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SFO Announces Charges Against a Global Bank and Four Former Executives in Qatar Capital Raising Matter
On Tuesday, June 20, the UK Serious Fraud Office (“SFO”) announced charges against a global bank and four former executives for conspiracy to commit fraud and provision of unlawful financial assistance in violation of the Companies Act 1985. These charges relate to the bank’s capital raising arrangements with Qatar Holding LLC and Challenger Universal Ltd in June and October 2008, as well as to a $3 billion loan facility made available to the State of Qatar acting through the Ministry of Economy and Finance in November 2008. According to the SFO press release, the investigation was first announced in 2012, and the individuals charged include a former Chief Executive Officer of the bank, a former Executive Chairman of the bank's Capital Investment Banking and Investment Management in Middle East and North Africa, a former Chief Executive of the bank's Wealth and Investment Management, and a former European Head of the bank’s Financial Institutions Group.
While no US-based charges have been announced, the SFO’s announcement comes on the heels of the bank’s March 2017 disclosure to the SEC in which the company stated that “the DOJ and SEC are undertaking an investigation into whether the Group’s relationships with third parties who assist the bank to win or retain business are compliant with the U.S. Foreign Corrupt Practices Act.”
On June 5, the Supreme Court ruled in Kokesh v. SEC that the SEC’s authority to disgorge profits from defendants is subject to the five-year statute of limitations applicable to penalties and fines. The Court rejected the SEC’s position that disgorgement is an equitable remedy and not a penalty, resolving a circuit split on the issue. Writing for the unanimous Court, Justice Sotomayor said that disgorgement “bears all the hallmarks of a penalty,” reasoning that it “is intended to deter, not to compensate.” The defendant in Kokesh was an investment adviser who had been ordered to disgorge approximately $35 million for allegedly misappropriating investor funds.
The SEC routinely seeks disgorgement in FCPA enforcement actions. The Kokesh decision may lead the SEC to seek tolling agreements sooner and in more circumstances, particularly where the alleged conduct occurred over a long period of time. The decision may also impact defendants’ ability to claim insurance coverage for disgorgement because insurers might deny coverage for payment of penalties.
Bloomberg reports that Wal-Mart is nearing a resolution of a five-year old joint inquiry by the DOJ and SEC. Citing an unnamed source familiar with the matter, Bloomberg reports that the company is preparing to pay $300 million to settle allegations that company employees paid bribes in Mexico, China, and India. The same source reported that the resolution will also include at least one guilty plea by a Wal-Mart subsidiary, a non-prosecution agreement for the parent company, and a monitorship.
In March of 2015, 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 lawsuit was filed 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. See previous Scorecard coverage here. The same article is believed to have touched off the DOJ’s and SEC’s inquiry. If true, a $300 million resolution would not be near the top end of FCPA resolutions.
A former Guinean mining minister was found guilty earlier this week on bribery and money laundering charges following a seven-day jury trial in Manhattan federal court. He was charged with receiving and laundering $8.5 million in bribes allegedly for securing mining rights for two Chinese companies.
The conviction came one day after the former minister took the stand in his own defense and admitted to lying to banks about his status as a government official, as well as failing to report the payments on his IRS tax return.
The conviction also follows other notable enforcement actions involving the mining industry in the Republic of Guinea. Earlier this year, the SEC charged former Och-Ziff executives with bribing government officials across Africa to secure mining deals, including in Guinea.
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”.
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.
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.
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.
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.
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:
- Analysis and Remediation of Underlying Conduct
- Senior and Middle Management
- Autonomy and Resources
- Policies and Procedures
- Risk Assessment
- Training and Communications
- Confidential Reporting and Investigation
- Incentives and Disciplinary Measures
- Continuous Improvement, Periodic Testing and Review
- Third Party Management
- 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.”
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- John R. Coleman to participate in a roundtable on current topics in administrative law at the C. Boyden Gray Center for the Study of the Administrative State at George Mason University
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Jeffrey P. Naimon to provide an “Update on key fair lending cases and the CRA and UDAAP rules” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar
- James C. Chou to discuss ransomware at NAFCU’s Regulatory Compliance & BSA seminar
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The Evolving Regulatory Landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference