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Foreign Corrupt Practices Act & Anti-Corruption

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  • 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

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  • DOJ Pilot Program Extended to Provide Adequate Time for Evaluation

    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.”

    DOJ FCPA Update FCPA Pilot Program

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  • New DOJ Appointee Expresses Commitment to Enforcing the FCPA

    In late January of 2017, President Donald Trump appointed Trevor N. McFadden as Deputy Assistant Attorney General in the U.S. Department of Justice Criminal Division, a position that includes oversight over the Fraud and Criminal Appellate Sections.  The Fraud Section is in charge of enforcing the FCPA, placing the former Baker & McKenzie Litigation and Government Enforcement partner, who also served as an Assistant U.S. Attorney and Counsel to the Deputy Attorney General, in a key role to determine the future of FCPA enforcement under the new administration.  On February 16, 2017, McFadden gave a speech at the Global Investigations Review Conference in which he proclaimed his dedication to the continued enforcement of the statute.  While McFadden’s comments reflect Attorney General Jeff Sessions’ recent promise to enforce the FCPA, they contrast with President Trump’s 2012 comments that the FCPA is a “horrible law” that “should be changed.”

    Above all, McFadden’s message was one of enforcement, enforcement, enforcement.  He commented that the law “has been vigorously enforced” over its 40-year history, efforts which have “steadily increased over time.”  McFadden specifically highlighted two important trends of this history of enforcement: transparency to businesses, and cooperation with foreign nations in the fight against corruption.  McFadden’s emphasis on the “utmost importance” of working with other countries also signaled a continued commitment to what he called “important anti-corruption conventions,” including “the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption (NCAC), the Convention on Transnational Organized Crime (UNTOC), and several others.” 

    In looking to the future of FCPA enforcement, McFadden called the law’s continued “fight against official corruption [] a solemn duty of the Justice Department…regardless of party affiliation.”  He also emphasized that the Justice Department will continue to prioritize “individual accountability,” although he did comment that some people “may be unwittingly involved in facilitating an illegal payment under circumstances that do not merit criminal prosecution of the individual.”  Finally, McFadden expressed that a company’s “voluntary self-disclosures, cooperation, and remedial efforts” will “continue to guide our prosecutorial discretion determinations,” along with the “penalty reductions for companies that self-disclose, cooperate, and accept responsibility for their misconduct” provided for in the U.S. Sentencing Guidelines.  Interestingly, the only whiff of questioning past Justice Department approaches was McFadden’s mention of an upcoming review of the FCPA pilot program encouraging such company cooperation.  However, plans to re-evaluate the pilot program were already in place under the Obama administration, according to an article McFadden co-wrote with colleagues at Baker & McKenzie in April of 2016.  Notably, McFadden’s article called the pilot program “a step forward in providing companies and their counsel with more transparent and predictable benefits for self-reporting, cooperating, and remediating FCPA misconduct.” 

    DOJ FCPA Enforcement Action Trump Bribery

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  • 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

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  • 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.

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  • 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

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  • DOJ Declines FCPA Action Against Cobalt International Energy

    Houston-based Cobalt International Energy, Inc. announced in a February 9, 2017 press release that the DOJ had formally closed its FCPA investigation into Cobalt’s oil exploration operations in Angola and would not prosecute the Company.  The press release noted that the DOJ’s investigation “was the last remaining FCPA investigation by any U.S. regulatory agency into Cobalt’s Angolan operations.”  The DOJ’s declination letter came more than two years after the SEC closed its own FCPA investigation and declined to bring an enforcement action.

    As detailed in a previous FCPA Scorecard post, the parallel investigations began in 2011, and were prompted by allegations concerning the connection between senior Angolan government officials and Nazaki Oil and Gáz, S.A., the local partner in a Cobalt-led deepwater oil venture.  According to Cobalt’s 10-K filing for FY 2012, the Company had voluntarily contacted the DOJ when the SEC launched its initial inquiry and “offered to respond to any requests the DOJ may have.”

    DOJ SEC Cobalt International Energy Angola

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  • Fired Bio-Rad General Counsel Wins $10.9 Million in FCPA Whistleblower-Retaliation Case

    On February 6, 2017, a federal jury in San Francisco awarded the former general counsel of Bio-Rad Laboratories, Inc. $10.9 million in a landmark FCPA whistleblower-retaliation case brought under the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California state law.  After three hours of deliberation, the jury found that Sanford Wadler, Bio-Rad’s general counsel of nearly 25 years, was fired for reporting suspected FCPA violations to Bio-Rad’s audit committee in February 2013, a protected activity under SOX’s anti-retaliation provisions.  Although Wadler did not report his concerns to the SEC, the court held in 2015 that internal whistleblowing under SOX was also protected by the Dodd-Frank Act’s anti-retaliation provisions, opening the door to Dodd-Frank’s double back-pay remedy.  Bio-Rad’s last-minute motion to block purported attorney-client privileged information from trial –“virtually all of the evidence and testimony Plaintiff might rely upon to prove his case” – was denied by the court in December 2016.

    The jury ultimately awarded Wadler $2.96 million in back-pay – to be doubled under Dodd-Frank – plus $5 million in punitive damages.  As detailed in a previous FCPA Scorecard post, Bio-Rad paid $55 million in November 2014 to settle DOJ and SEC allegations that the Company violated the FCPA in Russia, Thailand, and Vietnam.  Wadler’s report to the audit committee had involved separate allegations that the Company violated the FCPA in China.

    DOJ SEC Whistleblower Bio-Rad SOX Dodd-Frank

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  • Medical Device Company Reaches Second FCPA Settlement in the Span of Five Years

    On January 18, Texas-based medical device company Orthofix International N.V. (Orthofix) admitted wrongdoing and agreed to pay approximately $6 million to the SEC to settle FCPA books and records and internal controls charges in connection with improper payments made by its Brazilian subsidiary to doctors through third parties. In related non-FCPA proceedings, Orthofix also agreed to pay a $8.25 million penalty to resolve various accounting violations, and former executives Jeff HammelKenneth MackBryan McMillan, and Brian McCollum each consented to accounting-related SEC orders without admitting or denying the findings.

    According to the Administrative Order Instituting Cease-and-Desist Proceedings, Orthofix’s Brazilian subsidiary Orthofix do Brasil LTDA employed third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce them to use Orthofix’s products, thereby increasing sales.  Orthofix also improperly recorded revenue, leading to the related accounting charges.

    In settling with the SEC, Orthofix has now resolved two separate FCPA cases in the span of five years.  In 2012, Orthofix resolved FCPA actions with both the SEC and DOJ in connection with bribes paid to Mexican officials by its Mexican subsidiary.  Given the prior corruption and internal controls issues, the SEC found that Orthofix failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments.  Orthofix agreed to hire a compliance consultant for one year.

    DOJ SEC Brazil Orthofix FCPA SEC DOJ

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  • Medical Device Company Reaches Second FCPA Settlement in the Span of Five Years

    On January 18, Texas-based medical device company Orthofix International N.V. (Orthofix) admitted wrongdoing and agreed to pay approximately $6 million to the SEC to settle FCPA books and records and internal controls charges in connection with improper payments made by its Brazilian subsidiary to doctors through third parties. In related non-FCPA proceedings, Orthofix also agreed to pay a $8.25 million penalty to resolve various accounting violations, and former executives Jeff HammelKenneth MackBryan McMillan, and Brian McCollum each consented to accounting-related SEC orders without admitting or denying the findings.

    According to the Administrative Order Instituting Cease-and-Desist Proceedings, Orthofix’s Brazilian subsidiary Orthofix do Brasil LTDA employed third-party commercial representatives and distributors to make improper payments to doctors employed at government-owned hospitals to induce them to use Orthofix’s products, thereby increasing sales.  Orthofix also improperly recorded revenue, leading to the related accounting charges.

    In settling with the SEC, Orthofix has now resolved two separate FCPA cases in the span of five years.  In 2012, Orthofix resolved FCPA actions with both the SEC and DOJ in connection with bribes paid to Mexican officials by its Mexican subsidiary.  Given the prior corruption and internal controls issues, the SEC found that Orthofix failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments.  Orthofix agreed to hire a compliance consultant for one year.

    DOJ SEC Brazil Orthofix FCPA SEC DOJ

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