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On March 14, 2012, aircraft maintenance, repair and overhaul ("MRO") provider, BizJet International Sales and Support, Inc., resolved an FCPA matter with the US DOJ related to conduct in Latin America, including Mexico and Panama. The deferred-prosecution agreement calls for an $11.8 million penalty. BizJet is an indirect subsidiary of the German company, Lufthansa Technik AG, which also entered a DPA.
Anti-corruption enforcement initiative involving medical device manufacturers continues, as Smith & Nephew resolves US FCPA enforcement actions for $22 million.
On February 6, 2012, the U.S. Department of Justice and Securities and Exchange Commission announced resolved FCPA enforcement actions against medical device manufacturer, Smith & Nephew Inc., and its UK-based parent company, Smith & Nephew plc. The combined monetary sanction totals $22.226 million, and the UK parent must retain an independent compliance monitor for a period of 18 months. The conduct in question, as alleged in the SEC Complaint, involved the use of three UK shell companies created by a distributor in Greece for use as conduits to make payments to physicians in Greece working "at publicly-owned hospitals [and who were] government employees, providing healthcare services in their official capacities." The commercial relationship between Smith & Nephew and the distributor ended in 2008. Notable points: Compliance Monitor: The settlement requires Smith & Nephew to retain an "independent compliance monitor" for a period of 18 months, in contrast to the many recent FCPA cases that have been resolved with the retention of a "compliance consultant." Although the DOJ Press Release noted the company's "cooperation with the department's investigation, thorough self-investigation of the underlying conduct, and the remedial efforts and compliance improvements undertaken by the company," the resolution still involves a monitor. Distributor: The vast majority of FCPA matters involve a third party in some manner and in this case, the third party was a distributor. Although a few prior FCPA cases have involved distributors (see e.g., InVision in 2005), most involve a different type of commercial relationship, such as agents or consultants. Many companies classify distributors as a type of customer rather than as an intermediary, and in doing so apply compliance controls that may not be as robust as for agents or consultants. As this case confirms, distributor relationships may present acute corruption risks, and should be assessed and controlled for such risks. International Cooperation / Greece: In April 2011, medical device manufacturer DePuy International, a subsidiary of Johnson & Johnson, pleaded guilty to violating the FCPA for conduct related to sales to state-employed physicians in Greece. In both the DePuy and Smith & Nephew cases, the DOJ "acknowledge[d] and expresse[d] its appreciation for the assistance provided by the authorities of the 8th Ordinary Interrogation Department of the Athens Court of First Instance and the Athens Economic Crime Squad in Greece." This ongoing cooperation is consistent with the long term trend of international collaboration on anti-corruption matters. Industry-Wide Enforcement: As described in the SEC press release, "[t]he charges stem from the SEC's and DOJ's ongoing proactive global investigation of bribery of publicly-employed physicians by medical device companies." Prior enforcement actions have been lodged against device manufacturers AGA Medical Corp. (regarding conduct in China), Immucor Inc. (Italy) and Micrus Corp. (France, Turkey, Spain and Germany), and this action seems certain not to be the last. Smith & Nephew issued its own press release regarding the enforcement actions.
On January 17, 2012, the U.S. Department of Justice announced an FCPA enforcement action against Japanese trading company, Marubeni Corporation. The action calls for Marubeni to pay $54.6 million and engage a compliance consultant for a two-year period, in compliance with the deferred prosecution agreement between the company and the DOJ. As described in the DOJ Press Release, Marubeni acted as an agent for a joint venture among four companies bidding to construct a liquefied natural gas plant in Nigeria. Each participant in the joint venture has settled their own FCPA enforcement action, including the Japanese construction company JGC Corporation, which settled in April 2011 for $218 million.
As the books closed on FCPA enforcement for 2011, one final enforcement action came through the door: On December 29th, Magyar Telekom Plc. and Deutsche Telecom AG resolved an FCPA enforcement matter for a combined monetary sanction exceeding $95 million. The settlement offers important compliance benchmarks and should provide a useful starting point for anti-corruption counsel planning a risk assessment and/or compliance testing for 2012.
The Deutsche Telecom and Magyar Telekom Action
The two companies resolved the FCPA enforcement matter, which had been disclosed in 2009, in an arrangement involving an Information and a Deferred Prosecution Agreement filed against Magyar Telekom, a Non-Prosecution Agreement for Deutsche Telekom, and an SEC Complaint against both Deutsche Telecom and Magyar Telekom. The conduct in question involved payments through third parties to officials Macedonia and Montenegro.
At the same time the settled action was filed, the SEC charged three former Magyar Telekom executives with violations of the FCPA. None of the individuals is a US citizen. According to the Complaint, the basis for jurisdiction over these individuals rests on their prior status as officers, directors, employees or agents of Magyar Telekom, which was at the time an “issuer” with American Depository Receipts listed on the New York Stock Exchange, and the allegation that email messages in furtherance of the bribe scheme “were sent from locations outside the United States, but were routed through and/or stored on network servers located within the United States.”
Compliance Lessons: Anti-Corruption Program Elements Clearly Set Forth
The Magyar Telekom Deferred Prosecution Agreement contains a section articulating the minimum elements of a Corporate Compliance Program, a common feature of Deferred Prosecution Agreements. These elements describe the company’s compliance obligations in detail and are tailored to corruption-specific risks.
For compliance counsel, the elements described in the Corporate Compliance Program section (transcribed here in table/checklist format) may provide a very helpful tool for planning a program review. Counsel looking for a source to determine whether the elements of a company’s compliance program are up-to-date with the DOJ’s latest settlement can use the linked list as a starting point for a review, which can then be tailored to the specifics of geographical, business model and other risk factors.
This month brought a string of developments related to individual enforcement actions under the US Foreign Corrupt Practices Act. Our partner David Krakoff just secured dismissal of three of six charges against one of the defendants in the long-running criminal FCPA trial here in Washington, D.C., called the SHOT Show trial.
In addition to this action, there have been numerous other important FCPA and anti-corruption developments, as outlined below: US Appeals Court Affirms Conviction of Investor Frederick Bourke The United States Court of Appeals for the Second Circuit affirmed the 2009 conviction of investor Frederick Bourke on charges of conspiring to violate the FCPA and other statutes. Bourke was sentenced to one year and one day of incarceration. In the Opinion, the Court evaluated Bourke's contention that the trial judge erred when instructing the jury on conscious avoidance, among other arguments. The appeals court rejected Bourke's arguments and found that there was "ample evidence to support a conviction based on the alternative theory of conscious avoidance." The Court identified a number of these evidentiary grounds, including awareness of "how pervasive corruption was in Azerbaijan generally," Bourke's business partner's reputation, creation of a complex series of advisory companies, and audio recordings in which Bourke professed ignorance while intimating that there might be corruption in the deals. The Take Away: The ruling reinforces the long-standing lesson from the Bourke conviction investors may not consciously avoid learning about corruption risks when working in corruption-prone markets. Diligence about business partners and the deal itself is critical, and the phrase "you don't want to know" is a vivid red flag. US Government Charges Former Siemens AG Executives The US Department of Justice indicted eight former executives of Siemens on charges of conspiring to violate the FCPA and other statutes. Seven of the eight were also charged in a civil action initiated by the US Securities and Exchange Commission.
The SEC action is assigned to the same judge who presided over the Bourke prosecution and whose rulings were just affirmed by the Second Circuit, Judge Scheindlin, while the criminal action is assigned to a different judge. The allegations involve conduct related only to Argentina, a subset of the much larger case against Siemens AG, which also involved Venezuela, China, Israel, Bangladesh, Nigeria, Vietnam, Russia, and Mexico. The Siemens AG matter was settled with the DOJ and SEC in 2008 for a combined monetary sanction in the US alone of $800 million, with numerous other countries pursuing enforcement actions against the company. None of the charged individuals is a US citizen and none of the defendants is currently in custody in the US. The SEC Complaint pointedly identifies the connection between each individual and either a meeting within the US, a bribe payment authorized by the defendant which was then paid into a US bank account, or a telephone conversation that occurred "in connection with the bribery scheme" while the other call participant was present in the US. The Indictment identified numerous overt acts involving conduct in the US, including US bank accounts and wire transfers to or from those accounts, faxes from a US phone line, meetings in the US, and an arbitration in the US related to the business allegedly related to the improper payments.
FCPA Convictions Dismissed for Prosecutorial Misconduct A judge in Los Angeles dismissed FCPA convictions against Lindsey Manufacturing Co., its owner and CFO, based on the finding that the Government had engaged in prosecutorial misconduct. In the Order, the Court wrote that [T]he Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Courts rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court. The action in Los Angeles follows recent news related to the 2008 prosecution of Senator Ted Stevens and subsequent dismissal of that conviction by the DOJ, also for prosecutorial misconduct. A judge in Washington, D.C. recently issued an Order reporting that he had received a 500-page written evaluation of the case.
Quoting from the still-sealed report, the Order states that "the investigation and prosecution of Senator Stevens were 'permeated by the systematic concealment of significant exculpatory evidence which would have independently corroborated his defense and his testimony,'" but that there was no recommendation of "prosecution for criminal contempt." SEC FCPA Enforcement Actions - The Comprehensive List Finally, to add to your Bookmarks, the SEC has provided a comprehensive listing of all SEC enforcement actions involving the FCPA, most of which contain links to the underlying litigation papers. It may be found here.
- AON Corporation today settled a Foreign Corrupt Practices Act matter with the US Department of Justice and US Securities and Exchange Commission for a combined monetary sanction of $16.264 million. This action follows the 2009 fine of £5.25 million issued by the United Kingdom's Financial Services Authority. AON resolved the DOJ matter with a non-prosecution agreement, in which the company admitted to certain FCPA books and records violations related to interactions with officials of Costa Rica's state-owned insurance company. AON neither admitted nor denied conduct identified in the SEC Litigation Release, which identified conduct in Costa Rica, Egypt, Vietnam, Indonesia, United Arab Emirates, Myanmar, and Bangladesh. The Release states that "AON realized over $11.4 million in profits from these improper payments." If you have any questions about this FCPA Update, please contact Jamie Parkinson.
- Buckley Webcast: Tips for this year’s FHA annual recertification and what the shutdown means
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Melissa Klimkiewicz to discuss "RESPA-compliant marketing" at NEXT
- Daniel P. Stipano to provide "Update on AML/SAR reporting and enforcement" at an Mortgage Bankers Association webinar
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference