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In March 2019, the DOJ amended its FCPA Corporate Enforcement Policy, including to clarify the agency’s position on the use of ephemeral messaging apps by companies seeking full cooperation credit under the policy. Ephemeral messaging apps such as Signal, WhatsApp, and Telegram, now common in many workplaces, allow users to send messages that may not be preserved and retrievable later in the same way as e-mails. To the DOJ, the impermanence of ephemeral messaging makes uncovering details about past events more difficult. Prior to the amendments, the DOJ’s initial Corporate Enforcement Policy had indicated that full cooperation credit would not be available to companies which allowed employees to use “software that generates but does not appropriately retain business records or communications.”
The updated policy softens this position and specifically addresses ephemeral messaging platforms. Companies using the platforms may now be eligible for full cooperation credit, provided that they “implement appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company’s ability to appropriately retain business records or communications or otherwise comply with the company’s document retention policies or legal obligations.” While the amendment may allow companies to take advantage of the beneficial aspects of ephemeral messaging, it also begs new questions as to what constitutes “appropriate” guidance and controls.
The March 2019 amendments also provide additional clarification on de-confliction; add a new comment explaining how the DOJ will implement a presumption of a declination in cases where a company involved in a merger or acquisition “uncovers misconduct through thorough and timely due diligence . . . and voluntarily self-discloses,” with the potential for a declination for the acquiring company even where there are aggravating circumstances regarding the acquired company; and enlarge the voluntary self-disclosure of individuals category to include information not just about “all individuals involved in the violation,” but “all individuals substantially involved in or responsible for the violation.”
In his March 8, 2019 remarks to the American Bar Association’s National Institute on White Collar Crime, Assistant Attorney General Brian A. Benczkowski referenced the updates and emphasized the importance of reviewing the 12 previous case declinations made under the policy as supplemental guidance in understanding the policy.
Ninth Circuit issues opinion in Wadler v. Bio-Rad Laboratories, Inc., remands for possible new trial
On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in Sanford Wadler v. Bio-Rad Laboratories, Inc., et al. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.
Two years ago, following a $55 million civil and criminal FCPA settlement by Bio-Rad, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. Bio-Rad appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018.
Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” Bio-Rad alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected Bio-Rad’s claims of evidentiary error. Finally, the Court ruled that under Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767, 778 (2018), Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim.
This decision is likely the first circuit court opinion to cite Digital Realty in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.
On February 15, Cognizant Technology Solutions Corporation, an information technology and business process outsourcing company, paid $25 million to settle SEC civil charges that it violated the FCPA. The SEC alleged that Cognizant paid $3.6 million in bribes through its construction contractor to senior government officials in India in order to obtain permits needed to build, among other things, a large office campus in Chennai. The SEC alleged that by paying the bribes, Cognizant thereby avoided millions of dollars in costs it would have otherwise incurred. To resolve the SEC’s allegations, Cognizant paid $19 million in disgorgement and a $6 million penalty.
The DOJ declined to bring criminal charges against Cognizant, citing, among other factors, the company’s voluntary self-disclosure, comprehensive investigation, full cooperation and remediation, and its preexisting compliance program. Cognizant issued a statement highlighting that the matter did not concern any of the company’s work with clients and did not affect any of the services it provides to clients.
On the same day the settlement was announced, two former Cognizant executives – the president and chief legal officer – were hit with civil and criminal charges for allegedly authorizing $2 million in bribes and directing the creation of false contractor change orders to mask payment of the bribes. The former executives are charged with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. Pursuant to its letter agreement with DOJ, Cognizant is required to fully cooperate in the ongoing prosecutions.
On January 28, DOJ announced charges against the former chief executive and a former senior vice president of a Barbados-based insurance company, Insurance Corporation of Barbados Limited (ICBL). The indictment alleges that the ICBL executives, Ingrid Innes and Alex Tasker, participated in a scheme to launder approximately $36,000 in bribes to the then-Minister of Industry of Barbados in exchange for his assistance in securing government contracts for ICBL. According to the indictment, the bribes were laundered through a United States bank account in the name of a dental company located in New York. The former Minister of Industry, Donville Inniss, was arrested in August 2018 and the indictment against him referenced, but did not name, his alleged co-conspirators. The superseding indictment against the three co-defendants and another still unnamed former insurance executive was unsealed on January 18, 2019. Prior Scorecard coverage of the arrest and indictment of the former Minister of Industry can be found here.
ICBL voluntarily self-disclosed the case to DOJ and received a declination letter from DOJ for its cooperation pursuant to the FCPA Corporate Enforcement Policy. The declination letter required ICBL to disgorge $93,940.19 in profits received through the conduct at issue. The declination was based, in part, on ICBL’s termination of all executives and employees involved in the alleged misconduct and in helping DOJ identify the culpable individuals. Prior Scorecard coverage of the declination letter can be found here.
On January 11, the U.K.’s Serious Fraud Office (SFO) announced that four more individuals were sentenced in connection with a bribery scheme involving an F.H. Bertling Ltd. oil exploration project in the North Sea. Three of the individuals—one former agent of ConocoPhillips and two former F.H. Bertling directors—pleaded guilty prior to the trial. They received 6, 12, and 15 month prison sentences, although their terms are suspended for two years. The two former directors were also ordered to pay fines of £15,000 and £20,000. The fourth individual, F.H. Bertling’s former chief commercial officer, was convicted at trial. He received 9 months’ imprisonment (also suspended for two years), and was ordered to pay a £5,000 fine.
On December 26, Brazil’s Centrais Elétricas Brasileiras S.A. – Eletrobras (Eletrobras or the company) entered into an administrative order to settle the SEC’s claims that Eletrobras violated the books and records and internal accounting controls provisions of the FCPA and agreed to pay a civil monetary penalty of $2.5 million.
Eletrobras, which is majority-owned by the Brazilian government, is alleged to have – through former officers of its nuclear power generation subsidiary – rigged bids and paid bribes through private construction companies in relation to construction of a nuclear power plant in Brazil. This matter was first announced publicly in October 2016 when the company hired outside counsel to conduct an internal investigation into related conduct.
In entering into this administrative order, the SEC consider the company’s cooperation efforts, including sharing facts discovered in its internal investigation and producing and translating related documents, as well as its efforts towards remediation, including discipline of involved employees, enhancement of internal accounting controls and compliance functions, and adoption of new anti-corruption policies and procedures.
Previous coverage can be found here.
On December 26, Polycom, Inc. (Polycom or the company), a wholly-owned subsidiary of Plantronics, Inc., entered into an administrative order to settle claims by the SEC that Polycom violated the books and records and internal accounting controls provisions of the FCPA. The alleged conduct involved improper payments made through distributors and resellers of Polycom Communications Solutions (Beijing) Co., Ltd. (“Polycom China”) to Chinese government officials from 2006 through 2014 in an effort to obtain business from public sector customers.
According to the administrative order, at the instruction of the Vice President of Polycom China, sales personnel used a sales management system outside of the U.S.-based company-approved database to parallel-track sales to public sector customers in China. The scheme involved providing discounts to distributors and resellers that were used to cover the costs of payments to Chinese government officials. These discounts were not passed on to the end customer, and the purpose of those discounts was not tracked in the company-approved database. Polycom China sales personnel were also instructed by the VP to use non-company email addresses when discussing and arranging these deals.
Pursuant to the administrative order, Polycom will pay to the SEC approximately $10.7 million in disgorgement, $1.8 million in prejudgment interest, and a $3.8 million civil monetary penalty.
On the same day, DOJ released a December 20, 2018 declination letter settling its investigation of the same conduct. Pursuant to the declination letter, Polycom agreed to disgorge approximately $10.15 million to the U.S. Treasury Department and $10.15 to the U.S. Postal Inspection Service Consumer Fraud Fund.
In settling these matters, both the SEC and DOJ cited Polycom’s identification of the misconduct, thorough internal investigation conducted by outside counsel, prompt voluntary disclosure, full cooperation, and remediation efforts. Polycom’s lauded cooperative efforts included making certain employees available for interviews, as well as producing all requested documents and translating large volumes of those documents from Mandarin to English. The remedial efforts cited included termination of eight employees and discipline of eighteen others, termination or reorganization of certain channel partner relationships, enhancement of third party oversight, and improvements to anticorruption and related trainings provided to China-based employees (certain materials of which had previously not been translated into Mandarin, the first language of many Polycom China employees).
On December 19, a UK Court found former Alstom Power Ltd. Global Sales Director Nicholas Reynolds guilty of conspiracy to corrupt in connection with his role in bribing Lithuanian officials to win lucrative power station contracts for the French power and transportation company. Mr. Reynolds will be sentenced on December 21.
The conviction follows the guilty pleas of Alstom and two other individuals in the UK in connection with the company’s Lithuanian bribery scheme. According to the SFO, Alstom companies paid Lithuanian politicians more than €5 million (~$6.3 million in today’s USD) in bribes to secure the contracts, valued at €240 million (~$304 million in today’s USD). The SFO also has charged Alstom and former Alstom executives for alleged corruption spanning Hungary, India, Poland, and Tunisia.
In late 2014, Alstom and various subsidiaries agreed to pay a then-record $772 million fine in connection with FCPA violations spanning numerous countries. For prior FCPA Scorecard coverage of Alstom, please see here.
On December 17 and 19, press reports indicate Malaysian prosecutors filed criminal charges against a New York-based financial institution and numerous individuals, including former executives of the financial institution, in connection with their alleged roles in a multi-billion bribery and money laundering scheme involving Malaysia sovereign wealth fund 1Malaysia Development Berhad (1MDB).
Malaysian prosecutors charged the financial institution with making false and misleading statements when raising money for 1MDB. Among individuals, Tim Leissner, a former participating managing director of the financial institution, and Ng Chong Hwa (also known as Roger Ng), a former managing director, also were charged. These charges follow the U.S. government’s investigation and charges related to the same 1MDB scheme.
As detailed in prior FCPA Scorecard coverage, Leissner pleaded guilty in November to Conspiracy to Violate the FCPA and Conspiracy to Commit Money Laundering and agreed to forfeit $43.7 million. The DOJ charged NG with similar offenses and, according to press reports, is fighting extradition to the United States.
According to press reports, in response to the filing of the criminal charges in Malaysia, the financial institution stated: “Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain Goldman Sachs entities, which we intend to vigorously contest. These charges do not affect our ability to conduct our current business globally.”
The DOJ has not charged or reached a resolution with the financial institution, which previously announced that it was cooperating with the DOJ’s and all regulators’ investigations. The announcement of the Malaysian charges suggests that the U.S. DOJ and Malaysian prosecutors may not be coordinating efforts.
Buckley Sandler Special Alert: DOJ announces new policy on pursuing individuals in corporate resolutions
U.S. Deputy Attorney General Rod Rosenstein said at a conference this morning that the U.S. Department of Justice has revised its guidelines relating to corporate resolutions with the DOJ, particularly as those guidelines relate to charging culpable individuals. The revised guidelines modify the 2015 Yates Memo, and affirmatively obligate companies seeking leniency from the DOJ to investigate and furnish information about culpable employees and agents substantially involved in wrongdoing.
Corporations now will receive cooperation credit in criminal resolutions only if all employees substantially involved in the alleged wrongdoing are identified to the government. And in civil resolutions, corporations will receive cooperation credit only if the corporation reveals the involvement of senior management and board members in the alleged wrongdoing. The new policy highlights the DOJ’s ongoing focus on criminal and civil enforcement actions against individuals and emphasizes the importance of giving serious consideration to obtaining individual counsel very early in the process of an investigation.
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Click here to read the full special alert.
If you have questions about the DOJ’s new policy or other related issues, please visit our White Collar practice page or contact one of Buckley Sandler’s 15 partners in that practice.