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Outdoor advertising company discloses potential FCPA violations
On April 30, one of the world’s largest outdoor advertising companies, disclosed that it had self-reported potential FCPA violations to the SEC and DOJ. The San Antonio-based company had previously disclosed that Chinese police were investigating “several employees” of its subsidiary for the misappropriation of funds in China. A related internal investigation purportedly found that three unauthorized bank accounts were opened in the name of the subsidiary and “certain transactions were recorded therein.” In the most recent disclosure, the company newly reported that: (i) “discrepancies” related to the misappropriation resulted in more than $10 million in “accounting errors”; (ii) it determined that there was a “material weakness” in the subsidiary’s internal controls over financial reporting, namely “falsification of bank statements and other supporting documentation used to complete bank reconciliations,” “collusion,” and “circumvention of controls”; and (iii) these issues “could implicate the books and records, internal controls and anti-bribery provisions” of the FCPA, making “possible . . . monetary penalties and other sanctions.” The company said it would cooperate with any investigation by the SEC or DOJ.
Japanese electronics corporation settles parallel FCPA actions for $280 million
On April 30, a DOJ deferred prosecution agreement and SEC settlement with Japan-based electronics corporation and a subsidiary were announced, with the company agreeing to pay $280 million in total. The resolutions related to the company’s U.S.-based subsidiary, and allegations that senior management of the subsidiary orchestrated a bribery scheme to help secure over $700 million in business from a state-owned airline, in which the subsidiary paid a Middle East government official nearly $900,000 for a “purported consulting position, which required little to no work,” and concealed the payment “through a third-party vendor that provided unrelated services to [the subsidiary].” The subsidiary is then alleged to have falsely recorded the payments in its books and records, as well as similar payments made to other purported consultants and sales agents in Asia.
Under the DPA with the subsidiary, they agreed to pay the DOJ a $137.4 million criminal penalty for knowing and willful violations of the FCPA’s accounting provisions. The DOJ gave the subsidiary a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its cooperation and remediation, which, although untimely in certain respects, did include causing several senior executives who were either involved in or aware of the misconduct to be separated from [the subsidiary] or [the company].” However, because many of the company's remediation efforts were “more recent, and therefore have not been tested,” the deferred prosecution agreement subjects the company to two years of scrutiny by an independent compliance monitor, followed by a year of self-reporting. The SEC‘s simultaneous settlement included violations of the anti-bribery as well as accounting provisions, and the payment of $143 million to the SEC.
As FCPA Scorecard previously reported, the company disclosed the investigations in February 2017, though they were first reported as early as 2013.
DOJ declines to prosecute commercial data and analytics firm, SEC issues $9 million fine for FCPA violations in China
On April 23, a commercial data and analytics firm secured a declination letter from the DOJ regarding FCPA violations stating that, “consistent with the FCPA Corporate Enforcement Policy,” the DOJ would be declining to bring criminal charges against the company. The firm simultaneously agreed to settle with the SEC regarding books and records and internal controls violations regarding the same conduct, and pay a total of $9 million, including a $2 million civil penalty and $6 million of disgorgement. The firm had self-disclosed payments made by two Chinese subsidiaries through third party agents. One of the subsidiaries, part of a joint venture with a Chinese company, made payments to Chinese government officials to acquire non-public financial statement information on Chinese entities. The other subsidiary made improper payments both to obtain specific business and to acquire non-public personal data. The SEC noted that there were pre-acquisition concerns regarding the subsidiaries, but the firm failed to take appropriate action to stop the payments or the false entries, which continued for several years after the acquisition.
This is the first instance we are aware of a company receiving a full declination from the DOJ under the new policy. The policy, which grew out of the FCPA Pilot Program, states that when a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, there will be a presumption that the DOJ will issue a declination. The firm's declination letter notes the company’s self-identification and disclosure, thorough investigation, and full cooperation, including identifying all individuals involved in the misconduct. The DOJ also cited the company’s “full remediation,” in part by terminating 11 employees, including senior employees, and reducing compensation and other forms of discipline.
Global internet media company fined $35 million for cybersecurity breach disclosures
On April 24, the SEC ordered a global internet media company, acquired in 2017 by a global communications company, to pay $35 million to settle claims alleging that the company failed to disclose a 2014 cybersecurity breach in which Russian hackers stole data from over 500 million user accounts. Compromised private user information included usernames, email addresses, phone numbers, birthdates, passwords, and security questions and answers. According to the SEC’s cease-and-desist order, during the two years following the breach, the internet media company (i) failed to inform outside counsel or auditors of the breach in order to assess public filing disclosure obligations; (ii) failed to maintain internal disclosure controls and procedures designed to guarantee that the company’s information security team reports addressing actual data breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure; and (iii) made misleading statements in its public filings that warned investors only of the “risk of potential future data breaches” without disclosing the 2014 data breach. The SEC claimed that the disclosure violations continued as acquisition discussions were held in 2016 and resulted in renegotiation of the terms of the company’s sale, including a 7.25 percent reduction in price. The company ultimately disclosed the breach to the public in September of 2016. In agreeing to the settlement, the company neither admitted nor denied the SEC’s findings, except as to the SEC’s jurisdiction over the matter.
District court applies Supreme Court standard to dismiss Dodd-Frank whistleblower claims
On April 19, the U.S. District Court for the District of New Jersey dismissed a fired executive’s suit against a global financial services firm alleging whistleblowing retaliation claims under Dodd-Frank under the standard set by the U.S. Supreme Court ruling in Digital Realty Trust Inc. v. Somers. (See Buckley Special Alert on Supreme Court Decision here.) Specifically, the U.S. District court lifted a stay, which the court had imposed pending a decision in Digital Realty Trust, and granted the defendant’s motion to dismiss with prejudice. Noting that the purpose of Dodd-Frank’s anti-retaliation provisions is “to incentivize individuals … to come forward and provide information of securities law violations to the SEC,” the court determined that the plaintiff “had ample time between when he first learned of the violations and his termination to report the misconduct to the SEC,” but he chose not to lodge claims “until well after the fact of the alleged securities violations, his testimony to FINRA and his own termination.” The court also rejected the argument that testimony given to FINRA is sufficient to invoke Dodd-Frank’s whistleblower protections, noting that the plaintiff’s testimony to FINRA “plainly” did not meet statutory requirements.
SEC gives first “safe harbor” whistleblower award
On April 5, the SEC announced an award of over $2.2 million given to a whistleblower who initially reported information to another federal agency and then later to the SEC. The award was the first paid under the “safe harbor” of the Exchange Act Rule 21F-4(b)(7), which provides that the SEC will treat information submitted to it, by a whistleblower, as though it received the information at the same time as another federal agency as long as the whistleblower submits the information to the SEC within 120 days after its submission to the other agency. According to the announcement, the SEC opened an investigation into the reported conduct after it received a referral from the other federal agency. The whistleblower then reported the same information to the SEC and later provided substantial cooperation in the investigation.
FCPA class action against Brazilian aerospace firm dismissed
A class action against a Brazilian aerospace firm was recently dismissed by U.S. District Judge Richard Berman. The class action, which was brought in federal district court in New York, alleged that the firm had failed to adequately disclose the scope and possible financial impact of ongoing corruption investigations by the DOJ and SEC, harming the company’s investors.
In granting the firm’s motion to dismiss, Judge Berman held that the company’s disclosures were sufficient as a matter of law, and that requiring disclosures advocated by the putative class plaintiffs would effectively require reporting companies to acknowledge guilt for conduct that was still being investigated and had not yet been charged.
The underlying bribery alleged in the complaint (and being investigated by regulators) involves the firm’s October 2016 admissions that from 2007 to 2011, company executives made payments to government officials in several countries, including the Dominican Republic, Saudi Arabia, Mozambique, and India, totaling $11.5 million. The firm received government contracts resulting in profits over $83 million in exchange.
This decision is a clear win for publicly traded companies currently under investigation for corruption-related conduct. Had the case proceeded, companies may have faced difficult choices between making more detailed disclosures to investors regarding the potential merits of ongoing investigations and protecting themselves against incriminatory public statements about these same matters.
Canadian-based mining company settles SEC FCPA charge
The SEC fined a Canadian-based mining company $950,000 for its failure to implement and maintain adequate accounting controls at two subsidiaries in Ghana and the Islamic Republic of Mauritania. The company neither admitted nor denied the allegations. According to the SEC, the company acquired the subsidiaries in 2010 understanding that they lacked anti-corruption compliance programs. After three years of internal audits raising red flags, the company did implement adequate controls, however it did not maintain them. The SEC found that the company then awarded a contract to a sub-standard company preferred by Mauritanian officials, despite the company's internal bidding and tendering procedures. The company also failed to conduct required due diligence when it awarded a politically connected consultant a contract to facilitate government contracts.
SEC awards highest-ever payout to whistleblowers
On March 19, the SEC announced its largest-ever payouts for three whistleblowers, totaling around $83 million. According to the announcement, two whistleblowers will share a nearly $50 million award, while a third was awarded more than $33 million. The highest award the SEC had previously given was $30 million in 2014, and since the program’s inception in 2012, the SEC has awarded more than $262 million to 53 whistleblowers. While the SEC did not provide any substantive details on the whistleblowers’ tips or the resulting enforcement action due to confidentiality, media reports the whistleblower tips resulted in a $415 million settlement in 2016 with the large wealth management division of a national bank.
Israeli real estate conglomerate to pay $500,000 to resolve SEC allegations of FCPA violations
On March 9, an Israeli-based real estate conglomerate (the company) agreed with the SEC, pursuant to an administrative order, to pay $500,000 to resolve alleged violations of FCPA books and records and internal controls provisions. According to the order, the SEC found that from 2007 through 2012, the company and its Netherlands-based subsidiary paid millions of dollars to third party consultants and agents for purported services related to a Romanian real estate project and the sale of a real estate asset portfolio in the United States. The SEC found that these payments were made with no indication that any services were actually provided.
The company did not admit or deny the SEC’s findings, but agreed to resolve this matter with a civil money penalty. In accepting the company’s offer for resolution, the SEC took into consideration the company’s self-reporting in 2016 to authorities in Romania and in the U.S., as well as its full cooperation with the investigation, including the hiring of outside counsel to conduct an internal investigation, the findings of which were shared with the SEC. The SEC also considered the extensive remedial measures the company has put into place as a result of those findings and the Commission’s suggestions.