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Russian Nuclear Official Pleads Guilty in FCPA-Related Case
On August 31, the DOJ announced that Vadim Mikerin, the former president of TENAM Corporation and a director of the Pan American Department of JSC Techsnabexport (TENEX), pleaded guilty to conspiracy to commit money laundering in connection with arranging over $2 million in bribes for contracts with the Russian state-owned nuclear energy corporation. TENEX, a subsidiary of Russia’s State Atomic Energy Corporation, is based in Moscow and acts as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services to nuclear power companies worldwide. Mr. Mikerin admitted to conspiring to transfer funds from the United States to offshore accounts with the intent to perpetuate a bribery scheme in violation of the FCPA. These bribes were made to influence the award of contracts to transport down-blended uranium to US nuclear utility providers. As part of Mr. Mikerin’s plea agreement, he agreed to forfeit over $2.1 million he received in bribes. Mr. Mikerin is expected to be sentenced in December, and faces up to five years in prison and a $250,000 fine.
In addition to Mr. Mikerin, two other individuals, Darren Condrey and Boris Rubizhevsky, have pleaded guilty for their respective involvement in the scheme, including conspiracy to violate the FCPA and commit wire fraud, and conspiracy to commit money laundering, respectively.
SEC Sues 32 Defendants Involved in Insider Trading Operation; DOJ Files Criminal Charges Against Leaders
On August 10, the SEC filed a complaint against 32 defendants in the District of New Jersey for their alleged involvement in an international scheme to profit from stolen, confidential information regarding corporate earnings announcements. According to the SEC, the defendants hacked at least two newswire services’ computer servers to retrieve unpublished corporate press releases, subsequently using it to make trades generating over $100 million in profits. The SEC further asserted that the two leaders of the scheme designed a “secret web-based location to transmit the stolen data to traders in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania.” The SEC contends that, for five years, the two leaders of the scheme (i) disguised their identity by posing as newswire service employees, using proxy servers, and/or using backdoor access-modules; and (ii) recruited traders by making a video that displayed their ability to steal earnings information prior to public release. In return for information, the traders paid the hackers either a percentage of the profits obtained from trading the stolen information, or a flat fee. The SEC Director called the scheme “one of the most intricate and sophisticated trading rings [the agency has] ever seen.” The U.S. Attorneys’ offices for New Jersey and the Eastern District of New York also announced criminal charges against nine of the same defendants, including the two leaders of the scheme.
Preliminary Framework Agreed Upon to Reduce Iran's Nuclear Program
On April 2, the United States, along with the U.K., France, Germany, Russia, China, and the EU (the “P5+1”), agreed with Iran on a Joint Comprehensive Plan of Action (“JCPOA”). The JCPOA is a preliminary framework to reduce Iran’s nuclear program, and details key parameters to provide the foundation upon which a final JCPOA is intended to be agreed by June 30, 2015. The framework includes five key components: (i) Enrichment, (ii) Inspections and Transparency, (iii) Reactors and Reprocessing, (iv) Sanctions Relief, and (v) Phasing. In particular, the sanctions relief will not be immediate and, instead, linked to verifiable measures Iran takes with respect to its commitments under the JCPOA. In addition, sanctions relief is specific to a suspension of nuclear-related sanctions. Importantly, the structure of such sanctions will remain in place, allowing for a “snap-back” of sanctions in the event of significant non-performance. U.S. sanctions with respect to terrorism, human rights abuses and ballistic missiles will remain in place against Iran.
OFAC Announces New Ukraine-Related Designations, Includes Russian National Bank
On March 11, OFAC updated its Specially Designated Nationals (SDNs) list comprising of individuals and entities including a Russian national bank, Russian National Commercial Bank. The SDN list identifies persons and entities with which U.S. citizens and permanent residents are prohibited from doing business and whose assets or interests in assets that come within U.S. jurisdiction must be frozen.
President Obama Signs Law Allowing Authority To Implement Ukraine-Russian Sanctions
On December 18, President Obama signed into law H.R. 5859, the “Ukraine Freedom Support Act of 2014.” First introduced in the House on December 11, the bill gives the President the authority to impose sanctions against countries, entities, and individual persons that pose potential threats to financial stability through excessive risk-taking with the Russian market. The bill provides authority for sanctions against foreign persons, including executive officers of an entity, relating to (i) banking transactions; (ii) investing in or purchasing equity or debt instruments; (iii) U.S. property transactions; and (iv) Export-Import Bank of the United States assistance. Finally, the bill directs the President to “use U.S. influence to encourage the World Bank Group, the European Bank for Reconstruction and Development, and other international financial institutions to invest in and stimulate private investment in such projects.”
Medical Company Settles FCPA Claims With SEC and DOJ
On November 3, a medical company agreed to pay a total of $55 million to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. According to the SEC’s cease-and-desist order, subsidiaries of the bio-medical instrument manufacturer paid $7.5 million in bribes in Russia, Thailand, and Vietnam from 2005 to 2010 in order to win business in violation of Section 30A of the FCPA, which resulted in $35 million in improper profits for the company. Some of the payments were disguised as commissions to foreign agents, in situations where the “agents had no employees and no capacity to perform the purported services for [a medical company].” The company also allegedly had an “atmosphere of secrecy.” The company self-disclosed the violations to the government in 2010.
As part of the resolution, the company reached a Non-Prosecution Agreement with the DOJ regarding activities in Russia and agreed to a $14.35 million criminal penalty related to books and records and internal controls violations. The resolution with the SEC involved the payment of $40.7 million in disgorgement and pre-judgment interest regarding anti-bribery, books and records, and internal controls violations related to Russia, Thailand, and Vietnam.
Of note, and continuing the trend of cross-border cooperation, the SEC in its press release disclosed that numerous international entities had assisted its investigation, including the “Bank of Lithuania, Financial and Capital Market Commission of Latvia, and British Virgin Islands Financial Services Commission.” Underscoring the issue, following public disclosure of the company’s settlement with the SEC regarding alleged payments in Vietnam, news reports indicate that Vietnam’s Ministry of Health has ordered a review of hospital purchases from the company, and asked for information and assistance from US authorities.
OFAC Publishes Initial Ukraine-Related Sanctions Regulations
On May 8, OFAC issued regulations to implement recent Executive Orders establishing sanctions against Russian individuals and entities related to the situation in Ukraine. The Ukraine-Related Sanctions Regulations, 31 C.F.R. Part 589, implement Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 17, 2014, and Executive Order 13662 of March 20, 2014. Consistent with its prior practice, OFAC published the regulations in abbreviated form and plans to provide a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy.
Treasury Implements Additional Russia Sanctions
On April 28, the Treasury Department announced additional sanctions in response to developments in Ukraine by designating seven Russian government officials and 17 entities, including numerous financial institutions, pursuant to Executive Order 13661. That order authorizes sanctions on, among others, officials of the Russian Government and any individual or entity that is owned or controlled by, that has acted for or on behalf of, or that has provided material or other support to, a senior Russian government official. The designated individuals will be subject to an asset freeze and a U.S. visa ban, and the companies will be subject to an asset freeze. In addition, the Department of Commerce imposed additional restrictions on 13 of the companies by imposing a license requirement with a presumption of denial for the export, re-export or other foreign transfer of U.S.-origin items to the companies. Further, the Departments of Commerce and State tightened review of export license applications for any high-technology items that could contribute to Russia’s military capabilities, and plan to revoke any existing export licenses that meet the tightened conditions.
Obama Administration Sanctions Numerous Russian, Ukrainian Officials
This week, President Obama issued two new Executive Orders, one on March 17 and another on March 20, authorizing the Treasury Department to impose sanctions on (i) current and former Russian and Ukrainian officials; (ii) a Russian bank; (iii) any individual or entity that operates in the Russian arms industry; and (iv) any individual or entity determined to be owned or controlled by, to act on behalf of, or provide material or other support to, any senior Russian government official or blocked person. Concurrent with each executive order, OFAC added (on March 17 and March 20) numerous current and former Ukrainian and Russian officials to its list of Specially Designated Nationals and Blocked Persons. These latest actions expand on the President’s initial March 6 Executive Order authorizing sanctions in response to Russia’s recent actions related to Ukraine, which the Obama Administration has characterized as threatening Ukraine’s democratic processes and institutions, sovereignty, territorial integrity, and assets. Generally, the orders exclude the designated persons and entities from the U.S. financial system and block the designated persons’ and entities’ access to property and interests in property that are within the U.S. As a result, U.S. banking institutions are required to block the financial assets of the designated individuals and entities and report such blocked property to OFAC within 10 business days. The orders and sanctions are the beginning stages of a potential extended sanctions framework involving Russian officials and businesses.
Russia Joins International Convention On Electronic Communications In International Contracts
On January 17, the Russian Federation became the fourth party to the United Nations Convention on the Use of Electronic Communications in International Contracts, joining The Dominican Republic, Honduras, and Singapore. The Convention will take effect for Russia on August 1, 2014. It is intended to enhance legal certainty and commercial predictability where electronic communications are used in relation to international contracts, including by addressing, among other things, (i) the determination of a party's location in an electronic environment; (ii) the time and place of dispatch and receipt of electronic communications; and (iii) the use of automated message systems for contract formation. The Convention builds on the fundamental legal principles and provisions contained in the UNCITRAL Model Law on Electronic Commerce by providing criteria for establishing functional equivalence between electronic communications and paper documents, as well as between electronic authentication methods and hand-written signatures. Fifteen other states have signed the Convention but have not yet ratified it.