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DOJ and SEC Decline FCPA Action Against California-Based Software Company
On September 8, a California-based software company disclosed in its annual statement that following an investigation into its operations in Russia and certain of the Commonwealth of Independent States, the DOJ and SEC have both declined to bring enforcement actions under the FCPA. An announcement of possible violations was first disclosed in the December 2013 blog post by Roxane Marenberg, Vice President and Deputy General Counsel in the company’s Global Compliance Enablement division. In the post, Marenberg stated that the company was conducting an investigation into alleged FCPA violations at the request of the SEC and DOJ in response to a communication those agencies had received concerning the company’s operations and discounting practices. The company’s disclosures did not provide any further detail about the nature of the business activities being investigated.
UK-Based Pharmaceutical Company Agrees to Pay $5.5 Million to Settle FCPA Charges with SEC
On August 30, the SEC announced a $5.5 million settlement with a U.K.-based pharmaceutical company to settle charges under the FCPA’s books and records and internal control provisions due to allegedly improper payments made by the company’s wholly-owned subsidiaries in China and Russia. In its administrative order, the SEC alleged that the Chinese subsidiaries made improper payments to doctors at state-owned healthcare providers to incentivize purchasing and prescribing the company’s pharmaceuticals. The improper payments were funded by fraudulent tax receipts, inflated travel invoices, and fabricated speaker fees. The Chinese subsidiary also allegedly made improper payments to government officials in exchange for reductions or dismissals of proposed financial sanctions against the subsidiary. Similarly, the SEC alleged that the company’s Russian subsidiary made improper payments in connection with pharmaceutical sales. Without admitting or denying the SEC’s findings, the company agreed to disgorge $4.325 million and pay a $375,000 civil penalty with $822,000 in prejudgment interest.
The SEC’s administrative order indicates that the company waived its statute of limitations defenses. This is notable because the company’s misconduct allegedly ended in 2010, and the statute of limitations for FCPA offenses is five years.
This settlement represents another in a series of SEC investigations of the pharmaceutical industry.
Massachusetts-based Imaging Company and Danish Subsidiary Settle FCPA Charges with the SEC and DOJ
On June 21, the SEC and DOJ announced a nearly $15 million settlement with a Massachusetts-based imaging company and its wholly-owned Danish subsidiary to resolve parallel civil and criminal actions involving FCPA violations. The SEC alleged that, from at least 2001 through early 2011, the subsidiary paid about $20 million to third parties in hundreds of sham transactions with distributors in Russia and shell companies in Belize, the British Virgin Islands, Cyprus, and Seychelles. The sham transactions involved fictitious inflated invoices to the distributors with the over-payments going to third parties identified by the distributors. The subsidiary did not have a relationship with the third parties and did not know if the payments had any business purpose for the distributors.
The settlement is consistent with the settlement offer that the imaging company disclosed last December, and it reflects the company’s agreement to pay $7.67 million in disgorgement and $3.8 million in prejudgment interest to resolve the SEC’s books and records and internal controls charges, and the subsidiary’s agreement to pay $3.4 million in criminal fines in a non-prosecution agreement with the DOJ. The subsidiary’s former CFO also settled with the SEC, agreeing to pay a $20,000 penalty to settle allegations that he knowingly circumvented internal controls and falsified the subsidiary’s books and records.
DOJ Closes FCPA Investigation into Onshore, Rig-based Well Servicing Contractor Without Prosecution; SEC Negotiations Continuing
On April 28, an onshore, rig-based well servicing contractor with operations in the United States, Mexico, and Russia announced that the DOJ had closed its investigation into possible violations of the FCPA in relation to the company’s Mexico operations and declined prosecution. The company stated that it is still in negotiations with the SEC regarding possible violations involving the company’s Russian business. The company has been under investigation by the SEC and DOJ since 2014, when the company made a voluntary disclosure to both agencies about the Mexico allegations.
Pennsylvania District Court Addresses "Public International Organization" Aspect of FCPA
The relatively sparse judicial caselaw on the FCPA expanded last week with a new opinion interpreting the “public international organization” language in the statute. In an opinion denying the defense’s Motion to Dismiss an indictment originally brought in 2015, Judge Paul Diamond of the United States District Court for the Eastern District of Pennsylvania found that the FCPA “plainly” applies to public international organizations. United States v. Dmitrij Harder, No. 2:15-cr-00001 (E.D. Pa. Mar. 2, 2016). Combined with the Eleventh Circuit’s 2014 opinion in Esquenazi, the contours of the types of foreign government entities subjecting defendants to FCPA sanctions are beginning to be fleshed out. (Previous coverage of the Esquenazi case can be found here.)
Dmitrij Harder – a Russian national, German citizen, and U.S. permanent resident – owned and operated two consulting companies that, in 2007 and 2009, assisted two different independent energy companies in obtaining financing from the European Bank for Regional Development (the “EBRD”). The EBRD is a multilateral development bank founded in 1991 to foster the growth of businesses operating in the former Soviet Union. Today it invests throughout Europe and is jointly owned by sixty-four countries.
The DOJ charged Harder in 2015 with 14 counts of violating the FCPA, the Travel Act, and money laundering. The government alleged that the energy companies entered into agreements with Harder whereby they agreed to pay him success fees upon receiving financing from the EBRD. After both companies obtained sizable investments from the EBRD – one company received an $85 million investment; the other a $40 million investment and $60 million loan – they allegedly paid Harder success fees totaling almost $8 million. Shortly after the success fees were paid, Harder allegedly wired payments totaling almost $3.5 million to the sister of an EBRD official. The government alleged that the sister of the EBRD official entered into sham consulting agreements with Harder’s companies, making it appear that the payments were made for services rendered under the agreements, but no such services were actually performed.
In arguing for dismissal of the FCPA counts of the indictment, Harder challenged the sufficiency of the Indictment on several bases, including a failure to plead the involvement of a “foreign official,” and that the Indictment impermissibly substituted the phrase “foreign government or instrumentality thereof” with “public international organization” in reciting the fourth of the FCPA’s proscribed corrupt purposes: “inducing such foreign official []to use his []influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality.” 15 USC 78dd-2(a)(3)(B).
On the first challenge, Judge Diamond rejected the idea that officials of EBRD could not qualify as “foreign official[s]” within the FCPA’s prohibitions. Op. at 6; see also Op. at 8 (noting that “whether EBRD falls within the FCPA’s ambit is necessarily a ‘fact-bound question[]’ properly decided by a jury”). On the second challenged, Harder had maintained that permitting the government to substitute “public international organization” into the statute would create an entirely new offense with no basis in the statute. Rejecting this argument, Judge Diamond pointed out that public international organizations are themselves “an association of foreign governments.” Op. at 7. He reasoned that refusing to allow this substitution in the language of indictments where a public international organization, rather than a foreign government, is involved would “make it impossible to prosecute any public international organization employee who unlawfully used his position,” calling this “an absurd result” in light of Congress’ decision to include public international organizations within the scope of the FCPA. Op. at 7.
Harder also raised two challenges to the constitutionality of the FCPA’s inclusion of the EBRD. In 1998, the FCPA was amended to include employees of public international organizations within the scope of the Act’s prohibition on certain corrupt payments. The 1998 amendments brought employees of two groups of public international organizations within the scope of the FCPA; (1) those organizations that the President declares by Executive order are covered by the FCPA, and (2) those organizations identified pursuant to the International Organization Immunities Act (“the IOIA”), 22 USC 288. The IOIA allows the President, acting by executive order, to provide public international organizations in which the US participates with legal capacity, certain immunities, and privileges under US law. In 1991, the EBRD was designated a public international organization under the IOIA, and so it became subject to the FCPA after the 1998 amendments.
First, Harder argued that the FCPA’s inclusion of the EBRD and other public international organizations violates the non-delegation doctrine, which provides that where Congress delegates legislative authority it must do so with “an intelligible principle” to guide the exercise of the delegated authority. United States v. Cooper, 750 F.3d 263, 270 (3d Cir. 2014). Harder argued that Congress, by allowing the President to expand the list of public international organizations covered by the FCPA by executive order, impermissibly delegated its legislative function to the executive branch. Judge Diamond rejected this argument, finding that the legislative scheme enacted by Congress constrains the President’s ability to add public international organizations to the scope of the FCPA, and that the clearly stated purposes of the FCPA provide sufficient guidance. Op. at 9-11.
Second, Harder argued that the FCPA’s inclusion of the EBRD violates the void-for-vagueness doctrine, which provides that a criminal law is void if it fails to define the offense in a way that “ordinary people can understand what conduct is prohibited” and in a way that does not encourage “arbitrary and discriminatory enforcement.” Skilling v. United States, 561 U.S. 358, 402-403 (2010). Harder argued that the somewhat circuitous route by which the EBRD was made subject to the FCPA renders the law unconstitutionally vague because it would require individuals to monitor whether a particular public international organization has been the subject of an executive order that subjects it to the FCPA. Judge Diamond rejected this argument also, finding that an ordinary person could research the status of a public international organization. Judge Diamond also pointed out that there is a publicly available list of all public international organizations subject to the FCPA, and that the FCPA’s knowledge requirement alleviated any concern that a defendant might unwittingly violate the FCPA. Op. at 13.
SEC Settles with Health Science Company and Former Employee Over Bribes to Russian Government Officials
On March 3, the SEC announced it settled FCPA charges with a health science company and a former engineer, Mikhail Gourevitch, for their role in bribing Russian government officials to obtain approvals for a liver cancer drug. The company and Gourevitch settled their respective cases with the SEC via separate Administrative Orders Instituting Cease-and-Desist Proceedings. Both the company (now a privately held company, but which was publicly-traded on the NYSE during the 2004-2011 time period at issue) and Gourevitch consented to the SEC orders without admitting or denying the FCPA findings.
In the order settling the charges against the company, the SEC found that it violated the FCPA’s books and records and internal accounting controls provisions in connection with payments made to a Russian third-party agent. According to the SEC, portions of the payments to the agent were used to bribe government officials in Russia to obtain government approval to license, register, and distribute TheraSphere, a liver cancer therapy drug. The company never ultimately won approval to distribute TheraSphere and did not earn any profits as a result from the improper payments.
The order found that the company mischaracterized the agent fees as legitimate business expenses and that it (i) did not have adequate policies and procedures in places to detect corruption risks; and (ii) provided little, if any, training regarding how to conduct business in high-risk jurisdictions. The company, which is a leading provider of medical isotopes, targeted therapies, and sterilization technologies, agreed to pay a $375,000 penalty to settle the charges. The SEC noted the company’s cooperation, self-reporting, and remedial acts in assessing the penalty.
Gourevitch, a dual Canadian and Israeli citizen, agreed to pay $100,000 in disgorgement, $12,950 in prejudgment interest, and a $66,000 penalty to settle the charges that he violated the anti-bribery, books-and-records, and false records provisions of the FCPA. The SEC found that Gourevitch facilitated and monitored the consulting contracts between the company and the Russian third-party agent, who was Gourevitch’s childhood friend.
Iran Sanctions: Treasury Comments on JCPOA Implementation Day
On January 16, the Department of the Treasury issued a statement regarding Implementation Day under the Joint Comprehensive Plan of Action (JCPOA), the plan reached between the P5+1 (the United States, China, France, Russia, the United Kingdom, and Germany), the European Union, and Iran concerning Iran’s nuclear program. In response to Iran taking the appropriate nuclear-related measures, the United States followed through on lifting nuclear-related “secondary sanctions” on Iran, which included certain financial and banking-related sanctions. To summarize the effect of Implementation Day, OFAC issued guidance and FAQs. As outlined in the FAQs and in addition to lifting the nuclear-related “secondary sanctions,” the United States removed more than 400 individuals and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). Still, as Treasury Secretary Lew noted, “other than certain limited exceptions provided for in the JCPOA, the U.S. embargo broadly remains in place, meaning that U.S. persons, including U.S. banks, will still be prohibited from virtually all dealings with Iranian entities.”
Former Russian Government Official Sentenced For Nuclear Energy Conspiracy Involving FCPA Violations
On December 15, a former Russian government official, Vadim Mikerin, was sentenced to 48 months in prison for conspiracy to commit money laundering in connection with $2 million in bribe payments he accepted to award government contracts with a Russian state-owned nuclear energy corporation. U.S. District Judge Theodore D. Chuang of the District of Maryland also ordered Mikerin, who resides in Maryland, to forfeit $2.1 million. Between 2004 and October 2014, Mikerin received bribe payments intended to improperly influence him in his role as a key official at a subsidiary of a Russian state-owned nuclear energy corporation and to secure improper business advantages for U.S. companies that did business with the subsidiary. Mikerin admitted that, in connection with the FCPA violations, he conspired with others to transmit approximately $2,126,622 from the United States to shell company bank accounts in Cyprus, Latvia and Switzerland. Mikerin also admitted to using consulting agreements and code words to conceal the bribes. Two of Mikerin’s co-conspirators – Daren Condrey and Boris Rubizhevsky – also pleaded guilty to conspiracy charges and are awaiting sentencing.
Developments in Uzbekistan Telecommunications FCPA Investigations: Dutch Telecommunications Company Makes Provision in Connection with Investigation; DOJ Names Russian Telecommunications Company in Civil Forfeiture Action
On November 3, a Dutch telecommunications company announced that, based on its assessment of ongoing FCPA investigations, it would make a provision in the amount of $900 million in its third quarter financial statements. The company previously disclosed that the SEC, the DOJ, and the Dutch Public Prosecution Service were conducting investigations related to its business in Uzbekistan and prior dealings with a Gibralter-registered company that negotiates mobile phone licenses on behalf of the Uzbek government.
On November 5, another company under investigation for its conduct in Uzbekistan disclosed that the DOJ referenced it in a civil forfeiture complaint. The DOJ’s complaint was directed at an unnamed Uzbek government official, but the complaint alleged that the company and certain other parties made corrupt payments to the unnamed official to gain access to the Uzbek telecommunications market.
DOJ Joins SEC's Investigation of Pharmaceutical Company
On November 2, a pharmaceutical company disclosed that the DOJ requested documents and other information related to the company’s compliance with the FCPA. The SEC is also investigating the company’s compliance with the FCPA, a fact the company disclosed in May. The SEC’s subpoena sought information about the company’s grant-making activities worldwide, specifically naming Japan, Brazil, Turkey and Russia in its request, and also addressed non-FCPA items. The company said that it plans to cooperate with DOJ’s investigation.