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U.S. Defense Contractor Settles FCPA Action for $7.1 Million
On June 16, the DOJ announced that a U.S. defense contractor, IAP Worldwide Services, Inc., will pay $7.1 million to resolve allegations that the company made over $1.7 million in illegal payments to Kuwati officials through a third party. The company entered into a non-prosecution agreement that requires the company to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations, and to report annually for three years to DOJ regarding its compliance program. A former Vice President of IAP, James Rama, also pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA. The DOJ emphasized the companys cooperation with the governments investigation as relevant to the decision to enter into a non-prosecution agreement instead of a more harsh resolution. This statement appears to implement the policy announced in recent DOJ speeches, which have touted the benefits of cooperation to companies including the possibility of non-prosecution agreements. It is worth noting that an individual executive still was required to plead guilty, regardless of the companys resolution.
Net 1 Announces Closure of SEC FCPA Investigation
On June 8, Net 1 UEPS Technologies, Inc., a South Africa-based mobile payments company incorporated in Florida, announced that the SEC had closed a FCPA investigation arising out of a contract with the South African Social Security Agency. The SEC and the DOJ opened parallel investigations in November 2012, and the DOJ investigation remains ongoing. Net 1 has asserted that the investigation was instigated by one of the losing bidders on the contract.
Oil and Gas Company with Republic of Guinea Operations Announces Conclusion of DOJ Investigation
Houston-based Hyperdynamics Corp. announced in an 8-K filed on May 26 that the DOJ had closed its investigation into alleged FCPA violations by the company in the Republic of Guinea. A parallel investigation by the SEC remains ongoing. The DOJ investigation was originally disclosed by the company in 2013, and was stated to relate to concession rights and relationships with charitable organizations. The investigation and declination raise two notable issues. First, the investigation into relationships with charitable organizations continues the government's focus on the potential use of charitable organizations to influence acts of foreign officials. Second, the declination letter from the DOJ to Hyperdynamics was released by the company and noted its "cooperation with investigations," including through providing information and the results of the company's internal investigation to the government, as well as how much the DOJ values cooperation. Recent speeches by the DOJ have sought to reassure companies that extensive cooperation can theoretically result in a declination.
Wal-Mart Class Action Dismissed
On March 31, a federal district court in Arkansas dismissed with prejudice a consolidated shareholder derivative suit accusing Wal-Mart Stores Inc.'s (Wal-Mart) board of directors of concealing Mexican bribery claims from investors. The Court found that that the plaintiffs did not establish that a pre-suit demand on the directors to take action would have been futile, and failed to show that the directors knew about or consciously ignored the alleged FCPA violations at the Mexican subsidiary. The Court wrote: "Nothing in the complaint suggests any particularized basis to infer that a majority of the board had actual or constructive knowledge of the alleged misconduct, let alone that they acted improperly with scienter." For the same reasons, the Court dismissed claims that the directors allowed the filing of knowingly false proxy statements. Plaintiffs filed the lawsuit after a 2012 article by the New York Times reported that top officials at Wal-Mart's Mexican subsidiary oversaw millions of dollars in bribes in connection with the company's expansion in Mexico.
Alstom Executive's Motion to Dismiss Indictment Rejected
On December 29, 2014, the U.S. District Court for the District of Connecticut denied a motion to dismiss the indictment brought by Lawrence Hoskins, a former employee of Alstom S.A., the French power and transportation company that recently pleaded guilty to a massive scheme to violate the FCPA and agreed to a record $772 million criminal fine. Hoskins was charged in connection with activities involving a Connecticut-based Alstom subsidiary, Alstom Power, Inc. Alstom Power entered into a Deferred Prosecution Agreement as part of the broader Alstom settlement. Hoskins offered several arguments to dismiss the indictment, including that he had left Alstom (and therefore withdrawn from any conspiracy) outside the statute of limitations, that he was not actually an agent of Alstom Power and that the FCPA cannot be applied to purely extraterritorial conduct. With regard to the withdrawal claim, the court noted that the defendant bears the burden of proving some type of affirmative act of disavowal, not just a mere cessation of activity. Because the indictment did not contain facts establishing the defense and the government had not made a full proffer of its evidence, the court held that it could not determine pretrial whether the defendant had in fact withdrawn from the conspiracy. The court also held that a trial was required to resolve Hoskins's claim that he was not an agent of Alstom Power, noting that "the existence of an agency relationship is a highly factual inquiry" dependent on a number of factors. Lastly, while Hoskins claimed that the FCPA could not apply to him because he engaged in no conduct in the United States, the indictment alleged "that he used domestic wire transfers to promote the conspiracy."
General Cable Announces FCPA Internal Investigation Near Completion
Just a month after announcing its internal investigation of possible FCPA violations, news reports indicate that General Cable Corporation's review will be completed or substantially completed by the first quarter of 2015. The company also announced that it "plans to exit all of its Asia Pacific and African manufacturing operations," although it did not link the exit — which affects nine plants in Asia and five plants in Africa, and approximately 17% of its total sales — to its FCPA investigation. In September, the Kentucky-based cable manufacturer announced that it was investigating its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. News reports indicate that, to date, the company has spent millions on the review, which has included a review of over 450,000 documents and interviews of over 20 individuals. The company also disclosed that it was cooperating with investigations by the DOJ and SEC.
SCOTUS Declines to Hear Case Concerning Definition of Foreign Official under FCPA
Last week, the Supreme Court denied a petition for certiorari in United States v. Esquenazi, thereby rejecting the first substantive FCPA-related cert petition to come before the Court. The case involved two former executives of a telecommunications company who were convicted of participating in a scheme to bribe employees of Haiti Teleco, a telephone company in Haiti that was partially owned by the state at the time of the payments. The issue on appeal was whether the employees constituted "foreign officials" within the meaning of the FCPA, which defines foreign officials to include "any officer or employee of a foreign government or any department, agency, or instrumentality thereof." Because the FCPA does not further define "instrumentality," the parties disputed whether Haiti Teleco, as an entity that was only partly-owned by the state, constituted such an "instrumentality." The Eleventh Circuit defined "instrumentality" as an "entity controlled by the government of a foreign country that performs a function the controlling government treats as its own," and found that Haiti Teleco constituted an "instrumentality" under this definition. The Supreme Court's decision to deny cert leaves the Eleventh Circuit's decision intact. The Eleventh Circuit decision supplies some of the first caselaw regarding who counts as a foreign official under the FCPA.
Terra Telecommunications Executives Petition Supreme Court
On August 14, two former Terra Telecommunications Corp. executives convicted of FCPA and related offenses petitioned the U.S. Supreme Court for certiorari review of the U.S. Court of Appeals for the Eleventh Circuit's definition of "instrumentality" under the FCPA. In May, the Eleventh Circuit upheld the former executives' conviction under the FCPA and defined "instrumentality" as "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own." As a consequence of this definition, the Eleventh Circuit deemed an employee of a partially state-owned Haitian telephone company to be a "foreign official" for purposes of the FCPA. In asking for certiorari review and in citing reasons to grant the petition, the former executives focused on the absence of a definition of "instrumentality" of a foreign government within the FCPA, which, according to petitioners, has resulted in persistent questions about the correct interpretation of the term. The petitioners faulted the Eleventh Circuit for applying "an unacceptably broad interpretation of the term 'instrumentality' that expands the reach of" the FCPA. In so doing, the former executives described the Eleventh Circuit's reasoning as "illogic[al]" and under "its statutory construction, a janitor working for U.S. Government-subsidized General Motors could qualify as a 'foreign official' if General Motors were located overseas." According to published reports, this is believed to be the first substantive FCPA cert petition in the history of the FCPA. In addition, the Supreme Court has never substantively addressed any FCPA issue.
Cobalt International Energy Targeted in SEC FCPA Inquiry
Houston-based Cobalt International Energy, Inc. said in an August 5, 2014 securities filing that it received a Wells Notice in connection with the Securities and Exchange Commission's investigation of its oil-exploration operations in Angola. The Company stated in its filing that due to the SEC's investigation and recommendation, it may be "exposed to liabilities under the U.S. Foreign Corrupt Practices Act." Wells Notices indicate that the staff of the SEC has made a preliminary determination to recommend an enforcement action alleging violations of certain federal securities laws. According to Cobalt's 2013 10-K filing, the SEC first began an informal inquiry of the company in March 2011 which was later joined by the Department of Justice. In April 2012, as first reported by the Financial Times, allegations surfaced that three Angolan officials, including the head of the country's state-owned oil company and two military generals, held shares in Nazaki Oil and Gáz, the local partner in a Cobalt-led deepwater oil venture launched in early 2010. The government officials admitted owning shares in the joint venture but denied using their influence to award Cobalt oil-exploration rights in Angola. The company has previously "strongly refuted" allegations of wrongdoing and has said it was forced to enter into a joint venture with two Angolan-based oil exploration and production companies as part of its deal with the Angolan government.
Sector Sweep Continues: Medical Device Manufacturer Orthofix Resolves FCPA Violations Related to Conduct in Mexico
On July 10, 2012, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the sector to resolve an FCPA matter with the U.S. government. The Orthofix FCPA resolution calls for the company to pay a criminal fine to the U.S. Department of Justice (DOJ) of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the U.S. Securities and Exchange Commission (SEC). The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company's 8-K of July 10, 2012, reporting the resolution. According to the allegations in the SEC's Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as "chocolates" and booking inaccurate reimbursement requests as meals, car tires or training expenses. The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC. As initially reported in an August 31, 2010 8-K, the company disclosed to the DOJ and the SEC that it was investigating certain conduct at Promeca. The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action (see DOJ Press Release). The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, which settled in February and March 2012, respectively.
- Keisha Whitehall Wolfe to discuss “Tips for successfully engaging your state regulator” at the MBA's State and Local Workshop
- Max Bonici to discuss “Enforcement risk and trends for crypto and digital assets (Part 2)” at ABA’s 2023 Business Law Section Hybrid Spring Meeting
- Jedd R. Bellman to present “An insider’s look at handling regulatory investigations” at the Maryland State Bar Association Legal Summit