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  • OFAC sanctions persons for human rights violations in China’s Xinjiang region

    Financial Crimes

    On July 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against a Chinese government entity and four current or former government officials for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. According to OFAC, the sanctioned persons are connected to serious human rights abuse against ethnic monitories in the Xinjiang region. The sanctions follow an advisory issued by the U.S. Departments of State, Treasury, Commerce, and Homeland Security advising “[b]usinesses with potential exposure in their supply chain to entities that engage in human rights abuses in Xinjiang or to facilities outside Xianjiang. . .[to consider] the reputational, economic, and legal risks of involvement with such entities.” As a result of the sanctions, all property and interests in property of the designated persons within U.S. jurisdiction must be blocked and reported to OFAC. OFAC notes that its regulations “generally prohibit” U.S. persons from participating in transactions with these individuals and entities. The prohibitions also “include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”

    Financial Crimes OFAC Department of Treasury Sanctions China Of Interest to Non-US Persons

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  • Treasury designates Chinese GSA for providing support to Iranian airline

    Financial Crimes

    On May 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated a China-based company pursuant to Executive Order (E.O.) 13224 for allegedly acting as a general sales agent (GSA) for or on behalf of an Iranian airline. According to OFAC, this is the seventh time a GSA has been designated to the airline since 2018, which was previously designated under E.O.s 13224 and E.O, 13382 for providing support to Iran’s Islamic Revolutionary Guard Corps-Qods Force. OFAC emphasized that entities operating in the airline industry “should conduct due diligence to avoid performing services, including GSA services, for or on behalf of a designated person, which may be sanctionable,” and referred the industry to a 2019 advisory that outlined potential civil and criminal consequences for providing unauthorized support to or for designated Iranian airlines.

    As a result of the sanctions, “all property and interests in property of [the GSA] that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC further noted that its regulations “generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to designated individuals may subject them to U.S. correspondent account or payable-through sanctions.

    Financial Crimes OFAC Sanctions Department of Treasury Of Interest to Non-US Persons China Iran

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  • Pharmaceutical company settles FCPA-related allegations with SEC

    Financial Crimes

    On February 28, an Ohio-based pharmaceutical company agreed to pay over $8.8 million to settle SEC claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the pharmaceutical company’s former Chinese subsidiary maintained and operated marketing accounts for a European dermocosmetic company, and was the exclusive product distributor for the company in China. The SEC alleged that the dermocosmetic company directed the day-to-day activities of former subsidiary employees who “used the marketing account funds to promote the dermocosmetic company's products” and “directed payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions.” The pharmaceutical company also allegedly received a percentage of profits from sales derived from the improper payments through a profit-sharing agreement.

    While the pharmaceutical company “determined that other marketing accounts should be terminated because of their significant FCPA-related compliance risks,” the SEC alleged that the pharmaceutical company “inaccurately assessed the risks of the arrangements with the dermocosmetic company as minimal” and failed to apply its full internal accounting controls to these accounts. The SEC alleged that as a result, the former subsidiary routinely authorized and made payments from the marketing accounts without being able “to provide reasonable assurance that the transactions were executed in accordance with management’s general or specific authorization, and failed accurately to record on its books and records payments made from the accounts.”

    In entering into the administrative order, the SEC considered the pharmaceutical company’s self-disclosure, cooperation, and remedial efforts. Without admitting or denying wrongdoing, the pharmaceutical company consented to a cease and desist order, and agreed to pay a $2.5 million civil money penalty and approximately $6.3 million in disgorgement and pre-judgment interest.

    Financial Crimes FCPA SEC Enforcement Settlement Of Interest to Non-US Persons China

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  • OFAC sanctions entities for aiding North Korea’s exportation of workers

    Financial Crimes

    On January 14, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced it was imposing sanctions on a North Korean trading corporation and a China-based North Korean lodging facility for facilitating North Korea’s practice of sending laborers abroad. According to OFAC, North Korea’s continued practice of exporting North Koreans as illicit laborers is an ongoing attempt to undermine and evade United Nations Security Council Resolutions. The designated companies’ exportation of workers on behalf of the country, OFAC stated, has generated revenue for the North Korean government or the Workers’ Party of Korea. As a result of the sanctions, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any of the designated individuals, they may be subject to U.S. secondary sanctions.

    Financial Crimes Department of Treasury Of Interest to Non-US Persons OFAC Executive Order Sanctions Venezuela China

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  • SEC announces several FCPA-related bribery settlements

    Financial Crimes

    At the end of September, the SEC announced three settlements resolving claims related to alleged violations of the FCPA.

    On September 27, a UK-based bank holding company agreed to pay over $6 million to settle alleged charges that it violated the FCPA by hiring relatives of government officials and other clients in an attempt to secure business in the Asia Pacific-region. According to the SEC, the bank hired more than 100 people connected to foreign government officials or other clients through the bank’s unofficial intern “work experience program,” or as part of its formal internship program, graduate program, or for permanent positions. Employees then created false books and records that concealed the practices and circumvented internal controls in place to prevent the activities. In the administrative order, the SEC ultimately charged violations of the books and records and internal controls provisions of the FCPA. Without admitting or denying wrongdoing, the bank agreed to pay a $1.5 million civil money penalty (CMP) and more than $4.8 million in disgorgement and interest.

    In a second administrative order announced the same day, a Canadian fuel technology company agreed to pay over $4.1 million to settle FCPA bribery charges connected to a Chinese government official. The SEC alleged that the company and its former CEO transferred shares of stock in a Chinese joint venture to a Chinese private equity fund, in which the official had a financial stake, in an attempt to secure business and obtain a $3.5 million dividend payment. The SEC noted that the company concealed the identity of the private equity fund in its books and records, as well as in its public filings, by “falsely identifying a different entity as the counterparty to the transaction,” and that the CEO circumvented and falsely certified the sufficiency of the company’s internal accounting controls put in place to prevent such actions. Without admitting or denying wrongdoing, the company and the CEO consented to a cease and desist order covering violations of the anti-bribery, books and records, and internal controls provisions of the FCPA, and agreed to pay a $1.5 million CMP and $120,000 CMP, respectively, and more than $2.5 million in disgorgement and interest.

    On September 26, a Wisconsin-based marketing provider agreed to pay nearly $10 million to settle FCPA charges related to bribery schemes in Peru and China. The alleged misconduct included the company’s Peruvian subsidiary paying or promising bribes to Peruvian government officials from at least 2011 to January 2016 in an attempt to secure sales contracts and avoid penalties, while also creating false records to conceal certain transactions with a sanctioned Cuban telecommunications company. The SEC stated that the company’s China-based subsidiary also made improper payments to employees of state owned entities and private customers through sham sales agents. According to the administrative order, the company violated the anti-bribery provisions of the FCPA as well as the books and records and internal controls provisions, including by failing to ensure that its internal accounting controls were sufficient to prevent the alleged bribery schemes in Peru and China. Without admitting or denying wrongdoing, the company consented to a cease and desist order, agreed to pay a $2 million CMP and over $7.8 million in disgorgement and interest, and will, for a one-year period, self-report on its compliance program.

    Financial Crimes FCPA Bribery Of Interest to Non-US Persons SEC China

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  • Cybersecurity company settles FCPA claims for $11.7 million

    Securities

    On August 29, a cybersecurity company agreed to pay over $11.7 million to settle SEC claims that certain subsidiaries operating in Russia and China violated the books and records and internal accounting controls provisions of the FCPA. The alleged misconduct included certain sales employees at the Russian subsidiary who misrepresented “the need for increased discounts to meet competition,” and—instead of passing the incremental discounts on to end-user customers—created “common funds” in off-book accounts that were diverted toward “excessive” travel and entertainment involving foreign officials, which the employees allegedly claimed served business purposes. According to the SEC, the company failed to (i) properly record the expenses; or (ii) implement or maintain an effective internal accounting system to prevent the violations from occurring. During approximately the same time period, sales employees at the Chinese subsidiary also paid for domestic trips and entertainment for foreign officials while allegedly understating the amount of entertainment involved and falsifying trip agendas to the company’s legal department to obtain approval.

    In entering into the administrative order, the SEC considered the company’s cooperation and compliance efforts. Without admitting or denying wrongdoing, the company agreed to pay a $6.5 million civil money penalty and more than $5.2 million in disgorgement and interest.

    Securities SEC FCPA Settlement Financial Crimes China Russia

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  • German bank to pay $16.2 million for allegedly concealing corrupt hiring practices

    Securities

    On August 22, a German-based bank entered into an administrative order with the SEC agreeing to pay $16.2 million to settle the SEC’s claims that it allegedly concealed corrupt hiring practices. According to the SEC, the bank allegedly violated U.S. laws—including the internal controls and books and records provisions of the FCPA—by offering jobs to relatives of Chinese and Russian government officials in an attempt to secure business or other benefits. Employees then created false books and records that concealed the practices and circumvented internal controls in place to prevent the activities. The SEC stated that the bank’s failure to properly enforce its written global anti-corruption policy allowed the bank to provide jobs in China and Russia from at least 2006 to 2014 based on how much business the candidate’s connections could bring to the bank.

    In entering into the administrative order, the SEC considered the company’s cooperation efforts and compliance efforts. Without admitting or denying wrongdoing, the bank agreed to pay a $3 million civil money penalty and more than $13.1 million in disgorgement and interest.

    Securities SEC FCPA Settlement Anti-Corruption China Russia

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  • OFAC reaches settlement with tool company for alleged Iranian sanctions violations

    Financial Crimes

    On March 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $1,869,144 settlement with a U.S. tool manufacturer and its China-based subsidiary for 23 alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The settlement resolves potential civil liability for the company’s alleged transactions, valued at over $3.2 million, involving the subsidiary’s exporting and attempts to export 23 shipments of power tools and spare parts “with knowledge that such goods were intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran.” Because the ITSR generally prohibit non-U.S. subsidiaries of U.S. persons from knowingly engaging in transactions with Iran, this settlement illustrates the importance of implementing OFAC compliance measures at such subsidiaries.

    In arriving at the settlement amount, OFAC considered various aggravating factors and characterized the alleged violations as “an egregious case.” While the company voluntarily self-disclosed the alleged violations on behalf of its subsidiary, OFAC stated, among other things, that the company allegedly failed to implement procedures to monitor and audit the subsidiary’s compliance with applicable sanctions policies post-acquisition. Moreover, OFAC claimed that the subsidiary’s senior management continued to export goods to Iran, despite executing written agreements stating they would not engage in such conduct and attending compliance training sessions.

    OFAC also considered numerous mitigating factors, including that (i) neither the company nor the subsidiary have received a penalty or finding of a violation in the five years prior to the transactions at issue; (ii) the company immediately implemented “substantive remedial efforts,” including halting all of the subsidiary’s exports and hiring an independent investigator; and (iii) the company cooperated with OFAC’s investigation. OFAC noted that the company has committed to taking corrective actions to minimize the risk of recurring conduct.

    Visit here for additional InfoBytes coverage of actions related to Iran.

    Financial Crimes Of Interest to Non-US Persons Iran Sanctions OFAC Department of Treasury Settlement China

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  • UK SFO declines to prosecute individuals in British aviation company and British pharmaceutical company corruption investigations

    Financial Crimes

    The U.K.’s Serious Fraud Office (SFO) announced on February 22 that it was ending two long-running corruption-related investigations – one of a aviation company and the other of a pharmaceutical giant – without bringing charges against any individuals. 

    In 2017, the aviation company paid $650 million to settle an SFO investigation into a government kickbacks scheme. In connection with the resolution of the SFO’s charges, the aviation company admitted to bribing government officials in Russia, India, China, Nigeria, and elsewhere in exchange for contracts worth hundreds of millions of pounds. The aviation company also paid $170 million to resolve related charges brought by the DOJ, with the DOJ later charging five individuals for their alleged participation in the bribery scheme.

    Although the SFO announced in 2014 that the pharmaceutical company was under investigation, the SFO never disclosed the subject matter of that investigation. In its only announcements about the case, the SFO has noted simply that the investigation concerned the company’s “commercial practices.” In 2012, the pharmaceutical company had paid $3 billion in the U.S. to settle charges brought by U.S. prosecutors concerning alleged off-label marketing, and in 2014 was convicted in China of bribing doctors and hospitals to improve sales, but it remains unknown whether the SFO’s investigation related to one of these known issues or something different. 

    The SFO director explained in a public statement that the decision to decline prosecution of any individuals in connection with these investigations was because “there is either insufficient evidence to provide a realistic prospect of conviction, or it is not in the public interest to bring a prosecution in these cases.”

    Financial Crimes UK Serious Fraud Office Anti-Corruption DOJ Bribery Of Interest to Non-US Persons China

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  • American communication technology company reaches settlement of FCPA violations in China

    Financial Crimes

    On December 26, 2018, an American communication technology company (the company) entered into an administrative order to settle claims by the SEC that the company violated the books and records and internal accounting controls provisions of the FCPA. The alleged conduct involved improper payments made through distributors and resellers its subsidiary in China (the subsidiary) 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 the subsidiary, 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. The subsidiary's 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, the company 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, the company 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 the company’s identification of the misconduct, thorough internal investigation conducted by outside counsel, prompt voluntary disclosure, full cooperation, and remediation efforts. The company’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 of the subsidiary employees).

    Financial Crimes DOJ FCPA SEC China

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