Subscribe to our FinCrimes Update for news about the Foreign Corrupt Practices Act and related prosecutions and 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.
The SEC has posted a complete list of FCPA enforcement actions. Click here to view the list at www.sec.gov.
- US DOJ indicts eight former Siemens executives as US SEC charges seven, in continuation of long-running FCPA enforcement action.
A Swiss subsidiary of Alstom SA, the French engineering giant, agreed last week to settle corruption-related charges with Swiss authorities and pay a total sanction of USD $42.7 million. According to an Office of the Attorney General (OAG) press release, Alstom Network Schweiz AF has been convicted of not having taken all necessary and reasonable organizational precautions to prevent bribery of foreign public officials in Latvia, Tunisia and Malaysia. Key to the OAG action was the finding that "the use of agents, particularly on the basis of success fees, in countries with a high level of corruption (cf. corruption index of Transparency International) bears a considerable risk of criminal prosecution for the companies." For in-house counsel and compliance professionals, the Alstom settlement offers a number of practice pointers:
- This action confirms Switzerland's standing as having one of the most active anti-corruption enforcement programs among OECD countries. According to Transparency International's Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention, 7 of the 38 signatory countries have "active enforcement," with Switzerland among the 7 most active. Companies with operations implicating Swiss jurisdiction must remain mindful of the active Swiss anti-corruption program, and confirm that compliance controls are sufficient.
- The investigation involved 15 countries and the Swiss government submitted numerous requests for mutual legal assistance to foreign criminal prosecution authorities. This confirms the recent trend in which anti-corruption investigations involve extensive cooperation among law enforcement authorities from different countries.
- The OAG press release commented that "the group had implemented a Compliance policy that was suitable in principle, but that it had not enforced it with the necessary persistence." Thus, the OAG looked to the actual implementation of Alstom's compliance policy, in addition to the content of the policy itself, and found the implementation was lacking.
- The conduct in question involved consultants engaged by Alstom with consultancy agreements using success fees, portions of which were then passed to foreign government officials. The OAG press release states, "Only by extensive efforts in compliance and by rigorously enforcing and controlling the accordingly strict internal policy may this risk of criminal prosecution be reduced to an extent that is in accordance with the law." This highlights once again the risks associated with third parties and the need to impose appropriate compliance controls on relationships with third parties.
Alstom SA issued its own press release on the matter.
- On Tuesday, the Department of Justice announced that it will offer "detailed new guidance on the [US FCPA's] criminal and civil enforcement provisions" in 2012. In the same conference keynote address, Assistant Attorney General for the Criminal Division Lanny Breuer spoke about a number of additional aspects of the US approach to anti-corruption issues, including recent enforcement initiatives, efforts at multilateral collaboration and DOJ actions to seize the proceeds of foreign officials engaged in corruption. The full text of Breuer's remarks may be found here. The concept of DOJ-issued guidance is not a new one. Indeed, as part of FCPA amendments in 1988, the DOJ was required to consider whether guidance would be helpful. After a public notice and comment process, the DOJ in 1990 declined to issue guidance. See here for a 2010 blog posting on this issue. The idea gained renewed traction in the US following passage of the UK Bribery Act, which includes a provision requiring the UK Ministry of Justice to issue guidance on compliance procedures, and during recent debate about potential amendments to the FCPA. At the moment, there is no further word on what exactly the DOJ's "detailed new guidance" will address, nor is there word on whether the process of developing the guidance will be subject to public commentary. For in-house counsel, it would be most helpful to have the DOJ's specific views on the following subjects: (1) the scope of the affirmative defense for promotional expenses, such as meals, token gifts, business entertainment and travel; (2) when employees of state-owned, state-controlled or state-involved enterprises qualify as "foreign officials;" (3) the territorial contacts sufficient to trigger US jurisdiction over "persons other than issuers or domestic concerns;" and, (4) whether and when the statute's expressly-listed examples of "facilitating and expediting payments" qualify for the exception. There is certain to be extensive discussion about the guidance, and we will keep you posted on progress as it unfolds.
- Buckley Webcast: Maintaining privilege in cross-border internal investigations
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program