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On January 10, it was announced that two additional defendants, Juan Jose Hernandez Comerma and Charles Quintard Beech III, owners of Florida and Texas-based energy companies, had pleaded guilty to foreign bribery charges related to a scheme to corruptly secure energy contracts from Venezuela’s state-owned oil company, Petroleos de Venezuela S.A.
According to admissions by Hernandez and Beech, they conspired with other previously charged defendants from 2008 through 2012 to pay bribes and other things of value, including recreational travel, meals, and entertainment to Petroleos officials to obtain energy contracts or receive payment for previously awarded contracts. Some of the bribes were paid to a Petroleos official’s relative to conceal the nature, source, and ownership of the bribe.
In total, eight individuals have now pleaded guilty in cases related to the government’s investigation into bribery at Petroleos. The government’s investigation is ongoing. Previous FCPA Scorecard coverage on the Petroleos investigations can be found here.
Four Individuals, Including Ban Ki-moons Brother and Nephew, Face FCPA Charges Related to Vietnam Project
On January 10, the DOJ announced the unsealing of an indictment charging four individuals, including the nephew and brother of former UN Secretary-General Ban Ki-moon, with violations of the FCPA and other offenses in connection with the attempted $800 million sale of a commercial building known as Landmark 72 in Hanoi, Vietnam. According to the government, Ban Ki Sang and Joo Hyun Bahn conspired to bribe a governmental official of an unnamed Middle Eastern country to get his country to purchase the building from Keangnam Enterprises Co., where Ban was then a senior executive. To facilitate the sale of Landmark 72, Keangnam hired Ban’s son Bahn to secure an investor for the deal.
According to the allegations, Bahn and Ban agreed to pay the foreign official $500,000 initially, and $2 million upon completion of the sale, through co-defendant Malcolm Harris, who had falsely held himself out as an agent of the foreign official; Harris Sang Woo allegedly assisted in obtaining the initial $500,000. In a twist, according to the DOJ, Harris then stole the money and used it for personal expenses instead of paying any bribes. After the Landmark 72 deal failed to go through, Bahn allegedly lied and provided forged emails from the foreign official and other documents to Keangnam regarding the status of the deal and stole approximately $225,000 that was advanced by Keangnam to cover brokerage expenses.
Four Businessmen and Two Mexican Government Officials Plead Guilty in Aircraft Maintenance Bribery Scheme
On December 27, the DOJ announced the unsealing of charges against four businessman and two Mexican officials involved in a scheme to secure aircraft maintenance and repair contracts with Mexican government-owned companies. Douglas Ray, Victor Hugo Valdez Pinon, Kamta Ramnarine, and Daniel Perez all pleaded guilty to conspiracy to violate the FCPA, with Ray and Valdez Pinon separately pleading guilty to conspiracy to commit wire fraud. Additionally, Ernesto Hernandez Montemayor and Ramiro Ascencio Nevarez, both former officials with Mexican state-owned companies, each pleaded guilty to one count of conspiracy to commit money laundering.
According to the DOJ, the defendants admitted that between 2006 and 2016, millions of dollars were paid to numerous Mexican government officials to secure aircraft parts and servicing contracts with Mexican government-owned companies. The defendants also admitted to laundering the proceeds of the bribery scheme. In total, Ray, Valdez Pinon, Ramnarine, and Perez paid more than $2 million in bribes to Mexican officials, including Hernandez Montemayor and Nevarez.
Navarez was sentenced in May to 15 months in prison; the remaining defendants have yet to be sentenced.
On December 21, Brazilian construction company Odebrecht S.A. and its petrochemical affiliate, Braskem S.A., reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations, in which both companies agreed to plead guilty in the U.S. to conspiracy to violate the FCPA. The DOJ alleged that the companies operated an extremely broad and profitable global bribery scheme, including creating an internal bribery department to systematically pay hundreds of millions of dollars to corrupt government officials around the world from 2001 to 2016. The companies attempted to conceal the bribes by disguising the source and disbursement of bribe payments by passing funds through a series of shell companies and by using off-shore bank accounts. While the scheme in large part involved bribes paid to Petrobras and Brazilian officials, it also included government officials in numerous other South and Central American countries, and in Africa.
Odebrecht agreed to an overall criminal fine of $4.5 billion, but based on its representation of its ability to pay, may end up paying only $2.6 billion. Ten percent of the criminal fine was earmarked for the U.S., with the remainder to Brazil (80%) and Switzerland (10%). The DOJ faulted Odebrecht for failing to voluntarily disclose the conduct, but granted full cooperation credit based on Odebrecht’s actions once it started to deal with the government. As part of its own related resolution, Braskem agreed to pay over $632 million in criminal fines, with the vast majority ($443 million) going to Brazil, and 15%, or $94.8 million, to each of the DOJ and Switzerland. Braskem also agreed to disgorge $325 million, with $65 million going to the SEC and the rest to Brazil. The DOJ noted Braskem’s failure to voluntarily disclose the conduct, and granted only partial cooperation credit due to Braskem’s failure to turn over any evidence from its internal investigation until seven months after it first talked to the DOJ. Both Odebrecht and Braskem agreed to engage independent compliance monitors for at least three years
The resolution is, by far, the largest FCPA resolution ever, with the bulk of the money going to Brazil in apparent recognition of the heavy lifting done by Brazilian prosecutors.
Prior Scorecard coverage of the ongoing Petrobras investigations can be found here.
On December 22, Teva Pharmaceutical Industries Ltd. announced an agreement with the SEC and DOJ to resolve FCPA violations stemming from conduct in Ukraine, Mexico, and Russia, with a $519 million settlement and a deferred prosecution agreement. Teva will pay more than $236 million in disgorgement and interest to the SEC, the second largest FCPA-related corporate disgorgement to date. As part of its agreement with the DOJ, Teva will pay a $283 million criminal fine and enter into a three-year deferred prosecution agreement under the supervision of an independent compliance monitor.
Prior Scorecard coverage of the Teva investigation can be found here.
Gabonese National Pleads Guilty to Bribing Government Officials in Africa in Connection with Och-Ziff Mining Operations
On December 9, 2016, the son of a former Prime Minister of Gabon pleaded guilty to conspiring to make corrupt payments to government officials in Africa in violation of the FCPA. The Gabonese national worked as a consultant for a joint venture between mining company Och-Ziff Capital Management Group LLC (Och-Ziff) and an entity incorporated in the Turks and Caicos. The DOJ charged him with conspiring to pay approximately $3 million in bribes to high-level government officials in Niger, as well as providing them with luxury cars, in order to obtain uranium mining concessions. Similarly, the DOJ also charged him with bribing a high-ranking government official in Chad with luxury foreign travel for the official and his wife in order to obtain a uranium mining concession there. In addition, the DOJ charged him with bribing government officials in Guinea with cash, the use of private jets, and a luxury car in order to obtain confidential government information.
The guilty plea comes on the heels of Och-Ziff’s $412 million settlement with the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. The settlement represented the fourth largest FCPA financial penalty at the time. Och-Ziff’s CEO and former CFO have also previously settled related civil allegations. Prior Scorecard coverage of Och-Ziff’s settlement with the DOJ and SEC may be found here.
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.
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