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Judge Nicholas Garaufis of the Eastern District of New York issued a 32-page memorandum opinion this week dismissing the SEC’s civil suit against two former executives of an American hedge fund management firm (earlier coverage can be found here and here).
The SEC’s complaint alleged that the executives violated the FCPA between May 2007 and April 2011 by causing the firm “to pay tens of millions of dollars in bribes to government officials on the continent of Africa.” Specifically, the defendants allegedly induced Libyan authorities to invest in firm managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. The case against the two executives was the latest in a line of civil and criminal proceedings involving the hedge fund management firm and its employees and executives, and the firm paid $412 million in criminal and civil penalties to settle its FCPA enforcement actions.
Judge Garaufis, in dismissing the complaint in its entirety with prejudice, found that the claims were barred by the FCPA’s five-year statute of limitations, and he rejected the SEC’s tolling arguments. A cornerstone of this dismissal is the Supreme Court’s ruling last year in Kokesh v. SEC, which held that SEC disgorgement actions are subject to a five-year statute of limitations.
On July 16, 2018, Luis Carlos De Leon-Perez, a dual U.S.-Venezuelan citizen, pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering. De Leon’s convictions relate to allegations that he bribed officials at Venezuela’s state-owned oil company, Petroleos de Venezuela S.A. (PDVSA), and laundered money for bribes to other company employees. FCPA Scorecard provided earlier coverage of this case here.
De Leon admitted to soliciting and directing bribes from two U.S. citizens in exchange for securing payment priority for their companies from PDVSA and for awards of PDVSA contracts. De Leon also admitted to conspiring with these individuals to launder and conceal the proceeds of the scheme through a series of financial transactions, including wire transfers to offshore accounts. Sentencing is scheduled for September 24, 2018.
De Leon’s conviction underscores how wide investigations can become as the DOJ continues pulling threads and obtaining guilty pleas. The DOJ has charged 15 defendants in the PDVSA cases, 12 of whom have pleaded guilty to date, including De Leon. DOJ also credited the assistance of the Swiss Federal Office of Justice and the Spanish Guardia Civil.
A global bank and its Hong Kong subsidiary reached a settlement with the DOJ and the SEC related to its alleged practice of “awarding employment to friends and family of Chinese officials” to win business. The subsidiary agreed to pay a $47 million criminal penalty as part of a non-prosecution agreement with the DOJ. It also agreed to continue to cooperate in any ongoing investigations. The DOJ noted that the subsidiary had not self-reported the conduct or properly disciplined the employees involved, although it did receive partial credit for cooperating with the investigation once it began.
The parent bank agreed to disgorge nearly $30 million in profits and prejudgment interest in an SEC administrative proceeding. The SEC noted the criminal fine imposed by the DOJ in deciding not to impose a civil penalty.
For prior coverage of the sons and daughters investigations into hiring practices in Asia, please see here.
On July 2, the SEC settled FCPA allegations with alcoholic beverage company Beam Suntory, Inc. (“Beam”) in an administrative proceeding stemming from alleged FCPA violations from 2006 through 2012. Beam neither admitted nor denied any wrongdoing. The SEC alleged that the company’s subsidiary in India made illegal payments to Indian government officials through third-party sales promoters and distributers. The third parties then presented fabricated or inflated invoices to the subsidiary. These invoices and accounting entries were ultimately incorporated into the parent company’s books and records. The SEC also alleged that Beam failed to maintain adequate internal controls.
On June 27, Judge Frederico Moreno of the United States District Court of the Southern District of Florida sentenced Egbert Yvan Ferdinand Koolman, an official of Servicio di Telecommunicacion di Aruba N.V. (Setar), to 36 months in prison following his guilty plea for money laundering charges in connection with a scheme to arrange and receive corrupt payments to influence the awarding of contracts in Aruba. According to the DOJ’s press release, Koolman, between 2005 and 2016, used his position as Setar’s product manager to influence the awarding of lucrative mobile phone and accessory contracts with the Aruban state-owned telecommunications company. Koolman also admitted to providing favored vendors with confidential Setar information in exchange for more than $1.3 million in corrupt payments. Koolman was ordered to pay over $1.3 million in restitution and to serve three years of supervised release following his prison term.
Previous Scorecard coverage of this matter can be found here.
Non-profit advocacy organizations accuses Bank of England of deceptive report on US whistleblower tip rewards programs
On June 20, the National Whistleblower Center, an American non-profit advocacy organization for whistleblowers, and the European Center for Whistleblower Rights formally requested that the Bank of England retract a report that they allege
smischaracterizes US whistleblower tip rewards programs, including regarding FCPA tips. The report, originally released in 2014 by the Bank of England in conjunction with the UK’s Financial Conduct Authority, had criticized the use of financial incentives for whistleblowers in the US, arguing that they were ineffective, “don’t generate quality tips,” and “impose expensive and unnecessary governance structures.” The report concluded that the UK should adopt regulatory changes to improve protections for all whistleblowers rather than provide rewards, which allegedly allot large financial payouts to a tiny minority of whistleblowers.
The Whistleblower Center disputed these assertions in a rebuttal report, released this year. According to the whistleblower advocacy organizations, many of the assertions in the Bank of England’s report “are simply false” and the continued use of the report “inhibit[s] the implementation of effective anti-fraud laws in the UK.” The organizations further complained that the 2014 report has been used as justification for stakeholders in UK to not create financial incentives for whistleblowers and that it has stifled momentum in the UK for an effective whistleblower program.
Global bank settles FCPA allegations concerning “sons and daughters” investigation into hiring practices
On June 6, a global bank announced it had entered into a non-prosecution agreement with the DOJ to resolve an FCPA investigation into hiring practices in the Asia Pacific region between 2007 and 2013. As part of the agreement, the bank agreed to pay a $46 million penalty to the DOJ. According to the bank, it has already provisioned for the penalty and expects the payment to have “no material impact” on its second quarter financial results. The bank further stated that it has implemented multiple enhancements to its compliance and control functions since 2013.
U.S. authorities have investigated several other financial services institutions over their hiring practices in Asia, which have become known as the “sons and daughters” investigations because of the allegations that banks widely hired the children of elite Chinese political families to secure an advantage in obtaining business. Prior Scorecard coverage of those investigations can be found here.
On June 4, the DOJ announced that Legg Mason, a Baltimore-based investment management firm, had entered into a non-prosecution agreement and agreed to pay $64.2 million to resolve FCPA allegations in connection with the firm’s involvement in Libya through Permal, a London-based fund purchased by the firm. Between 2004 and 2010, Permal, a Legg Mason subsidiary, partnered with Société Générale S.A., a Paris-based multinational bank, “to solicit business from state-owned financial institutions in Libya.” As admitted by Société Générale in its own resolution with the DOJ, Société Générale paid bribes of over $90 million through the use of a Libyan broker with respect to 14 investments made by Libyan state-owned financial institutions. For seven of the transactions, Société Générale made payments to the Libyan broker to benefit Legg Mason, through Permal. Permal managed the investments and earned profits of approximately $31 million.
Legg Mason’s resolution includes a penalty of $32.625 million and disgorgement of $31.617 million. As part of the agreement, Legg Mason agreed to continue to cooperate with the DOJ in related investigations and prosecutions, as well as to enhance its compliance program. According to the DOJ, the resolution is based on factors including Legg Mason’s cooperation in the investigation, as well as the fact that the company “did not voluntarily and timely disclose the conduct at issue.” The DOJ also found that the misconduct was “not pervasive throughout Legg Mason or Permal,” but rather that Société Générale was responsible for running the scheme, noting that Legg Mason and Permal earned less than one-tenth of the profits earned by Société Générale.
As FCPA Scorecard previously reported, Legg Mason had announced the near completion of the agreement in a recent SEC filing.
On May 30, Legg Mason, a Baltimore-based investment management firm, announced in a 10-K SEC filing that it will soon complete negotiations with the DOJ and SEC to resolve FCPA allegations stemming from how Permal, a London-based fund purchased by Legg Mason in 2005, managed assets of Libyan governmental entities in 2005-2007. Legg Mason reserved $67 million for the settlement, which reflects, in part, the net revenues of approximately $31 million earned by Permal for managing the assets.
On May 11, Judge Vernon S. Broderick of the SDNY sentenced Macau real estate developer Ng Lap Seng to 48 months in prison and ordered him to pay a $1 million fine, $302,977 in restitution, and forfeiture of $1.5 million. In July 2017, a jury convicted Ng of two counts of violating the FCPA, one count of paying bribes and gratuities, one count of money laundering, and two counts of conspiracy. The conduct centered on Ng’s role in bribing UN officials in order to build a new multi-billion dollar conference center in Macau.
Five other defendants have been charged; four have pleaded guilty to various charges, and one passed away and the charges against him were dismissed. Of the guilty pleas, two are awaiting sentencing. The other two received sentences of seven months (conspiracy to defraud the United States) and 20 months (bribery).
Prior Scorecard coverage of this matter can be viewed here.