcomm Inc.

DOJ Unveils New Guidelines on Corporate Compliance Programs

The DOJ’s Fraud Section recently published an “Evaluation of Corporate Compliance Programs.”  The guidelines were released on February 8 without a formal announcement.  Their stated purpose is to provide a list of “some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.”  The guidelines are divided into 11 broad topics that include dozens of questions.  The topics are:

1. Analysis and Remediation of Underlying Conduct
2. Senior and Middle Management
3. Autonomy and Resources
4. Policies and Procedures
5. Risk Assessment
6. Training and Communications
7. Confidential Reporting and Investigation
8. Incentives and Disciplinary Measures
9. Continuous Improvement, Periodic Testing and Review
10. Third Party Management
11. Mergers & Acquisitions

According to the Fraud Section, many of the topics also appear in, among other sources, the United States Attorney’s Manual, United States Sentencing Guidelines, and FCPA Resource Guide published in November 2012 by the DOJ and SEC.  While the content of the guidelines is not particularly groundbreaking, it is nonetheless noteworthy as the first formal guidance issued by the Fraud Section under the Trump administration and new Attorney General Jeff Sessions.  By consolidating in one source and making transparent at least some of the factors that the Fraud Section considers when weighing the adequacy of a compliance program, the guidelines are a useful tool for companies and their compliance officers to understand how the Fraud Section and others at the DOJ may proceed in the coming months and years. 

However, while the guidelines may give some indication of what the DOJ views as a best practices compliance program, they caution that the Fraud Section “does not use any rigid formula to assess the effectiveness of corporate compliance programs,” recognizes that “each company’s risk profile and solutions to reduce its risks warrant particularized evaluation,” and makes “an individualized determination in each case.”

DOJ SEC Corporate Compliance Program

Former Magyar Telekom Executive Settles with SEC

On February 8^th, 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.

FCPA Hungary Magyar Telekom

Analogic Corp. and Danish Subsidiary BK Medical Settle FCPA Charges with the SEC and DOJ

On June 21, the SEC and DOJ announced a nearly $15 million settlement with Massachusetts-based imaging company Analogic Corp. and its wholly-owned Danish subsidiary, BK Medical ApS, to resolve parallel civil and criminal actions involving FCPA violations. The SEC alleged that, from at least 2001 through early 2011, BK Medical ApS paid about $20 million to third parties in hundreds of sham transactions with distributors in Russia and shell companies in Belize, the British Virgin Islands, Cyprus, and Seychelles. The sham transactions involved fictitious inflated invoices to the distributors with the over-payments going to third parties identified by the distributors. BK Medical did not have a relationship with the third parties and did not know if the payments had any business purpose for the distributors. The settlement is consistent with the settlement offer that Analogic disclosed last December, and it reflects Analogic's agreement to pay $7.67 million in disgorgement and $3.8 million in prejudgment interest to resolve the SEC's books and records and internal controls charges, and BK Medical's agreement to pay $3.4 million in criminal fines in a non-prosecution agreement with the DOJ. BK Medical's former CFO also settled with the SEC, agreeing to pay a $20,000 penalty to settle allegations that he knowingly circumvented internal controls and falsified BK Medical's books and records.

Analogic Corp.

SEC Reaches Non-Prosecution Agreements for Bribes of Chinese Officials; DOJ Declines to Pursue FCPA Enforcement Actions

On June 7, the SEC announced it had entered into non-prosecution agreements with two unrelated companies in connection with bribes paid to Chinese officials by foreign subsidiaries.  First, Akamai Technologies, a Massachusetts-based internet services provider, agreed to pay $652,000 in disgorgement and $19,433 in interest.  According to its agreement, Akamai's foreign subsidiary had paid bribes to induce Chinese government-owned entities to purchase more services than they needed.  Second, Nortek Inc., a Rhode Island-based residential and commercial building products manufacturer, agreed to pay $291,000 in disgorgement and $30,000 in interest.  According to that agreement, Nortek's subsidiary made improper payments and gifts to Chinese officials in exchange for preferential treatment, relaxed regulatory oversight, and reduced customs duties, taxes, and fees.  The agreements each stipulate that the companies are not charged with violations of the FCPA and will not pay any additional monetary penalties. In support of the agreements, the SEC noted that both companies promptly self-reported the conduct and cooperated extensively with the ensuing investigations.  Kara Brockmeyer, Chief of the SEC Enforcement Division's FCPA Unit, praised the companies for "promptly tighten[ing] their internal controls after discovering the bribes and [taking] swift remedial measures to eliminate the problems." Also on June 7, Akamai and Nortek each released letters from the DOJ declining to pursue enforcement actions against the companies.  The letters are the first public declinations issued by the DOJ under its FCPA Pilot Program announced in April 2016.  The one-year Pilot Program is designed to encourage companies to voluntarily self-report potential FCPA-related misconduct and cooperate with federal investigations.  DOJ declined to pursue enforcement actions based on several factors, including that the companies identified the misconduct themselves, promptly self-disclosed the misconduct, thoroughly investigated the misconduct, enhanced their compliance programs and internal accounting controls, terminated the employees responsible for the misconduct, disgorged any ill-gotten gains, fully cooperated with the federal investigations, and agreed to cooperate with any future investigations.

NPA Akamai Technologies Nortek Inc. FCPA Pilot Program

DOJ Closes FCPA Investigation into Key Energy Services Without Prosecution; SEC Negotiations Continuing

On April 28, Key Energy Services, an onshore, rig-based well servicing contractor with operations in the United States, Mexico, and Russia, announced that the DOJ had closed its investigation into possible violations of the FCPA in relation to the company’s Mexico operations and declined prosecution. The company stated that it is still in negotiations with the SEC regarding possible violations involving the company’s Russian business. Key Energy Services has been under investigation by the SEC and DOJ since 2014, when the company made a voluntary disclosure to both agencies about the Mexico allegations.

Key Energy Services