InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC Assesses $2 Million Penalty Against International Oil and Gas Company for Violations of Ukraine-Related Sanctions
On July 20, the Treasury’s Office of Foreign Asset Control (OFAC) announced a $2 million civil money penalty assessed against an international oil and gas company, including two of its U.S. subsidiaries, for alleged violations of OFAC’s Ukraine-Related sanctions regulations. OFAC claims that, in May 2014, the company impermissibly dealt in services of a senior official of the Government of the Russian Federation who had been placed on the List of Specially Designated Nationals and Blocked Persons (SDNs) by signing eight legal documents related to oil and gas projects in Russia with the individual. Although the company claimed that it believed such actions were permissible, OFAC noted that the “plain language of the Ukraine-Related Sanctions” clearly indicates otherwise. In particular, OFAC stated that the sanctions blocked “any property and interests in property, and prohibited any dealing in any property and interests in property, of a person so designated.” In addition, the sanctions expressly forbid U.S. persons from “any contribution or provision of funds, goods, or services from any such person,” and, according to OFAC, do not differentiate between an individual’s “personal” and “professional” capacity—a distinction the company tried to make.
Thus, concluded OFAC, information available at the time of the alleged violations “clearly put [the company] on notice that OFAC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.” The $2 million penalty was the largest that OFAC could impose under statute. OFAC imposed the penalty based on the following factors: (i) the company did not voluntarily self-disclose the violations; (ii) the company demonstrated reckless disregard for U.S. sanctions requirements by disregarding clear warning signs; (iii) the company’s senior-most executives knew of the official’s status as an SDN when it executed the legal documents; (iv) the company caused significant harm to the sanctions program by dealing with a senior official of the Russian Federation; and (v) the company is a sophisticated and experienced oil company that has global operations and routinely deals in goods, services and technology subject to U.S. economic sanctions and export controls.
Netherlands-Based Financial Services Company Under Investigation by Dutch and U.S. Authorities for Activities Relating to a Russian Telecom Company
In an annual report filed with the SEC on March 20, 2017, a Netherlands-based financial services company, stated that it is under criminal investigation by Dutch authorities “regarding various requirements related to the on-boarding of clients, money laundering, and corrupt practices,” and that it has also received “related information requests” from U.S. authorities. A spokesperson for the Dutch prosecutor reportedly expressed suspicion that the company failed to report irregular transactions and may have enabled international corruption, including unusual payments made by a Russian telecom company to a government official in Uzbekistan through a shell company. The russian company settled bribery charges with the U.S. and Dutch governments in February 2016, admitting to paying bribes amounting over $114 million to an Uzbek official and agreeing to pay over $397 million in penalties to the DOJ and SEC for violations of the FCPA. The financial services comapny stated that it is cooperating with the ongoing investigations and requests of Dutch and U.S. authorities.
Fired General Counsel Wins $10.9 Million in FCPA Whistleblower-Retaliation Case
On February 6, 2017, a federal jury in San Francisco awarded the former general counsel of a life sciences company $10.9 million in a landmark FCPA whistleblower-retaliation case brought under the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California state law. After three hours of deliberation, the jury found that the company’s former general counsel of nearly 25 years, was fired for reporting suspected FCPA violations to the company’s audit committee in February 2013, a protected activity under SOX’s anti-retaliation provisions. Although the former general counsel did not report his concerns to the SEC, the court held in 2015 that internal whistleblowing under SOX was also protected by the Dodd-Frank Act’s anti-retaliation provisions, opening the door to Dodd-Frank’s double back-pay remedy. The company’s last-minute motion to block purported attorney-client privileged information from trial –“virtually all of the evidence and testimony Plaintiff might rely upon to prove his case” – was denied by the court in December 2016.
The jury ultimately awarded the former general counsel $2.96 million in back-pay – to be doubled under Dodd-Frank – plus $5 million in punitive damages. As detailed in a previous FCPA Scorecard post, the company paid $55 million in November 2014 to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. The former general counsel’s report to the audit committee had involved separate allegations that the company violated the FCPA in China.
NYDFS Fines German Bank $425 Million for Deficient Money Laundering Controls
On January 30, the New York Department of Financial Services (NYDFS) announced that it had assessed a $425 million fine against a German bank as part of a consent order addressing allegations that the bank allowed $10 billion in “mirror trades” involving Russian investors by failing to properly enforce protections against money laundering. According to the press release, the bank and several of its senior managers allegedly “missed key opportunities to detect, intercept and investigate a long-running mirror-trading scheme facilitated by its Moscow branch and involving New York and London branches.” Specifically, the consent order claims the bank (i) conducted its business in an unsafe and unsound matter; (ii) implemented weak “Know Your Customer” processes; (iii) failed to accurately rate its country and client risks for money laundering throughout the relevant time period and lacked a global policy benchmarking its risk appetite; (iv) maintained ineffective, understaffed anti-financial crime, AML, and compliance units; and (v) had a flawed corporate structure and organization.
In addition to the $425 million monetary penalty, the bank must, within 60 days of the consent order, engage an independent monitor to “conduct a comprehensive review of the [b]ank’s existing BSA/AML compliance programs, policies and procedures.” Furthermore, the bank must submit in writing for NYDFS review an action plan outlining enhancements to its current BSA/AML compliance programs.
UK-based Manufacturer Settles FCPA Charges As Part of $800 Million Global Bribery Investigation Resolution
On January 17, a UK-based manufacturer and distributor for the civil aerospace, defense aerospace, marine, and energy sectors worldwide, agreed to pay nearly $170 million to the DOJ to resolve charges that it conspired to violate the anti-bribery provisions of the FCPA around the world. The settlement with the DOJ (via a three-year deferred prosecution agreement (DPA)), was a fraction of the company's $800 million global resolution in connection with bribes paid to government officials in exchange for government contracts in China, India, Indonesia, Malaysia, Nigeria, Russia, Thailand, Brazil, Kazahkstan, Azerbaijan, Angola, and Iraq.
In addition to settling with the DOJ, the company resolved charges with the UK SFO by entering into a DPA and agreeing to pay a fine of $604,808,392. The company entered into a leniency agreement with the Brazilian Ministério Público Federal (MPF) and agreed to pay a penalty of $25,579,170.
According to the DPA Statement of Facts, the company admitted that between 2000 and 2013, it conspired to violate the anti-bribery provisions of the FCPA by paying more than $35 million in bribes to foreign officials in exchange for confidential information and/or government contracts. Many of these contracts benefited RRESI, the company’s indirect U.S. subsidiary. The company made the majority of the bribes by inflating commission payments to third-party intermediaries, who then paid part of the commission as bribes to government officials.
The DOJ lauded the company’s cooperation in its investigation and as a result, the company received a 25 percent reduction from the low end of the U.S. Sentencing Guidelines fine range due. However, the DOJ refused to award the company any voluntary disclosure credit. The DOJ has been transparent that it only will award voluntary disclosure credit when the disclosure occurs prior to an imminent threat of disclosure or government investigation. Here, that test was not satisfied because the company did not disclose the conduct until after media reports and the related SFO inquiry began.
OFAC Sanctions Russian Individuals and Companies in Connection with Ukrainian Conflict
On December 20, Treasury’s Office of Foreign Asset Control (OFAC) announced its decision to sanction seven individuals and eight entities in connection with Russia’s occupation of Crimea and the conflict in Ukraine. OFAC also identified 26 subsidiaries of Russian banks as subject to sanctions already in place on their parent companies. Among other things, the sanctions prohibit U.S. residents, citizens, and financial institutions from participating in various financial dealings with the companies. As explained by John E. Smith, acting director of Treasury’s sanctions enforcement office, the sanctions were introduced “in response to Russia's unlawful occupation of Crimea and continued aggression in Ukraine” in order to “maintain pressure on Russia by sustaining the costs of its occupation of Crimea and disrupting the activities of those who support the violence and instability in Ukraine.” Concurrent with today’s announcement, OFAC also issued a Russia/Ukraine-related General License 11, which authorizes certain transactions “necessary to requesting, contracting for, paying for, receiving, or utilizing a project design review or permit from FAU Glavgosekspertiza Rossii’s office(s) in the Russian Federation.”
Israeli Multinational Pharmaceutical Company Settles FCPA Violations with SEC and DOJ for $519 Million
On December 22, an Israeli multinational pharmaceutical company 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. The company 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, the company 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 company's investigation can be found here.
Senate Approves Law Facilitating Punishment of Corrupt Foreign Officials
On December 8, Congress passed the Global Magnitsky Human Rights Accountability Act as part of the National Defense Authorization Act for 2017, which now awaits President Obama's signature. Championed by U.S. Senators Ben Cardin (D-Md.), Ranking Member of the Foreign Relations Committee, and John McCain (R-Ariz.), Chairman of the Armed Services Committee, the bill gives the President of the United States the authority to deny human rights abusers and corrupt officials entry into the United States or access to our financial institutions. The bipartisan legislation builds on the Russia-specific Sergei Magnitsky Rule of Law Accountability Act of 2013 to apply sanctions globally, and makes significant acts of corruption sanctionable offenses.
Israel-Based Pharmaceutical Company Sets Aside $520 Million for Potential FCPA Settlement
An Israel-based pharmaceutical 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. The company 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 the company, as well as a concurrent internal investigation of its worldwide business practices.
Should the pharmaceutical company 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:
- A $5.5 million settlement in 2016 of allegations relating to bribery of Chinese and Russian doctors;
- A $20 million settlement in 2016 of allegations relating to bribery of Chinese health care professionals;
- A $25 million settlement in 2016 of allegations relating to bribery of Chinese doctors;
- A $14 million settlement in 2015 of allegations relating to bribery of healthcare professionals at state-owned hospitals in China;
- A$29 million settlement in 2012 of allegations relating to bribery of government employed physicians in Russia, Brazil, China and Poland; and
- A $70 million settlement in 2011 of allegations relating to conspiracy and bribery of doctors employed by state-controlled health care systems in Greece.
DOJ Declines FCPA Charges Against UK-Based Pharmaceutical Company Following SEC Settlement
In conjunction with the SEC’s recent settlement with a U.K.-based pharmaceutical company, the company announced on August 30 that the DOJ has closed its parallel foreign bribery investigation. As detailed here, the SEC settled charges against the company for allegedly improper payments made by its wholly owned subsidiaries in China and Russia. Under the SEC settlement, the company agreed to disgorge $4.325 million and pay a $375,000 civil penalty with $822,000 in prejudgment interest.