Subscribe to our FinCrimes Update for news about the Foreign Corrupt Practices Act and related prosecutions and enforcement actions.
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.
On November 22, the U.S. government filed a superseding indictment against a Macau real estate developer and his assistant in connection with their alleged involvement in an international bribery scheme. The superseding indictment included new charges that both men violated the FCPA in connection with alleged payments to then-UN ambassadors from Antigua and the Dominican Republic in exchange for official actions to benefit the defendants’ real estate company. The bribery charges contained in the original October 2015 indictment concerned only domestic bribery charges brought under 18 U.S.C. § 666, and not the FCPA.
It is not clear why the U.S. government chose to add the FCPA charges now as opposed to bringing them in the original indictment. First, there did not appear to be any FCPA jurisdictional hurdles in the original indictment. Moreover, one of the alleged bribe recipients named in both the original indictment and superseding indictment – the then-UN ambassador from Antigua – is and always was a “foreign official” under the FCPA. The UN has been designated a public international organization, and individuals associated with these organizations are “foreign officials” under the FCPA.
Teva Pharmaceutical Industries Ltd. (Teva), an Israeli company, stated in its Form 6-K filed with the SEC on November 15, 2016, that it has set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ. Teva explained that the reserve relates to conduct that occurred between 2007 and 2013 in Russia, Mexico, and the Ukraine, and that it was discovered in the course of the investigation that began in early 2012 with the issuance of an SEC subpoena to Teva, as well as a concurrent internal investigation of its worldwide business practices.
Should Teva enter into a settlement, it will top the growing list of pharmaceutical companies that have been subject to multimillion dollar penalties for conduct in violation of the FCPA, including the following:
- AstraZeneca ($5.5 million settlement in 2016 of allegations relating to bribery of Chinese and Russian doctors)
- GlaxoSmithKline ($20 million settlement in 2016 of allegations relating to bribery of Chinese health care professionals)
- Novartis ($25 million settlement in 2016 of allegations relating to bribery of Chinese doctors
- Bristol-Myers Squibb & Co. ($14 million settlement in 2015 of allegations relating to bribery of healthcare professionals at state-owned hospitals in China)
- Eli Lily & Co. ($29 million settlement in 2012 of allegations relating to bribery of government employed physicians in Russia, Brazil, China and Poland)
- Johnson & Johnson ($70 million settlement in 2011 of allegations relating to conspiracy and bribery of doctors employed by state-controlled health care systems in Greece)
On October 20, the DOJ announced that Aaron Davidson, former president of Traffic Sports USA, Inc., pleaded guilty to racketeering conspiracy and wire fraud conspiracy charges. His guilty plea came in response to allegations that Davidson negotiated and made bribe payments totaling more than $14 million on behalf of Traffic Sports USA to a high ranking soccer official in exchange for media and marketing rights to international soccer tournaments and matches. As part of the plea, Davidson agreed to forfeit approximately half a million dollars and could be sentenced to a maximum of 20 years for each count.
The guilty plea came as part of the U.S. government’s investigation into corruption in international soccer. It follows guilty pleas from Traffic Sports USA, Traffic Sports International Inc., and their owner José Hawilla, in connection with related charges brought by the DOJ.
Previous FCPA Scorecard coverage of the FIFA investigation can be found here.
Former CEO of Chinese Subsidiary Acquired by Harris Corp. Settles FCPA Offenses Following Proactive Investigation and Disclosure of Conduct by Acquiring Company
On September 13, Jun Ping Zhang (Ping), the former Chairman and CEO of a subsidiary of Harris Corporation, a Florida-based provider of information technology services to government and commercial markets, agreed to pay a civil penalty of $46,000 to settle the SEC’s allegations that Ping violated the anti-bribery, books and records, and internal controls provisions of the FCPA. The matter was resolved by an administrative cease and desist order and Ping did not admit or deny the SEC’s findings.
The allegations relate to actions taken in 2011 and 2012 by Ping, a U.S. resident and citizen, and various unnamed sales staff of Harris Corp.’s wholly-owned subsidiary, Hunan CareFx Information Technology, LLC (CareFx China). Ping and the sales staff were alleged to have provided illegal gifts to Chinese government officials to obtain and retain business with various state-owned hospitals and regional Departments of Health. The settlement did not allege personal enrichment and contained no order of disgorgement.
The investigation giving rise to the allegations was spawned in fall 2012 when Harris Corp., notified the SEC and DOJ that it had identified potential violations of the FCPA during a post-acquisition audit of CareFx Corporation, which it had acquired in April 2011. With the assistance of outside counsel, Harris Corp. conducted an internal investigation into the conduct of CareFx China, a Chinese legal entity and wholly-owned subsidiary of CareFx, which began selling electronic medical records software to state-owned hospitals and regional Departments of Health in late 2009. The allegations contained within the administrative order depict an ongoing scheme in which CareFx China sales staff under Ping’s management and with his knowledge submitted bogus expenses for cash reimbursement and then used that cash to pay for improper gifts to government officials for the purposes of influencing their decisions to purchase CareFx China’s products and services.
According to the SEC, from April 2011 to April 2012, Ping “directly authorized or indirectly allowed between $200,000 and $1,000,000 in improper gifts to government officials,” after which CareFx China was awarded over $9,600,000 in contracts with state-owned entities. As CareFx China’s books and records were consolidated into Harris Corp.’s financial statements following the CareFx acquisition in April 2011, Ping, who had responsibility for reviewing CareFx China’s monthly expense report summaries, knew that the improperly recorded expenses and illegal activity would not be properly disclosed to Harris Corp., nor were they disclosed in the pre-acquisition due diligence.
According to a September 4, 2012 Wall Street Journal blog post, Harris Corp., concurrent with its internal investigation and timely self-disclosure in 2012, took remedial actions in relation to CareFx China, including making changes to internal control procedures, ending its gift-giving practice, providing additional compliance training, and terminating certain employees. Shortly thereafter, according to the SEC order, Harris Corp. sold all of CareFx China’s “outward facing operations” and, in mid-2015, Harris Corp. terminated all employees in CareFx China and no longer maintains China-based business operations.
On April 5, 2016, the DOJ announced a one-year pilot program designed to encourage corporations to voluntarily self-report FCPA-related misconduct and cooperate with the DOJ. The program emerges from the DOJ’s heightened focus on individual accountability as highlighted in the Yates Memo. For corporations that (i) voluntarily disclose the misconduct and all relevant facts related to the misconduct “within a reasonably prompt time after becoming aware of the offense,” (ii) fully cooperate with the DOJ investigation, and (iii) take appropriate actions towards remediation, DOJ may offer up to a 50% fine reduction from the bottom of the applicable Sentencing Guidelines fine range calculation, and will generally not require the appointment of a monitor if the corporation has already implemented an effective compliance plan. Furthermore, DOJ notes that in certain circumstances, the Department will consider declining prosecution altogether.
While the pilot program ends in one year, any corporation that voluntarily self-reports or cooperates in FCPA matters during the pilot period will be eligible for the benefits, even if the pilot period expires during the investigation. More details and specific requirements can be found in the DOJ’s Foreign Corrupt Practices Act Enforcement Plan and Guidance.
On March 15, an Ohio-based provider of sand products used in the oil and gas industry, disclosed that in December 2015, the SEC notified it of an investigation of potential violations of the FCPA and other securities laws related to its international operations. The company had previously retained outside counsel to conduct an investigation and determined that no further action was necessary. The company did not estimate the potential costs of the SEC investigation or any potential penalties or fines that could result.
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting