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Financial Services Institution Discloses SEC FCPA Investigation into Hiring Practices
On February 24, a major financial services institution disclosed in its 10-K that government and regulatory agencies, including the SEC, are conducting investigations concerning potential violations of the FCPA related to hiring of candidates referred by or related to foreign government officials. The institution stated that it was cooperating with the investigations.
This is not the first FCPA-related investigation of a company’s hiring practices. As previously reported here in November 2016, a global financial company and a Hong Kong subsidiary agreed to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, ending a nearly three year, multi-agency investigation of the subsidiary’s referral program through which the children of influential Chinese officials were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia. Similarly, as reported here, in August 2015, the SEC announced a settlement with a multinational financial services company over allegations that the company violated the FCPA by giving internships to family members of government officials working at a Middle Eastern sovereign wealth fund in hopes of retaining or gaining more business from that fund. The company paid $14.8 million to settle the charges.
Nor are the inquiries confined to financial services companies. For example, the SEC announced in March 2016 that it settled charges with the San Diego-based mobile chip maker. The company agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist the company in obtaining or retaining business in China.
Claims Management Company Reports Conclusion of SEC FCPA Investigation
As previously covered here, an Atlanta-based claims management firm, disclosed in November 2015 that it self-reported possible FCPA violations to the DOJ and SEC. These potential violations were identified during an internal audit. On February 27, 2017, the firm announced that it had received notice that the SEC “concluded its investigation and did not intend to recommend an enforcement action” related to this matter. The company did not reference the DOJ in its announcement.
DOJ Fraud Section Unveils New Guidelines on Corporate Compliance Programs
The DOJ’s Fraud Section recently published an “Evaluation of Corporate Compliance Programs.” The guidelines were released on February 8 without a formal announcement. Their stated purpose is to provide a list of “some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.” The guidelines are divided into 11 broad topics that include dozens of questions. The topics are:
- Analysis and Remediation of Underlying Conduct
- Senior and Middle Management
- Autonomy and Resources
- Policies and Procedures
- Risk Assessment
- Training and Communications
- Confidential Reporting and Investigation
- Incentives and Disciplinary Measures
- Continuous Improvement, Periodic Testing and Review
- Third Party Management
- Mergers & Acquisitions
According to the Fraud Section, many of the topics also appear in, among other sources, the United States Attorney’s Manual, United States Sentencing Guidelines, and FCPA Resource Guide published in November 2012 by the DOJ and SEC. While the content of the guidelines is not particularly groundbreaking, it is nonetheless noteworthy as the first formal guidance issued by the Fraud Section under the Trump administration and new Attorney General Jeff Sessions. By consolidating in one source and making transparent at least some of the factors that the Fraud Section considers when weighing the adequacy of a compliance program, the guidelines are a useful tool for companies and their compliance officers to understand how the Fraud Section and others at the DOJ may proceed in the coming months and years.
However, while the guidelines may give some indication of what the DOJ views as a best practices compliance program, they caution that the Fraud Section “does not use any rigid formula to assess the effectiveness of corporate compliance programs,” recognizes that “each company’s risk profile and solutions to reduce its risks warrant particularized evaluation,” and makes “an individualized determination in each case.”
SEC Settles Fraud Charges in Investment Scheme, Issues Fine of Over a Half-Million Dollars
On February 14, the SEC announced a settlement with a real estate investment manager based in Arizona over allegations that he defrauded investors. According to the complaint, the investment manager allegedly told investors he would make personal investments in real estate projects which he failed to do, instructed some investors to “falsely state that they were ‘accredited investors’” to avoid registration requirements for the offerings, and falsely represented that he would personally manage the projects when, instead, he entrusted management to a real estate broker who was later imprisoned for other crimes. The settlement requires the investment manager to disgorge $51,358 plus interest of $4,893.98 and pay a penalty of $450,000.
Former Hungarian Telecommunications Executive Settles with SEC
On February 8th, a former executive of a Hungarian telecommunications company settled a 2011 civil complaint filed by the SEC. The trial of the remaining co-defendants is scheduled for May 8. As part of the settlement, the former executive agreed to pay a $60,000 civil penalty and did not admit or deny the SEC’s allegations. The former executive also admitted that U.S. courts had jurisdiction over the case. The issue of jurisdiction had been contested; in 2013, the court denied the defendants’ motion to dismiss for lack of personal jurisdiction.
The SEC’s complaint alleged that the former executive, along with two other co-defendants, authorized bribes to Macedonian government officials and others. In 2014, the SEC dropped allegations regarding payments to government officials in Montenegro, substantially narrowing the allegations in the case. The company and its parent settled allegations regarding payments to government officials in Macedonia and Montenegro with the SEC and DOJ in 2011. Prior Scorecard coverage of the company’s investigation can be found here.
This outcome of this lengthy case illustrates that individual defendants can still achieve relatively favorable outcomes when they choose to litigate FCPA cases, even after the corporate defendants have reached a resolution.
DOJ Declines FCPA Action Against Oil Company
Houston-based oil company announced in a February 9, 2017 press release that the DOJ had formally closed its FCPA investigation into the company’s oil exploration operations in Angola and would not prosecute the company. The press release noted that the DOJ’s investigation “was the last remaining FCPA investigation by any U.S. regulatory agency into [the company’s Angolan operations.” The DOJ’s declination letter came more than two years after the SEC closed its own FCPA investigation and declined to bring an enforcement action.
As detailed in a previous FCPA Scorecard post, the parallel investigations began in 2011, and were prompted by allegations concerning the connection between senior Angolan government officials and a local partner in the company-led deepwater oil venture. According to the company’s 10-K filing for FY 2012, the company had voluntarily contacted the DOJ when the SEC launched its initial inquiry and “offered to respond to any requests the DOJ may have.”
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.
Japanese Multinational Electronics Corporation Discloses FCPA Investigation
On February 2, a Japanese multinational electronics corporation disclosed that its U.S. subsidiary was being investigated by the DOJ and SEC for possible violations of the FCPA and other related laws. According to its press release, the company is cooperating in the investigation and recently began settlement discussions with both agencies. The countries at issue in the investigation have not been disclosed.
Although the company had not spoken publicly about the probe until this week, the Wall Street Journal first reported the investigation in 2013. The subsidiary company makes in-flight entertainment and communication systems for airlines.
Bank Fined $18.3 Million for Billing Rate Discrepancies
On January 26, a cease-and-desist order was announced between the SEC and the bank regarding alleged violations involving unauthorized advisor fee overcharges affecting at least 60,000 advisory client accounts. The order claims that during a 15-year period, the bank failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents. Furthermore, the order alleges that the bank cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012, preventing the bank from accurately validating the fee rates billed to clients over the years against the fee rates that were negotiated when the accounts were opened. As part of the settlement, the bank agreed to enhance its fee-billing and books-and-records practices, and will pay an $18.3 million fine.
Two More Former Hedge Fund Company Executives Charged by SEC in Far-Reaching Bribery Scheme
On January 26, the SEC charged two more former executives at an American hedge fund company with being the “driving forces” behind a massive bribery scheme across Africa that violated the FCPA. The civil complaint, which was filed in the United States District Court for the Eastern District of New York, alleges that the former head of the company’s European office in London, and an investment executive on Africa-related deals, caused “[the company] to pay tens of millions of dollars in bribes to government officials on the continent of Africa.” Specific allegations include that they induced Libyan authorities to invest in the company’s managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. In announcing the complaint, Chief of the SEC’s FCPA Unit, said the defendants “were the masterminds of the company’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments.” The complaint seeks disgorgement and civil monetary penalties among other remedies.
The complaint follows the company’s payment last September of $412 million to the DOJ and SEC to settle criminal and civil charges in one of the largest ever FCPA enforcement actions. Previous FCPA Scorecard coverage of the company’s settlement with the DOJ and SEC can be found here.